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Campbell vs leows incorporated

Plaintiff = Campbell

respondent = loews inc

DOCTRINE: a director sought to be removed for a cause is entitled to an opportunity to be heard before

the stockholders vote.

Stockholders have the power to vote for the removal of a director.

NATURE: decision on plaintiffs request for a preliminary injunction to restrain the holding of a

stockholders meeting from considering certain matters or to prevent the voting of certain proxies.

NOTE: number 8-14 ung related sa directors since eto ung topic sa campos.

FACTS: two factions have been fighting for leows control. One faction is lead by joseph Tomlinson

(Tomlinson faction) and the other is headed by leows president, Joseph Vogel (Vogel faction).

At the annual meeting in February, each factions nominated 6 directors and they nominated a 13th

director or a neutral director. July 17-18, 2 out of 6 Vorgel directors and the 13th

director resigned. A

quorum is seven.

On the 19th

of July, Tomlinson faction asked that a meeting be called for July 30 to address the problem

of filling director vacancies. On the eve of this meeting, one of Tomlinson director resigned. This left 5

tomlinson director and 4 vogel directors. Only the 5 tomlinson director attended the meeting. The court

ruled in Tomlinson vs leows inc that the election of 2 directors attended by 5 tomlinson directors was

not valid for want of quorum.

ON july 29, the day before the noticed directors meeting, vogel as president sent out a notice calling a

stockholders meeting for September 12 for the following purposes:

1. To fill director vacancies2. To amend by-laws to increase the number of the board from 13-19; to increase the quorum

from 7-10 and to elect six additional directors

3. To remove Stanley Meyer and Joseph Tomlinson as directors and fill such vacancies.Later, another notice for September 12 was sent as well as a proxy statement went out over the

signature of Joseph R. Vogel as president. It was accompanied by a letter from Vogel soliciting

stockholder support for the matters abovementioned.

Thereafter, plaintiff began this action.

Plaintiff contentions:

1) Plaintiff contends that president had not authority in fact to call a special meeting ofstockholders to act upon policy matters which have not been defined by the board of directors

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ANSWER: bylaws: Sec 7 of Article I provides: special meetings of the stockholders for any

purpose other than those regulated by statute, may be called by the president. Even though

Sec 8(11) of Article 2 provides that a board may call a special meeting of stockholders for any

purpose, still according to the by-laws of leows, president has the power to state these broad

purposes in his call.

2) Plaintiff argues that if this by-law purports to give the president the power to call specialstockholders meetings for the purposes here stated, then it is contrary to 8 DEL. C. S 141 (a)

which provides:

the business of every corporation organized under the provision of this chapter shall be

managed by a board of directors except as hereinafter or in its certificate of incorporation

otherwise provided.

ANSWER: the call of stockholders meeting for the purposes mention would not impinge upon

the power given the directors by the statute. A by law giving the president the power to submit

matters for stockholder action presumably only embraced matters which are appropriate for

stockholder action.

3) Plaintiff contends that president has no authority, without board approval to propose anamendment of the by-laws to enlarge the BODs.

ANSWER:the by-law of section 7 which is broad covers this action; hence the president has the

power to do so.

4) Plaintiff contends that the president had no power to call stockholders meeting to fill vacancieson the board.

ANSWER: first of all, the by-laws permit the president to call a meeting for any purpose and

therefore include the power to call a meeting to fill vacancies. The fact that the stockholders

may on their initiative have the right to call a meeting for that purpose does not seem to be a

sufficient reason for implying that the president is thereby deprived of such power.

(note: ART V S 2 of the bylaws provide the power of the stockholders to fill vacancies)

5) Plaintiff contends that the presidents action in calling a stockholders meeting to fill vacancieswas unlawful because it was in conflict with the previously scheduled action by the board on the

same subject. (note: diba sabi sa facts nagschedule na ng meeting ung isang faction, tapos later

si president nag send ng notice of meeting)

ANS: the proxy statement sent out by the president states that the stockholders would ONLY fill

the two vacancies, IF their election by the board was held to be INVALID. (eh invalid ung

meeting nung TOMLINSON FACTION kasi want of quorum hence, the issue is moot)

6) Plaintiff contends that the president had no power to fix the record date for voting purposes.ANSWER: president had the power to call the meeting for the purpose noticed because it

turned out that the executive committee fixed the record date and PLAINTIFFs counsel did not

attack the action of the executive committee, in effect, plaintiff abandoned this contention.

7) Plaintiff argues that since Loews by-laws provide that the stockholders may fill vacancies, andsince the courts have construed vacancy not to embrace newly created directorships, the

attempt call by the president for the purpose of filing newly created directorships was invalid.

ANSWER:according to jurisprudence, stockholders of have the right between annual meetings

to elect directors to fill newly created directorships, hence the action of the president is valid.

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8) Plaintiff argues that the stockholders of a Delaware Corporation have no power to removedirectors from office even for cause and thus the call for that purpose is invalid.

ANSWER: stockholders have the power to remove a director for a cause. This power must be

implied when we consider that the director who is guilty of the worst sort of violation of his duty

could nevertheless remain on the board. It is hardly to be believed that a director who is

disclosing corporations trade secrets to a competitor would be immune from removal by the

stockholders. PLAINTIFF correctly states that there is no provision in our law providing for the

removal of directors by stockholder action. Plaintiff also notes that the Loews by -laws provide

for the removal of officers and employees but not directors. But the court considered it

pertinent to consider whether the absence of the power can be said to subject the corporation

to the possibility of real damage. Considering the damage a director might be able to inflict

upon his corporation, the court believed that the doubt must be resolved by construing the

statutes and by-laws as leaving untouched the question of director removal for cause. the court

is to conclude on reason that the stockholders have such inherent power. The stockholders do

have the power to remove directors for cause.

9) Plaintiff argues that the removal of Tomlinson and Meyer as directors would violate the right ofminority shareholder to representation on the board and would be contrary to the policy of the

Delaware regarding cumulative voting.

ANSWER: stockholders have the power to remove a director for cause even where there is a

provision for cumulative voting. To remove such power would open the corporation for real

damage because directors are now open to fraudulent transactions and stockholders cannot

remove them for any cause.

10)Plaintiff contends that the stockholders can vote to remove a director for cause only after suchdirector has been given adequate notice of charges of grave impropriety and afforded an

opportunity to be heard. Defendant contends that a stockholder has no standing to make the

contention that the foregoing requirements have not been met.

ANSWER: a stockholder has standing for such. Otherwise a director could be removed and his

successor could be appointed and participate in important board action before the illegality of

the removal was judicial established. Court conclude that the plaintiff can raise the issue as to

the propriety of the removal procedure.

11)Plaintiff contention that there must be notice of charges as mentioned above in number 10.ANSWER: yes, the court agrees with plaintiff that the power of removal cannot be exercised in

an arbitrary manner.

12)Plaintiff asserts that no specific charges have been served upon the two directors sought to beousted; notice of special meeting fails to contain a specific statement of the charges; the proxy

statement which accompanied the notice also failed to notify the stockholders of the specific

charges; and that it does not inform the stockholders that the accused must be afforded an

opportunity to meet the accusations before a vote is taken.

ANSWER: the proxy statement specifically recites that the two directors are sought to be

removed for the reasons stated in the presidents accompanying letter. The court said that the

accompanying letter was sufficient compliance with the notice requirement.

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13)Plaintiff contends that the charges against the two directors do not constitute cause as amatter of law.

ANSWER: court first narrated the presidents letter. (Tomlinson and meyer failed to cooperate

with Vogel in his announced program for rebuilding the company; that their purpose has been

to put themselves in control; that they made baseless accusations against him and other

management personnel; and immediately proceeded upon a planned scheme of harrament;

they were rude to the personnel; Tomlinson sent daily letters to the directors making serious

charges directly)

Eto na sagot : a charge that the directors desired to take over control of the corporation is not a

reason for their ouster. However, a charge in calculated plan of harassment to the detriment of

corporation is a valid cause. In so concluding, the court expresses no opinion as to the truth of

the charges. Therefore, a planned scheme of harassment as detailed in the letter constitutes a

justifiable legal basis for removing a director.

14)Next issue to consider : whether the directors sought to be removed have been given areasonable opportunity to be heard by the stockholders on the charges made

ANSWER: NO, defendant corporation flatly refused to give Tomlinson director of a stockholders

list. By this action, the corporation through the Vogel group has deliberately refused to afford

the directors in question an adequate opportunity to be heard by the stockholders on the

charges made. This is contrary to the legal requirements which must be met before a director

can be removed for a cause. Also, only the Vogel accusations accompanied the request for a

proxy, thus while the stockholder could for or against removal, he would be voting with only one

viewpoint presented. In sum, an opportunity must be provided such directors to present their

defense to the stockholders by a statement which must accompany or precede the initial

solicitation of proxies seeking authority to vote for the removal of such director for cause.

corporation has a duty to see that this opportunity was given the two directors involved.

Therefore, proxy solicited by the Vogel group based upon unilateral presentation of the facts by

those in control of the corporate facilities, must be declared invalid insofar as they purport to

give authority to vote for the removal of the directors for cause.

A preliminary injunction will issue restraining the corporation from recognizing or counting any

proxies held by the VOGEL group and others insofar as such proxies purport to grant authority

to vote for the removal of Tomlinson and Meyer as directors of the corporation.