Opinion ID: 2321828
Heading Depth: 2
Heading Rank: 2

Heading: The Merits Opinion

Text: Genger next claims that the Court of Chancery erroneously concluded, in its Merits Opinion, that the Trump Group did not ratify the 2004 Transfer to the Sagi Trust. Genger contends that the Trump Group, by its conduct, twice ratified those transfers after the June 13, 2008 meeting at which the Trump Group was first told about them. Genger also attacks, as legally erroneous, the Vice Chancellor's determination that the Irrevocable Proxy associated with the Sagi Trust Shares was invalid under New York law and that, in any event, the Proxy did not run with the Sagi Trust Shares after those shares were sold to the Trump Group. Both arguments fail because they ignore the trial court's factual findings and lack legal merit. Our reasons follow.
Genger claims that the undisputed facts establish that the Trump Group twice ratified the 2004 Transfers to the Sagi Trust. The first ratification, Genger argues, occurred at the June 25, 2008 meeting when the Trump Group solicited and accepted Genger's vote of the Sagi Trust Shares to approve the (later repudiated) 2008 Funding Agreement. Genger claims that by recognizing his right to vote the Sagi Trust Shares, the Trump Group necessarily ratified the disputed 2004 Transfers. The second ratification is said to have occurred when the Trump Group purchased the disputed Trans-Resources shares from the Sagi Trust under the 2008 Purchase Agreement. Without the 2004 Transfers, Genger insists, the Sagi Trust would have had no Trans-Resources shares to sell to the Trump Group. Therefore, the 2004 Transfers were necessarily ratified if the 2008 Purchase Agreement was to have any legal force. Neither argument, in our view, has merit. Ratification is an equitable defense [55] that precludes a party who [has] accept[ed] the benefits of a transaction from thereafter attacking it. [56] Ratification may be either express or implied through a party's conduct, but it is always a voluntary and positive act. [57] It is undisputed that the Trump Group never expressly or formally ratified the 2004 Transfers. The Court of Chancery explicitly found that [a]t no point did the Trump Group tell Genger that it [had] accepted the 2004 Transfers. [58] The sole issue, then, becomes whether the Trump Group, by its post-June 13, 2008 conduct, [59] implicitly ratified the 2004 Transfers. The record establishes that no implied ratification of the 2004 Transfers by the Trump Group ever took place. Implied ratification occurs [w]here the conduct of a complainant, subsequent to the transaction objected to, is such as reasonably to warrant the conclusion that he has accepted or adopted it, [and] his ratification is implied through his acquiescence. [60] Ratification of an unauthorized act may be found from conduct which can be rationally explained only if there were an election to treat a supposedly unauthorized act as in fact authorized. [61] Ratification may also be found where a party receives and retains the benefit of [that transaction] without objection, [] thereby ratify[ing] the unauthorized act and estop[ping] itself from repudiating it. . . . [62] The Court of Chancery found no basis to conclude that the Trump Group assented to the 2004 Transfers by accepting Genger's vote on behalf of the Sagi and Orly Trust[s] in favor of the [2008] Funding Agreement. [63] The record evidence fully supports that finding. The Trump Group never received or retained any benefit from the 2008 Funding Agreement, and ratification is not the only rational explanation for the Trump Group's conduct. The uncontroverted evidence shows that the Trump Group was reluctant to invest additional risk capital into Trans-Resources, and would do that only if given majority voting control. The Trump Group agreed to enter into the 2008 Funding Agreement with Genger, because Genger represented that he would rectify [his] violation of the Stockholders Agreement by ensuring that the Trump Group had voting control. [64] Moreoverand of critical importancethe parties never performed or even executed the 2008 Funding Agreement, because Genger repudiated it. [65] In these circumstances, the Trump Group's willingness to accept Genger's vote on behalf of the Sagi and Orly Trusts in favor of the 2008 Funding Agreement cannot be fairly viewed as acquiescing in the 2004 Transfers. That is because the Trump Group never received the negotiated benefit ( i.e., voting control) that was to be the quid pro quo for the Trump Group's alleged willingness to accept and recognize Genger's vote on those Trusts' behalf. [66] Nor can the Trump Group's conduct after the June 13, 2008 meeting be fairly viewed only as evincing an intent to approve the unauthorized acts [67] (here, the 2004 Transfers). Contrary to Genger's assertion, the 2008 Purchase Agreement did not implicitly ratify the 2004 Transfers, because in that 2008 Agreement, the Sagi Trust and TPR expressly conveyed only such interest as they may have had in the disputed Trans-Resources shares. Moreover, in Section 10 of the 2008 Purchase Agreement, both the purported transferor (TPR) and the purported transferee (the Sagi Trust) agreed on a mechanism where-by the Trump Group's share acquisition would be fully protected if the 2004 Transfers were determined to be void. Thus, the 2008 Purchase Agreement itself fatally undermines any claim that the Trump Group intended, by its conduct, to ratify the 2004 Transfers. At no point did the Trump Group ratify the 2004 Transfers, either expressly or by implication. To the contrary, at all times the Trump Group acted consistently with their position that the 2004 Transfers were void. [68] Genger's ratification claim, therefore, fails on factual and legal grounds.
Genger next claims that the Merits Opinion erroneously determined that the Irrevocable Proxy was both legally invalid and, in any event, inapplicable to the shares acquired in the 2008 Purchase Agreement. The Court of Chancery held that even if the Trump Group did ratify the 2004 Transfer of the Trans-Resources shares to the Sagi Trust, the Sagi Trust Shares, once acquired by the Trump Group under the 2008 Purchase Agreement, were no longer subject to Genger's Irrevocable Proxy. The court so held for three reasons. First, the Irrevocable Proxy did not explicitly provide that it was to run with the Sagi Trust Shares if those shares were sold, nor did the Proxy explicitly reserve any voting powers to Genger in the event of a sale or transfer. [69] Second, even if the Proxy language was ambiguous on that point, public policy considerations relating to the separation of voting control from underlying economic stock ownership, which would result in empty voting, required construing the Proxy strictly against any implied reservation of voting power. [70] Third, and in any case, the Proxy was not irrevocable under New York law, because neither Genger nor the Sagi Trust were Trans-Resources shareholders, as Sections 609 and 620 of the New York Business Corporation Law required that they be, at the time the Proxy was executed. [71] Genger challenges these conclusions. With respect to the third issuewhether the Proxy was irrevocable under New York lawGenger claims that both he and the Sagi Trust were, in fact, Trans-Resources shareholders at the time the Proxy was executed. Genger asserts that the Proxy was executed on October 30, 2004, one day after he effectuated the 2004 Transfers to the Sagi Trust and to himself. Therefore, Genger tells us, the Proxy satisfied the requirements of Sections 609 and 620 of the New York Business Corporation Law. This argument suffers from two fatal flaws. First, it was never fairly presented to the trial court. Second, it is unsupported by the record. Genger represented to the Vice Chancellor that the Sagi Trust executed the Irrevocable Proxy on October 29, 2004, the same day that the 2004 Transfers were executed. At no point did Genger argue to the Court of Chancery (as he now argues to us) that the Irrevocable Proxy was executed the day after the 2004 Transfers took place. We therefore decline to consider Genger's first argument, raised for the first time on appeal, because it was never fully and fairly presented to the trial court, as Supreme Court Rule 8 requires. [72] On the second issuethe Irrevocable Proxy's inapplicabilityGenger contends that the Court of Chancery read the Proxy language too narrowly, by incorrectly applying a new, uncharted form of heightened scrutiny and thereby concluding that the Proxy created empty voting concerns. That was error, Genger argues, because the only legal principle applicable here is that a purchaser that buys shares with notice of an irrevocable proxy takes those shares subject to that proxy. Because the Trump Group knew of the existence of the Proxy at the time it negotiated the 2008 Purchase Agreement, Genger claims, that fact alone triggered the Proxy's applicability. That the Proxy contained no language explicitly binding subsequent transferees is of no relevance. This argument cannot withstand scrutiny either. First, as a matter of law, the Proxy was not irrevocable, because it did not satisfy the applicable New York statutory requirements. Whether or not the Trump Group knew of the Proxy at the time they purchased the Sagi Trust Shares is immaterial, because a contracting party's knowledge of a proxy's existence cannot cure that proxy's non-compliance with controlling statutory requirements, or transmute a terminable proxy into one that is irrevocable under New York statutory law. Finally, and apart from its failure to satisfy applicable statutory requirements, the Proxy's plain language defeats Genger's position. The Proxy relevantly provided that: The [Sagi Trust] . . . does hereby constitute and appoint Arie Genger . . . to vote as its proxy, all shares of common stock of [Trans-Resources] which are now or hereafter owned by the Trust, at any and all meetings of the stockholders of Trans-Resources. . . . Contrary to Genger's claim, the Court of Chancery did not interpret that Proxy language too narrowly. By its plain terms, the Proxy language applied only to the Trans-Resources shares owned by the Sagi Trust. That is, the Proxy would attach only to those Trans-Resources shares that were now or hereafter owned by the Trust.  The Proxy contains no provision that would bind any subsequent owner of those shares. Once sold or transferred to a subsequent owner, those shares were no longer owned by the [Sagi] Trust and therefore, were no longer subject to the Proxy. Genger cannot complain that the trial court erroneously interpreted the Proxy where its plain language compels that interpretation. For these reasons, we uphold the judgment of the Court of Chancery insofar as it adjudicates the merits of the Trump Group's Section 225 claims.