Ringling Bros.-Barnum & Bailey Combined Shows Inc. v. Ringling
29 Del. Ch. 610, 1947 Del. LEXIS 25, 53 A.2d 441 (1947)
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Rule of Law:
A written agreement between stockholders to vote their shares jointly, which includes a provision for a third-party arbitrator to resolve disagreements, is a valid and enforceable contract, commonly known as a stock pooling agreement.
Facts:
- Edith Conway Ringling and Aubrey B. Ringling Haley, two of the three principal stockholders in Ringling Bros.-Barnum & Bailey Combined Shows, Inc., each owned 315 of the 1000 outstanding shares.
- In 1941, Ringling and Haley entered into a written agreement to act jointly in exercising their voting rights.
- The agreement stipulated that if they failed to agree on how to vote, the matter would be submitted to an arbitrator, Karl D. Loos, whose decision would be binding.
- Prior to the 1946 annual stockholders' meeting, Ringling and Haley disagreed on the election of a fifth director for the board.
- Ringling invoked the arbitration clause, and Loos directed both parties to vote for a specific slate of five directors.
- At the meeting, Ringling voted her shares as directed by the arbitrator.
- Haley, through her husband acting as proxy, refused to follow the arbitrator's direction and voted her shares differently, in breach of the agreement.
Procedural Posture:
- Edith Conway Ringling filed a petition in the Delaware Court of Chancery (trial court) to review the director elections from the 1946 annual stockholders' meeting.
- The Vice-Chancellor of the Court of Chancery ruled that the voting agreement was a valid 'stock pooling agreement.'
- The trial court held that the agreement created an implied irrevocable proxy, allowing the compliant party (Ringling) to vote the shares of the breaching party (Haley).
- The Court of Chancery ordered a new election to be held before a master, with instructions to give effect to the agreement.
- The defendants, Aubrey B. Ringling Haley and John Ringling North, appealed the trial court's order to the Supreme Court of Delaware.
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Issue:
Is a stock pooling agreement, in which two shareholders agree to vote their shares jointly and to submit any disagreements to an arbitrator whose decision is binding, a valid and enforceable contract?
Opinions:
Majority - Pearson, J.
Yes. A stock pooling agreement in which shareholders contract to vote their shares in a concerted manner, including the use of an arbitrator to break deadlocks, is a valid and legally enforceable contract. The court reasoned that such agreements are distinguishable from voting trusts, which require formal compliance with statutory law because they separate legal title from voting power. Here, the shareholders retained full ownership and merely contracted with each other on how they would exercise their voting rights. Such contracts are lawful so long as their purpose is not to defraud other shareholders or violate public policy. The provision for an arbitrator was deemed a reasonable and unobjectionable deadlock-breaking measure. Because Haley failed to vote her shares in accordance with the arbitrator's binding decision, she breached the contract. However, the court found that the agreement did not create an irrevocable proxy empowering one party to vote the other's shares. The proper remedy was not specific performance, but to refuse to count the votes cast by Haley in breach of the agreement.
Analysis:
This is a foundational Delaware corporate law case that validates the use of shareholder pooling agreements as a legitimate tool for corporate governance. The decision draws a critical distinction between a pooling agreement (a contract on voting) and a voting trust (a formal separation of ownership and control), holding that the former does not need to comply with the strict statutory requirements of the latter. This provides shareholders, particularly minority holders, a flexible way to aggregate their voting power to influence corporate affairs. The court's chosen remedy—invalidating the improperly cast votes rather than granting specific performance or implying a proxy—demonstrates a judicial reluctance to completely divest a shareholder of their voting power, even when they are in breach of a valid contract.
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