The opinion of the court was delivered by: WEINSTEIN
WEINSTEIN, District Judge.
Plaintiff seeks an order declaring him a member of the Board of Directors of the Community National Bank and Trust Company of New York (the Bank). For the reasons stated below plaintiff is entitled to be declared elected to the Board of Directors of the Bank; he must be permitted to serve upon submitting proof of qualification. Except as otherwise noted, all the facts have been stipulated.
The Bank is chartered under the National Banking Act. 12 U.S.C. § 21 et seq. Sometime prior to the most recent meeting of the shareholders -- at which the election to the Board of Directors was held -- plaintiff prepared material for distribution to the Bank's shareholders. Proxies were solicited to elect plaintiff to the Board. In accordance with applicable practice, the proxy material was cleared by the Administrator of National Banks, Office of the Comptroller of the Currency, before it was distributed to shareholders.
At the meeting, the Judges of Election -- in effect persons appointed by management -- adopted a number of rules for passing upon the validity of the proxies. Among them were the following:
"Any proxy on which it appeared that the date, number of shares or other information was filled in by one other than the signer of the proxy, would be rejected."
The Judges ruled, properly, that 7,479 votes were required for election. Plaintiff had in his possession proxies for 14,680 shares, including proxies for the 787 shares of stock owned with his wife as joint tenants and the 1,722 shares owned by his parents. 8,000 of plaintiff's proxies were invalidated, including those of plaintiff and his parents even though they were actually present at the meeting. The chief reason for disallowing the proxies was that dates were filled in in ink and handwriting different from the signatures.
The National Banking Act provides for cumulative voting at shareholders' meetings. 12 U.S.C. § 61. It also permits voting by proxy. Id.
Cumulative voting is calculated to permit minority representation on the Boards of Directors of banks subject to the Act. See, e.g., 5 Fletcher, Private Corporations § 2048 (1967); 1 Hornstein, Corporation Law and Practice § 127 (1959). The fact that this form of voting was insisted upon by Congress indicates its desire to insure that management not exclude such interests. Adherence to Congressional design requires that proxies be scrutinized and evaluated so that the wishes of the often unsophisticated small shareholder not be frustrated. Such shareholders tend to make minor errors on proxy forms because they often lack funds to hire the kinds of experts and clerical help available to management.
In this case management used hyper-technical evaluations of proxies to exclude a minority representative. An examination of the exhibits and the stipulation of facts indicate that all of the challenged proxies held by the plaintiff should have been counted, except for the proxy of one shareholder for 787 shares; he indicated to the Judges of Election that he signed one proxy in the mistaken belief that it was a proxy on behalf of the management and that his intention was that another proxy held by the management should be voted on his behalf.
Had the Judges of Election reviewed the proxies in any reasonable manner, the vote for the plaintiff would have been 13,893. This total was much more than the 7,479 votes required to ...