Stockholders may not be charged with the duty of anticipating inequitable action by management, and of seeking anticipatory injunctive relief to foreclose such action, simply because the new Delaware Corporation Law makes such inequitable action legally possible.
Appellant stockholders Andrew Schnell, Jr. and Jack Safer sued to enjoin appellee Chris-Craft Industries, Inc. (“corporation”) from advancing the date of the annual stockholders' meeting. The corporation claimed it was allowed to do so by amendments to the Delaware business law. The trial court found in favor of the corporation and denied the stockholders’ petition for injunctive relief. The stockholders appealed.
Where stockholders sought to prevent the corporation from advancing the date of the annual stockholders' meeting, did the trial court err in its decision to deny the stockholders’ petition for injunctive relief?
The Supreme Court of Delaware reversed the judgment of the trial court. According to the Court, the conclusions of the trial court amounted to a finding that the corporation attempted to utilize the corporate machinery and the Delaware Law for the purpose of perpetuating itself in office, and to that end, for the purpose of obstructing the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest against management. The Court held that these were inequitable purposes, contrary to established principles of corporate democracy. In reversing the judgment, the court stated that inequitable actions, such as those of appellee corporation, would not be allowed to stand simply because they were permitted by law.