Summary
In Bache v. Central Leather Co., 78 N. J. Eq. 484, at page 486, 81 Atl. 571, at page 572, a controversy for the control of a corporation, in which a preliminary injunction was sought to restrain certain persons from voting certain shares of stock at a stockholders' meeting, Vice Chancellor Howell said: "I am of the opinion that it is unlawful, and a gross violation of the public policy of this state, to permit or contract for a separation of the voting power of corporate stock from its ownership."
Summary of this case from Thomas Maddock Sons' Co. v. BiardotOpinion
03-03-1911
BACHE et al. v. CENTRAL LEATHER CO. et al.
Robert H. McCarter and Henry Wollman, for complainants. Richard V. Lindabury and Edward M. Shepard, for defendants.
(Syllabus by the Court.)
Bill in equity by Julius S. Bache and others against the Central Leather Company and others. Heard on motion for preliminary injunction. Denied.
Robert H. McCarter and Henry Wollman, for complainants.
Richard V. Lindabury and Edward M. Shepard, for defendants.
HOWELL, V. C. The complainants are stockholders of the Central Leather Company. They seek by their bill to interfere with the annual meeting of the stockholders originally called for February 23, 1911, by enjoining the defendants from voting thereat upon certain shares of stock, and to have the election of directors supervised by a master in chancery. The company was organized under the New Jersey general corporation law with an authorized capital of $80,000,000, divided equally between common stock and preferred cumulative stock carrying a dividend of 7 per cent. annually. Of this authorized issue there are now outstanding 729,980 shares, of which the complainants own and represent about 180.000 shares. As the time for the annual meeting approached, the officers and directors for the current year sought proxies from the other stockholders to be voted on at the annual meeting. They have succeeded in securing proxies for voting 476,500 shares, which, it will be observed, is an amount largely in excess of one-half of the stock issued and outstanding. I assume that these figures are correct, because they are stated substantially in the same way ina circular letter addressed by the proxy committee to the stockholders of the company which is copied and included in the complainants' affidavits, and therefore relied upon by them, and stated also unequivocally in the affidavits filed on behalf of the defendants. If these facts were all the facts in the case, it would be difficult to see how any injunction could lawfully issue to prevent the voting of any or all of the shares for which the present administration holds the proxies. The complainants, however, allege that there are 52,430 shares for which the proxy committee holds proxies which have no right to be voted by proxy for the reason that there has been a severance of the right to vote from the vested title to and ownership of the stock. It is said that the defendants, or some of them, borrowed shares from other shareholders and had them transferred on the company's books in the names of persons who were friendly to the management who then gave proxies to vote upon these shares, and that immediately thereafter the certificates for shares were returned to the true owners. In the meantime the directors, by resolution, closed the transfer books so that it became impossible to have the stock re-transferred into the names of the owners, and so the proxy committee are enabled to vote upon this stock at the annual meeting without regard to the wishes of the true owner. And the position is aggravated, the complainants say, by the fact that they have become the purchasers in the meantime of 460 shares of this very stock which now belongs to them and which they allege will be voted against them at the annual meeting, and that they have no recourse whatever.
I am of the opinion that it is unlawful, and a gross violation of the public policy of this state, to permit or contract for a separation of the voting power of corporate stock from its ownership. If a stockholder executes a proxy, the person to whom it runs is the stockholder's agent, and he must vote in accordance with the instructions given ei-ther openly or tacitly to him by the real owner of the shares. The agency is of such a character that it may be abrogated by the appearance of the shareholder in person at the meeting, or by the execution of a subsequent proxy which would cancel the former one; the whole situation being entirely under the control of the stockholder himself. The situation as to the stock complained of in this case is very different. Here the stockholder has divested himself of the right to vote at stockholders' meetings and has sold the right or given it away to persons who may vote it wholly in opposition to his wishes, and thus the power to appoint a proxy degenerates from a scheme for the best method of conducting the business of the company into a mere device for maintaining the control. The real stockholder, at the stockholders' meetings, has a right to have the other real stockholders present in person or by proxy for the purpose of considering the well-being of the company. This result is not reached when the contest is one which is waged merely for control without regard to the best interests of the corporation. The authorities are Cone v. Russell, 48 N. J. Eq. 208, 21 Atl. 847; Guernsey v. Cook, 120 Mass. 501; Woodruff v. Wentworth, 133 Mass. 309; Warren v. Pim, 66 N. J. Eq. 382, 59 Atl. 773; White v. Thomas Inflatable Tire Co., 52 N. J. Eq. 178, 28 Atl. 75; Loewenthal v. Rubber Reclaiming Co., 52 N. J. Eq. 440, 28 Atl. 454.
If the case turned upon this point, I think it would have to be decided in favor of the complainant, but it does not. If you deduct the 52,430 shares complained of from the 476,500 shares for which the management have proxies, there will be left proxies against which nothing is alleged for 424,070, which is nearly 60,000 shares more than a mere majority. If, therefore, an injunction should run against the voting of the 52,430 shares, it will cut no possible figure in the election for the reason above stated.
It is quite apparent that, if these figures are correct, there is nothing for an injunction to protect. There is no charge of fraud or collusion on the part of the present management, and there does not appear to be any irreparable injury growing out of the situation. It is said that the board of directors, by means of a proxy committee, have canvassed the whole field of stockholders for proxies running in the name of three of the officers and directors of the company to vote for the present management, and that at the same time the same board has appointed three inspectors of election, who are mere employes of the company and subject to the direction of the officers, and who therefore can have no independent judgment in making a decision upon the admission or rejection of a challenged vote, and that this amounts in law and in equity to appointing the present management to be judges in their own case. The practice referred to stands upon the ground of inveterate usage. It is sustainable only upon the ground that they hold the election fairly and honestly and neither commit or permit any fraud to be perpetrated upon the minority stockholders.
Ordinarily speaking, the tellers or inspectors of the election at a corporation meeting perform only ministerial duties and, notwithstanding the elaborate by-law on the subject in this case, I do not see how they can be given judicial duties; they certainly cannot be given judicial duties which will override or in any way interfere with an inquiry by the Supreme Court into the regularity of the company's action.
This view of the case makes it unnecessary for me to discuss the question of the appointment of a master in chancery to superintend the meeting, as was done by Judge Caldwell in Bartlett v. Gates (C. C.) 118 Fed. 66, and as was approved of by the Supreme Court of Pennsylvania in Tunis v.Hestonville Railroad Co., 149 Pa. 70, 24 Atl. 88, 15 L. R. A. 665; but I am constrained to say tbat in my opinion the cases called to my attention on behalf of the complainants in this connection do not go to the extent claimed. Chancellor McGill, in Archer v. American Waterworks Co., 50 N. J. Eq. 33, 24 Atl. 508, evidently meant to say that the power of the Court of Chancery to protect corporate elections would be exercised by means of injunctions, and such is undoubtedly the meaning of the opinion of Chancellor Pitney in Warren v. Pim, 66 N. J. Eq. 382, 59 Atl. 773. The statement made by Chancellor Runyon in Lehigh Coal & Navigation Co. v. Central Railroad Company of New Jersey, 35 N. J. Eq. 353, as to the exercise of the power of the court to provide for corporate elections, refers to the affairs of a railroad company which were being administered by the Court of Chancery by a receivership, which gave the court such control over the affairs of the company that it had power to order an election as part and parcel of its plan of management.
The motion will therefore be denied.