The opinion of the court was delivered by: BARD
Two motions are before the Court: Plaintiff's motion for a preliminary injunction against the defendant, and the defendant's motion to dismiss the plaintiff's complaint.
The plaintiff, a stockholder of the defendant corporation, has filed a complaint seeking to enjoin the submission of a new by-law
to a vote of the shareholders of the corporation at a special and adjourned annual meeting, to be held July 13, 1943. The by-law, if adopted by the shareholders, would authorize the Board of Directors of the corporation to issue options, within one year thereof, to a group of the company's key executives, to purchase stock at a price equal to 125% of the market value of the shares at the date of the issuance of the options, the options to be exercisable at any time within five years.
The complaint alleges that the proposed by-law is illegal and incapable of enactment by the shareholders over the objections of any one shareholder, and that irreparable injury to the corporation and its shareholders is threatened unless the corporation is enjoined from attempting to add the article in question to the by-laws. The plaintiff further alleges that he has no adequate remedy at law.
The plaintiff has moved for an injunction enjoining the defendant corporation and its officers and directors from enacting or attempting to enact, or permitting its shareholders to vote on the proposed article.
The defendant corporation filed a motion to dismiss the complaint, pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, on the ground that the complaint fails to state a claim against defendant upon which relief can be granted. Argument was had and both motions are before the Court.
Plaintiff contends that the proposed by-law is illegal on its face and that it purports to empower the directors to grant options without defendant's receiving any consideration therefor.
In support thereof he argues -- should the options be granted: (1) the defendant would be bound to sell, at a fixed price, 300,000 shares of its common stock at any time it may be requested to do so during a five year period, regardless of how much more than the fixed price it might otherwise realize by direct sale; (2) the defendant, in effect, would be granting a bonus without receiving anything in return; and (3) the optionee does not promise to purchase the stock, and there is nothing to prevent him from resigning the day following the granting of the option and then exercising the option four years and eleven months thereafter, during which time he would have contributed nothing to the company.
I think there may be much force in these contentions of the plaintiff. I think, however, that a present determination of these questions is unnecessary without jeopardizing any of the plaintiff's rights, and certainly without doing irreparable injury to the corporation and its shareholders.
The immediate issue presently before the Court is a prayer to enjoin the defendant from permitting its shareholders to vote on proposed Article XI of its by-laws at a shareholders' meeting on Tuesday, July 13, 1943.
There is no allegation in the complaint that the meeting has been improperly called, nor any allegation of fraud. When a refusal to grant an injunction does not place in jeopardy any rights the claimant may have, courts should be slow to grant an injunction until the claimant has availed himself of other legal remedies. In the instant case the plaintiff will have an opportunity to suggest his views to his fellow shareholders at the meeting to be held next Tuesday. If his views prevail, that is the end of the case.
If, on the other hand, the proposed by-law is adopted, the defendant company has suffered no detriment by its mere adoption and it has not given away anything of value.
The proposed by-law is not self-operative.It is a grant of power authorizing the Board of Directors to issue stock. This grant of power must be exercised by the directors in a legal manner and not in any manner repugnant to Section 612 of the Pennsylvania Business Corporation Law
nor to any other law.