Speiser v. Baker

Delaware Court of Chancery · 1987 · Corporations

CorporationsAnnual meetingsStock votingTreasury stockFiduciary dutyDGCL 211(c)DGCL 160(c)annual meeting

Facts

Health Med had not held an annual meeting for several years, and its charter quorum requirements allowed Baker, a 50% common stockholder, to block a meeting by not attending. Health Med owned 42% of the stock of Health-Chem, while Health-Chem, through its wholly owned subsidiary Medallion, owned Health Med convertible preferred stock representing 95% of Health Med's equity but only about 9% of its current voting power unless converted. Speiser and Baker each owned 50% of Health Med's common stock, and the circular structure had been used to help them control Health-Chem. Baker alleged Speiser sought the Health Med meeting to remove Baker as a director and entrench control over Health-Chem, and Baker sought declaratory relief disabling Health Med's vote of Chem stock.

Issue

First, whether Baker's pleaded defenses were sufficient to defeat Speiser's prima facie entitlement under DGCL § 211(c) to an order compelling Health Med to hold an annual meeting. Second, whether Baker's counterclaim stated a viable claim that Health Med's shares of Health-Chem could not be voted under DGCL § 160(c), or alternatively because the alleged structure and Speiser's conduct breached fiduciary duties owed to Health-Chem shareholders.

Rule

Under DGCL § 211(c), a shareholder makes a prima facie case for an order compelling an annual meeting by showing shareholder status and that no annual meeting has been held within the statutory period; once shown, the right to relief is virtually absolute and may be denied only in the rare case where pleaded facts establish a supervening equity counseling withholding the remedy. Under DGCL § 160(c), literal focus on shares 'entitled to vote' may not alone disable shares where convertible preferred presently lacks majority voting power, but the statute's separate prohibition on voting shares 'belonging to the corporation' can extend to shares held by a corporate subsidiary when, in substance and in light of the statute's anti-entrenchment purpose, the shares effectively belong to the issuer. Independently, fiduciary principles may require conversion of such preferred stock where maintaining the structure serves only to perpetuate management control contrary to the voting rights allocated by the issuer's charter.

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

Blue Mesa Robotics, Inc., a Delaware corporation based in Denver, has not held an annual stockholder meeting in 16 months, and no meeting date was designated in its bylaws or by board resolution. Olivia Grant, a record holder of common stock, files in Delaware Chancery seeking an order compelling an annual meeting.

Assuming these facts are admitted, which is the best answer regarding Olivia's request?

Explanation. Under the majority opinion, a stockholder makes a prima facie case under § 211(c) by showing (1) stockholder status and (2) no annual meeting within 30 days of the designated date, or if no date was designated, within 13 months since the last annual meeting. Once those elements are shown, the right to relief is virtually absolute absent a rare supervening equity.