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Speiser v. Baker - 525 A.2d 1001 (Del. Ch. 1987)

Rule:

Delaware courts, when called upon to construe the technical and carefully drafted provisions of statutory corporation law, do so with a sensitivity to the importance of the predictability of that law. That sensitivity causes the law, in that setting, to reflect an enhanced respect for the literal statutory language. When the task is to construe the meaning of reasonably precise words contained in the corporation statute, such as "entitled to vote," the preference must be to accord them their usual and customary meaning to persons familiar with this particular body of law.

Facts:

Shareholder Marvin Speiser was the owner of 50% of Health Med's common stock. Speiser was also president of Health Med and one of its two directors. He brought a suit against the company itself and Leon Baker, who owned the remaining 50% of Health Med's common stock and is Health Med's other director. Due to the particular quorum requirements set forth in Health Med's certificate, Baker, as the owner of the other 50% of Health Med's common stock, was able to frustrate the convening of an annual meeting by simply not attending; thus, the need for the Section 211 action. Despite the admission of facts constituting a prima facie case under Section 211, Baker asserted that a meeting should not be ordered. He contended that, in a pleading denominated as "Second Affirmative Defense and Cross-Counterclaim" (counterclaim), the meeting sought was intended to be used as a key step in a plan by Speiser to cement control of Health Med in derogation of his fiduciary duty to Health Med's other shareholders. The suit instituted by Speiser sought to compel Health Med Corporation to hold its annual shareholders meeting. He also filed motions for a judgment on the pleadings and to dismiss the corporation’s affirmative claim for relief.

Issue:

Should the motions for a judgment on the pleadings be granted? Likewise, should the motion to dismiss the corporation’s affirmative claim for relief be granted?

Answer:

Yes, as to the motions for a judgment on the pleadings. No, as regards the motion to dismiss the corporation’s affirmative claim for relief.

Conclusion:

The trial court granted the shareholder's motion for a judgment on the pleadings, holding that the corporation had not presented any facts defeating the shareholder's prima facie case that a meeting should have been held under Del. Code Ann. tit. 8, § 211. The court, however, denied the shareholder's motion to dismiss the corporation's affirmative claim for relief, holding that the shareholder invested the capital of another corporation into the corporation for the specific purpose of controlling the other corporation. According to the court, the action was contrary to Del. Code Ann. tit. 8, § 160. Furthermore, the court opined that the shareholder exercised his power as a director solely for his personal benefit and not for the benefit of the corporation.

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