Opinion
C.A. No. 19557-NC
Submitted: June 13, 2002
Decided: June 20, 2002
Samuel L. Guy, Esquire of The Law Office of Samuel L. Guy, Wilmington, Delaware, Attorney for Plaintiffs.
David J. Ferry, Jr., Esquire and Rick S. Miller, Esquire of Ferry, Joseph Pearce, P.A., Wilmington, Delaware, Attorneys for Defendant.
MEMORANDUM OPINION
Plaintiffs in this action under Section 225 of the Delaware General Corporation Law seek a determination of the rightful directors of Defendant West Center City Neighborhood Planning Advisory Committee, Inc. ("Defendant"), a not-for-profit Delaware corporation.
The individual plaintiffs are Bessie C. Ashe, Dwight L Davis, Harold Chambers, Jr., Rhonda M. Davis, Frauline Trotter, Mercedes Fields, John McNeil, and Caren Turner (collectively the "individual plaintiffs"). They all claim to be directors of Defendant, a contention which Defendant rejects. The other plaintiff is West Center City Neighborhood Association, Inc. ("WCCNA") (collectively with the individual plaintiffs, "Plaintiffs").
BACKGROUND
This background, the material facts of which are undisputed, is taken from the Affidavit of Brenda C. Phillips ("Phillips Aff.") and the Supplemental Affidavit of Brenda C. Phillips ("Supplemental Aff."). Ms. Phillips is Defendant's Executive Director.
Defendant's directors recently sought to adopt an amendment to Article IV, Section 2 of the bylaws that purports to reduce the number of directors from nineteen to ten voting directors and to eliminate the use of alternate directors. If effective, the amendment would preclude many of the individual plaintiffs from serving on the board.
Defendant's original bylaws provided for eighteen voting directorships to be filled by four representatives from each of the three separate neighborhood associations, one representative from each of five designated block clubs within the West Center City Analysis Area ("WCCA"), and one representative from a recognized non-profit agency resident in the WCCA. In 1986, the bylaws were amended to add a additional directorship for a representative from a sixth block club.
These associations are (1) WCCNA, (2) Trinity Vicinity Neighborhood Association, and (3) Quaker Hill Neighborhood Association.
A position for a non-voting, ex-officio director from the City Council was also created by the original bylaws. The Defendant maintains that there are eleven directors currently serving in office and that there are eight vacancies. Supplemental Aff. ¶ 5.
In 1997, after the City Council President sharply criticized Defendant and its board of directors for being inefficient and unproductive, a private consulting firm was hired to study Defendant's governance and organization. The firm's conclusion that "the [Defendant] board did not represent an `equal partnership' among the neighborhood associations and that the Trinity and Quaker Hill board members did not see themselves as equal partners in achieving [Defendant's] purpose" prompted Defendant's President to create a committee to review the corporation's bylaws. On the basis of that committee's recommendation, the amendment now being challenged by Plaintiffs was proposed. The contested amendment purports to reduce the number of Defendant's voting directors from nineteen to ten by eliminating the representatives of each of the six block clubs and by reducing by one the number of representatives from each of the areas served. The bylaw amendment may alter the balance of power among the different communities served by the Defendant.
Phillips Aff. ¶¶ 5-6; Def. Mem., Ex. C.
Phillips Aff. ¶ 6.
The report of the bylaws committee appears as Ex. D to Def. Mem.
The text of the amendment may be found at Def. Mem., Ex. E, at 2-3. By deleting Article IV, § 9, the amendment would also end the use of alternate directors.
Of the six block club directorships eliminated by the amendment, four are in the area served by WCCNA.
The board intended to consider the amendment for the first time at its October 16, 2001 regular meeting but, because of the absence of a quorum at that meeting, first considered and unanimously approved the amendment at a meeting held on November 27, 2001. The amendment was next addressed and unanimously approved at the next regular meeting on December 18, 2001, the third Tuesday of December. While no meeting was held in January 2002, the board attempted to meet on February 19, 2002, which was the third Tuesday of that month, but, due to the lack of a quorum, the meeting was adjourned until the following Tuesday, February 26, 2002, when the bylaw amendment was read again and approved unanimously by the ten directors in attendance.
There were eight directors in attendance at the November 27th meeting. As will be discussed in more detail infra, Defendant's bylaws provide that regular meetings of the corporation's directors are to be held on the third Tuesday of every month unless a different meeting date is announced at the preceding regular meeting. Because the third Tuesday of November (November 20, 2001) was the Tuesday before Thanksgiving, the meeting was rescheduled to November 27, 2001, the fourth Tuesday of November. The Defendant's board provided block captains with flyers for the purpose of informing the public of the November rescheduling. Supplemental Aff. ¶ 7.
As with the November 27, 2001 meeting, there were eight directors present at the December meeting.
Phillips Aff. ¶ 7; Supplemental Aff. ¶¶ 5, 7, 8, 10.
CONTENTIONS
Plaintiffs have moved for partial summary judgment. The sole question presented by Plaintiffs' motion for partial summary judgment is the validity of the bylaw amendment. Plaintiffs offer three arguments in support of their position that the amendment should be declared invalid as a matter of law. First, Plaintiffs argue that a quorum was not present at the three meetings where the Defendant board purportedly adopted the bylaw amendment. Second, Plaintiffs argue that the bylaw amendment was not approved by the minimum number of Defendant directors required by the bylaws. Finally, Plaintiffs argue that the bylaw amendment was not approved at three consecutive regular meetings as required by the bylaws for amendments of the bylaws. Plaintiffs contend that neither the November nor the February meetings met by bylaws' definition of a "regular" meeting.ANALYSIS
Article XVI of Defendant's bylaws sets forth the requirements for amendments of the bylaws by the directors and provides in pertinent part:
These By-Laws may be amended by a vote of two-thirds (2/3) plus one (1) of the Directors at any three consecutive, regular meetings of the Board of Directors at which a quorum is present or by unanimous consent given in writing by all members of the Board of Directors.
Article IV, § 5 of the bylaws defines a quorum of the board as "[a] majority of the members of the Board."
Because I find that the amendment in question was not approved by the Defendant's board at three consecutive, "regular meetings," Plaintiffs are entitled to summary judgment invalidating the bylaw amendment in question.
Thus, I need not address Plaintiffs' additional arguments as to the super-majority voting and quorum requirements or whether the February meeting was a "regular" meeting.
As set forth above, the Defendant's bylaws require, among other things, that any amendment thereto (unless accomplished by unanimous consent of the directors) be approved by the directors "at any three consecutive, regular meetings . . . ." The bylaws further provide that "[r]egular meetings of the Board of Directors shall be held on the third Tuesday of each month, or on such day each month as shall have been set by the Board at its previous regular meeting."
Article IV, § 4 of the bylaws.
"[R]ules which are used to interpret statutes, contracts, and other written instruments are applicable when construing corporate charters and bylaws." Thus, if the language of the bylaw in question is clear and unambiguous, "the Court need not interpret it or search for the parties' intent. . . . [but will give it] the force and effect required." Defendant's bylaws plainly state that they can only be amended by the entity's directors if properly approved by the board at three consecutive, regular meetings (or by unanimous consent, an approach not chosen by Defendant). A regular meeting is unambiguously defined by the bylaws as a meeting held on the third Tuesday of each month or on such other day set by the board at the previous regular meeting. It is undisputed that the November 27th meeting was not held on the third Tuesday of November. It is further undisputed that the directors at the previous regular meeting in October did not reschedule the November meeting from the 20th to the 27th. Finally, it is not disputed that the November 27th meeting must have qualified as a regular meeting in order to satisfy the bylaws' requirement for approval at three consecutive, regular meetings.
Hibbert v. Hollywood Park, Inc., 457 A.2d 339, 342-43 (Del. 1983); see also Harrah's Entm't, Inc. v. JCC Holding Co., Del. Ch., C.A. No. 19479, mem. op. at 32, Strine, V.C. (May 31, 2002).
Gentile v. SinglePoint Financial, Inc., 788 A.2d 111, 113 (Del. 2001) (citing Hibbert v. Hollywood Park, Inc., 457 A.2d at 343)).
Indeed, as set forth in Defendant's October 16, 2001 board minutes, "the next Community Board meeting would be held on Tuesday, November 20 at 6:30 PM. . . ." Reply and Supplement to Plaintiffs' Motion for Summary Judgment, Ex. 6. The agenda for the October 16th meeting also informed those persons in attendance that the next meeting would be November 20th. Id. It appears that the decision to reschedule the November meeting was made in early November. Supplemental Aff. ¶ 7 and Ex. 1.
Defendant argues that the "November 27 meeting was a `regular' meeting in the sense that the business taken up by the [Defendant's] board on November 27 was the same agenda as that scheduled for November 20." In light of the bylaws' plain and unambiguous definition of "regular meetings," however, Defendant's argument that "[i]t was the same meeting that the board would have had on November 20, but was rescheduled to the 27th" is irrelevant. A regular meeting, by virtue of the bylaws, is defined in terms of when it is held, not merely what is considered at the gathering.
Defendant's Supplemental Memorandum in Opposition to Plaintiffs' Motion for Summary Judgment at 6.
Defendant also asserts that "[t]he directors must have some discretion and leeway to re-schedule those meetings to enable them to carry on the corporation's business." The bylaws, however, afford them exactly that: Article IV, Section 4 empowers the directors to deviate from the third Tuesday of every month so long as it is done at the previously scheduled regular meeting. Because the decision to reschedule was made after October's meeting, I find that the November 27th meeting was not a "regular" one within the terms of the bylaws, and, thus, the amendment was not approved at three consecutive, regular meetings of the board.
Moreover, the rescheduling to November 27th was not the product of exigent circumstances. Long before the October meeting, it was known that November 20, 2001 would be the Tuesday before Thanksgiving.
Defendant also points out that its directors could have amended the bylaws by unanimous written consent and avoided any formal meetings. In fact, the board chose not to employ this option, and the Court can only evaluate what the board did, not what it might have done or could have done.