Ronnen v. Ajax Elec. Motor Corp. - 88 N.Y.2d 582, 648 N.Y.S.2d 422, 671 N.E.2d 534 (1996)

Rule:

A contract which confers certain rights or benefits in one clause will not be construed in other provisions completely to undermine those rights or benefits. Generally, a contract which expressly permits an activity will not be construed to prohibit other conduct necessary to carrying out that activity. 

Facts:

The opposing parties to this litigation are brother and sister who, with their children, collectively hold a bare majority of the issued and outstanding shares of the capital stock of Ajax Electric Motor Corp., a closely held corporation based in Rochester. Respondent Neil Norry has been the chief executive officer of Ajax. The immediate matter in dispute is the validity of the election of the board of directors of the corporation at its annual shareholders' meeting held March 13, 1995. Central to that dispute is a March 5, 1982 shareholders' agreement between Norry (and his two sons) and his sister, appellant Deborah Ronnen, on behalf of herself and as custodian for her children. The shareholders' agreement granted Norry certain rights to vote Ronnen's stock and that of her children. The March 13, 1995 shareholders' meeting began in acrimony between Ronnen and Norry, who initially chaired the meeting. Immediately prior to the meeting, Ronnen served Norry with a temporary restraining order prohibiting him from voting the Ronnen shares regarding proposed amendments to the Ajax bylaws and certificate of incorporation, which were on the agenda for the meeting. When the meeting convened, Ronnen's attorney had the proceedings videotaped, without prior notice to Norry. In response to these actions, Norry announced that the meeting was being adjourned. Over Ronnen's protest, he voted the Ronnen shares with the Norry shares for a combined majority vote to adjourn and left the meeting. In his absence, Ronnen and the remaining shareholders of Ajax, including appellants Bruce Lipsky and Joseph Livingston, elected a slate of directors. Norry then brought a proceeding, pursuant to Business Corporation Law § 619, to invalidate the election of directors in his absence and for an order directing a new election. Ronnen, Lipsky and Livingston petitioned under section 619 to confirm the election. Supreme Court interpreted the shareholders' agreement as giving Norry the right to vote the Ronnen shares in any election of a board of directors. This factor, together with the hostile atmosphere permeating the March 13, 1995, meeting, led Supreme Court to conclude that a new election should be held. The Appellate Division affirmed the order for a new election of directors, with two Justices dissenting on the ground that the shareholders' agreement did not transfer Ronnen's voting rights to Norry for board of directors elections and that the election was in other respects properly conducted. Ronnen, Lipsky and Livingston appealed as of right on the basis of the double dissent

Issue:

Did the courts below properly construe the shareholders' agreement as giving Neil Norry the right to vote the Ronnen shares in board of directors elections?

Answer:

Yes.

Conclusion:

The court affirmed the decision of the lower court, holding that the shareholders' agreement unequivocally guaranteed the right of Norry to vote a majority block of shares on all matters relating to corporate management. The court further held that the decision of the lower court ordering a new board of directors election was within that court's discretionary equity powers under N.Y. Bus. Corp. Law § 619 to confirm the election, order a new election, or take such other action as justice required.