Duffy v. Loft, Inc., a Corporation of State

• Decision Date: 22 December 1930
• Citation: 152 A. 849,17 Del.Ch. 376
• Court: United States State Supreme Court of Delaware
• Parties: FLORENCE M. DUFFY, Complainant Below, Appellant, v. LOFT, INCORPORATED, a corporation of the State of Delaware, Respondent Below, Appellee

152 A. 849

17 Del.Ch. 376

FLORENCE M. DUFFY, Complainant Below, Appellant, v. LOFT, INCORPORATED, a corporation of the State of Delaware, Respondent Below, Appellee

Supreme Court of Delaware

December 22, 1930

APPEAL FROM THE COURT OF CHANCERY. A decree having been entered in the court below in accordance with the opinion reported ante p. 140, the complainant appealed to the Supreme Court. The facts appear in the following opinion.

Decree of the Court affirmed.

Daniel O. Hastings and Ayres J. Stockly, of the firm of Hastings Stockly & Morris, for appellant.

Clarence A. Southerland, of the firm of Ward & Gray, George N. Davis and Charles C. Keedy, and Arthur F. Driscoll, of the firm of O'Brien, Malevinsky & Driscoll, of New York City, for appellee.

PENNEWILL C. J., and RICE, HARRINGTON, RICHARDS, and RODNEY, JJ. sitting.

OPINION

PENNEWILL, C. J.

The case before the court involves the validity of the election of directors of Loft, Incorporated, a corporation of this State, at an annual meeting of stockholders held on March 19, 1930. The determination of the question depends upon whether there was a majority of the stock of the corporation, represented in person or by proxy, at the meeting.

There are two other questions raised which are preliminary to the one mentioned, and they are,

1. Whether the meeting was legally held in view of the fact that a stockholder was elected chairman when the president of the company was present and insisting on acting as chairman, and

2. Whether the chairman, if one could be elected, had to be elected by a stock vote?

The only facts that need be stated at this point are the following:

The annual meeting called for twelve o'clock March 19th was opened at the proper time by Mr. Miller, president of the company, who announced that he wanted to make a statement or report before calling the meeting to order. This was vigorously objected to by some of the two or three hundred persons present, who insisted that the procedure of such a meeting fixed by the by-laws should be observed, and that the president might make his speech at the proper time. Such procedure they said was, first, calling the meeting to order, and second, the election of a chairman. Mr. Miller refused to recede from his position, being determined to make his statement to the stockholders before anything else was done. He positively refused to entertain any motion for the nomination or election of a chairman and insisted there was no necessity for such an election because he, as president, and he alone had the right to preside. He demanded a roll call to ascertain whether a majority of the stockholders were present and this was resisted. There ensued a great deal of plain and vigorous discussion, mainly by the attorneys and a few of the stockholders, and nothing resulted but confusion and bad feeling for a considerable time. Mr. Miller declined to put any motions or nominations, and likewise declined to relinquish the chair. The stockholders present at the meeting were, for the most part, divided into two factions, which may be designated as the Guth faction and the Miller faction. The former faction claimed that the meeting had a right to elect a chairman and the latter disputed it. Sometime during the progress of the long discussion it was said by the attorney for the Miller faction that even if a chairman could be elected it would have to be done by a stock vote, and that would necessitate a roll call and an examination of the proxies. The attorney for the Guth faction denied this, claiming that the election could be by a viva voce vote, taking his stand on the by-law provisions for the order of business, viz.: 1, Call of the meeting to order; 2, Election of a chairman. He argued that an examination of the proxies would take hours of time, and besides, it was provided for later in the order of business.

After much time had been consumed in discussion, the president maintaining his position and declining to put any motion, a stockholder moved that nominations be closed. There were two names in nomination for chairman, one of whom was a Dr. Sullivan; and the same stockholder said, "All in favor of Dr. Sullivan stand" and practically all present thereupon stood up. Dr. Sullivan took the chair and the meeting proceeded. Mr. Miller still insisted there was no necessity for the election of a chairman, and stated that if one was elected he must be elected by a majority of the stockholders. He also insisted that he had not relinquished the chair. Soon thereafter Mr. Miller and his friends left the meeting. A motion was then made and carried that a committee be appointed to see the present officers of the company and request them to produce the minutes of the previous meeting and all the books and documents of Loft, Inc. The committee reported that Miller refused to recognize their authority, to answer any questions, whereupon the chairman announced that the persons in question refused all information, all books and everything else in their possession belonging to Loft, Inc. Mr. Miller was waited upon later by a committee from the meeting and requested to return and make his report, but declined, saying, "I refuse to address the meeting for the reason that it is illegal and improper."

It was the legal duty of president Miller and other officers to produce at the meeting a list of stockholders and the original or duplicate stock ledger, but they were not produced, and presumably were taken away when Miller and his friends retired from the meeting. At any rate they refused to produce any books or papers belonging to the corporation when requested to do so. As officers of the corporation they had control of its books and papers.

After the withdrawal of Miller and his friends the meeting proceeded with Dr. Sullivan acting as chairman and in the course of its business elected a new board of directors.

It would be interminable to attempt to narrate all the proceedings of the tumultuous meeting referred to, but we think the facts stated are fairly gathered from the stenographic report of the meeting which appears in the record, and which both sides agree is as nearly accurate and complete as it was possible to make under the conditions there existing.

On the same day that the meeting was held, and while it was in progress, one Florence M. Duffy, a stockholder of Loft, Inc., presented a petition to the Chancellor alleging that various stockholders attended in person or by proxy the meeting held on March 19th, but no election was held and the meeting was adjourned; that it would be difficult if not impossible to hold a valid election under the conditions unless a Master was appointed. The petitioner, therefore, prayed that the Chancellor appoint a Master to call and hold a special meeting of the stockholders for the election of a new board of directors. On the same day there was filed in the Court of Chancery what purported to be an answer on behalf of the corporation, admitting the allegations of said petition and joining in the prayer thereof. This answer, signed by Alfred R. Miller, was alleged to have been made in pursuance of a resolution adopted by the board of directors at 4 P. M., March 19, 1930. Upon said petition and answer being presented the Chancellor made an order appointing a Master to hold an election. A second answer was filed on March 20, 1930, by the Guth faction, in the name of Loft, Incorporated, denying the allegations of the Duffy petition, and averring that a stockholders' meeting was held on March 19th; that a quorum was present; that ballots were cast and directors elected, and that there was therefore, no basis for the appointment of a Master to conduct another meeting. The answer further averred that there was no legal meeting of the board of directors held on March 19th, because the persons who presumed to constitute the board had ceased to be directors and their successors had been duly elected. On March 24, 1930, the Chancellor made an order directing that the order made on March 19th appointing a Master to hold a meeting of stockholders for the election of directors be vacated.

On March 25th the Chancellor made an order that the answer of Loft, Incorporated filed by the Guth faction be considered as framing an issue as to whether an election of directors, as averred in that answer, had been held on March 19, 1930.

Upon a petition filed by each party the Chancellor made an order requiring the production of proxies, the minute books of the corporation, the official list of stockholders, the stock ledger and all records of stock purchased or sold by Loft, Incorporated, between October 1, 1929 and March 19, 1930.

The Chancellor appointed Albert L. Massey Special Master "for the purpose of checking and verifying said proxies, ballots and slips of paper, with the duplicate stock ledger of Loft, Inc., in the possession of Corporation Trust Company of America, the resident agent of said Loft, Inc., and of ascertaining the correct number of shares of stock of Loft, Inc., represented by said proxies and slips of paper."

It is unnecessary to incorporate the Master's report, but two facts may be fairly gathered from his tabulations, viz.: That the Guth faction had substantially more votes than the Miller faction, and that unless the proxies of both factions were counted a majority of the stock of the corporation was not present and a...