Court Opinion

ID: 9633403
Source: CourtListenerOpinion
Date Created: 2023-08-22 11:45:58.750789+00
Date Added: 2024-06-11T18:08:34.606335
License: Public Domain

Hunter, C. J.
(dissenting) — I dissent.
The question in this case is whether management with a major portion of the voting stock, which also conducts an election, may vote in a corporate election after the period for voting has ended and the meeting adjourned.
Washington State Labor Council, the plaintiff (appellant) , sought a permanent injunction restraining Federated *273American Insurance Company, the defendant (respondent) , from validating a directors’ election.
Nine of twenty-one directors were to be elected at the meeting in question. The defendants had enough votes and proxies to elect five of the nine directors. The day before the annual meeting, management (the defendant’s officers) met and considered a plan as to how they would vote.
The following day the annual meeting was held. The purpose of the meeting, as announced in the management’s notice sent to the stockholders, was:
for the purpose of
(1) Electing directors.
(2) Acting upon any and all other appropriate matters that may come before the meeting or any adjournments thereof.
At the meeting voting was by written ballot. The defendant’s employees collected the ballots and placed them in a cardboard box.
After the voting was apparently completed, the chairman requested any outstanding ballots be turned in and informed the shareholders present that the ballots would be counted the following day with the results to be announced immediately after the count. The box was removed to the defendant’s offices where it was sealed. The meeting was then adjourned.
After adjournment, two of the defendant’s officers returned to their offices where they cast the management’s votes and proxies. They then sealed these ballots in an envelope and attached it to the ballot box. The next morning, the plaintiffs first became aware of the voting irregularity and challenged the timeliness of those votes.
The plaintiff urges that the defendant’s proxy solicitations were void and that the ballots were not timely cast and therefore invalid. I concur with the majority’s disposition of the issue as to the validity of the proxy solicitations. However, I strongly dissent as to the majority’s holding as to the validity of the ballots cast.
'It is the majority’s opinion that a vote cast after balloting has ceased but before the result has been officially announced, is permissible, provided that such irregularity is *274free of fraud or bad faith, and does not contravene statute, bylaw, or other announced rules.
Although the majority is correct in its holding that the right to vote in corporate elections is a strong right and one which should not be abrogated on mere technicalities, this holding is unrealistic in that it fails to consider the position and authority of the parties involved. This case does not involve a mere shareholder who has been prevented from timely casting his vote through inadvertence or mistake. On the contrary, this case concerns the corporation’s officers and directors who controlled enough stock to safely elect five of nine directors to be elected at this meeting. Further, they were in charge of the meeting. Thus, management was in a very strong position to control the conduct of the meeting.
It is precisely because of such a position that the law imposes a fiduciary obligation on officers and directors to act with utmost good faith toward the corporation and its stockholders. Central Bldg. Co. v. Keystone Shares Corp., 185 Wash. 645, 56 P.2d 697 (1936); Wool Growers Serv. Corp. v. Simcoe Sheep Co., 18 Wn.2d 655, 140 P.2d 512, 141 P.2d 875 (1943); Larson v. A. W. Larson Constr. Co., 36 Wn.2d 271, 217 P.2d 789 (1950); Kane v. Klos, 50 Wn.2d 778, 314 P.2d 672 (1957).
Insofar as the instant case is concerned, I am satisfied that there is no bad faith involved. However, the rule adopted by the majority places corporate management in a position whereby it can control and manipulate elections.
The high fiduciary duty which accompanies the office of corporate management was meant to check the possible abuse of power to which that position is susceptible. Yet, the majority has failed to observe this legal principle in its opinion.
The majority opinion states:
Implicit in the trial court’s findings, ... is the absence of any showing of fraud, bad faith or overreaching on the part of the company officers in allocating and casting the disputed votes at the time in question.
(Italics ours.) This statement and the tenor of the majority *275opinion have established a rule that places the burden of proving fraud, bad faith, or overreaching on the party challenging the validity of the vote. It is abhorrent to judicial process that the question of bad faith should be determined by the testimony of those who have control of the evidence. The majority opinion by this rule ignores the situation that the party guilty of the irregularity is the party in control of the meeting, in control of a major portion of the voting stock, and in control of the evidence as to how the ballots are cast, thus affording it the opportunity to manipulate elections. The evidence of good faith is in the hands of management, and there is no way to delve into their minds to determine their motives in such situations.
Here, the purpose of the meeting was twofold — to elect directors and to act upon any and all matters that may come “before the meeting” or “any adjournments.” It was also announced at the meeting that any outstanding ballots be turned in. The logical result of this is that all shareholders present at the meeting would believe that the balloting had ceased. This was demonstrated the following day when the plaintiffs were astonished to learn that management’s votes had not been cast until after the adjournment, whereupon they questioned the validity of the ballots so cast.
The majority has cited as authority a line of cases which, in effect, state that a shareholder, who through inadvertence, mistake, or other reasonable cause has not timely cast his ballot, may vote even though the polls are closed, so long as the final results are not announced and there is no bad faith or fraud. These cases are not 'apropos. They are concerned with a mere shareholder who through inadvertence has arrived late. They do not concern a situation where management, who controls the meeting and a major portion of the voting stock, is guilty of a voting irregularity as in this case. To allow such a precedent to be established, as permitted by the majority, opens the door to deceptive practices and would be against public policy.
■For the reasons above stated, I would invalidate the ballots irregularly cast.
Rosellini, J., concurs with Hunter, C. J.