FACTS: Appeal in a contest over disputed election of directors.
Edith Ringling and Aubrey Haley signed an agreement to pool their voting stock and vote jointly. The agreement provided for a specific arbitrator, Mr. Loos, to decide how the stock should be voted in case the parties were unable to agree. But when the election for the company directors was held in 1946, Aubrey Haley’s proxy, her husband James Haley, voted against the recommendation of Mr. Loos. Edith Ringling brought an action to contest the validity of the election, and the court of chancery nullified the election ordering a new one. Aubrey Haley’s appeal from a judgment for claimants on grounds that the agreement was illegal and irrevocable under Delaware law.
ISSUE: Is a voting agreement giving an arbitrator the power to make a binding decision as to how collective votes should be cast in case of a dispute an illegal and irrevocable agreement on grounds that the voting power of the stock has been irrevocable separated from its ownership?
HOLDING: No. Such an agreement limits an arbitrator’s role to situations where the parties fail to agree. No arbitrator can be given the power to vote shares or to compel another party to a voting agreement to vote in accordance with his directions. Here, the agreement did not contemplate transferring to Loos any such powers. The parties merely sought to bind each other, not to empower the arbitrator to enforce upon them decisions he might make. The control of the voting shares remained vested in the shareholders, Edith Ringling and Aubrey Haley. Thus the failure of Aubrey Haley to exercise her voting rights in accordance w/the decision of the arbitrator was a breach of the voting agreement. However, this does not render the election null and void as was held by the lower court. It merely means that the votes representing Aubrey Haley’s shares should not be counted. The election of the 6 persons for whom Edith Ringling voted stands. This leaves on directorate vacant, to be filled at the next shareholder’s meeting.
An agreement among stockholders to cast their votes collectively in a certain way, w/a provision that an appointed arbitrator will decide how their votes should be cast in case of dispute, is not illegal and irrevocable under a statute prohibiting voting agreements by which the voting power of stock is irrevocably separated from the ownership of that stock.