Tomlinson v. Loew's Inc.

134 A.2d 518, 36 Del. Ch. 516, 1957 Del. Ch. LEXIS 89
CourtCourt of Chancery of Delaware
DecidedAugust 26, 1957
StatusPublished
Cited by5 cases

This text of 134 A.2d 518 (Tomlinson v. Loew's Inc.) is published on Counsel Stack Legal Research, covering Court of Chancery of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Tomlinson v. Loew's Inc., 134 A.2d 518, 36 Del. Ch. 516, 1957 Del. Ch. LEXIS 89 (Del. Ct. App. 1957).

Opinion

Seitz, Chancellor:

Plaintiff, Joseph Tomlinson, is a substantial stockholder of the corporate defendant, Loew’s Incorporated (“Loew’s” or “corporation”), a Delaware corporation. He filed this petition under 8 Del.C. § 225 seeking a judgment that the individual defendants, Louis B. Mayer and Samuel Brislcin (“individual defendants”) were validly elected directors of the corporation and rightfully hold such offices. The individual defendants filed an answer joining in the prayer of the petition.

The management of the corporation, using that term broadly, has split into two factions both of which claim to represent the corporation in this action. The plaintiff, Tomlinson, belongs to one faction which now consists of five directors while the other faction is headed by the President, Vogel, and now consists of four directors. Neither faction can muster a quorum (being 7) when the opposing faction does not appear. Both factions have purported to file answers for the corporation. The Tomlinson faction's answer for the corporation joins in the prayer requesting that the election of the two individual defendants as directors be declared valid. The Vogel faction’s answer and cross-claim for the corporation seeks a determination that the individual defendants were not validly elected at the meeting in question and also seeks to enjoin plaintiff and the individual defendants from interfering with a stockholders’ meeting called by Vogel for September 12, 1957, to fill, inter alia, the same director vacancies purportedly filled by the election of the individual defendants.

Since the determination of the question as to the right of the parties to file an answer on behalf of the corporation is in a sense dependent upon the answer to the question as to the validity of the [519]*519election of the individual defendants as directors, the parties tacitly-agreed not to present the issue by attacking the authority of each faction to file the corporate answer.1 Rather, the individual defendants and the corporate defendant as represented by the so-called Tomlinson faction moved for a summary judgment holding that the individual defendants were validly elected directors at the meeting of July 30, 1957. Thereafter the corporation as represented by the Vogel faction also moved for summary judgment holding that:

(a) The individual defendants were not validly elected directors ;
(b) That the actions taken at the meeting of July 30 were invalid ;
(c) That the plaintiff and individual defendants be enjoined from interfering with the stockholders’ meeting called for September 12, 1957.

Certain stockholders were permitted to intervene to assert the position espoused by the Vogel faction. While the interveners did not file any motion of their own, they did file a brief giving reasons why they believe the Vogel faction’s motion should be granted.

This then is the decision upon the motions for summary judgment filed by the individual defendants and by the corporation through its opposing factions. A limited factual narrative of this most unusual case may not be amiss.

This corporation has been beset with factional difficulties for some time. It has some 26,000 stockholders owning 5,400,000 shares. Its average gross receipts have been about $178,000,000 annually over the last ten years. As heretofore indicated, there are in essence two factions within the board which, for convenience, I have designated as the Tomlinson and Vogel factions. However, in so identifying them I do not intend to reflect adversely upon them.

[520]*520These factions reached a compromise agreement in connection with the election of the directors at the annual meeting held last February. Under the compromise, each faction nominated six directors and they in turn selected a thirteenth or neutral director (Reid). The by-laws provide for thirteen directors of which seven constitute a quorum. The thirteen nominees were duly elected at the February meeting but the corporation’s troubles had only begun. The board hired a management consultant firm (Robert Heller & Associates, Inc.) to look into the corporation’s difficulties and the reports of that firm dealing with Vogel and the corporate affairs only added fuel to the smoldering factional fire. At first the firm orally suggested that Vogel be replaced as president, apparently in the interest of securing a cooperative board. Later this same firm, expressing full confidence in Vogel’s ability, recommended that the board rather than Vogel be replaced and that the matter be resolved by submitting the issue to the stockholders. Incidentally, Vogel was only elected president in October 1956, although he has been with the corporation in various capacities for forty years.

At the July 12, 1957 directors’ meeting an unsuccessful attempt was made by the Tomlinson faction to oust Vogel as President. This brought the factional feud into the open. Thereafter Vogel commenced making plans to call a stockholders’ meeting. Then there is a sequence of events which are in some confusion and conflict in the record. Since they are not relevant to my decision I pass over them.

Sometime during the period July 17-18 two of the Vogel directors and the so-called thirteenth or neutral director Reid resigned, and in doing so suggested that a stockholders’ meeting be called to resolve the difference of opinion on the board.

On July 18, the Executive Committee noted that Pace and Reid had resigned and determined that it was in the best interest of the corporation to call a special stockholders’ meeting to deal with the difficulty created by the absence of an effective-majority of directors. Incidentally, at least seven of the original thirteen directors elected at the last annual meeting recommended or advised and approved the president’s call for a special stockholders’ meeting.

[521]*521On July 19, 1957, Tomlinson and Johnson (a Tomlinson director) caused a letter to be delivered to the Secretary of the Corporation requesting that a special directors’ meeting be called for July 30, 1957, for the following purposes:

1. To receive a report from Robert Heller & Associates, Inc., with respect to the affairs of the Company.
2. To consider the recommendations contained in the Heller report and to take such action thereon as the Board may determine to be desirable.
3. To consider whether a special meeting of the stockholders should be called.
4. To ascertain whether one or more vacancies exist on the Board of Directors, to consider whether any vacancies which exist should be filled by the vote of the stockholders or by the vote of the Directors, and in the event it is determined that the vacancies should be filled by vote of the directors, to fill the vacancies.
5. To consider and take action on such other matters that may come before the meeting.

The secretary sent the requested notice. On the day before the directors’ meeting was held on July 30, Vogel caused a notice of a special meeting of stockholders to be mailed. It called for, inter alia, the election of directors to fill the director vacancies. About this time one of the Tomlinson directors also resigned, leaving nine in office.

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Tomlinson v. Loew's Incorporated
134 A.2d 518 (Court of Chancery of Delaware, 1957)

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Bluebook (online)
134 A.2d 518, 36 Del. Ch. 516, 1957 Del. Ch. LEXIS 89, Counsel Stack Legal Research, https://law.counselstack.com/opinion/tomlinson-v-loews-inc-delch-1957.