Gearing v. Kelly

Brief Fact Summary. The Kellys (D) elected Hemphill when Mrs. Meacham (P) refused to attend a director’s meeting resulting in Meacham’s (P) faction objecting.

Synopsis of Rule of Law. When a shareholder-director deliberately refuses to attend a director’s meeting to cause a lack of quorum, the board decision held at such a meeting will not be set aside for equity.

Facts. Radium Chemical Co. held four directors. A majority was necessary for transacting business. In 1955, the board consisted of Mrs. Meachm (P), Mr. Kelly Sr. (D), and Margaret Lee. In that year, Kelly Jr. (D) became a director. On March 6, 1961, Margaret Lee chose to resign at a board meeting that Mrs. Meacham (P) chose to stay away from. As a result, the Kellys (D) elected Julian Hemphill. Mrs. Meacham’s mother (P), Mrs. Gearing (P) held a large stock in the corporation and condoned the absence of her daughter from the meeting. The mother (P) brought suit to set aside the election alleging that the Kellys hadn’t met quorum to elect Julian. The appellate court found that Meacham’s (P) faction failed to validate the holding of a new election.

Issue. When a shareholder-director deliberately refuses to attend a director’s meeting to cause a lack of quorum, will the board decision held at such a meeting will be set aside for equity?

Held. (Per curiam) No. Mrs. Meacham (P) had notice of the board meeting, and her absence was deliberate. Even though the Meacham (P) faction desired to protect their ownership interest, it was already voluntarily lost when Kelly Jr. (D) became a director. A new election wouldn’t help the Meacham (P) faction either, it would require Mrs. Meacham (P) to attend in good faith and probably be outvoted. Courts of equity cannot permit directors to refuse to attend meetings so they can their force demands upon other stockholders. Failure to attend these director’s meetings with adequate notice results in a forfeiture of exercisable powers. Affirmed.

Discussion. A majority is needed in a director’s meeting to meet the requisite quorum according to common-law rule.