Schnell v. Chris Craft Industries, Inc.

Delaware Court of Chancery · 1971 · Corporations

CorporationsAnnual meetingsProxy contestsPreliminary injunctionsBylawsDelawareCourt of Chanceryannual meeting

Facts

Chris-Craft's board amended the bylaws on October 18, 1971 so the annual meeting could be held during a two-month period beginning December 1 and ending January 31, and the board then set the meeting for December 8, 1971 in Cortland, New York. Plaintiffs were dissident stockholders engaged in a proxy contest to replace current management and argued that advancing the meeting date and choosing Cortland were intended to handicap their solicitation efforts. The corporation gave stockholders thirty days' notice, and the bylaw change was made more than sixty days before the former January 11, 1972 meeting date. Plaintiffs also complained that management had resisted producing the stockholder list, although plaintiffs received the list on November 10 and made a preliminary mailing that same day.

Issue

Should the court preliminarily enjoin the December 8 annual meeting and invalidate the October 18 bylaw amendment where management complied with the Delaware statutory provisions governing annual meetings and notice, but plaintiffs claimed the change was designed to hinder their proxy contest?

Rule

Absent fraud or other inequitable conduct, courts do not interfere with a stockholders' meeting when notice and scheduling comply with applicable statutory and bylaw requirements merely because additional time would help dissident stockholders in a proxy contest. A preliminary injunction issues only if the applicant shows a reasonable probability of success on the merits and that the balance of equities favors relief.

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Blue Harbor Tools, Inc., a Delaware corporation, had long scheduled its annual meeting for the second week of February. In November, after dissident stockholders announced a proxy contest in Chicago, the board amended the bylaws to allow the meeting anytime between January 5 and February 28, set the meeting for January 12 in Toledo, and mailed notice 28 days in advance, all in compliance with the corporation statute and the amended bylaws.

If the dissidents seek a preliminary injunction solely because the earlier date gives them less time to solicit proxies, how should the court most likely rule?

Explanation. The majority held that, absent fraud or other inequitable conduct, a court will not interfere with a stockholders' meeting when the corporation has complied with the governing statute and bylaws merely because more time would help dissidents in a proxy fight. The request is especially weak at the preliminary-injunction stage, where the applicant must show a reasonable probability of success and favorable equities. (Derived from Schnell v. Chris Craft Industries, Inc. (n.d.).)