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Schnell v. Chris-Craft Industries, Inc.

Supreme Court of Delaware
Nov 29, 1971
285 A.2d 437 (Del. 1971)

Summary

holding that under Delaware corporation law, "inequitable action does not become permissible simply because it is legally possible"

Summary of this case from Umbach v. Carrington Investment Partners

Opinion

November 29, 1971.

Upon appeal from Chancery Court. Reversed.

H. Albert Young and Edward B. Maxwell, 2nd, of Young, Conaway, Stargatt Taylor, Wilmington, and Carl F. Goodman, New York City, and Jay L. Westbrook, of Surrey, Karasik Greene, Washington, D.C., for plaintiffs below, appellants.

David F. Anderson and Charles S. Crompton, Jr., of Potter, Anderson Corroon, Wilmington, and Arthur L. Liman and Daniel P. Levitt, of Paul, Weiss, Rifkind, Wharton Garrison, New York City, and Washington, D.C., for defendant below, appellee.

Before WOLCOTT, Chief Justice, and CAREY and HERRMANN, Associate Justices:


This is an appeal from the denial by the Court of Chancery of the petition of dissident stockholders for injunctive relief to prevent management from advancing the date of the annual stockholders' meeting from January 11, 1972, as previously set by the by-laws, to December 8, 1971.

We use this word as meaning "managing directors".

The opinion below is reported at 285 A.2d 430. This opinion is confined to the frame of reference of the opinion below for the sake of brevity and because of the strictures of time imposed by the circumstances of the case.

It will be seen that the Chancery Court considered all of the reasons stated by management as business reasons for changing the date of the meeting; but that those reasons were rejected by the Court below in making the following findings:

"I am satisfied, however, in a situation in which present management has disingenuously resisted the production of a list of its stockholders to plaintiffs or their confederates and has otherwise turned a deaf ear to plaintiffs' demands about a change in management designed to lift defendant from its present business doldrums, management has seized on a relatively new section of the Delaware Corporation Law for the purpose of cutting down on the amount of time which would otherwise have been available to plaintiffs and others for the waging of a proxy battle. Management thus enlarged the scope of its scheduled October 18 directors' meeting to include the by-law amendment in controversy after the stockholders committee had filed with the S.E.C. its intention to wage a proxy fight on October 16.
"Thus plaintiffs reasonably contend that because of the tactics employed by management (which involve the hiring of two established proxy solicitors as well as a refusal to produce a list of its stockholders, coupled with its use of an amendment to the Delaware Corporation Law to limit the time for contest), they are given little chance, because of the exigencies of time, including that required to clear material at the S.E.C., to wage a successful proxy fight between now and December 8. * * *."

In our view, those conclusions amount to a finding that management has attempted to utilize the corporate machinery and the Delaware Law for the purpose of perpetuating itself in office; and, to that end, for the purpose of obstructing the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest against management. These are inequitable purposes, contrary to established principles of corporate democracy. The advancement by directors of the by-law date of a stockholders' meeting, for such purposes, may not be permitted to stand. Compare Condec Corporation v. Lunkenheimer Company, Del. Ch. , 230 A.2d 769 (1967).

When the by-laws of a corporation designate the date of the annual meeting of stockholders, it is to be expected that those who intend to contest the reelection of incumbent management will gear their campaign to the by-law date. It is not to be expected that management will attempt to advance that date in order to obtain an inequitable advantage in the contest.

Management contends that it has complied strictly with the provisions of the new Delaware Corporation Law in changing the by-law date. The answer to that contention, of course, is that inequitable action does not become permissible simply because it is legally possible.

Management relies upon American Hardware Corp. v. Savage Arms Corp., 37 Del. Ch. 10, 135 A.2d 725, aff'd 37 Del. Ch. 59, 136 A.2d 690 (1957). That case is inapposite for two reasons: it involved an effort by stockholders, engaged in a proxy contest, to have the stockholders' meeting adjourned and the period for the proxy contest enlarged; and there was no finding there of inequitable action on the part of management. We agree with the rule of American Hardware that, in the absence of fraud or inequitable conduct, the date for a stockholders' meeting and notice thereof, duly established under the by-laws, will not be enlarged by judicial interference at the request of dissident stockholders solely because of the circumstance of a proxy contest. That, of course, is not the case before us.

We are unable to agree with the conclusion of the Chancery Court that the stockholders' application for injunctive relief here was tardy and came too late. The stockholders learned of the action of management unofficially on Wednesday, October 27, 1971; they filed this action on Monday, November 1, 1971. Until management changed the date of the meeting, the stockholders had no need of judicial assistance in that connection. There is no indication of any prior warning of management's intent to take such action; indeed, it appears that an attempt was made by management to conceal its action as long as possible. Moreover, stockholders may not be charged with the duty of anticipating inequitable action by management, and of seeking anticipatory injunctive relief to foreclose such action, simply because the new Delaware Corporation Law makes such inequitable action legally possible.

Accordingly, the judgment below must be reversed and the cause remanded, with instructions to nullify the December 8 date as a meeting date for stockholders; to reinstate January 11, 1972 as the sole date of the next annual meeting of the stockholders of the corporation; and to take such other proceedings and action as may be consistent herewith regarding the stock record closing date and any other related matters.


I do not agree with the majority of the Court in its disposition of this appeal. The plaintiff stockholders concerned in this litigation have, for a considerable period of time, sought to obtain control of the defendant corporation. These attempts took various forms.

In view of the length of time leading up to the immediate events which caused the filing of this action, I agree with the Vice Chancellor that the application for injunctive relief came too late.

I would affirm the judgment below on the basis of the Vice Chancellor's opinion.


Summaries of

Schnell v. Chris-Craft Industries, Inc.

Supreme Court of Delaware
Nov 29, 1971
285 A.2d 437 (Del. 1971)

holding that under Delaware corporation law, "inequitable action does not become permissible simply because it is legally possible"

Summary of this case from Umbach v. Carrington Investment Partners

holding that actions taken by management to manipulate corporate machinery "for the purpose of obstructing the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest against management" were "contrary to established principles of corporate democracy" and therefore invalid

Summary of this case from Paramount Communications v. QVC Network

holding that plaintiffs did not unreasonably delay when they filed suit five days after unofficially learning of management's changes to the date and location of the meeting

Summary of this case from Sternlicht v. Hernandez

holding that "inequitable action does not become permissible simply because it is legally possible"

Summary of this case from Rosenbaum v. Cytodyn Inc.

holding that attempts by a board to "utilize the corporate machinery and the Delaware Law for the purpose of perpetuating itself in office for the purpose of obstructing the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest against management [] are inequitable purposes, contrary to established principles of corporate democracy."

Summary of this case from Airgas, Inc. v. Air Products Chemicals

holding that "inequitable action does not become permissible simply because it is legally possible"

Summary of this case from Portnoy v. Cryo-Cell Intern

finding that "utiliz[ing] the corporate machinery and the Delaware Law for the purpose of perpetuating [management] in office; and, to that end, for the purpose of obstructing the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest against management" are "inequitable purposes, contrary to established principles of corporate democracy"

Summary of this case from Mercier v. Inter-Tel

ruling that bylaw amendment may not be undertaken inequitably even if legally permissible

Summary of this case from Elliott Associates, L.P. v. Avatex Corp.

In Schnell v. Chris Craft Industries, Inc., 285 A.2d 437 (Del. 1971), an incumbent board of directors amended the Company's by-laws in order to advance forward the date of the annual meeting and as a result, reduced the amount of time an insurgent group had to wage a proxy battle.

Summary of this case from Int'l Banknote Co., Inc. v. Muller

In Schnell the Delaware Supreme Court held that management's efforts to use the corporate machinery and Delaware law for the purpose of perpetrating itself in office and obstructing legitimate efforts of the dissident stockholders in the exercise of their rights to undertake a proxy contest against management was impermissible.

Summary of this case from Coalition to Advocate Public Util. Resp., Inc. v. Engels

nullifying the change in a meeting date for a stockholder vote, under a legal bylaw

Summary of this case from Kellner v. AIM ImmunoTech.

In Schnell v. Chris-Craft Industries, Inc., Del.Supr., 285 A.2d 437 (1971), this Court recognized that management may not inequitably manipulate corporate machinery to perpetuate "itself in office" and disenfranchise the shareholders.

Summary of this case from Stroud v. Grace

involving management's advancement of the date of an annual meeting in compliance with statutory procedures but alleged to have been done for the purpose of perpetuating management in office

Summary of this case from Harman v. Masoneilan Intern., Inc.

stating that equity will prohibit attempts to "utilize the corporate machinery" for the "purpose of obstructing the legitimate efforts of dissident stockholders in the exercise of their right to undertake a proxy contest against management"

Summary of this case from Kellner v. Aim ImmunoTech.

In Schnell v. Chris-Craft Industries, Inc., 285 A.2d 437 (Del. 1971), the Delaware Supreme Court reaffirmed the long-standing principle that "inequitable action does not become permissible simply because it is legally possible."

Summary of this case from Sternlicht v. Hernandez

In Schnell, the board, knowing of an impending proxy contest, advanced the date of the annual stockholders' meeting by approximately one month and moved the location of the meeting to upstate New York.

Summary of this case from Sternlicht v. Hernandez

stating that such actions reflect "inequitable purposes, contrary to the established principles of corporate democracy"

Summary of this case from Strategic Inv. Opportunities v. Lee Enters.

invalidating a meeting date set by directors attempting to thwart the plaintiff stockholders' proxy fight

Summary of this case from Chammas v. Navlink, Inc.

invalidating management attempts to obstruct the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest against management

Summary of this case from Baring v. Condrell

In Schnell, the Supreme Court held that it was a breach of fiduciary duty for management to move up the date of a stockholders' meeting for the improper purpose of perpetuating itself in office even though the action taken was legally permissible.

Summary of this case from Rabkin v. Philip A. Hunt Chemical Corp.

In Schnell, as it is by now well known to those involved with Delaware corporation law, it was held that inequitable action by management in amending corporate by-laws so as to change the date of the annual meeting did not become permissible simply because it was legally possible.

Summary of this case from Lerman v. Diagnostic Data, Inc.

In Schnell, the incumbent board amended the by-laws to do away with the established, annually-recurring meeting date in such a manner as to give the board the power to fix the date anywhere within a two-month span. Then the board advanced the date forward one month from the former by-law date so as to allow the insurgent shareholders only some six weeks, as opposed to more than two months, in which to wage a proxy battle.

Summary of this case from Lerman v. Diagnostic Data, Inc.
Case details for

Schnell v. Chris-Craft Industries, Inc.

Case Details

Full title:Andrew H. SCHNELL, Jr. and Jack Safer, Plaintiffs Below, Appellants, v…

Court:Supreme Court of Delaware

Date published: Nov 29, 1971

Citations

285 A.2d 437 (Del. 1971)

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