Opinion
Decided April 25th, 1940.
1. The Commissioner of Banking and Insurance having advised the defendant association to dissolve voluntarily and liquidate its business pursuant to R.S. 17:12-81 to 94, its board of directors adopted a resolution to do so and gave notice of a meeting of stockholders to act thereon, pursuant to statute. The meeting was attended by such disorder that no vote was taken on the question of dissolving the association and liquidating its business, and no trustees in liquidation were legally elected. Held, under the circumstances the Court of Chancery had power to order action upon the resolution adopted by the board of directors and to supervise, through a special master, a meeting for that purpose.
2. The stock transfers, whose legality the petitioner questions, were all made at least sixty days before the meeting held by the special master, and entitled the transferees to vote at any meeting of the association, including a meeting called for the dissolution of the association and the liquidation of its business, and the election of trustees to wind up its affairs.
3. There is no law which entitles the petitioner, as a shareholder in the defendant association, to question the right of another shareholder to transfer any portion of his holdings to another, with or without consideration. The petition herein, questioning the legality of certain stock transfers, contains only surmise, but no allegations of fact which, if true, would constitute fraud on the conduct of the election held under the supervision of the special master.
4. The meeting held under the supervision of the special master in this case was conducted in orderly fashion and in a legal manner. The defeated candidates for the office of trustees in dissolution made no objection to the confirmation of the report of the special master on the return of the order to show cause why the report should not be ratified and confirmed, the trustees elected at the meeting confirmed by the court as such trustees, and reasonable allowance made to the special master and those who assisted him in the election. Petition dismissed.
On appeal from an order and a decree of the Court of Chancery advised by Vice-Chancellor Stein, who filed the following opinion:
"The board of directors of Star Building and Loan Association adopted a resolution to dissolve and liquidate the association and thereupon sent notice of a meeting of stockholders to be held January 30th, 1939, to take action thereon pursuant to R.S. ( 1937) 17:12-81. It will be assumed that the board of directors as provided for in the cited section of the statute determined `it advisable and for the interests of the members of the association that the same be dissolved and its business liquidated * * *.'
"Esther Lerner, stockholder of the association, brings this bill of complaint and prays that the action taken by the stockholders on the resolution of the board of directors and the alleged election of certain persons as trustees in liquidation be declared null and void; that an injunction issue against proceeding in any manner with `the dissolution or liquidation of the said Association,' that a master be appointed by the court to supervise a meeting of stockholders at which meeting when called the question of dissolution shall again be passed upon and the election of trustees conducted under the supervision of such master.
"The evidence before me on the return of an order to show cause issued on the filing of the bill of complaint and the facts not in dispute are, that the board of directors of this association (who it must be assumed are competent judges of its condition and chargeable with the duty of guarding the best interests of the members) have resolved that the association be dissolved and its business liquidated by resolution followed by a notice of a meeting of stockholders to act thereon at a meeting held on January 30th, 1939. The meeting was presided over by the solicitor of the association who was apparently called to the chair by the president. The solicitor in opening the meeting explained that the association could not continue in active business with benefit or profit to the stockholders, although the association, he stated, was solvent. At this meeting a letter dated November 14th, 1938, signed by Donald Haney, chief examiner of the Department of Banking and Insurance, was read by the solicitor to the members, which letter read in part: `It would be our suggestion that a meeting of the Board be called in the near future for the purpose of passing a resolution to voluntarily dissolve and liquidate under the provisions of sections 31 to 38 of the Building and Loan Act' (now R.S. ( 1937) 17:12-81 to 17:12-94). In a later letter dated December 6th, 1938, Mr. Haney said: `* * * We must insist, therefore, that the suggestion contained in our review letter, with respect to voluntary dissolution and liquidation be carried out as directed.'
"What transpired at the stockholders' meeting January 30th, 1939, it is difficult to state with definiteness because of the conflicting statements in the various affidavits. Suffice it to say that the meeting was attended with such disorder that the president of the association finally took the chair and declared the meeting adjourned although ballots had already been distributed and votes cast for the election of certain members as trustees in liquidation, after which it appears that a number of members left the meeting and one of the shareholders undertook to preside at a meeting of those who remained. The purpose disclosed in holding this second meeting was to obtain the consensus of opinion of the remaining stockholders as to whom they desired as trustees in liquidation and to request the Commissioner of Banking and Insurance to be present in person or by a representative at an adjourned meeting in order that the meeting might be conducted in an orderly manner. From the affidavit of the secretary of the association it appears that the board of directors `expect to call another meeting of the shareholders to regularly elect Trustees in liquidation as soon as we get further advice from the Department of Banking and Insurance, which we are awaiting.'
"It should be noted that so far as the proof before me shows there was no vote taken by the stockholders pursuant to the resolution of the board of directors upon the question of whether the association should be dissolved and its business liquidated, and certainly until such action is taken no trustees could be elected, and it appears to be admitted that none was legally elected.
"It is not doubted that this court has the power to order action upon the resolution adopted by the board of directors and to supervise, through a special master of the court, a meeting for that purpose. Yet, it seems to me, that the expense involved for supervision by a master should, in the interest of the members and shareholders be avoided.
"The commissioner of banking and insurance of this state it appears from the quoted portions of his letters to the association concluded that this association should be dissolved and its business liquidated. Recognizing the policy of the state as expressed by the legislature to permit voluntary dissolution and liquidation on the part of such associations, the commissioner not only encouraged but directed that course. For no reason presently apparent to the court the members of the association have either lost confidence in the ability of its officers to conduct orderly liquidation or strong factional differences have arisen among the members. In either case it appears to the court that further attempt to voluntarily dissolve and liquidate this association will produce further difficulty and will at best be most unsatisfactory to a considerable number of shareholders.
"In view of the power of the commissioner to take this association over for orderly liquidation and for the economic and other reasons here set forth, no order will presently be entered. The bill of complaint will be held awaiting the action of the Commissioner of Banking and Insurance."
ADDENDUM"Approximately two months after the foregoing opinion was filed, the court was informed by the Commissioner of Banking and Insurance that he preferred voluntary liquidation, whereupon an order was entered on July 27th, 1939, adjudging the election of trustees at the meeting of January 30th, 1939, void and of no effect and ordering an election to be held in the month of September, 1939, under the direction of a master to be appointed by the court.
"Accordingly the election of trustees was held on September 26th, 1939, under the supervision of a special master and the master reported that the following trustees were elected: John Zipfel, III, Louis Bohrer and Samuel S. Levin. The master further reported that the voting qualifications of each shareholder were checked by him and that prior to the election for trustees he consulted with the solicitors of the various parties litigant in these proceedings and that notice was given of the special meeting of the stockholders prior to the election of September 26th, 1939, as is provided for by law.
"Upon the filing of the special master's report, an order to show cause was issued on October 3d 1939, on motion of the special master directed to the Star Building and Loan Association, John Zipfel, III, Louis Bohrer, Samuel S. Levin, Nathan N. Rasnick, Simon Rabinowitz (the only nominees for the office of trustee at the election conducted by the master) and Esther Lerner, complainant herein, returnable on the 10th day of October, 1939 (a) why the report of the special master should not be ratified and confirmed; (b) why the trustees elected at the meeting should not be designated and confirmed by the court as such trustees, and (c) why a reasonable allowance should not be made to the special master and the persons whom he called to his aid in assisting him in the election.
"Upon the return of the order to show cause a petition by Esther Lerner, complainant herein, was presented praying the court to direct the master to inquire into the legality of transfers of shares of certain stockholders since the first election and the consideration therefor, and directing the master to withhold the filing of his report until testimony could be taken with reference to such transfers. Counsel for the petitioner simultaneously with the presentation of the petition stated to the court that the election was conducted in orderly fashion and in a legal manner and that no exception to the report of the master would be presented.
"The petition by the complainant contains no allegation of fact and sets forth that the complainant `has been advised that subsequent to the first election sixty-eight persons became shareholders of the defendant by transfer of shares to them by other shareholders. Complainant has been advised that in all or most of said cases, the new shareholders became such by the transfer of some part of the shareholdings to them by existing shareholders without adequate consideration and merely for the purpose of attempting to qualify them to vote at a new election. Such transfer resulted in giving the transferors more than one vote for trustees at the last election. All or most of said transferees voted at the last election.' (Italics mine.)
"It would serve no useful purpose to further quote from said petition except to say that each and every paragraph thereafter sets forth that the complainant has been `advised,' c. The petitioner concludes her petition by the statement therein that she believes that all or most of the persons became shareholders in order to defeat the relief granted by this court to secure a fair and impartial election to the shareholders, and that if such shareholders and transferees were disqualified the result would be to defeat Louis Bohrer and Samuel Levin as trustees, and that the transferees became shareholders `in fraud of the rights of complainant and other shareholders who did not split their shares.' Attached to the petition are the names of the shareholders who transferred their shares and the names of the persons to whom the same were transferred, together with the dates of the transfers in each instance, from which it appears that all such transfers were made between June 28th and July 21st, 1939.
"R.S. ( 1937) 17:12-37 provides:
"`Membership; voting. The members or shareholders of the association shall be those to whom its shares are issued, and their personal representatives, and those to whom the shares may be transferred under the regulations prescribed by the association * * *. Each member over the age of sixteen years shall be entitled to all the rights and privileges of membership and shall be entitled to one vote at any meeting of the association * * *. Any such association may provide in its constitution that the right to vote at any meeting of the association shall be limited to those members whose membership in such association, as shown by the records of such association, shall have been acquired at least sixty days prior to such meeting and it may, in its constitution, prescribe the terms and conditions under which any member whose membership shall have been acquired within sixty days prior to such meeting shall be permitted to vote.' (Italics mine.)
"I have not the constitution of the Star Building and Loan Association before me in evidence. The constitution of the association may not contain the sixty days provision, but should such provision be contained in the constitution complainant's petition shows that the transfers of shares were made on various dates, however, all of such transfers were made sixty days before the election was held. And I know of no law, and none has been called to my attention by the solicitors of the petitioner which entitles the petitioning shareholder as such shareholder in a building and loan association to question the right of another shareholder to transfer any portion of his shareholdings to another with or without consideration. Such transfers of shares under the section of Revised Statutes quoted above entitle the transferee to vote at any meeting of the association and constitutes such transferee under R.S. ( 1937) 17:12-81 and 17:12-82, which sections provide for the dissolution and liquidation and for the election of trustees to wind up the affairs of such building and loan association to vote at such meeting.
"Aside from the fact that the petition contains surmise only and no allegation of fact, which if true would constitute fraud in the conduct of the election, the defeated candidates for the office of trustee, Nathan N. Rasnick and Simon Rabinowitz, on the return of the order to show cause why the report of the master should not be confirmed, make no objection to such confirmation.
"Order to show cause denied and petition is dismissed."
Messrs. Budd Larner, for the appellant.
Messrs. Schotland Schotland, for the respondent.
The decree and order appeal from will be affirmed, for the reasons stated in the opinion filed in the court below.
For affirmance — CASE, BODINE, DONGES, PERSKIE, PORTER, HETFIELD, DEAR, WOLFSKEIL, HAGUE, JJ. 9.
For reversal — THE CHIEF-JUSTICE, HEHER, RAFFERTY, JJ. 3.