Opinion
December 28, 1970
In a proceeding to remove the two individual appellants as directors of the appellant corporation and for other relief, the appeal is from a judgment of the Supreme Court, Nassau County, entered August 24, 1970, which granted petitioner's motion to renew the proceeding (upon additional papers) and thereupon (1) validated a special meeting of the corporation held on May 7, 1970, (2) adjudged the individual appellants to have been removed as directors at that meeting, (3) directed that the meeting be reconvened to fill the ensuing vacancies and (4) invalidated actions taken at a meeting on May 13, 1970 designed to remove petitioner as secretary and a director of the corporation. Judgment modified, on the law and the facts, by (1) striking therefrom all the decretal provisions except so much of the first decretal paragraph as determined that petitioner's motion "for reargument is deemed and treated as a motion for leave to renew the original motion brought on by Order to show cause dated May 20, 1970" and (2) substituting therefor a provision that the proceeding is dismissed on the merits. As so modified, judgment affirmed, with costs. Laser Tech, Inc., has 355,000 corporate shares issued and outstanding, of which the appellants Carcel and McCarthy each own 63,750, or a total of 127,500; and the petitioner, Fidelman owns 127,500 shares. The remaining 100,000 shares are publicly owned. Fidelman called a special stockholders' meeting for the purpose of removing Carcel and McCarthy as directors without cause. At that meeting there were present in person or proxy the holders of 283,950 shares, of which 158,450 shares were voted in favor of removal of Carcel and McCarthy and 130,200 shares against their removal. The chairman of the meeting declared that the removal had not passed, since the proposition had not been supported by a majority of the outstanding stock. This proceeding followed and Special Term has held that the proposition carried, since no more than a majority of outstanding stock present at the meeting was required by the applicable statutes. We disagree with Special Term's ruling. We think that the corporate by-laws, read in conjunction with the statutes, make it clear that the removal of a director without cause could not be accomplished save by a majority vote of all the outstanding corporate stock. We observe, first, that the statute provides that a director may be removed without cause only if the certificate of incorporation or the by-laws so state (Business Corporation Law, § 706). As this provision codifies the decisional law ( Matter of Singer, 189 Misc. 150, affd. 273 App. Div. 755), we read into it the rule that the procedure laid down in the certificate of incorporation or the by-laws must be followed before the removal of a director without cause may be effected (cf. Abberger v. Kulp, 156 Misc. 210). The certificate of incorporation of Laser makes no provision for the removal of a director without cause. We must turn then to the by-laws. The by-laws provide that "any one or more of the directors may be removed * * * without cause, at any time, by vote of the shareholders holding a majority of the outstanding stock of the corporation entitled to vote, present in person or by proxy, at any special meeting of the shareholders". This language requires, as the chairman of the meeting ruled, that the proposition to remove Carcel and McCarthy must be carried by the majority vote of all the outstanding stock. In our opinion, subdivision (b) of section 614 Bus. Corp. of the Business Corporation Law does not apply. That provision states that "Whenever any corporate action, other than the election of directors, is to be taken under this chapter by vote of the shareholders, it shall, except as otherwise required by this chapter or by the certificate of incorporation as permitted by this chapter, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon." Its effect is to provide a rule of procedure of voting if no different procedure is otherwise permitted by the Business Corporation Law or the certificate of incorporation. Here, the Business Corporation Law, in the case of the removal of a director without cause, permits the provisions of the by-laws to control (Business Corporation Law, § 706). Hence, the specific case under the statute prevails over the general case; and the removal of a faultless director must follow the procedure of the by-laws. Only if the by-laws (and the certificate of incorporation) make no provision for the removal of a director without cause or, so providing, do not stipulate the plurality of shares to accomplish the result, does subdivision (b) of section 614 come into play. Thus, there is no conflict between the statute and the by-laws as existed in Model, Roland Co. v. Industrial Acoustics Co. ( 16 N.Y.2d 703), mandating the invalidation of the by-laws. Here, the statute expressly empowers the by-laws to provide that directors may be removed without cause "by vote of the shareholders" (Business Corporation Law, § 706, subd. [b]). The mechanics of taking and recording the vote were relegated to the determination of the particular by-laws, since the interests to be served differ from corporation to corporation. In the instance of Laser, the presence of publicly owned stock was a paramount concern in making sure that a majority of all the outstanding stock voted to remove a blameless director; otherwise, competent directors could be removed at a meeting at which their interests were not represented. For example, at the meeting at which Carcel and McCarthy were removed it would appear that, excluding the shares owned by them and respondent, less than half of the remaining stock voted. Hopkins, Acting P.J., Brennan and Benjamin, JJ., concur; Martuscello, J., dissents and votes to affirm the judgment, with the following memorandum, in which Kleinfeld, J., concurs: Petitioner brought this proceeding to remove appellants Carcel and McCarthy as directors of Laser Tech, Inc., which was organized in the State of New York on January 13, 1969. Petitioner, Carcel and McCarthy were nominated and elected as directors of Laser at the first meeting of incorporators held January 14, 1969. On or about April 20, 1970, petitioner, as secretary of the corporation and as holder of more than 25% of the outstanding stock of 355,000 shares, called a special meeting as provided in the by-laws, for the purpose of removing without cause Carcel and McCarthy as directors and to elect new directors. At the meeting on May 7, 1970, 158,450 votes (which included 4,700 challenged votes) were cast in favor of removal and 130,200 in opposition. Following the count of the ballots, the chairman, one of the individual appellants, ruled that the removal motion had not carried since it had failed to receive the support of a majority of the outstanding stock (177,501 votes) which he ruled was required by section 4 of article III of the corporation's by-laws. In this proceeding petitioner claims that a majority of those present (assuming a quorum) in person or by proxy was sufficient to carry the motion. The Special Term granted petitioner the relief he sought. I agree with that decision. Subdivision (b) of section 614 Bus. Corp. of the Business Corporation Law provides that "Whenever any corporate action, other than the election of directors, is to be taken under this chapter by vote of the shareholders it shall, except as otherwise required by this chapter or by the certificate of incorporation as permitted by this chapter, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon." The phase "under this chapter" clearly refers to the entire Business Corporation Law. Section 101 of that statute provides: "This chapter shall be known as the 'Business Corporation Law'". Section 102 defines numerous terms which are to be "used in this chapter". Removal of directors without cause is provided for in section 706 Bus. Corp. of the Business Corporation Law and is therefore corporate action which can be taken "under this chapter". However, both section 706 and the certificate of incorporation of Laser Tech, Inc., are silent as to the vote required to remove a director without cause. In such a situation, subdivision (b) of section 614 clearly provides that a majority of those present and voting (assuming a quorum) is sufficient and that any by-law requiring a greater vote, as is the case at bar, is ineffective and illegal. In Model, Roland Co. v. Industrial Acoustics Co. ( 16 N.Y.2d 703) the Court of Appeals noted that a certain by-law requiring a two-thirds majority vote to amend certain of the by-laws was ineffective, since the Business Corporation Law clearly provides that a simple majority vote is sufficient to amend by-laws, as well as to take any corporate action, unless the statute or the certificate of incorporation provide otherwise (Business Corporation Law, § 614, subd. [b]).