State Ex Rel. Yelkin v. Hand

344 S.W.2d 467, 1961 Tex. App. LEXIS 2144

• Court: Court of Appeals of Texas
• Decided: March 21, 1961
• Docket: 13827
• Status: Published

Opinions

WERLEIN, Justice.

From the judgment of the trial court ■decreeing that appellants, Thomas E. Fland, Jr., et al., be ousted from the offices of directors of Columbia General Life Insurance Company, and that relators, Mrs. Virginia Yelkin et al., are entitled to possession of such offices as the legally elected •directors of Columbia General Life Insurance Company at the annual meeting of .stockholders held March 10 and 11, 1959, appellants, Thomas E. Hand, Jr., et al., have perfected their appeal to this Court.

Pending such appeal the State of Texas, ’by and through Joseph G. Resweber, ■County Attorney of Harris County, Texas, appellee, but hereinafter called complainant, •on the relation of Mrs. Virginia Yelkin •et al., has filed herein their complaint of •contempt and application for temporary restraining order and for temporary injunction, in which they complain against the Bank of the Southwest National Association, Houston, A. G. McNeese, Jr., Houston Bank & Trust Company, Charles L. Bybee, Ford W. Albritton, Peter G. Brooks, Earl W. Gammage, Curtis Hankamer, Robert F. Krueger, Keith Simmer, Mrs. Margaret J. Smith, Thomas E. Hand, Sr., Thomas E. Hand, Jr., William W. Hand, and Joe H. Reynolds, some of whom are appellants herein and all of whom are called Con-temnors. We shall refer to the Bank and the other alleged contemnors, other than appellants, as respondents.

After carefully weighing the evidence consisting of affidavits and oral testimony, we have concluded that although the Bank of the Southwest National Association, Houston, and the other respondents were advised of the injunctions restraining appellant Hand and the other appellants from calling a meeting for the election of directors or participation in such election, they acted independently of appellants in soliciting proxies for the election of directors at the annual stockholders meeting which was called by appellants for March 14, 1961, but which, however, was not called for the purpose of electing directors. The evidence falls far short of showing any participation or concert of action between appellants and respondents in connection with the solicitation of proxies for the election proposed by respondents. It would be improper, therefore, for this Court to grant the temporary injunction sought herein on the ground that appellants have aided or abetted or in any manner cooperated with respondents.

The issue before us is whether or not said Banks and the other respondents should now be enjoined from conducting an election of officers at the annual stockholders meeting of said company, which was set for March 14, 1961 but postponed by this Court until March 28, 1961. The matter will be better understood if reference is made to former opinions of this Court and the Supreme Court in connection with this long drawn out litigation. See State ex rel. Yelkin v. Hand, Tex.Civ.App., 331 S.W.2d , writ ref., n. r. e., Tex., 333 S.W.2d 109; Hand v. State ex rel. Yelkin, Tex.Civ.App., 335 S.W.2d 410, writ ref., n. r. e.; State ex rel. Yelkin v. Hand, Tex., 333 S.W.2d 108; and Hand v. State ex rel. Yelkin, Tex., 337 S.W.2d 798. The judgment of the trial court hereinabove referred to has not been superseded by appellants, and both appellants and relators are enjoined pending the entry of final judgment on the merits of this cause, from taking, or causing to be taken, directly or indirectly any action provided for in the by-laws of Columbia General Life Insurance Company for the holding of or causing to be held any election of corporate directors of said Company or from holding or causing to be held or participating in or being candidates for election in any such election. They are also enjoined from taking or causing to be taken, directly or indirectly, any action for the calling of any meeting of the stockholders of said Company, or aiding or assisting anyone else in the calling of any meeting of the stockholders for the purpose of submitting to said meeting of stockholders any proposed plan of merger or consolidation concerning said Company, or .any proposed sale of substantially all of the assets of said Company and from attending any shareholders’ meeting of the Company called in any manner for the purpose of considering any plan of merger, and from voting in person or by proxy any stock owned or controlled by them in said Company at any stockholders meeting called in any manner for the purpose of considering any proposed plan of merger, etc. Relators are also enjoined from in any way interfering with the normal conduct of the business of said Company.

The evidence shows that the respondent hanks are the owners and holders of record ■of 247,867 shares of the capital stock of said Company. Such shares were pledged as collateral to the banks in a series of transactions extending from 1955 to 1960 to secure promissory notes executed by the Hands in the main part prior to any litigation between appellants and relators. The makers of such notes failed to meet the required payments of. principal and interest, and the banks foreclosed and acquired the shares at sales held on the third day of January, 1961. Relators are understood to own less than 21,000 shares of capital stock out of a total of 1,243,429 shares.

On March 1, 1961 said banks solicited the stockholders of the Company for proxies, and submitted the names of nominees for directors, none of whom are parties to the present suit. The evidence shows that they now have the proxies of more than 2,934 stockholders holding over 684,989 shares of the capital stock of the Company.

It is their contention that they are in no wise bound by the injunctions heretofore granted in connection with this litigation, and that they are free to vote such stock in the election of officers to be held at the annual meeting of the stockholders of the Company, and that under Article 2.24 of the Business Corporation Act of Texas, V.A.T.S., and the by-laws of the Company, Article 3, Section 1, which provides that the annual meeting of the stockholders shall be held at the home office of the Company on the second Tuesday in March, the stockholders meeting has been properly called and they are entitled to vote their stock and proxies at such meeting.

It is relators’ contention that the judgment of the trial court in this case has decreed that they are entitled to the possession of the offices of directors of the Company and as such they are the proper officers and directors to call and conduct any election of the directors of the Company. They further assert that unless the temporary injunction requested by them be granted, the respondents will proceed at the annual stockholders meeting postponed until March 28, 1961, to elect their slate of officers, and if that is done, the present cause will be moot and they will suffer irreparable damage. Relators rely largely upon the case of Hand v. State ex rel. Yelkin, 335 S.W.2d 410, in which this Court affirmed the judgment of Judge W. Sears McGee granting a temporary injunction ancillary to this quo warranto suit now on appeal in this Court from trial on its merits.

This Court held that the- trial court did not abuse its discretion in granting the temporary injunction which restrained appellants herein from holding, or causing to be held, any election of corporate directors of said Company. In the opinion of this Court, it was stated that if the appellants were not duly and properly elected officers and directors, then the relators herein are the de jure directors entitled to hold office until their successors are elected, and that the trial court had the duty to maintain the status quo as distinguished from the adjudication of the merits of the case upon a final hearing. The injunction granted by the trial court and sustained by this Court also restrained appellees, the-relators herein, from interfering directly or indirectly with the normal operations and conduct of the'business of the company.

It was contended by appellants that the court erred in granting said temporary injunction for the reason that it deprived the majority stockholders of their statutory right to elect the directors at the time and place and in the manner prescribed by statute. We held that the injunction merely, postponed the election until such time as the case could be tried on its merits and a special meeting for the election of directors could be called by the parties who might show themselves entitled to the offices of directors. We also stated that if the offices in question carried with them certain perquisites and the appellees were illegally deprived thereof, they might possibly recover the same in a suit for damages; such suit, however, would not confer upon them the right of management and to serve as directors of the corporation until such time as an election could be called, nor the right to call the election and supervise the same.

The contest then was between the Hand group and the Yelkin group, that is, between the appellants in this suit and the relators. Appellants there contended that as a matter of law they were entitled to vote 57,241 shares of stock of the company which were held in trust for it. The evidence shows that such stock has since been transferred and is no longer held in trust for the company.

The present application for a temporary restraining order and temporary injunction prays that we now temporarily enjoin respondents from soliciting proxies and from holding an election of directors at said annual stockholders meeting. Notwithstanding the fact that the trial court entered judgment for relators in the present suit, it continued in force said injunctions so that relators are still enjoined in the same manner as appellants. Thus, relators’ hands are completely tied, and they cannot call an election, participate in an election, or solicit proxies. Relators did not except to the court’s injunction restraining them and apparently have done nothing in an effort to be released from the operation of said injunctions. Nor have they filed suit in the district court to enjoin respondents-in any way although they were not inhibited from so doing.

If the temporary injunction is refused at-this time, respondents will doubtless proceed with the election, and in all probability elect their slate of officers. They are-not in any way .parties to this litigatiom and are not bound by the injunctions now-in force. They have not acted in concert, with appellants, and they are now merely asserting their right as stockholders to-elect directors independently of the contest between the Hand group and the Yelkin > group. It is our opinion that this Court, properly upheld the temporary injunction granted by the District Court in Hand v. State, and we would now be disinclined to-dissolve the injunctions restraining appellants from voting their stock or participating in any election, even if we had the-power and jurisdiction to do so.

The question now, though, is whether-innocent stockholders operating independently of both appellants and relators, should be enjoined by this Court from exercising the rights given them both by statute and the by-laws of the Company to vote their stock and proxies at an annual election. Article 3, Sec. 1, of the By-laws of the Company provides:

“The annual meeting of the stockholders of the Company shall be held at the home office of the company in Houston, Harris County, Texas, at 10 o’clock a. m. on the second Tuesday in March of each year.”

Section 3 of said Article provides:

“Written or printed notice of each regular or special meeting of stockholders shall be prepared and mailed to the last known postoffice address of each stockholder not less than ten days before any such meeting, and notice for a special meeting shall state the time, place and purpose, or purposes, of same. The failure to give notice, or irregularity in the notice, of any regular annual meeting of stockholders shall not invalidate such meeting or any proceedings thereat.”

The evidence shows that the meeting called for March 14, 1961, and postponed as hereinabove stated, was called and notice given thereof in accordance with the provisions of Article 2.24 of the Business Corporation Act, which applies to insurance companies as well as other companies unless the Insurance Code conflicts therewith. No conflict exists in connection with the calling of stockholders meetings. The notice of the meeting was properly given by the acting secretary, Mrs. Smith, at the request of the stockholders. Indeed, the proxy statement sent out to them would in itself constitute a notice of such meeting. Moreover, the by-laws of the Company expressly provide that any irregularity in the notice shall not invalidate the meeting or any proceedings thereat.

The evidence shows that during the time this litigation has continued the stock of the Company has decreased in value from $1.75 to approximately 35 cents per share, with the likelihood that there may be a further decrease in the value of the stock in the event a new and independent board of directors is not selected by the stockholders without further delay. Although our refusal to grant the temporary injunction prayed for will in all probability render this cause moot, we do not think that such fact constitutes in itself a sufficient ground for granting the injunction. Rela-tors contend that they will suffer irreparable damage. It may be that they have and will suffer damage as the result of the conduct of appellants. It is also true that as between the Hand group and the Yelkin group, the group finally winning would have the right as against the other to serve as directors of the Company until an election could be called, and also the right or duty to call the election and supervise the same. Undoubtedly as against appellants they have a right to the injunctions that have been granted. The question is, however, what right have they as against the independent innocent stockholders who are not parties to the litigation, and who in all probability will be injured through no fault of their own if they are prevented from electing a new board of directors ?

We think the language used by the Supreme Court in Yett v. Cook, 115 Tex. 175, 268 S.W. 715, 281 S.W. 843, with reference to the exercise of a statutory right by respondents not being in violation of the applicant’s rights, is applicable in connection with the present application for injunction in that the rights of the relators are not violated since the respondents are doing that which both our statutes and the bylaws of the Company give them the right to do.

Admittedly, it seems unfair that the election may be conducted without relators having any right to participate therein, but the situation was not brought about by the conduct of respondents. One wrong will not justify another. The fact that the relators’ hands are tied is not a sufficient reason for tying the hands of a majority of the stockholders two years after the 1959 election at which relators were elected directors by a majority of the stockholders, assuming, of course, that the judgment of the Trial Court becomes final. The fact that the majority of the stockholders at that time elected relators as directors to represent them for one year should not prevent the majority of the stockholders, who are in no way connected with the litigation, from electing another board of directors two years later. We are not unmindful of the fact that the rights of minority stockholders should in a proper case be protected. We think that the majority stockholders should also be protected, and that the equities of both relators and respondents must be considered and weighed. Moreover, the decision here rendered will not in any way keep relators from suing for damages for deprivation of the perquisites of office if they are legally entitled thereto.

In Grant v. Elder, 64 Colo. 104, 170 P. 198, 202, the Supreme Court of Colorado, in holding that quo warranto is an appropriate remedy where the validity of a corporate election was in dispute, quoted the following language from High on Injunctions, Vol. 2 (4th ed.), § 1235:

“ ‘Indeed, the only ground upon which the jurisdiction of equity in restraint of corporate elections can be properly- based is the protection of the property rights of shareholders, and it is believed that the limit to the exercise of the jurisdiction is found in such measure of preventive relief as will prevent injury to those property rights, without extending it to questions of title to corporate offices, the determination of which is to be sought in a legal rather than in an equitable forum.’ ”

This Court has concluded that the temporary restraining order postponing the date of the election until March 28, 1961, should be kept in force until then. The majority of the Court are of the opinion and hold that any further injunctive relief sought against respondents should be denied.