Mansdorf v. Unexcelled, Inc.

Witmer, J. This is a proceeding in which certain shareholders of Unexcelled, Inc., a business corporation, petitioned the court to set aside an election of directors of the corporation at an “ annual ” meeting of its stockholders held March 21, 1967, and for an order directing a new annual meeting of the stockholders. Respondents directors cross-moved for dismissal of the petition. Petitioners were successful at Special Term, which set aside the election of March 21 and directed that a new annual meeting of the stockholders of the corporation be held on July 12, 1967 for the election of directors of the corporation for the ensuing [45] year, and denied respondents’ cross motion for dismissal of the petition. Respondents have appealed. Subdivision (b) of section 602 of the Business Corporation Law provides that there shall be an annual meeting of shareholders of a corporation for the election of directors “ on a date fixed by or under the by-laws ”. Section 703 of that law provides (a) that at such annual meeting directors shall be elected to hold office until the next annual meeting, and (b) that each director elected shall hold office until the end of his term and until his successor is elected. The by-laws of Unexcelled, Inc. provide that the “ annual meeting of shareholders shall be held on such date and at such time in each calendar year as its Board of Directors may in its discretion determine, but not later than the fourth Wednesday in July of each calendar year, at which the shareholders shall elect a Board of Directors ”. In September, 1966, in connection with its application to list its stock on the American Stock Exchange, the corporation filed with the Exchange under 1 ‘ General Information ’ ’ a copy of its by-laws and a separate statement that the by-laws provide for the annual meeting to be held on the fourth Wednesday in July of each year. In answer to petitioner-respondents’ contention that therefore such July date controls, appellants assert that the omission of the words “ not later than ’ ’ from such statement was a clerical error, as the by-laws filed therewith show, and that such error should not and may not be used to effect an amendment of the corporation’s by-laws concerning the time of the annual meeting. It appears without dispute in the record that prior to 1966 the annual meetings of the corporation were held in the first quarter of the year, in February or March. In 1966 the annual meeting was held on July 12. The notice for that meeting stated that its purpose was to elect 10 directors to hold office for the ensuing year and until the election of their successors; and the proxy statement used for that meeting stated that directors are elected annually, and were being elected for the ensuing year. In February, 1967 the board of directors fixed March 21, 1967 as the date for the 1967 annual meeting of the corporation, and gave due notice thereof as provided in the by-laws. The meeting was held and the individual respondents-appellants were elected thereat as directors for the ensuing year. Petitioners successfully contended below and urge here that the provisions for the “annual” election of directors for the ensuing “ year ” proscribe the calling of a stockholders’ meeting for the election of directors for the ensuing year within less than approximately one full year after the last previous annual meet [46] ing. Petitioners-respondents rest their ease primarily on the literal meaning of the words “ annual ” and “ year ”, and point to no statute nor to any provision of the by-laws which limits the exercise of the discretion of the board of directors granted to them in the by-laws. Indeed, the statute expressly authorized the inclusion in the by-laws of provisions for fixing the annual meeting date (Business Corporation Law, § 602).' Where the Legislature has wanted to protect the shareholders and corporation from an undue extension by the directors of their terms of office a specific statutory provision has been made. Thus in section 603 of the Business Corporation Law it is provided that a special meeting of shareholders may be called for the election of directors if a regular meeting for such purpose has not been called within 30 days after the date fixed in the by-laws for the annual meeting or since the last annual meeting. Where the Legislature has wanted to protect directors from an undue involuntary shortening of the term for which they were elected suitable statutory provision has been made (Business Corporation Law, § 702, subd. [b], par. [2]), preventing the precipitous removal of a director by the ruse of reducing the number of directors. Of course a director may still be removed for cause before the end of his term (Business Corporation Law, § 706). The conduct of the affairs of a business corporation is entrusted to its board of directors. In recent years the New York Legislature has made a thorough revision of our laws for business corporations. We find no reason for imposing judicial restrictions upon boards of directors of such corporations which the Legislature has not seen fit to make, in respect of their discretion in fixing the dates for annual meetings. The effect of holding the meeting in March, 1967 was to shorten the term of the incumbent directors by three or four months from the time of their election on July 12, 1966. But this shortening was of their own unanimous choosing, and of course did not violate any right of their own which the Legislature had protected. Petitioners have made no charge of mismanagement or wrongdoing by the directors in connection with the business affairs of the corporation, nor have they charged any concealment or breach of faith in the solicitation of the proxies for the meeting of March, 1967. (Cf. Matter of Ideal Mut. Ins. Co., 9 A D 2d 60.) They contend only that as shareholders they had the right to expect that the annual meeting of the corporation, would be held 12 months after the July 1966 meeting, so that they could plan a possible proxy fight accordingly, for control of the board of directors. [47] The by-laws of the corporation, however, as quoted above, expressly place in the board of directors the discretion for fixing the date of the annual meeting in each calendar year not later than the fourth Wednesday of July. The stockholders are presumed to have knowledge of the corporation’s by-laws. (Matter of Faehndrich, 2 N Y 2d 468, 473.) To adopt petitioners’ contention would render nugatory such provision of the by-laws, and would be a novel usurpation by the courts of the reasonable discretion placed in the directors. To do so would further run counter to the consistent policy of our courts to avoid interference with the internal management and operation of corporations. (Matter of Grace v. Grace Inst., 19 N Y 2d 307, 313.) It appears that except for the year 1966 the annual meeting of the corporation had uniformly been held in February or March of each year. For some undisclosed reason the meeting was delayed until July in 1966, although alert action by petitioners or other stockholders could have required an earlier meeting. (Business Corporation Law, § 603; and, see, Matter of Schoenhaar v. Irving Air Chute Co., 16 A D 2d 1028.) Under the rule for which petitioners contend the directors would be powerless to restore the annual meeting to the first quarter of the year. We do not believe that the slight advantage which enures to management by having the discretion in the directors to fix the date of the annual corporation meeting is reason for court intervention to impose a restriction which the Legislature has not seen fit to spell out. (See Green Co. v. Industrial Development, 8 A D 2d 785.) The order of May 1,1967 setting aside the election of directors of Unexcelled, Inc. held March 21,1967 and directing that a new annual meeting of the stockholders of the corporation be held on July 12, 1967 for the election of directors of the corporation and denying respondents-appellants ’ cross motion to dismiss the petition should be accordingly reversed on the law and the facts, and the cross motion to dismiss the petition granted, with costs and disbursements.