Ronnen v. Ajax Elec. Motor Corp.
| Decision Date | 09 July 1996 |
| Parties | , 671 N.E.2d 534 Deborah RONNEN, Individually and as Guardian for Lia Ronnen and Others, et al., Appellants, v. AJAX ELECTRIC MOTOR CORP. et al., Respondents. Neil NORRY, Respondent, v. Deborah RONNEN et al., Appellants. |
| Court | New York Court of Appeals Court of Appeals |
The opposing parties to this litigation are brother and sister who, with their children, collectively hold a bare majority of the issued and outstanding shares of the capital stock of Ajax Electric Motor Corp., a closely held corporation based in Rochester. Respondent Neil Norry has been the chief executive officer of Ajax. The immediate matter in dispute is the validity of the election of the board of directors of the corporation at its annual shareholders' meeting held March 13, 1995.
Central to that dispute is a March 5, 1982 shareholders' agreement between Norry (and his two sons) and his sister, appellant Deborah Ronnen, on behalf of herself and as custodian for her children. The shareholders' agreement granted Norry certain rights to vote Ronnen's stock and that of her children.
The March 13, 1995 shareholders' meeting began in acrimony between Ronnen and Norry, who initially chaired the meeting. Immediately prior to the meeting, Ronnen served Norry with a temporary restraining order prohibiting him from voting the Ronnen shares regarding proposed amendments to the Ajax bylaws and certificate of incorporation, which were on the agenda for the meeting. When the meeting convened, Ronnen's attorney had the proceedings videotaped, without prior notice to Norry. In response to these actions, Norry announced that the meeting was being adjourned. Over Ronnen's protest, he voted the Ronnen shares with the Norry shares for a combined majority vote to adjourn and left the meeting. In his absence, Ronnen and the remaining shareholders of Ajax, including appellants Bruce Lipsky and Joseph Livingston, elected a slate of directors.
Norry then brought a proceeding, pursuant to Business Corporation Law § 619, to invalidate the election of directors in his absence and for an order directing a new election. Ronnen, Lipsky and Livingston petitioned under section 619 to confirm the election. Supreme Court interpreted the shareholders' agreement as giving Norry the right to vote the Ronnen shares in any election of a board of directors. This factor, together with the hostile atmosphere permeating the March 13, 1995, meeting, led Supreme Court to conclude that a new election should be held. The Appellate Division affirmed the order for a new election of directors, with two Justices dissenting on the ground that the shareholders' agreement did not transfer Ronnen's voting rights to Norry for board of directors elections and that the election was in other respects properly conducted. Ronnen, Lipsky and Livingston appeal as of right on the basis of the double dissent (see, CPLR 5601[a] ).
We now affirm. The parties are not in dispute over the circumstances leading up to the March 5, 1982 agreement between the Norry shareholders and Ronnen. Ajax had been a highly prosperous distributor of electric motors nationwide, founded by Irving Norry (the father of Neil Norry and Deborah Ronnen), Sydney Gilbert and David Lipsky. Irving Norry and his wife had, by 1980, transferred by gift or sale all of their shareholdings in Ajax to their two children and their families. Friction developed between Norry and Ronnen regarding, among other things: Norry's acquisition for his children of his mother's Ajax shares, upsetting the equality of the Norry siblings' interests in the corporation; Ronnen's displeasure over an irrevocable option her brother had been granted in 1967 to acquire her Ajax shares under what she considered an inadequate price formula; the level Norry had fixed for his compensation and other alleged financial self-dealing in Ajax and in Norry Electric Co., a separate family business; and Ronnen's objection to not being kept informed of financial decisions Norry made in connection with the management of both corporations. Ronnen wished to ensure that her interest in Ajax could be passed on to her children free of interference by Norry. Norry expressed willingness to accommodate Ronnen, provided he was guaranteed continued managerial control of Ajax and was given the opportunity to acquire the Ronnen shares in Ajax before they could be sold to an outsider. He also wished to buy out his sister's interest in Norry Electric Co. These various objectives of the parties were implemented in the shareholders' agreement and other contemporaneous transactions.
The shareholders' agreement recited as one of its purposes "to provide for the vote of [the Norry and Ronnen families'] Shares in order to provide for continuity in the control and management of Ajax." The primary voting control provision was set forth in paragraph 8 of the agreement. Subparagraph 8(a) provided that the Ronnen shareholders "agree that Neil Norry shall exercise voting rights over the Shares owned by them * * * with respect to any and all matters relating to Ajax's day-to-day operations and corporate management" (emphasis supplied). Norry was also given the right to vote the Ronnen shares regarding any sale of substantially all of Ajax's assets or stock to an outside party, provided that the transaction treated the Norry and Ronnen interests equivalently. The agreement, however, reserved to Ronnen the right to vote the Ronnen shares "[i]n connection with other major corporate policy decisions," and listed as examples of such major decisions, "other types of corporate reorganizations" and other similar actions. Subparagraph 8(b) gave Norry an irrevocable proxy to vote the Ronnen shares as provided in the preceding subparagraph.
The unambiguous words of paragraph 8 and the recital purpose clause of the agreement present an issue of pure contract interpretation for the court (see, Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456, 460, 161 N.Y.S.2d 90, 141 N.E.2d 590; Brainard v. New York Cent. R.R. Co., 242 N.Y. 125, 133, 151 N.E. 152), and admit of no construction other than the conferral to Norry of the right to vote the Ronnen shares in any election of a board of directors of Ajax. The undisputed background facts support this interpretation as well (see, Brainard v. New York Cent. R.R. Co., supra ). The parties have not cited to any provision of the Ajax certificate of incorporation transferring corporate management decisions from the board of directors to the shareholders (see, Business Corporation Law § 620[b] ). Therefore, management of the business of Ajax was, by statute, exclusively "under the direction of its board of directors" (Business Corporation Law § 701; see, McQuade v. Stoneham, 263 N.Y. 323, 329, 189 N.E. 234, rearg denied 264 N.Y. 460, 191 N.E. 514).
We have held that "the law in force at the time [an] agreement is entered into becomes as much a part of the agreement as though it were expressed or referred to therein, for it is presumed that the parties had such law in contemplation when the contract was made and the contract will be construed in the light of such law" (Dolman v. United States Trust Co., 2 N.Y.2d 110, 116, 157 N.Y.S.2d 537, 138 N.E.2d 784). Thus, without the right to vote the Ronnen shares to elect the directors of the corporation, the transfer of voting rights regarding "corporate management" under subparagraph 8(a) of the agreement would be essentially meaningless since management control was vested in the directors and not the shareholders. We have long and consistently ruled against any construction which would render a contractual provision meaningless or without force or effect (see, Two Guys from...
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