Collins J. Seitz

“ Plaintiff contends that where there is cumulative voting, as provided by the Loew's certificate, a director cannot be removed by the stockholders even for cause.
It is true that the Chancellor noted in the Bruch case that the provision for cumulative voting in the Delaware law was one reason why directors should not be considered to have the power to remove a fellow director even for cause. And it is certainly evident that if not carefully supervised the existence of a power in the stockholders to remove a director even for cause could be abused and used to defeat cumulative voting. ”

“ This power must be implied when we consider that otherwise a director who is guilty of the worst sort of violation of his duty could nevertheless remain on the board. It is hardly to be believed that a director who is disclosing the corporation's trade secrets to a competitor would be immune from removal by the stockholders. Other examples, such as embezzlement of corporate funds, etc., come readily to mind.
But plaintiff correctly states that there is no provision in our statutory law providing for the removal of directors by stockholder action. ”

“ Plaintiff is here saying in effect that Vogel's group was representing to the stockholders that the corporation would pay for the [D585] expenses of proxy solicitation for the Vogel group and thus leading the reader to believe that it was a management solicitation. First of all, such was the intention of the Vogel group and thus it did not constitute a misrepresentation as to their intention. But, in any event, I have now held that reasonable expenses of such solicitation are properly chargeable to the corporation and so no factual misrepresentation was involved. ”

“ First of all, it charges that the two directors (Tomlinson and Meyer) failed to cooperate with Vogel in his announced program for rebuilding the company; that their purpose has been to put themselves in control; that they made baseless accusations against him and other management personnel and attempted to divert him from his normal duties as president by bombarding him with correspondence containing unfounded charges and other similar acts; that they moved into the company's building, accompanied by lawyers and accountants, and immediately proceeded upon a planned scheme of harassment. ”

“ I am satisfied, however, that to the extent [D579] the matter is to be voted upon by the use of proxies, such proxies may be solicited only after the accused directors are afforded an opportunity to present their case to the stockholders. This means, in my opinion, that an opportunity must be provided such directors to present their defense to the stockholders by a statement which must accompany or precede the initial solicitation of proxies seeking authority to vote [A862] for the removal of such director for cause. If not provided then such proxies may not be voted for removal. ”

“ Some background is in order if the many difficult and novel issues are to be understood. Two factions have been fighting for [D567] control of Loew's. One faction is headed by Joseph Tomlinson (hereafter "Tomlinson faction") while the other is headed by the President of Loew's, Joseph Vogel (hereafter "Vogel faction") . At the annual meeting of stockholders last February a compromise was reached by which each nominated six directors and they in turn nominated a thirteenth or neutral director. ”

“ There is no basis to distinguish the Moon case unless it be because the statute has since been amended to provide that not only vacancies but newly created directorships "may be filled by a majority of the directors then in office * * * unless it is otherwise provided in the certificate of incorporation or the by-laws * * *". 8 Del.C. § 223. Obviously, the amendment to include new directors is not worded so as to make the statute exclusive. It does not prevent the stockholders from filling the new directorships. ”

“ This is the decision on plaintiff's request for a preliminary injunction to restrain the holding of a stockholders' meeting or alternatively to prevent the meeting from considering certain matters or to prevent the voting of certain proxies. Certain other relief is also requested.
The corporate defendant appeared and resisted the motion. [1] The four individual defendants, who are directors, were given until September 23, to appear and as of this date (September 19, 1957) have not appeared. Consequently, reference to "defendant" will embrace only the corporation unless otherwise indicated. ”

“ Because such action would carry the intra-corporate strife even deeper within the corporation and because there is no practical way, if there is a proxy contest, to assure equal treatment for both factions in this area when only one is in physical control of such facilities and personnel, I conclude that the defendant should be preliminarily enjoined from using corporate facilities and personnel in soliciting proxies. I emphasize that this conclusion is based upon the corporate status of the two factions herein involved. ”

“ This is not an ordinary proxy contest case and a much more stringent standard must be invoked, at least at the initial stage, where it is sought to remove a director for cause. This is so for several reasons. ”