Hilton Hotels Corp. v. Itt Corp.

• Decision Date: 21 April 1997
• Docket Number: No. CV-S-97-095-PMP(RLH).,CV-S-97-095-PMP(RLH).
• Citation: 962 F.Supp. 1309
• Parties: HILTON HOTELS CORPORATION and HLT Corporation, Plaintiffs, v. ITT CORPORATION, Defendant.
• Court: U.S. District Court — District of Nevada

962 F.Supp. 1309

HILTON HOTELS CORPORATION and HLT Corporation, Plaintiffs, v. ITT CORPORATION, Defendant.

No. CV-S-97-095-PMP(RLH).

United States District Court, D. Nevada.

April 21, 1997.

Steve Morris, Kristina Pickering, Matthew McCaughey, Schreck Morris, Las Vegas, Bernard A. Nussbaum, Eric M. Roth, Marc Wolinsky, Scott L. Black, Alexander Shaknes, Wachtell, Lipton, Rosen & Katz, New York City, for Plaintiffs.

Thomas Kummer, Von Heinz, Kummer Kaempfer Bonner & Renshaw, Las Vegas, Rory Millson, Cravath, Swaine & Moore, New York City, for Defendant.

ORDER

RE PRELIMINARY INJUNCTION

PRO, District Judge.

Before the Court for consideration is the Motion of Plaintiffs Hilton Hotels Corporation and HLT Corporation ("Hilton") for a Preliminary Injunction (# 34) requiring Defendant ITT Corporation to conduct its annual meeting in May 1997. Hilton's Motion seeks mandatory preliminary relief. It is, therefore, subject to heightened scrutiny and the injunction requested should not issue unless the facts and the law clearly favor Hilton. Dahl v. HEM Pharmaceuticals, 7 F.3d 1399, 1403 (9th Cir.1993), and Anderson v. U.S., 612 F.2d 1112, 1114 (9th Cir.1979). For the reasons set forth below, the Court finds that Hilton has not satisfied this burden and that its Motion for Preliminary Injunction must, therefore, be denied.

First, neither Nevada law nor ITT's bylaws require that the 1997 annual meeting be conducted in May.

Pursuant to NRS 78.330, annual meetings are held by Nevada corporations to enable shareholders to elect directors and to conduct other business of the corporation. However, Hilton misapprehends the term "annual meeting" as used in the Nevada Revised Statutes and ITT's bylaws as requiring that such a meeting be conducted every twelve months. If that were the intent of the Nevada Legislature or ITT, they could have easily and clearly said so in the governing statutes and bylaws. Indeed, an annual meeting every twelve months is precisely what was provided for by the corporate bylaws at issue in the seminal case relied upon by Hilton for the proposition that an annual meeting is required every twelve months for Nevada corporations. Nevada ex. rel. Curtis v. McCullough, 3 Nev. 202 (1867). See also ER Holdings v. Norton Co., 735 F.Supp. 1094, 1097 (D.Mass.1990). Instead, Section 1.2 of ITT's bylaws conforms to NRS 78.330(1) and provides that ITT's annual meeting shall be held at such date, time and place as determined by the Board of Directors.

The Court finds persuasive the Affidavit of Professor John C. Coffee, Jr., that the term "annual meeting" at issue must be understood as an adjective which "distinguishes the regular meeting for the election of directors for other special meetings called by the board for the stockholders." See Coffee Affidavit, paragraph 32 appended to ITT's Memorandum in Opposition (# 62). The Court's conclusion is reinforced by the provisions of NRS 78.345(1) which provide:

If any corporation fails to elect directors within 18 months after the last election of directors required by NRS 78.330, the district court has jurisdiction in equity, upon application of any one or more stockholders holding stock entitling them to exercise at least 15 percent of the voting power, to order the election of directors in the manner required by NRS 78.330.

Hilton has offered, and the Court can divine no reason why the Nevada Legislature would postpone for six months a shareholder's remedy for a corporation's failure to hold an annual meeting which the Legislature intended to be held within twelve months of the prior annual meeting. The Court concludes that, subject to the right of a board of directors to specify a shorter period, annual meetings for Nevada corporations are contemplated to occur no later than eighteen months after the last such meeting. See Ocilla Indus. v. Katz, 677 F.Supp. 1291, 1301 (E.D.N.Y.1987).

Hilton alternatively argues that even if consistent with Nevada law and ITT's bylaws, failure to conduct an annual meeting in May 1997 would constitute a breach of the fiduciary duty owed by ITT's incumbent Board of Directors to its shareholders.

Courts have consistently prevented actions by an incumbent board of directors which were primarily designed to impair or impede the shareholder franchise. In a recent case recognizing the importance of the shareholder vote, but arising from a substantially different factual context than is presented here, Judge Edward C. Reed, Jr., reiterated that shareholders of a corporation generally have, "`only two protections against perceived inadequate business performance. They may sell their stock ..., or they may vote to replace incumbent board members.' Thus, interference with shareholder voting is an especially serious matter, not to be left to the directors' business judgment, precisely because it undercuts a primary justification for allowing directors to rely on their judgment in almost every other context." Shoen v. AMERCO, 885 F.Supp. 1332, 1340 (D.Nev. 1994), vacated by stip., (D.Nev.1995) (Citation omitted).

This Court fully embraces the foregoing principles expressed in Shoen. However, given the saliently different facts presented in this case, Hilton's reliance on Shoen is misplaced. Shoen, among other things, involved a situation in which the incumbent board of directors of Americo advanced an already noticed annual meeting date by two months for the primary purpose of re-electing the incumbent board before an arbitration decision was issued which might render the incumbent board unable to control dissident shareholder shares for voting purposes, and before Paul Shoen, a dissident shareholder, had the opportunity to campaign for a seat on the board and seek amendment to the bylaws. Relying principally on Blasius Indus. v. Atlas Corp., 564 A.2d 651 (Del.Ch. 1988), the Shoen Court found that the incumbent board demonstrated no compelling justification for its actions and had thus breached its fiduciary duty to Americo's shareholders.

The circumstances presented here are far different from those in...