Brief Fact Summary. Plaintiff, Edith Ringling, brought an action to enforce a stock pooling agreement she had with one of the Defendants, Aubrey Haley.
Synopsis of Rule of Law. Shareholders can agree to pool their votes and have a third party intercede when there is any disagreement as to how to vote.
Points of Law - Legal Principles in this Case for Law Students.
Generally speaking, a shareholder may exercise wide liberality of judgment in the matter of voting, and it is not objectionable that his motives may be for personal profit, or determined by whims or caprice, so long as he violates no duty owed his fellow shareholders.
Facts. Plaintiff and Haley each owned 315 out of 1000 shares of Defendant company, Ringling Brothers-Barnum & Bailey Combined Shows, with the remaining 370 shares owned by another defendant, John Ringling North. The company’s board was comprised of seven members, and if each shareholder voted independently the most likely outcome would be for each shareholder electing two board members with North selecting the extra member. However, in 1941 Plaintiff and Healey contracted to pool their votes, wherein each selected two members and then used their remaining votes to select a fifth member of their choosing. The contract called for an arbitrator, Karl Loos, to resolve any disputes. The contract was terminated a year later with the parties still bound by the arbitrator provision that called for Loos to help decide how to vote. In 1946, Haley could not attend the meeting and sent her husband in her place, and instead of following Loos’ advice he chose to move for adjournment. Plainti
ff and Defendant voted their shares, and Plaintiff brought this action to force Healey to vote according to Loos’ decision. Healey argued that the agreement between her and Plaintiff was invalid as it took the voting power away from the shareholders and gave it to a third party (Loos).
Issue. The issue is whether the agreement between Healey and Plaintiff to pool their votes was valid.
Held. The court held that it no other shareholder’s rights were violated and public policy was not violated, as the result of a pooling agreement. Shareholders should be allowed to benefit as they see fit from their voting rights, and this often means banding together to strengthen their position. However, the court decided not to invalidate the voting and held that the members that were voted in by Healey and North would remain.
Discussion. The court treats shareholder voting rights as a form of property rights.