The opinion of the court was delivered by: BECKER
At stake in this unusual lawsuit is the control of the Delaware Law School (DLS), which was founded in 1971 by Dean Emeritus Alfred Avins (Avins), one of the plaintiffs. DLS is located in Wilmington, Delaware. The other plaintiff, Richard F. Plechner, is a DLS trustee. The legal issues before us concern the validity of the transactions in July, 1975, which resulted in the affiliation of DLS with defendant Widener College, Inc. (Widener) and in the transfer of governance of the law school from a Board of Trustees dominated by Avins to a Board, the majority of whose members were named by Widener.
However, the central and controlling issues are not legal but factual. Those factual issues emerge mainly from the tense and critical period in the life of DLS when accreditation of DLS by the American Bar Association (ABA) was in doubt. Unless DLS was accredited prior to the graduation of DLS' first class, the graduating students in that class would not be qualified to take bar examinations in most states. Moreover, later accreditation would not have the effect of qualifying these students. The doubt over accreditation thus presented to hundreds of students, who had committed years of study to the ambition of a career at the bar, the spectre that a significant portion of their lives might be wasted.
This thorny period was climaxed by the DLS-Widener affiliation and subsequent ABA provisional accreditation of DLS. Defendants, Widener and DLS, contend, inter alia, that DLS had been run by Avins as a "one-man law school," and that without the DLS-Widener affiliation there would have been no accreditation. The premise of plaintiffs' case is that the accreditation crisis was significantly fomented or fueled by actions of representatives of the defendants, with the connivance or succor of representatives of the Accreditation Committee (Committee) of the Council of the Section of Legal Education and Admissions to the Bar of the ABA (Council), and that accreditation would have followed without affiliation. The principal gravamen of plaintiffs' case is that the DLS-Widener affiliation was a product of coercion and undue influence upon the DLS trustees who voted for affiliation with Widener, or that their vote for affiliation was a product of duress. Plaintiffs also contend that the mechanism by which the affiliation was accomplished, i.e. the issuance by DLS, previously a non-stock corporation, of one share of stock with a par value of $1, and its transfer to Widener for the sum of $1,
violates the corporation law of Delaware in that: (1) there was inadequate consideration paid for the stock since DLS had assets valued well in excess of $1; and (2) as a Delaware nonprofit corporation, DLS could not issue stock hence the issuance of the stock was ultra vires. The relief sought by plaintiffs is the setting aside of the DLS-Widener affiliation and the removal of the present law school trustees so that the pro-Avins trustees could resume control of the law school.
After disposing of a significant number of pre-trial matters,
we proceeded to a bench trial
at which we heard some five days of testimony. It soon appeared that the plaintiffs could not establish that the defendants or their representatives engaged in acts of coercion against or exerted undue influence over the DLS trustees who voted for merger or that they placed them under duress. What plaintiffs were advancing, it seemed to us, was what we dubbed the doctrine of "ambient coercion," i.e. that the atmosphere was so highly charged, that pressure from DLS students and their parents (many of whom were lawyers and judges who had intervened and taken active roles in what had become an accreditation campaign) was so great, that the DLS trustees felt compelled to vote for Widener affiliation. Of course, there is no such doctrine of "ambient coercion," but in any event, the evidence, both in its discrete portions, and in its totality, demonstrated to us beyond peradventure that the trustees were not subject to compulsion, duress, coercion or undue influence, but rather acted responsibly and voluntarily in voting for affiliation with Widener in the manner and by the means noted above.
The critical time in the quest for accreditation was the summer of 1975, when the first DLS class was about to graduate, for, as we have noted, under most state bar admission standards subsequent accreditation does not resurrect a wasted law school career. As will appear from our findings of fact, there is no doubt that but for affiliation with Widener, DLS would not have been accredited at that critical time, nor is there doubt that the trustees reasonably believed this to be so and acted accordingly. Neither, as will appear in our discussion of the applicable law, is there merit in plaintiffs' contentions as to the validity of the affiliation mechanism under Delaware corporation law. Accordingly, we will enter judgment for the defendants.
What now follows is our more detailed findings of fact as well as our conclusions of law, as required by Fed.R.Civ.P. 52(a). Because of the unique nature of the case and the importance of the matter to the parties and the DLS students, we have chronicled the relevant facts in considerable detail.
Delaware Law School was incorporated in Delaware as a non-profit corporation on June 1, 1971. Avins, who was its incorporator and first dean, started the school to create a "haven" for conservative members of the teaching profession.
By the terms of the original certificate of incorporation, the purposes of the corporation were "to establish and operate a law school in the State of Delaware" and engage in the various activities normally related to such an enterprise. The trustees or "members" had no right to any financial benefit arising out of their interest in the corporation. Upon the filing of the certificate of incorporation, the powers of the incorporator Avins terminated and were transferred to a Board of Trustees composed of Avins, Delaware State Senator Dean C. Steele, and Cornelius Milione, a Wilmington banker. The trustees had the power to dissolve the corporation and donate the assets to "another school." The corporation also reserved the right to restate or amend, alter, change or repeal any provision contained in the certificate. Finally, in contemplation of a future affiliation with a university, the certificate provided that the corporation could "merge, affiliate or contract with another non-profit educational institution under terms and conditions to be set by the Board of Trustees." Such an intention was indicated in the first catalogue of DLS.
By the fall of the next academic year, DLS moved to its present quarters in a former church in Wilmington which Avins had arranged for DLS to purchase by use of a purchase money mortgage. The building was in dilapidated condition, and Avins personally supervised its clean-up. At the same time, he was teaching classes and acquiring books for a library. The story of how Avins, using the help of students, revamped the physical facilities, furnished the building, and built an adequate law school library is truly astounding. We will not recant here how he (to use his own phrase) "scrounged;" e.g. searched out the estates of deceased lawyers and purchased books from them, obtained (at distress prices or gratis) shelving and furniture from structures about to be razed, acted as watchman for the premises, and supervised a clean up, paint up and fix up campaign, etc., but will comment only that we marvel at his resourcefulness and energy.
In the fall of 1972, DLS admitted its first full-time day students. These students also anticipated graduation in the spring of 1975. During the 1972-73 academic year, DLS hired four faculty members. Apparently as a "gimmick" to render DLS distinctive and aid its quest for accreditation, Avins imposed the requirement that a faculty member could not obtain tenure unless he had a J.S.D. or Ph. D. (law) degree. No faculty member except Avins had such a degree.
During 1972 DLS attempted to obtain degree granting power. Avins initially applied to the Delaware Department of Public Instruction for such approval, but when he was unsuccessful, he sought legislation as an alternate route. Legislation was then passed which would have given DLS degree granting power if an application were made and there were no objection made by the Chief Justice of the Delaware Supreme Court, the Chancellor of Delaware, the Presiding Judge of the Superior Court, the Attorney General, the State Superintendent of Public Instruction, the President of the Delaware State Bar Association or the Chairman of the Delaware Board of Bar Examiners. However, when DLS filed its application under the statute, all but one of these persons objected.
During 1973, Avins, as the moving force behind DLS, continued to improve the physical facilities, acquire a library, and staff and obtain a faculty. The Board of Trustees was enlarged to include several of Avins' acquaintances -- Dr. William Roberts, a retired Catholic University law professor; Sam Crutchfield,
a Washington lawyer; co-plaintiff Richard Plechner, a New Jersey lawyer; and Edward P. Scharfenberger, a New York lawyer. At the time there was no interest in the DLS from the Delaware bar. In fact, the Delaware bar was hostile to Avins.
The normal procedure for a law school to obtain provisional ABA accreditation is as follows:
The school is inspected by an ABA team which makes a report and recommendation to the Committee. The Committee in turn makes a recommendation to the Council which then makes its own recommendation. If the Council makes an affirmative recommendation of accreditation, it is reported for further action to the ABA House of Delegates. The House of Delegates then makes a final determination on whether the school will be granted provisional accreditation. In order to obtain provisional accreditation, the ABA must be satisfied that the law school will fulfill the requirements for final approval in three years. All of these procedures and the standards for accreditation are set forth in APPROVAL OF LAW SCHOOLS, American Bar Association Standards and Rules of Procedure (1973).
On January 14, 15, and 16, 1974, DLS was inspected by Dean James P. White of Indianapolis Law School (the ABA consultant on legal education) and Millard Ruud (the former ABA consultant on legal education). This inspection was the first step in the procedure for obtaining ABA accreditation. However, the report prepared and submitted by the ABA inspectors was devastating. The inspectors found fault with the physical plant, the library, the faculty, faculty salaries, the Board of Trustees, the lack of degree-granting power, the general lack of a "pursuit of excellence," and referred to DLS as a "one man law school."
One of the inspectors also raised the question of whether Avins' membership on the Board was consistent with the ABA standards. Accordingly, a negative recommendation on accreditation was given by the inspectors, the Committee and the Council. This "turndown" was communicated to the students.
On May 28-30, 1974, an inspection team made up of Dean Paul W. Wildman (Southwestern Law School), Dean Jerome Prince (Brooklyn Law School), and Professor Peyton Neal (Washington & Lee Law School) conducted a second ABA inspection of DLS. Although the results of the second inspection were somewhat better than the first, the report was still highly unfavorable and was accompanied by a negative recommendation. In July, 1974, DLS was again turned down by the ABA.
At this time DLS still did not have degree-granting power.
Although a second statute was passed in Delaware in June, 1974, which would give DLS degree-granting power if there were a satisfactory report by an inspector chosen by the State Attorney General, this inspection had not taken place.
At the ABA meeting, Judge DiBona spoke to members of the Committee and Council and ascertained that DLS would not receive accreditation with Avins in control. He was told inter alia that the faculty was below the required level, Avins could not attract faculty, the tenure requirement was unacceptable, Avins' personal conduct was under attack, and that the law school was a "one man operation."
After returning, Judge DiBona met with Avins and asked him to resign as dean to help achieve accreditation. The SBA also passed a resolution calling for the resignation of Avins as dean. Thereafter, on September 8, 1974, Avins tendered his resignation to the Board of Trustees and became dean emeritus.
Prior to his resignation Avins contacted Dean Arthur A. Weeks at the Cumberland Law School of Samford University in Birmingham, Alabama, to ask whether he would be interested in the deanship of DLS. Dean Weeks visited DLS on September 8, 1974. At the time Avins said that Weeks was "the best person to handle [the] situation," and "the best possible person in the United States to handle the Delaware Law School." Dean Weeks accepted the position and became Dean shortly thereafter.
When Dean Weeks assumed his position, he began to make as many improvements as he could, including the setting up of a record keeping and administrative system, the updating of the library and improvement of the physical facilities, to ready the school for another inspection in January, 1975. As early as October 1974, he suggested affiliation with a college or university as a means of obtaining accreditation.
We do not find, as Avins suggests we should, that Weeks concealed his pro-affiliation views. In November 1974, a favorable inspection by Dean Pasco Bowman of Wake Forest Law School resulted in DLS obtaining degree-granting power from Delaware.
On January 9-11, 1975, an ABA team consisting of Dean White, Dean Willard D. Lorenson (University of West Virginia Law School) and Professor Donald A. Garbrecht (University of Maine Law School) inspected DLS. Their report stated that, although there were "drastic physical changes" and "substantial improvements" since the last inspection, DLS was still not ready for accreditation.
On the basis of information he obtained in Chicago, Dean Weeks submitted a status report to the trustees. This report recommended affiliation with a college or university (several, including Widener and the University of Delaware, were suggested) or a drastic change in the Board of Trustees as means to achieve accreditation. Shortly thereafter, discussions about affiliation were held with Widener College and the University of Delaware. Some time prior to the spring of 1975, Widener had been looking into the possibility of starting a law school. When exploring this possibility, Widener discussed DLS as a possible competitor. At the time, however, Widener knew little about DLS, except that its reputation was not good.
Widener first learned that DLS might be interested in an affiliation in late February, 1975. On March 3, 1975, Dr. Clarence Moll, Widener's president, and other representatives of Widener met with Dean Weeks and Senator Steele to discuss affiliation. Subsequent to that meeting, the Widener board voted to pursue the possibility of affiliation with DLS.
In March, 1975, Dr. Moll, who was not interested in affiliation with an unaccredited law school, contacted Dean White to determine the chances of accreditation of DLS if it affiliated with Widener. White said that if DLS were to merge with an established institution, accreditation would be "almost assured."
On March 23, 1975, the Board of Trustees of DLS appointed an Accreditation Committee consisting of Maddock, Lodge, Plechner and Roberts to look into affiliation, determine whether it was necessary for accreditation, and if so, to undertake discussions with a college or university approved by the Board of Trustees.
On April 11, 1975, Widener made a formal offer to merge with DLS. Widener's original deadline for acceptance of this offer was May 1, 1975. Prior to that date, Widener representatives met with DLS representatives, and Dr. Moll told the DLS representatives that, according to White, affiliation would materially enhance the possibility of ABA approval.
At the April 12, 1975, DLS Board of Trustees meeting, affiliation with Widener or the University of Delaware was discussed. Dr. Moll presented the position of Widener. The board voted to pursue affiliation with the University of Delaware, but if that were not successful, to accept the Widener offer.
Affiliation with the University of Delaware was the more logical alternative in view of its location within Delaware, whereas Widener, though geographically equidistant, was located in Pennsylvania. Mr. Maddock had pursued the University of Delaware alternative (which he strongly favored) vigorously, but in due course conceded that, given the urgency of DLS ...