Action to enjoin defendant corporation and certain of its officers and directors from proceeding with election of directors at annual meeting of stockholders. Plaintiff moved for preliminary injunction. The Court of Chancery, New Castle County, Bramhall, Vice Chancellor, held that where management of corporation for several years had voted management proxies for incumbent members of board of directors, but management failed to notify stockholders that it intended to vote proxies which it received for someone other than plaintiff, an incumbent board member, in absence of fraud, plaintiff was not entitled to preliminary injunction.
Application for preliminary injunction dismissed.
Where stockholders gave management of corporation unrestricted proxies, it would be presumed that stockholders expected that their proxies would be voted in accordance with wishes of majority of board of directors representing management.
Action by Herbert C. Hauth against Giant Portland Cement Company, a Delaware corporation, and Ronald M. Craigmyle, Walter C. Beecken, Alexander Pinney, Robert W. White, Ernest J. Capen, and Samuel N. Kirkland, to enjoin defendants [33 Del.Ch. 497] from proceeding with the election of directors at the annual meeting of stockholders. Motion for preliminary injunction denied.
James R. Morford and William Marvel (of Morford, Bennethum & Marvel, Wilmington, and Leo Brady (of Gordon, Brady, Caffrey & Keller), New York City, for plaintiff.
David F. Anderson (of Berl, Potter & Anderson), Wilmington, and A. O. Dawson (of Dorr, Hand & Dawson), New York City, for defendants.
BRAMHALL, Vice Chancellor.
Plaintiff sought to enjoin defendant corporation and certain of its officers and directors from proceeding with the election of directors at the annual meeting of stockholders. Plaintiff alleged in his complaint that he had been a member of the board of directors of defendant corporation since 1941; that he had always been elected as a result of management proxies mailed to stockholders; that the proxies were in the form of general powers of attorney and did not set forth a proposed slate of directors; that the stock of defendant corporation was not listed on any exchange and therefore it had been unnecessary for the management to comply with the rules and regulations of the Securities and Exchange Commission relative to proxy solicitation by the
management; that in accordance with its customary practice the board of directors duly authorized certain officers of the corporation to mail to each stockholder a written notice of the annual meeting of stockholders to be held at the office of the corporation in Wilmington, Delaware, enclosing a form of proxy, a copy of a proposed underwriting contract setting forth a refinancing plan to be submitted by the directors for the approval of the stockholders, with a covering letter from the president explaining this plan; that, although plaintiff, along with the other directors, at a meeting of directors approved the resolution, he later objected to the refinancing plan and as a result of plaintiff's objection the board of directors rescinded the plan; that at a further meeting of the directors held on March 11, 1953, over the objection of plaintiff, a slate of directors including all of the old directors with the exception of plaintiff and adding two new directors (one to replace plaintiff and another to replace a deceased director) was approved; that at the time of the approval of this slate stockholders representing [33 Del.Ch. 498] a large majority of the outstanding voting stock of the corporation had sent their proxies to the management committee.
Plaintiff alleged that his name was omitted from the board of directors solely because of the fact that he opposed the proposed refinancing plan advocated by the officers and other directors of the corporation; that the president and all the other directors were affiliated with the financial concerns engaged to do the underwriting and would receive large profits therefrom.
Defendants denied that the name of plaintiff was omitted from the list of stockholders for whom the management proxies would be voted because of the fact that plaintiff was opposed to the refinancing plan, asserting that this plan was rescinded by the board of directors by reason of plaintiff's statement that he could produce a better and less expensive plan. Defendants also averred that they withdrew their support from plaintiff because plaintiff had been surreptitiously opposing the management of the corporation and had endeavored to solicit proxies from other stockholders for the purpose of electing a complete new board of directors opposed to the present management, a situation concerning which they had no direct information until after the notice of the annual meeting of stockholders and the original proxies were mailed to stockholders.
The sole question for my determination is whether the defendant corporation, through its officers and directors, other than plaintiff, acted improperly in failing to reveal to the stockholders the intention not to re-elect plaintiff as a director.
At the time of the meeting on March 11, 1953, when the board of directors passed the resolution omitting the name of plaintiff from the list of directors approved by management, the management proxy solicitation was practically complete. The stockholders were not notified of the action of the board of directors until after the institution of these proceedings. The letter which was sent as a result of the resolution calling the meeting of stockholders did not give the names of the directors which the management proposed to support by means of the proxies which it would receive, nor did it state that the proxies would not be voted for the plaintiff, [33 Del.Ch. 499] nor that they would be voted for the other directors. Plaintiff's claim is based upon the fact that since these proxies had always been voted for the entire board of directors since 1941, the stockholders had a right to assume, unless advised to the contrary, that the proxies would again be voted for the entire board of directors.
Perhaps it would have been better practice for the management to have stated in this letter the names of the persons for whom the proxies would be voted. I have no doubt that at the time of the solicitation of the proxies it was the intention of the management to re-elect the entire board of directors, including the plaintiff. The circumstances resulting in the desire on the part of ...