Parshalle v. Roy, 10937
| Decision Date | 19 September 1989 |
| Docket Number | No. 10937,10937 |
| Citation | 567 A.2d 19 |
| Parties | Gerald S. PARSHALLE and Michael S. Ariens, Petitioners, v. Real O. ROY and Quinn W. Martin, Respondents. Real O. ROY and Quinn W. Martin, Counterclaim Petitioners, v. Gerald S. PARSHALLE and Michael S. Ariens, Counterclaim Respondents, v. REALIST, INC., a Delaware corporation, Additional Counterclaim Respondent. Civ. A. |
| Court | Court of Chancery of Delaware |
JACOBS, Vice Chancellor.
This action was commenced on June 27, 1989, pursuant to 8 Del.C. § 225, by petitioners Gerald S. Parshalle ("Parshalle") and Michael S. Ariens ("Ariens"). Petitioners seek a declaration that they were duly elected as directors of Realist, Inc. ("Realist") at Realist's annual shareholders meeting held on June 6, 1989. On July 11, 1989, respondents Real O. Roy ("Roy") and Quinn W. Martin ("Martin") filed their answer and counterclaim seeking a declaration that they, rather than Parshalle and Ariens, were duly elected as directors of Realist at that meeting. This is the decision of the Court after expedited discovery, briefing, and a final hearing on the merits. 1
The pertinent facts are not disputed. Described in this section are the essential background facts. Recited in the sections that follow are the facts that relate specifically to the parties' specific claims.
Realist is a Delaware corporation having its principal offices in Menomonee Falls, Wisconsin, and is engaged in the business of manufacturing micrographic systems and technology equipment for certain optical and electronic surveying instruments. Realist common stock is publicly traded on the over-the-counter market and is quoted on the NASDAQ system.
Parshalle has been Realist's President and Chief Executive Officer, and has served on its Board of Directors, since 1977. Ariens is the president and chief executive officer of an outdoor power equipment and snowblower manufacturer, and has served on Realist's Board of Directors since 1980. Realist's Board members serve staggered terms. The terms of Messrs. Parshalle and Ariens expired at the annual shareholders meeting on June 6, 1989. Those two gentlemen were the "management" nominees for reelection at that annual meeting.
Respondents Roy and Martin were the candidates nominated by the Royal Business Group ("Royal") to oppose Parshalle and Ariens. Royal is a holding company that has expressed an interest in acquiring Realist. Mr. Roy is Royal's president and chief executive officer, and Mr. Martin is an attorney with a Milwaukee law firm that serves as counsel to Royal.
The incumbent management and the Royal Group conducted opposing proxy solicitations on behalf of their respective candidates. Nonetheless, the two opposing factions, acting through Royal and Realist, were able to agree upon certain "rules of the game." Their accord was embodied in a formal "Agreement Governing Conduct" for the 1989 stockholders meeting (the "June 6 Agreement"). That document, which was executed on June 6, 1989, set forth procedures to govern the conduct of the meeting and the voting of shares. The June 6 Agreement also contained a comprehensive list of presumptions (the "Presumptions") that would govern in resolving any disputes over the validity and effect of proxies.
The annual shareholders meeting was convened on June 6, 1989, and remained in session until all attending stockholders had the opportunity to cast their ballots. The meeting was then adjourned until the final tabulation of votes was announced.
On June 7, 1989, representatives of First Wisconsin Trust Company, which served as the inspector of elections (the "Inspector"), met with representatives of Realist and Royal to discuss the preliminary tabulation of votes. That tabulation indicated that Ariens and Parshalle had been elected. Because the parties identified certain errors in the tabulation, they agreed that the preliminary tabulation would be withdrawn. Thereafter, on June 9, 1989, the Inspector released a revised preliminary tabulation that indicated that the Royal slate, Messrs. Roy and Martin, had been elected by a small margin.
On June 13 and 14, 1989, representatives of Realist and Royal presented and responded to challenges to the Inspector's tabulation of certain proxies. On June 16, the Inspector issued its ruling on the challenges and its final report, which declared that Messrs. Roy and Martin had been duly elected as directors. The Inspector's report announced the following voting results:
Name of Nominee Number of Votes
------------------- ---------------
Real O. Roy 291,864
Quinn W. Martin 290,364
Michael S. Ariens 280,898
Gerald S. Parshalle 278,118
At the reconvened stockholders meeting on June 16, 1989, the Chairman of Realist's Board accepted the Inspector's report, subject to the right of either party to challenge the Inspector's determination under Delaware law. This action followed.
The petitioners, Parshalle and Ariens, advance two distinct proxy challenges. The first concerns a proxy of Fundamental Investors, Ltd., a Florida limited partnership ("Investors"), voting 6,000 shares of Realist stock in favor of Roy and Martin. The petitioners claim that the person who executed that proxy on Investors' behalf had no authority to do so and that, therefore, the Inspector erred as a matter of law in counting that proxy.
The petitioners' second proxy claim concerns "datagram" proxies submitted on behalf of Fundamental Resources, Ltd. ("Resources") and Fundamental Associates, Ltd. ("Associates"). Resources and Associates each hold of record 6,000 shares of Realist common stock. Petitioners contend that the Inspector erroneously counted those 12,000 combined shares as having been voted in favor of Roy and Martin, because the datagram proxies are invalid as a matter of law. The datagram proxies are claimed to be invalid because (i) they do not comply with the requirements of 8 Del.C. § 212(c) and Realist's by-laws, and alternatively, (ii) because of the procedures utilized to obtain and prepare the datagram proxies, those proxies lack the indicia of authenticity and genuineness needed to accord them a presumption of validity. That claim, if upheld, would invalidate the election of Roy and Martin. 2
The petitioners contend that if the Court were to reject both of their contentions, it must uphold the Inspector's determination that Roy and Martin are the duly elected directors. The respondents contend that if one or both of the petitioners' proxy challenges is upheld, the Court must address the respondents' counterclaim.
The thrust of respondents' counterclaim is that the entire election must be invalidated because it was procured by materially misleading disclosures in the "management" proxy solicitation. The respondents argue that the "management" proxy statement violated the directors' fiduciary duty of disclosure, because it omitted two critical facts: (i) that Realist was then negotiating, and had previously executed a letter of intent, to acquire a Swiss company named Ammann Laser Technik, AG ("ALT"), and (ii) that only five days before the election, Parshalle and another Realist director had each purchased 13,000 shares of Realist stock and, pursuant to the same agreement, had received proxies to vote those shares. That 26,000 share purchase increased Parshalle's ownership of the outstanding Realist shares from 3.8% to 6%, and increased management's collective ownership by over 4%, to a total of 26% of the outstanding shares.
For the reasons now discussed, I conclude that: (a) the petitioners' claim that the Investors' proxy is invalid must be rejected, (b) the petitioners' claim that the datagram proxies are invalid must be upheld, and (c) because of the nature of the relief to be granted in respect of the petitioners' datagram proxy claim, namely, the ordering of a new election, it is unnecessary to address the respondents' counterclaim.
The facts essential to the petitioners' challenge to the Investors' proxy are straightforward. On or about May 23, 1989, Realist received a proxy that voted Investors' 6,000 shares in favor of Ariens and Parshalle. That proxy had been executed on Investors' behalf by Marius A. Robinson, one of Investors' two general partners. On June 2, 1989, Realist received a second proxy, executed on behalf of Investors by Carl M. Singer, who is the chief executive officer of Investors' other general partner. That second proxy voted Investors' Realist shares in favor of Roy and Martin. Because both proxies were submitted on behalf of the same registered owner and voted an identical number of shares, the Inspector concluded that the later proxy revoked the earlier one. Accordingly, the Inspector decided to count the later-dated proxy executed by Mr. Singer, which voted Investors' 6,000 shares in favor of Messrs. Roy and Martin.
Petitioners challenge that determination, arguing that Mr. Singer had not been authorized in these peculiar circumstances to execute a proxy on behalf of Investors. Affidavits submitted during this litigation establish that while Mr. Singer was authorized to conduct the day-to-day activities of Investors and to address routine matters, the Investors' partnership agreement prescribed that if the general partners disagreed on matters relating to Investors, Mr. Robinson's decision would control. The affidavits also establish that the later-filed proxy was submitted as the result of a misunderstanding (or, more accurately, a failure...
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