Opinion
June 13, 1990
J. Timothy Embser for petitioner.
J. Michael Shane and Jaeckle, Fleischmann Mugel (Joseph Kubarek of counsel), for respondent.
The proceeding before the court is brought under the provisions of CPLR article 78. It seeks to confirm the purported election of directors of the respondent corporation and compel that company to accept such persons as directors.
The annual meeting of the shareholders of the Allegany Co-Op Insurance Company was scheduled to take place at the office of the company in the Village of Friendship, New York, on April 11, 1990.
Consistent with past practice the board of directors of the company designated the chairman to preside at the annual meeting. The designee was one Wilson Gilbert, a director of the company. His selection was approved by the vote of the petitioner Cyril Jordan as well as by all other directors of the company.
As a consequence of the failure of the petitioner to object to the designation of Wilson Gilbert to act as chairman, the petitioner is deemed to have waived his right to object to the action taken at that meeting. (Matter of Willoughby Walk Coop. Apts., 104 Misc.2d 477, 479 [Sup Ct, Kings County 1980], citing as authority a decision of the United States Supreme Court: "Participation at board meetings binds a participant to the action taken and denies to him the right to question the validity of the meeting [Handley v Stutz, 139 U.S. 417, 423].")
The absence of a specific bylaw of the corporation detailing the manner of selection of a chairman of the annual meeting is of no consequence. In a decision by the Fourth Department, Appellate Division, whose decisions are binding on this court, it was held in Matter of Young v Jebbett H. ( 213 App. Div. 774, 779) that "[i]n the absence of express regulations by statute or by-law, the conduct of meetings [and elections] is controlled * * * by accepted usage * * * common practice [and] [t]he fundamental rule * * * that all who are entitled to take part shall be treated with fairness and good faith." Here the designation of the chairman of the annual meeting by action of the board of directors was consistent with the procedure which had been adopted and followed by the company since its inception.
Since petitioner raises no issue of fraud, self-dealing or bad faith concerning the designation of Wilson Gilbert by the board of directors, this court holds such designation valid and binding.
The court holds that Wilson Gilbert was properly appointed to act as chairman of the annual meeting of the respondent corporation.
The court turns now to a consideration of the conduct of the annual meeting by the designated chairman, Wilson Gilbert.
The room designated at the corporate headquarters for the annual meeting was located on the third floor. It was the room which had been used for previous annual meetings. The evidence given was that the room could accommodate approximately 30 people.
The difference between the annual meeting in question and prior annual meetings was the number of shareholders who appeared. The evidence given and undisputed was that at prior annual meetings on occasion one or two shareholders would appear but more often no shareholders appeared. While the evidence is not definitive as to number, it does appear that a reasonable estimate is that approximately 100 shareholders appeared for the annual meeting in question.
Concern about the adequacy of the size of the designated room to accommodate the large number of appearing shareholders and concerned also about their safety, the chairman, Wilson Gilbert, consulted with the president of the company, John Potter, and with the secretary of the company, Betty Butler, as well as the corporate attorney, David Franz.
To confirm the unanimous recommendation of this group of four that an adjournment was necessary, Mr. Potter, president of the corporation, placed a phone call to the office of the Superintendent of Insurance and spoke to Attorney Robert Ginley in that office of the Superintendent. Upon Potter's inquiry, Attorney Ginley advised that Gilbert could properly adjourn the meeting providing the shareholders were advised when and where the adjourned meeting would be held.
At this point Chairman Gilbert attempted to find other facilities available for continuance of the meeting that day. He inquired by telephone of the availability of other facilities in the Friendship area. He learned none were available. Further inquiry by Gilbert disclosed that the Fire Hall in the Village of Scio capable of accommodating the number attending would be available on the date of April 17, 1990.
Returning to the third-floor corporation room designated as the place of the annual shareholders' meeting, Gilbert convened the meeting and immediately announced that it was adjourned to April 17, 1990 at the Fire Hall in Scio, New York. In the few moments intervening between calling the meeting to order and adjourning the meeting, confusion reigned. While it appears clear that some attempt was made to have one Paul Wind named as chairman of the meeting, it is disputed if a motion was made to that effect. It is also disputed that such motion, if made, was seconded. It is undisputed that a vote to have Paul Wind act as chairman of the annual meeting was not taken.
It is also disputed whether or not Paul Wind appealed the decision of the Chairman Gilbert to adjourn the meeting. However, it is not disputed that the chairman did not entertain such appeal if made and it is clear that no vote was taken on any objection to the announced adjournment.
Neither does it appear that any vote was taken on a motion made and seconded to adjourn the meeting. A fair reading of the evidence as to this phase of the meeting is that it was characterized by considerable shouting, movement, confusion and disorder. The court finds the meeting was adjourned by action of the designated chairman, Wilson Gilbert.
There is no evidence that the adjournment was made on considerations other than inadequacy of space, and safety of those attending from danger of fire and possible physical harm through jostling and the collapse of flooring and stairway. There is absolutely no evidence that the adjournment was called for the purpose of thwarting the wishes of the shareholders. It is that consideration that makes the decision in Matter of Dollinger v Dollinger Corp. ( 51 Misc.2d 802) inapplicable. The court holds that the action of adjournment taken by the Chairman Gilbert was proper under the circumstances existing.
Apparently frustrated with the announced adjournment, Paul Wind then arrogated to himself the authority to announce that the meeting was adjourned to the first floor. Wind then proceeded to an office on the first floor, called a meeting to order and acting as self-appointed presiding officer entertained a motion that he, Wind, be appointed chairman of the meeting which he was already chairing. There is no record of the vote taken on this motion. This court holds the action of Mr. Wind and any purported vote naming him as acting chairman to be entirely without authority, devoid of legal sanction and completely void.
In so holding this court notes that the facilities sought to be used on the first floor of the corporate headquarters were also inadequate. The one room in which the adjourned meeting was attempted to be conducted was too small to accommodate the shareholders. Some were required to locate themselves in adjacent offices where they could neither see nor hear the proceeding attempted to be conducted. At the same time an estimated 25 to 30 shareholders were still seated in the original third-floor room and a smattering of shareholders were located at various locations on the steps leading from the first to the third floor.
It was at the purported meeting on the first floor that it is contended that a new slate of directors of the company was elected. This court is asked to confirm their election.
There are so many irregularities that attend this purported election of directors that one scarcely knows where to commence to enumerate them.
The court has already noted that the facilities sought to be used would not accommodate the number of shareholders and that those shareholders in attendance ranged in location from the third floor, to the stairways, to adjacent offices, all without ability to participate in the proceeding attending the purported election of directors.
While an attempt was made by officers and employees to ascertain the identity and eligibility of voters to participate in the noticed annual meeting conducted on the third floor, no similar procedure was followed in the meeting of the insurgents later conducted on the first floor.
The oral acclaim procedure by count-off followed for the purported election of directors at the first-floor meeting was not in conformity to the bylaws of the corporation which require that directors be elected by ballot, a deficiency which alone has been held to nullify an election. (Matter of F.D.R. — Woodrow Wilson Democrats, 57 Misc.2d 743 [Sup Ct, N Y County 1968].)
Further it appears that at the meeting on the first floor, an attempt was made to fill a vacancy on the board of directors. Again, the bylaws of the corporation provide that vacancies shall be filled by action of the directors.
Finally it appears that at the meeting on the first floor an attempt was made to change the corporate name of the company. Section 1208 (a) (1), (2) of the Insurance Law specifically provides that such action may only be taken at a meeting called for that purpose and then only by action of three fourths of the members present. The agenda for the annual meeting contained no reference to a change of corporate name and thus the issue was improperly presented to the shareholders. Further, there is no record that would indicate by what percentage the motion to change the corporate name was passed.
There is no question but that the operation of corporate meetings lies with the board of directors of a corporation. Our courts are not only reluctant but, in fact, precluded from intervening in the lawful and legitimate furtherance of corporate business. However as Justice Edgcomb observed in writing the decision for the Fourth Department, Appellate Division, in the case analogous to the one at bar: "[I]f reasonable grounds exist to indicate that the election under review has not been conducted in a proper, regular or fair manner, it should not be confirmed. If the result is not free from suspicion, or is clouded in doubt, and justice demands, we may in all fairness require the parties to start over again. When right, justice and fair play require, a new election should be ordered (Matter of Bogart, 215 App. Div. 45. )" (Matter of Kaminsky, 251 App. Div. 132, 139-140 [4th Dept 1937], affd 277 N.Y. 524.)
For all of the reasons noted this court is compelled to follow the rule and the application of that rule made in Matter of Kaminsky (supra) and accordingly orders that judgment be entered refusing to confirm the election of any persons as directors at the annual meeting of the shareholders of Allegany Co-Op Insurance Company on April 11, 1990 and that in the interest of justice, a new annual meeting of the shareholders be convened in conformity to past practices, applicable bylaws and statutory provisions pertaining thereto.