Dynamic Corp. of America v. CTS Corp.

United States District Court for the Northern District of Illinois · Corporations

CorporationsShareholder votingProxy contestsPreliminary injunctionspreliminary injunctionproxy contestannual meetinglate proxies

Facts

DCA, a 9.7% shareholder of CTS, launched a tender offer and proxy contest to elect its own slate of directors. After the annual meeting was rescheduled to May 16, 1986, CTS kept the polls open until 5:00 p.m. even though the meeting adjourned at about 9:43 a.m., and the inspectors later counted 95,142 post-adjournment votes, most of which were cast for management. The inspectors also counted telegraphic proxy votes, and DCA claimed other factual counting errors, including the exclusion of some DCA votes and the inclusion of some votes allegedly tainted by an earlier court order. The certified results showed CTS winning by narrow margins, after which DCA sought a preliminary injunction to alter the outcome.

Issue

Whether DCA showed a sufficient probability of success and entitlement to preliminary injunctive relief to invalidate post-meeting votes, exclude telegraphic proxies, or compel correction of alleged factual counting errors in the CTS director election. More specifically, the question was whether the challenged practices and alleged errors justified preliminarily setting aside or recalculating the election results.

Rule

A preliminary injunction requires a showing of probable success on the merits, no adequate remedy at law with immediate irreparable injury, a favorable balance of harms, and consistency with the public interest; where harms are difficult to quantify and roughly offsetting, the principal inquiry is which party is more likely to prevail at trial. In corporate elections, shareholder voting rights are highly valued and should not be nullified for purely technical reasons; belated proxy votes will not be preliminarily invalidated absent a stronger showing that a bylaw clearly forbids them or that they resulted from unfairness, fraud, bad faith, or improper tactical withholding. A challenger may also be estopped from attacking a voting method after the election when it used the same method and failed to object beforehand, and factual challenges to vote tabulation require a fuller record and a showing that the alleged errors could have affected the result.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakeview Components, Inc., a Michigan corporation, held a contested director election in Detroit. A dissident shareholder seeks a preliminary injunction to stop the seated directors from serving, but the record shows the alleged election harm and the company’s harm from disruption are both difficult to quantify and roughly comparable.

What should be the court’s principal inquiry in deciding whether to grant preliminary injunctive relief?

Explanation. Where the harms are hard to quantify and essentially offsetting, the majority opinion treats the chief inquiry on a preliminary injunction as likelihood of success at full trial. The ordinary elements still matter, but in this posture the central focus is which side is more likely to prevail on the merits.