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HEFFNER v. UNION NATIONAL BANK AND TRUST COMPANY CROTSLEY (01/29/81)

decided: January 29, 1981.

HEFFNER, R. MERLE AND HEFFNER, ADA APPELLANTS IN NO. 80-2625
v.
UNION NATIONAL BANK AND TRUST COMPANY; CROTSLEY, C. KENNETH., GOODWIN, JOSEPH W.; HICKES, PAUL E.; HORTON, VERYL E.; HUSTON, WILLIAM C.; KUNZ, DAVID G.; LANGDON, RICHARD M.; LOVE, C. JAMES., MILLER C. BLAIR; NEARY, ARTHUR R., SR.; PORTER, WESLEY A.; SHAFER, IRA R.; WIBLE, CLAIR C.; WIBLE, FREDDIE E.; BROWN, JOHN B.; KUNZ, JOHN B; OXNARD, ROBERT T. CROSS-APPELLANTS IN NO. 80-2626



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA (D.C. Civ. No. 80-0189)

Before Seitz, Chief Judge, and Rosenn and Sloviter, Circuit Judges.

Author: Seitz

Opinion OF THE COURT

R. Merle and Ada Heffner appeal from an order of the district court granting summary judgment in favor of the defendants; the defendants cross appeal from the same order.

I.

The Union National Bank (UNB) is a national banking association with its main office in Huntingdon, Pennsylvania. UNB's directors are elected for a one-year term at the annual shareholders' meeting, which is held on the third Tuesday of each February. The directors are elected by means of cumulative voting. In February 1979, a Board of sixteen directors was elected, consisting of the following persons: C. Kenneth Crotsley; Robert F. Fink; Joseph W. Goodwin; R. Merle Heffner; Paul E. Hickes; Veryl E. Horton; William C. Huston; David G. Kunz; Richard M. Langdon; C. James Love; C. Blair Miller; Arthur R. Neary, Sr.; Wesley A. Porter; Ira R. Shafer; Clair C. Wible; and Freddie E. Wible.

UNB's by-laws provide that the number of directors shall be between five and twenty-five, the exact number to be fixed from time to time by resolution of the Board or the shareholders. On December 21, 1979, the Board adopted a resolution that the number of directors be reduced from sixteen to fifteen. The Board also adopted a recommendation that it list fifteen candidates on the proxy to be sent shareholders before the February 1980 election, and that each current director except Robert F. Fink be listed. The President of UNB, Joseph W. Goodwin, requested that William C. Huston and David G. Kunz serve on a proxy committee with himself and Proxy Committee Chairman Richard M. Langdon. This committee had its first formal meeting on January 24, 1980.

On January 28, 1980, the Board issued a proxy form (the Management Proxy), which was mailed to every shareholder of record. The Management Proxy provided as follows:

I, the undersigned Shareholder ... of UNION NATIONAL BANK AND TRUST COMPANY OF HUNTINGDON, ... do hereby ... appoint John B. Brown, John B. Kunz and Robert T. Oxnard (or any one of them with full power to act alone), my ... lawful attorney(s) with full power of substitution, for me in my name ... to vote all the Common Capital Stock of said Bank standing in my name ... at the annual meeting of its Shareholders ... on the 19th day of February, 1980 ... with all the powers the undersigned would possess if personally present as follows:

1. Fixing the number of directors for the ensuing year at 15 and the election of the following nominees (followed by a list of the recommended fifteen directors, including Mr. Heffner).

This Proxy is solicited on behalf of management and may be revoked prior to its exercise by giving notice of such revocation to the Secretary of the Bank.

(Emphasis added). When the Management Proxies were mailed to all shareholders, UNB management knew that one or more minority candidates might seek election to the Board.

On February 4, 1980, UNB received official notice that two minority shareholders, Mr. Robert F. Fink, the director who was not listed on the Management Proxy, and Ms. Christine Schucker, would seek election to the Board. The entire Board was informed of their nominating letters at a Board meeting on February 5. Two days later, the proxy committee met to discuss updating management solicitation. The committee discussed the nominations of Mr. Fink and Ms. Schucker, but reached no decision.

On February 14, Mr. Goodwin informed Messrs. Brown, Kunz, and Oxnard, the individuals designated to vote the Management Proxies, that the voting at the meeting might be unusual, and that UNB counsel would answer any questions that might arise at the shareholders' meeting. The next day, the proxy committee met and discussed for the first time the possibility of voting for less than the fifteen candidates listed on the Management Proxy. A list of "nonpreference" was established: if it became necessary to support less than the full management slate, support would be withdrawn first from Mr. Heffner, second from Mr. Langdon, and third from Mr. Shafer. The committee also decided that a new proxy form would be drawn up by Mr. Goodwin. Later that day, Mr. Goodwin asked UNB's secretary to type a proxy form that did not specify for which directors it would be voted (the Special Proxy), and that stated, like the Management Proxy, that it was being solicited on behalf of management. Again, like the earlier Management ...


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