Case ID: ny-2d_11/html/0201-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Per Curiam.\n     Froessel, J. (dissenting).", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In the Matter of Ethel C. Gearing et al., Appellants, v. Joseph A. Kelly et al., Respondents.
    Argued January 24, 1962;
    decided April 5, 1962.
    
      William Mertens for appellants.
    I. Under respondent corporation’s by-laws, the required quorum is three of the four directors provided for in the by-laws. This requirement remains constant and is not affected by vacancies in the membership in the board. (Erie R. R. Co. v. City of Buffalo, 180 N. Y. 192; Mitchell v. Forest City Print. Co., 187 App. Div. 743; Craig Medicine Co. v. Merchants’ Bank, 59 Hun 561.) II. It is proper and legal for a director to absent herself from a meeting so as to prevent the assembling of a quorum. Such absence does not estop the director from challenging an invalid election. (Hexter v. Columbia Baking Co., 16 Del. Ch. 263; Angerosa v. White Co., 248 App. Div. 425, 275 N. Y. 524; Lawrence v. American Nat. Bank, 54 N. Y. 432; Troy Union R. R. Co. v. City of Troy, 132 Misc. 534, 227 App. Div. 351, 253 N. Y. 597.) III. Petitioner Gearing, a substantial stockholder, is not estopped from insisting upon compliance with the quorum requirements of the by-laws. She has a right to obtain an order setting aside the illegal election. (Matter of Hoe & Co. [Cullom-Rein], 14 Misc 2d 500, 285 App. Div. 927, 309 N. Y. 719; Matter of Scheel, 134 App. Div. 442; Matter of Green Bus Lines [Turner], 166 Misc. 800; Matter of Empire State Supreme Lodge of Degree of Honor, 118 App. Div. 616; Matter of Auer v. Dressel, 306 N. Y. 427.) IV. The directions of the order entered at Special Term with respect to a new election were proper. (Matter of Wyatt v. Armstrong, 186 Misc. 216.) V. Respondents’ present temporary control of the board of directors has been obtained in violation of their fiduciary obligations to petitioners. (Kavanaugh v. Kavanaugh Knitting Co., 226 N. Y. 185.)
    
      Edward Ross Aranow, Herbert J. Brown, Robert J. Ward and Michael P. Rosenthal for respondents.
    I. Under the by-laws of the company, a majority of the directors in office constitutes a quorum for the filling of a vacant directorship. (Matter of Chelsea Exch. Corp., 18 Del. Ch. 287; Erie R. R. Co. v. City of Buffalo, 180 N. Y. 192; Benintendi v. Kenton Hotel, 294 N. Y. 112; Johnson v. Dodd, 56 N. Y. 76; Mitchell v. Forest City Print. Co., 107 Misc. 709, 187 App. Div. 743; Craig Medicine Co. v. Merchants’ Bank, 59 Hun 561.) II. Petitioners cannot take advantage of the deliberate absence of Mary G. Meacham from the meeting in violation of her duties as a director. (Imperator Realty Co. v. Tull, 228 N. Y. 447; Matter of Syracuse, C. & N. Y. R. R. Co., 91 N. Y. 1; People ex rel. Leach v. Central Fish Co., 117 App. Div. 77; Lazar v. Knolls Co-op. Section No. 2, 205 Misc. 748; Matter of P. F. Keogh, Inc., 192 App. Div. 624; Matter of Bushwick Sav. & Loan Assn., 189 Misc. 316; Matter of Ohrbach v. Kirkeby, 3 A D 2d 269; Matter of Radom & Neidorff, 307 N. Y. 1; Matter of Green Bus Lines [Turner], 166 MisC. 800; Matter of Scheel, 134 App. Div. 442; Wallace v. First Trust 
      
      Co. of Albany, 251 App. Div. 253; Matter of Braico, 235 App. Div. 132, 260 N. Y. 625.) III. Even if this court concludes that the election of Julian Hemphill was invalid, it should require a new election to be held by the board of directors and should direct that Mrs. Meacham attend that election. (Matter of Faehndrich, 2 N Y 2d 468; Matter of Young v. Jebbett, 213 App. Div. 774; Matter of Robert Clarke, Inc., 186 App. Div. 216; Matter of Societá Mutuo, 255 App. Div. 815.)
   Per Curiam.

Appellants, who' own 50% of the stock of the Radium Chemical Company, Inc., seek, within the provisions of section 25 of the General Corporation Law, to set aside the election of a director.

In a proceeding under that section, the court sits as a court of equity which may order a new election ‘ ‘ as justice may require ”. We have concluded, as did the majority of the Appellate Division, that appellants have failed to show that justice requires a new election, in that they may not now complain of an irregularity which they themselves have caused.

Mrs. Meacham stayed away from the meeting of March 6, 1961 for the sole purpose of preventing a quorum from assembling, and intended, in that manner, to paralyze the board. There can be no doubt, and indeed it is not even suggested, that she lacked notice or in any manner found it temporarily inconvenient to present herself at that particular time and place. It is certain, then, that Mrs. Meacham’s absence from the noticed meeting of the board was intentional and deliberate. Much is said by appellants about a desire to protect their equal ownership of stock through equal representation on the board. It is, however, clear that such balance was voluntarily surrendered in 1955. Whether this was done in reliance on representations of Kelly, Sr., as alleged in the plenary suit, is properly a matter for that litigation, rather than the summary type of action here.

The relief sought by appellants, the ordering of a new election, would, furthermore, be of no avail to them, for Mrs. Meacham would then be required, as evidence of her good faith, to attend. Such a futile act will not be ordered (see Matter of Hoe & Co., 14 Misc 2d 500, affd. 285 App. Div. 927, affd. 309 N. Y. 719).

The identity of interests of the appellants is readily apparent. Mrs. Gearing has fully indorsed and supported all of the demands and actions of her daughter, and has associated herself with the refusal to attend the directors’ meeting. A court of equity need not permit Mrs. Gearing to attack actions of the board of directors which were marred through conduct of the director whom she has actively encouraged. To do so would allow a director to refuse to attend meetings, knowing that thereafter an associated stockholder could frustrate corporate action until all of their joint demands were met.

The failure of Mrs. Meacham to attend the directors’ meeting, under the present circumstances, bars appellants from invoking an exercise of the equitable powers lodged in the courts under the statute. (See, also, Imperator Realty Co. v. Tull, 228 N. Y. 447, 457.)

The order appealed from should be affirmed, with costs.

Froessel, J. (dissenting).

The by-laws of Radium Chemical Company, Inc., provided for a board of four directors, a majority of whom “ shall constitute a quorum for the transaction of business-”. Prior to 1955 the board consisted of appellant Meacham, who had succeeded her father (appellant Gearing’s late husband), respondent Kelly, Sr., and Margaret E. Lee. In 1955 Kelly, Jr., was elected to the then vacant directorship. The board continued thus until Margaret Lee offered her resignation in 1961 and, on March 6 of that year, at a meeting of the board of directors at which she and the two Kellys were present, her resignation was accepted. Thereupon the two Kellys elected Julian Hemphill, a son-in-law of Kelly, Sr., to replace Margaret Lee.

I agree with Justice Eager, who dissented in the Appellate Division, that two members of the board were insufficient to constitute a quorum in this case for the purpose of electing the new director. It necessarily follows that the election of Julian Hemphill is not merely irregular, as the majority hold, but is wholly void and must be set aside.

Section 25 of the General Corporation Law grants to the court two alternatives in a case such as this: (1) to confirm the election, or (2) to order a new election as justice may require (Matter of Faehndrich, 2 N Y 2d 468, 474). As we held in the ease just cited, the clause “ as justice may require ” does not enlarge the court’s power nor authorize it to grant different relief from that specified in the statute. There is no basis whatever here for the application of the doctrine of estoppel, and in no event could it reasonably be applied to the non-director, appellant Gearing, a substantial stockholder in this corporation. The purported election is, therefore, a nullity.

This is a mere contest for control, and the court should not assist either side, each of which holds an equal interest in the corporation, particularly where, as here, petitioners were willing that director Meacham attend meetings for the purpose of transacting all the necessary business of the board, but were unwilling that she attend a meeting, the purpose of which was to strip them of every vestige of control. Appellant Meacham had surrendered nothing in 1955 when she permitted Kelly, Jr., to become a director as well as Ms father, for Margaret Lee was then a third director.

The statute mandates a new election and that should be ordered. It is no answer to say that the results will probably be the same. If the parties are deadlocked, whether as directors or stockholders, and choose to remain that way, they have other remedies, and I see no reason why we should help one side or the other by disregarding a by-law that follows the statute (General Corporation Law, § 27), particularly when it results in giving the Kellys complete control of the corporation.

I would, therefore, reverse the order appealed from, and modify the order of Special Term by ordering a special election and affirming it in all other respects.

Chief Judge Desmond and Judges Fuld, Van Voorhis, Burke and Foster concur in Per Curiam opinion; Judge Froessel dissents in an opinion in which Judge Dye concurs.

Order affirmed.