Ringling v. Ringling Bros.-Barnum & Bailey Combined Shows - 29 Del. Ch. 318, 49 A.2d 603 (1946)

Rule:

Stock pooling agreements are distinct from voting trusts, and are not controlled by the same principles. Generally, agreements and combinations to vote stock or control corporate action and policy are valid, if they seek without fraud to accomplish only what the parties might do as stockholders and do not attempt it by illegal proxies, trusts, or other means in contravention of statutes or law.

Facts:

Petitioner shareholder Edith Conway Ringling contests the validity of the election of directors and officers of Ringling Bros. -- Barnum & Bailey Combined Shows, Inc. defendant corporation which took place at its annual stockholders' and directors' meetings. The shares of authorized and issued common stock of the defendant corporation were owned or controlled by petitioner, and defendants Aubrey B. Haley and John Ringling North. Petitioner and defendant Haley executed a Memorandum of Agreement reciting that the parties entered into an agreement providing for joint action in matters affecting their ownership of stock and interest in the corporate defendant, and that the parties desired to continue to act jointly in all matters relating to their stock ownership or interest in both the corporate defendant. It is undisputed that for some time prior to the 1946 stockholders' meeting, which is here being reviewed, numerous efforts had been made to arrive at an understanding as to how the parties to the Agreement would vote their shares. The fact was that no agreement on this point was reached although the negotiations continued up until almost midnight of the night before the annual meeting. The so-called arbitrator named in the Agreement, one Karl D. Loos was very active in these negotiations in an attempt to procure a satisfactory solution, or at least to procure a postponement of the meeting until some solution could be evolved and since it is apparent that the right of the arbitrator to direct the voting of the stock of the parties to the Agreement is the crucial point for decision; the determination of this point depends upon the answer to the broader question of the legality of the Memorandum of Agreement under which he purported to operate.

Issue:

Was the agreement between petitioner shareholder and defendant stockholder valid and enforceable?

Answer:

Yes. The court found that the stock-pooling agreement was valid and enforceable.

Conclusion:

The court concluded that the agreement was sufficiently definite in terms of the duties and obligations imposed on the parties to be legally enforceable. Also, the agreement was not a voting trust within the meaning of that term in the Delaware General Corporation Law § 18 and as such was not invalid for failure to comply with the provisions thereof. The court held that the stock held under the agreement should have been voted pursuant to the direction of the arbitrator to the parties or their representatives. Moreover, the nature of the agreement did not preclude the granting of specific performance. Because to deny specific performance would be tantamount to declaring the agreement invalid. As the shareholder's rights were properly preserved at the stockholders' meeting, the meeting was a nullity to the extent that it failed to give effect to the provisions of the agreement. The court then held that it was preferable to hold a new election rather than attempt to reconstruct the contested meeting.