306 N.Y. 427, 118 N.E.2d 590 (1954)
R. Hoe & Co., Inc. maintained a certificate of incorporation that authorized eleven directors, of whom class A stockholders elected nine and common stockholders elected two.1 Joseph L. Auer, who had served as president, was removed from that office by the board of directors.2
On October 16, 1953, class A stockholders holding slightly more than 55 percent of the class A shares submitted written requests to the president demanding that he call a special meeting of class A stockholders.3 The president did not call the meeting.4 One week after the requests were delivered, the petitioners commenced this article 78 proceeding in the nature of mandamus to compel the president to call the special meeting.5
The corporation and the president filed an answer on October 28, 1953, that contained only a denial of knowledge or information sufficient to form a belief as to the stockholdings of the persons who had signed the requests.6 The four purposes listed in the requests were voting on a resolution endorsing Auer's administration and demanding his immediate reinstatement as president; voting on a proposal to amend the certificate and by-laws so that vacancies among class A directors would be filled only by class A stockholders; hearing charges against four class A directors, determining whether their conduct was inimical to the corporation, and voting on their removal and the election of successors; and voting on a proposal to amend the by-laws to establish a quorum requirement of at least half the directors then in office and at least one third of the authorized number of directors.7
The charges against the four directors named in the third purpose appeared in a proxy statement circulated by petitioners' protective committee.8 Those charges concerned a July 2, 1953 board resolution offering Auer $50,000 severance pay conditioned on his resignation and agreement not to participate in hostile action against the company or its officers and directors.9 They also concerned monthly rental payments of $300 to one director for office space, and a $5,000 fee paid to a friend and client of that director for appraisal work.10
Whether the president of R. Hoe & Co., Inc. had a duty under the corporation's by-laws to call a special meeting of class A stockholders upon written request by holders of a majority of the class A stock?11
The by-laws provide that it shall be the duty of the President to call a special meeting whenever requested in writing so to do, by stockholders owning a majority of the capital stock entitled to vote at such meeting.12 There is no discretion in this corporate officer as to whether or not to call a meeting when a demand therefor was put before him by owners of the required number of shares.13 The important right of stockholders to have such meetings called will be of little practical value if corporate management can ignore the requests, force the stockholders to commence legal proceedings, and then, by purely formal denials, put the stockholders to lengthy and expensive litigation.14
Yes. The written requests submitted on October 16, 1953 were signed by holders of slightly more than 55% of the class A stock.15 The president's answer filed on October 28 contained only a perfunctory denial that raised no issue whatever.16 Special Term correctly disposed of the matter summarily as commanded by section 1295 of the Civil Practice Act.17 The president had no discretion to refuse the demand put before him by owners of the required number of shares.18
The president had a duty under the by-laws to call the special meeting.19
Related opinions on this issue
Joined by Conway, J.
Justice Van Voorhis dissented on the ground that the president was justified in declining to call the meeting if none of the proposals could be acted upon legally at the projected meeting.20 He explained that mandamus lies only to enforce a clear legal right and that stockholders' meetings at which illegal action is proposed to be taken are restrained by injunction.21 In his view, when mandamus is invoked to compel officers to call stockholders' meetings, it is within the discretion of the court to deny the writ for good legal reasons, and this discretion is reviewable in the Court of Appeals.22
He concluded that the petition should be dismissed because none of the business for which the special meeting was proposed could legally be transacted.23
Whether class A stockholders could properly vote at such a meeting on a resolution endorsing the administration of former president Joseph L. Auer and demanding his reinstatement?24
The stockholders, by expressing their approval of Mr. Auer's conduct as president and their demand that he be put back in that office, will not be able, directly, to effect that change in officers, but there is nothing invalid in their so expressing themselves and thus putting on notice the directors who will stand for election at the annual meeting.
Yes. The class A stockholders may vote on the resolution endorsing Auer's administration and demanding his reinstatement even though they cannot directly effect the change in officers.25 Such a vote serves to put on notice the directors who will stand for election at the annual meeting.26 The resolution constitutes a valid expression of stockholder sentiment regarding corporate management.27
Class A stockholders could properly vote on the resolution endorsing Auer's administration and demanding his reinstatement.28
Related opinions on this issue
Joined by Conway, J.
Justice Van Voorhis dissented on the ground that voting on the proposition to endorse Auer and demand his reinstatement would be an idle gesture.29 He noted that section 27 of the General Corporation Law provides that the business of a corporation shall be managed by its board of directors and that it is the function of the directors and not of the stockholders to appoint the officers of the corporation under Stock Corporation Law section 60.30 He concluded that the president was justified in declining to call a meeting for this purpose.31
Whether class A stockholders could vote on a proposal to amend the certificate of incorporation and by-laws to authorize class A stockholders to fill vacancies among class A directors arising from removal on charges or resignation?
The stockholders who are empowered to elect directors have the inherent power to remove them for cause. Since these particular stockholders have the right to elect nine directors and to remove them on proven charges, it is not inappropriate that they should use their further power to amend the by-laws to elect the successors of such directors as shall be removed after hearing, or who shall resign pending hearing. Such a change in the by-laws, dealing with class A directors only, has no effect on the voting rights of the common stockholders.
Yes. The class A stockholders possess the inherent power to remove directors for cause and may amend the by-laws to authorize themselves to fill resulting vacancies among the class A directors.32 The proposed amendment does not impair the voting rights of common stockholders, who elect only the remaining two directors.33 The certificate provision authorizing the board to remove directors on charges provides an additional method rather than an abdication of the stockholders' traditional power.34
Class A stockholders could vote on the proposal to amend the certificate and by-laws to authorize class A stockholders to fill vacancies among class A directors.35
Related opinions on this issue
Joined by Conway, J.
Justice Van Voorhis dissented on the ground that the proposed amendment would impair the existing right of the common stockholders to participate in filling vacancies upon the board of directors.36 He explained that the certificate vests voting rights with respect to all matters other than the election of directors exclusively in class A stock, yet the common stockholders are entitled to participate directly in the election of two directors who in turn are authorized to vote to fill vacancies among class A directors.37 He concluded that the alteration would reclassify voting powers within the meaning of subdivision 3 of section 35 of the Stock Corporation Law and could not be adopted without the vote of holders of all shares adversely affected under section 51.38
Whether class A stockholders could hear charges against four class A directors, determine whether their conduct was inimical to the corporation, and vote on their removal and the election of successors?
The stockholders who are empowered to elect directors have the inherent power to remove them for cause. Of course, there must be the service of specific charges, adequate notice and full opportunity of meeting the accusations.39 Any director illegally removed can have his remedy in the courts. The charges here are not, on their face, frivolous or inconsequential, and all that we are holding as to the charges is that a meeting may be held to deal with them.
Yes. The class A stockholders have the inherent power to remove directors for cause after service of specific charges, adequate notice, and full opportunity to meet the accusations.40 A meeting may be held to hear the charges against the four class A directors, determine whether their conduct was inimical to the corporation, and vote on removal and election of successors.41 Any director illegally removed retains a remedy in the courts.42
Class A stockholders could hear the charges, determine whether the conduct was inimical, and vote on removal and election of successors.43
Related opinions on this issue
Joined by Conway, J.
Justice Van Voorhis dissented on the ground that neither the language nor the policy of the corporation law subjects directors to recall by the stockholders before their terms expire merely to change corporate policy.44 He explained that fraud or breach of fiduciary duty must be shown and that directors may be removed before expiration of term by an action under subdivision 4 of section 60 of the General Corporation Law or by the board under paragraph Fourteenth of the certificate.45 He concluded that the petition fails to state facts showing the remaining directors would be disqualified and that the delegation of removal power to the directors in the charter precludes exercise of the same power by the stockholders.46
He further noted that voting by proxy is unsuited to the performance of duties partaking of the judicial function, as the accused directors would be adjudged guilty in absentia by shareholders who have neither heard nor will hear the evidence.47
Whether class A stockholders could vote on a proposal to amend the by-laws to require that a quorum of directors consist of at least half the directors in office and at least one third of the whole authorized number?
No reason appears why the class A stockholders should not be allowed to vote on any or all of those proposals. The obvious purpose of the meeting here sought to be called is to hear charges against four of the class A directors, to remove them if the charges be proven, to amend the by-laws so that the successor directors be elected by the class A stockholders, and further to amend the by-laws so that an effective quorum of directors will be made up of no fewer than half of the directors in office and no fewer than one third of the whole authorized number of directors.
Yes. The class A stockholders may vote on the proposal to amend the by-laws to establish the described quorum requirement.48 No reason appears why they should not be allowed to vote on this proposal as part of the overall purposes of the special meeting.49 The amendment addresses the practical need for an effective quorum following any removal of directors.50
Class A stockholders could vote on the proposal to amend the by-laws to require the specified quorum.51
Related opinions on this issue
Joined by Conway, J.
Justice Van Voorhis dissented on the ground that the final proposal to amend the by-laws regarding a quorum was proposed in the event of the removal of the four directors whom petitioners seek to eliminate.52 He explained that section 8 of article II of the by-laws already provides that one half of the total number of directors shall constitute a quorum. The modification that a quorum shall in no event be less than one third of the authorized number of directors was proposed in the event of the removal of the four defendant directors whom petitioners seek to eliminate.
He concluded that because none of the business for which the special meeting was proposed could legally be transacted, the proceeding should be dismissed.53