Sutton v. Sutton - 84 N.Y.2d 37, 614 N.Y.S.2d 369, 637 N.E.2d 260 (1994)

Rule:

The addition of the word "specifically" in N.Y. Bus. Corp. Law § 616(b) merely provides that a two-thirds majority may now amend a unanimity provision unless the certificate requires a greater percentage.

Facts:

In 1963, the certificate of incorporation of Bag Bazaar, Ltd. was amended to provide that "[t]he unanimous vote or consent of the holders of all the issued and outstanding shares of Common Stock of the corporation shall be necessary for the transaction of any business … of the corporation, including amendment to the certificate of incorporation". At that time the business was run by Abraham Sutton and none of the parties to this litigation was a shareholder. In 1971 Abraham's brother, respondent David S. Sutton, purchased 30 shares. Two years later Abraham's son, petitioner Solomon A. Sutton, joined the business and subsequently acquired 30 shares. On Abraham's death, in 1987, his widow, petitioner Yvette Sutton, inherited Abraham's remaining 40 shares. Thus, petitioners now own 70% of the outstanding shares of the corporation and respondent and his wife own 30 shares. Petitioner Solomon A. Sutton serves as one of the two directors of the company and respondent David S. Sutton as the other. The corporation was run without incident for nearly 30 years under Abraham's leadership. After he relinquished control of the company, however,  disputes arose between Solomon and David Sutton concerning the management of the corporation. These disputes culminated in an April 1992 shareholders' meeting, where petitioners voted their 70% of the shares in favor of a resolution to strike the unanimity provision, while respondent's 30% of the shares voted against the resolution. Respondent David, as a director of the corporation, refused to sign a certificate of amendment reflecting the deletion of the unanimity provision, thereby preventing the amendment from taking effect. Accordingly, petitioners commenced this proceeding and moved for judgment declaring the resolution valid and enforceable and compelling respondent to sign the certificate of amendment. Respondent David cross-moved to dismiss the petition, for reformation of the certificate of incorporation and to compel arbitration of the dispute. Supreme Court granted the petition and denied the cross motion. The Appellate Division reversed and denied the petition.

Issue:

May the court compel David to sign the certificate of amendment deleting the unanimity provision?

Answer:

No.

Conclusion:

Nothing in the legislative history or the statute itself suggests the necessity for a discrete paragraph addressed solely to the supermajority provision and explicitly declaring the vote required for its amendment. The history reveals that Stock Corporation Law § 9 stated that a provision in the certificate of incorporation requiring unanimous consent could only be amended by unanimous consent and this provision was substantially reenacted in the Business Corporation Law. 

The provision in Bag Bazaar's certificate is unambiguous: it requires unanimous shareholder consent for the transaction of "any business … including amendment to the certificate of incorporation." To read section 616 (b) as requiring more to address amendment of the supermajority provision would be unnecessarily restrictive in light of the legislative history. The certificate need only clearly state what vote, if greater than two thirds, is required to amend a unanimity provision. The certificate of Bag Bazaar, Ltd. does so.