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Francis E. Kenny, for Ronnen appellants.
Kenneth Bersani, for appellants Lipsky & Livingston.
illiam G. Bauer, for respondents.
LEVINE, J.:
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 l3, l995.
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 l3, l995 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 by- laws 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
l3, l995, 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 appeal as of right on the
basis of the double dissent (see, CPLR 5601 [a]).
We now affirm. The parties are not in
dispute over the circumstances leading up to the March 5, l982 agreement
between the Norry shareholders and Ronnen. Ajax had been a highly
prosperous distributor of electric motors nationwide, founded by Irving
Norry (the father of Neil Norry and Deborah Ronnen), Sydney Gilbert and
David Lipsky. Irving Norry and his wife had, by l980, transferred
by gift or sale all of their shareholdings in Ajax to their two children
and their families. Friction developed between Norry and Ronnen regarding,
among other things: Norry's acquisition for his children of his mother's
Ajax shares, upsetting the equality of the Norry siblings' interests in
the corporation; Ronnen's displeasure over an irrevocable option her brother
had been granted in l967 to acquire her Ajax shares under what she considered
an inadequate price formula; the level Norry had fixed for his compensation
and other alleged financial self- dealing in Ajax and in Norry Electric
Co., a separate family business; and Ronnen's objection to not being kept
informed of financial decisions Norry made in connection with the management
of both corporations. Ronnen wished to ensure that her interest in
Ajax could be passed on to her children free of interference by Norry.
Norry expressed willingness to accommodate Ronnen, provided he was guaranteed
continued managerial control of Ajax and was given the opportunity to acquire
the Ronnen shares in
Ajax before they could be sold to an outsider. He also wished
to buy out his sister's interest in Norry Electric Co. These various
objectives of the parties were implemented in the
Shareholders Agreement and other contemporaneous transactions.
The Shareholders Agreement recited as one of its
purposes "to provide for the vote of [the Norry and Ronnen families'] Shares
in order to provide for continuity in the control and
management of Ajax." The primary voting control provision was
set forth in paragraph 8 of the Agreement. Sub- paragraph 8(a) provided
that the Ronnen shareholders "agree that Neil Norry shall exercise voting
rights over the Shares owned by them * * * with respect to any and all
matters relating to Ajax's day-to-day operations and corporate management"
(emphasis supplied). Norry was also given the right to vote the Ronnen
shares regarding any sale of substantially all of Ajax's assets or stock
to an outside party, provided that the transaction treated the Norry and
Ronnen interests equivalently. The agreement, however, reserved to
Ronnen the right to vote the Ronnen shares "[i]n connection with other
major corporate policy decisions," and listed as examples of such major
decisions, "other types of corporate reorganizations" and other similar
actions. Subparagraph 8(b) gave Norry an irrevocable proxy to vote
the Ronnen shares as provided in the preceding subparagraph.
The unambiguous words of paragraph 8
and the recital purpose clause of the agreement present an issue of pure
contract interpretation for the Court (see, Bethlehem Steel Co. v Turner
Constr. Co., 2 NY2d 456, 460; Brainard v New York Cent. R.R. Co., 242 NY
125, 133), and admit of no construction other than the conferral to Norry
of the right to vote the Ronnen shares in any election of a board of directors
of Ajax. The undisputed background facts support this interpretation
as well (see, Brainard v New York Cent. R.R. Co., supra). The parties
have not cited to any provision of the Ajax certificate of incorporation
transferring corporate management decisions from the board of directors
to the shareholders (see, Business Corporation Law 620 [b]). Therefore,
management of the business of Ajax was, by statute, exclusively "under
the direction of its board of directors" (Business Corporation Law
701; see, McQuade v Stoneham, 263 NY 323, 329, rearg denied 264 NY
460).
We have held that "the law in force at the
time [an] agreement is entered into becomes as much a part of the agreement
as though it were expressed or referred to therein, for it is
presumed that the parties had such law in contemplation when the contract
was made and the contract will be construed in the light of such law" (Dolman
v United States Trust Co. of New York, 2 NY2d 110, 116). Thus, without
the right to vote the Ronnen shares to elect the directors of the corporation,
the transfer of voting rights regarding "corporate management" under subparagraph
8(a) of the agreement would be essentially meaningless since management
control was vested in the directors and not the shareholders. We
have long and consistently ruled against any construction which would render
a contractual provision meaningless or without force or effect (see, Two
Guys from Harrison-N.Y. v S.F.R. Realty Assocs., 63 NY2d 396, 404; Corhill
Corp. v S.D. Plants, Inc., 9 NY2d 595, 599; Muzak Corp. v Hotel Taft Corp.,
1 NY2d 42, 46; Rentways, Inc. v O'Neill Milk and Cream Co., 308 NY 342,
347; Fleischman v Furgueson, 223 NY 235, 239).
The reservation to Ronnen of the right to
vote the Ronnen shares "[i]n connection with * * * major corporate policy
decisions" is consistent with the parties' intent to confer on
Norry the right to vote the Ronnen shares in the election of board
of directors, since major corporate decisions, such as corporate mergers,
connote extraordinary change while director
elections are the ordinary subject matter of a shareholder meeting.
It, therefore, follows that by agreeing to transfer to Norry the right
to vote the Ronnen shares "with respect to any
and all matters relating to Ajax's * * * corporate management," the
parties must have intended, on the facts of this case, to give Norry the
right to vote the shares to elect a board of
directors.
By the same token, in the absence of having
an irrevocable proxy to vote their cumulative majority interests for the
election of directors, the Shareholders Agreement's recited
purpose to ensure "continuity in the control and management of Ajax"
could not be achieved. We should not adopt a construction of subparagraph
8(a) which would frustrate one of the explicit central purposes of the
agreement (see, Cromwell Towers Redevelopment Co. v City of Yonkers, 41
NY2d 1, 6; Matter of Herzog, 301 NY 127, 135; Genet v President of Delaware
& Hudson Canal Co., 163 NY 173, 179).
Ronnen, however, points to the language of
paragraphs 10, 12 and 14 of the Shareholders Agreement as negating any
inference that Norry was given the right to vote the Ronnen shares in elections
of the board of directors. Paragraph 10 of the agreement recites
that "[t]he parties agree that * * * they shall vote the Shares" to ensure
a seat on the board of directors for Deborah Ronnen. Paragraph 12
provides that "[t]he parties agree that * * * they shall vote the Shares
in the election of Directors" to ensure Ronnen's access to all reports
concerning the management of Ajax, and paragraph 14 similarly requires
the "parties" to "vote the Shares in the election of Directors" so as to
generally cap Norry's total executive compensation at $l25,000 a year.
Ronnen, thus, argues that the literal language
of paragraphs 10, 12 and 14 militates against an interpretation of the
agreement ceding the right of Ronnen, "a party" to the agreement,
to vote the Ronnen shares for the election of directors, and that such
an interpretation would deprive those provisions of any force or effect.
Ronnen further argues that the use of the
plural, "parties," in those paragraphs was ignored by the courts below,
who rewrote the clauses in question as an agreement that, singularly, "Neil
Norry shall vote the Shares" in accordance with the substantive requirements
of paragraphs 10, 12 and 14. We disagree.
As we have already discussed, subparagraph
8(a) of the Shareholders Agreement unequivocally guarantees the right of
Norry to vote a majority block of shares on all matters "relating to *
* * corporate management" of Ajax, which in this case necessarily entails
majority voting rights to elect a board of directors favorable to the continuation
of his corporate
policies. Construing paragraphs 10, 12 and 14 literally, to permit
Ronnen to vote the Ronnen shares in board of directors elections to form
a majority with shareholders possibly
unfavorable to Norry's management role would, thus, take away from
Norry the bargained for management rights and privileges promised in paragraph
8. We have previously applied the principle that 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 (see,
Two Guys from Harrison-N.Y. v S. F. R. Realty Assocs., supra, 63 NY2d,
at 405 ["generally, a contract which expressly permits an activity will
not be construed to prohibit other conduct necessary to carrying out that
activity"]; Premium Point Park Assn. v Polar Bar, Inc., 306 NY 507, 511
["(w)e may not construe the covenant as prohibiting in one subdivision
that which it expressly sanctions in another"]).
Contrary to Ronnen's contention,a transfer
of Ronnen's oting rights to Norry on election of a board of directors will
not render paragraphs 10, 12 and 14 meaningless. These three
provisions were manifestly intended to suit the purposes of Ronnen,
guaranteeing her a seat on the board of directors and requiring the three
Norry shareholders (Neil Norry and his sons) to vote the majority block
of shares for directors who will be favorable to her position on access
to corporate information and on imposing a ceiling on Norry's compensation.
Thus, the pluralized language in paragraphs 10, 12 and 14 that "[t]he parties
agree that * * * they shall vote the Shares" in board of directors elections
can readily be construed to refer to the three Ronnens who were parties
to the agreement, all of whose shares would be necessary to form a majority
voting block with the Ronnen shares. That interpretation should be
favored, as it would reconcile paragraphs 10, 12 and 14 with paragraph
8 of the agreement and effectuate all of the parties' objectives in entering
into the agreement (see, Empire Props. Corp. v Manufacturers Trust Co.,
288 NY 242, 248-249; see also, Two Guys from Harrison-N.Y. v S.F.R. Realty
Assocs., supra, 63 NY2d, at 404).
For all the foregoing reasons, we hold that
the courts below properly construed the Shareholders Agreement as giving
Neil Norry the right to vote the Ronnen shares in board of directors elections.
The position on appeal of appellants Lipsky and Livingston that, as thus
construed, the Shareholders Agreement is void as against public policy
is unpreserved and, hence, has not been considered.
Finally, in view of the irrevocable proxy
Ronnen gave Norry to vote the Ronnen shares in any election of directors,
together with the other circumstances surrounding the March l3, l995 shareholders'
meeting alluded to by Supreme Court, the ordering of a new board of directors
election in this case was within that court's discretionary equity powers
under Business Corporation Law 619 to "confirm the election, order a
new election, or take such other action as justice may require" (emphasis
supplied) (see, Matter of Kaminsky, 251 App Div 132, 139-140, affd without
opn 277 NY 524; Matter of Lake Placid Co., 274 App Div 205; see also, Matter
of Gearing v Kelly, 11 NY2d 201, rearg denied 11 NY2d 1016).
Accordingly, the order of the Appellate Division
should be affirmed, with costs.
* * * * * * * * * * * * * * * * *
Order affirmed, with costs. Opinion by Judge Levine. Chief Judge Kaye and Judges Titone, Bellacosa, Smith and Ciparick concur. Judge Simons took no part.
Decided July 9, 1996