Davis noted that Rondina's response to this was to state that
if that was true, he "wanted out." Rondina agrees that the
meeting took place, but denies stating that he "wanted out" of
the shareholders agreement. Some time after that meeting,
Davis, through her attorney, wrote to Rondina and offered to
buy him out. He did not respond to the letter until after this
suit was filed.
On January 12, 1990, Rondina scheduled a meeting with Howard
Unker and two of Connaught's outside financial consultants to
discuss the shortfall in the number of St. A. consultants.
Davis was not invited to the meeting. At Davis' request after
she learned that the meeting had occurred, Unker gave her the
information that was discussed at the meeting. At that time the
projection for 1990 was for a profit of approximately
On February 7, 1990, a meeting attended by Unker, Rondina,
one of the company's accountants and Rondina's counsel was held
at the office of Rondina's counsel. Again, Davis was not
invited. At that time, the projection was revised to show a
loss for the year. Unker testified that although he generally
reported to both Rondina and Davis, he did not tell Davis about
that meeting or the new projections because he wanted to avoid
getting into the middle of a dispute between the two owners.
There is no evidence that Davis was informed about this revised
projection before this suit began.
Davis had scheduled a regional sales managers meeting for
Saturday, February 24, 1990, in Florida. On February 23, Davis
received a call from Bickel, the vice president in charge of
the meeting, informing her that Bickel had just received a call
from Rondina ordering her to cancel the meeting. Davis told
Bickel to go ahead with the meeting as scheduled. She then went
to Rondina's office and told him that he could not cancel her
meetings and that it showed bad judgment to air their problems
before the sales force. Later that day, she wrote him a
memorandum on the same subject. After Davis left the office for
the day, Rondina called each regional sales manager and told
her not to attend the meeting. On February 24, Davis had a
conference call with all the regional managers. According to
her, she held the call in order to explain things to them so
that they would continue to work and to tell them not to share
the dispute with the sales force. According to Rondina, she
vilified him during the call and threatened to fire anyone who
mentioned him. Rondina testified that he canceled the meeting
because he did not approve of the agenda which he had not
received until just before the meeting was to occur.
IV. SPECIAL BOARD MEETING
The following Monday, February 26, Davis received notice of
a special Board meeting scheduled for February 28. The
corporation had never before had a Board meeting. Both Rondina
and Davis brought legal counsel to the meeting and a court
reporter recorded the entire meeting.
At the Board meeting, a number of resolutions were adopted by
a two to one vote. At the beginning of the meeting, Rondina
designated Grace Rose as the third director in case of a tie.
Rondina voted for each resolution. Davis voted against each
resolution. Rose then cast the deciding vote for each
resolution. No shareholder vote was taken on any of these
The first resolution was to abort St. A. As part of the
resolution, Davis was "specifically directed by the Board that
she is to work under the direct supervision of the CEO, William
Rondina, and take express directions from him or his designees
in respect of all of the above matters."
The second resolution was to close the NRO and restructure
recruiting. Part of the restructuring involved firing Pluma
Bridges, Vice President in charge of recruiting, as well as the
support staff and the field organization of the NRO. Again,
Davis was directed to work under the direct supervision of
Rondina in this matter.
The third resolution was to restructure training and
development. The restructuring included firing Sheila
Holderness, Secretary of the corporation and Vice President in
charge of training and development. Again, Davis was
specifically directed to work under the direct supervision of
Rondina in this matter.
The fourth resolution was to terminate Limited Editions for
Her, the division of the corporation that disposed of
overstock, and to implement a new system of dealing with
overages. Again, Davis was specifically directed to work under
the direct supervision of Rondina in this matter.
The fifth resolution was to cut costs in accordance with a
schedule produced by Rondina. Part of the savings schedule
included the firing of Davis' secretary. Rondina testified at
trial that he fired her because she was not friendly to him.
The sixth resolution was to reduce the salaries of Rondina
and Davis to $125,000 each.
The seventh resolution was to order Davis to have "no written
communication to the staff and/or sales force without prior
review and written approval of William Rondina or his
designees. Policy changes in the company shall not be made
without similar written approval by me or my designees." Again,
Davis was specifically directed to work under Rondina's
The eighth resolution was to authorize the company and
Rondina to commence court proceedings and take other
appropriate actions with respect to Davis and her wrongful
acts. This resolution was passed following a long and
inflammatory tirade by Rondina about Davis' allegedly wrongful
Before the votes, exhibits were distributed which allegedly
supported Rondina's position. Davis was not given the exhibits
before the meeting and there is no evidence that she had access
to the figures in the exhibits before the meeting. Unker
testified that he was aware of Rondina's plans before the Board
meeting but that he did not inform Davis of them. Unker, who
prepared the exhibits, also testified that one could not use
the exhibits to reach an informed conclusion about the
resolutions because the figures supporting the conclusions
contained in them were not distributed at the Board meeting.
Also, Unker testified that the cost reduction schedule
distributed at the meeting did not reflect entirely accurately
what he understood to be the cost reduction plans.
At the Board meeting, Rondina also announced that he had
raised the price Rondina, Inc. charged to Connaught from
twenty-eight percent profit to thirty-five percent profit for
Rose, the third director who voted for all these proposals,
testified at her deposition that aside from meeting with
Rondina and then briefly with Rondina's attorney, she did not
prepare for the Board meeting. At their conference, Rondina
informed her that Connaught was in financial trouble and told
her in broad language what he wanted to do. No specifics were
discussed and no financial documents or material were examined.
She did not review either the shareholders agreement or the
by-laws before the Board meeting. She also testified that she
understood that she, as a part owner of Rondina, Inc., would
gain financially if the price Connaught paid for goods from
Rondina, Inc. was increased.
V. AFTER THE BOARD MEETING
After the Board meeting, Rondina established an Office of
Sales and Recruiting consisting of himself, Unker and Hoffee to
take over the functions of the NRO and the training and
development organization. Davis was not made part of this
office. The formation of this office was announced in an
article written by Rondina in the in-house newsletter. In the
article, he listed the three members of the office and
explained how the office would work. Davis was not mentioned.
Unker testified that Rondina asked the Office of Sales and
Recruiting to act independently of Davis. He further testified
that no one at the office would take direction from Davis
without Rondina's approval. He also noted that the office
receives weekly reports from the regional managers and that he
never asked anyone to send Davis a copy of these reports and
does not know if she has received any. Unker stated that he
does not report to Davis and, to his knowledge, no one from the
office reports to her. Unker also testified that he is
empowered to make certain decisions for the office without
On the Monday following the Board meeting, Rondina held a
meeting of all of the regional sales managers at the New York
office. Davis was not invited to the meeting. Rondina posted
guards on her floor and on Holderness' floor to make sure that
the meeting was not disturbed. Rondina stated that any of those
fired who attempted to enter the premises would be treated as
trespassers. Holderness attempted to enter her office and was
excluded by a guard. Further, the regional managers, who had
originally reported to Davis through the vice presidents, were
instructed to report directly to Rondina. Some time after the
Board meeting, Davis tried to schedule a conference call with
the regional sales managers. Rondina forbade them to talk to
her on such a call.
Other changes occurred as well. Rondina wrote to the sales
force discussing his new plans for advertising. The weekly
meetings attended by Rondina, Davis and Unker to discuss
financial matters were cancelled.
Based on my examination of all the evidence and my
observation of the demeanor of Davis and Rondina both on direct
examination and on cross-examination, I find Davis to be a very
credible witness. To the extent that Rondina contradicted
Davis' version of the facts, I reject his testimony.
I. PRELIMINARY INJUNCTION STANDARD
A movant is entitled to a preliminary injunction if she shows
that she will suffer irreparable injury in the absence of the
requested relief, and either (1) a likelihood of success on the
merits or (2) sufficiently serious questions going to the
merits to make them a fair ground for litigation, and a balance
of hardships tipping decidedly in the movant's favor. Le
Sportsac, Inc. v. K-Mart Corp., 754 F.2d 71, 74 (2d Cir. 1985).
II. LIKELIHOOD OF SUCCESS
Davis claims that Rondina's conduct violated the shareholders
agreement. Rondina defends on two grounds. First, he takes the
position that his actions did not violate the agreement.
Second, he contends that even if his conduct did violate the
agreement, it was excused because, as a director and the
majority shareholder, he was entitled to take the actions he
did to rescue the corporation from Davis.
The parties agree that shareholders agreements like the one
at issue here are generally enforceable. Under New York law,
shareholders agreements are to be interpreted according to the
law of the state of incorporation. Zion v. Kurtz, 50 N.Y.2d 92,
100, 428 N.Y.S.2d 199, 405 N.E.2d 681 (1980). Section 350 of
the Delaware General Corporation Law provides:
A written agreement among the stockholders of a
close corporation holding a majority of the
outstanding stock entitled to vote . . . is not
invalid, as between the parties to the agreement,
on the ground that it so relates to the conduct of
the business and affairs of the corporation as to
restrict or interfere with the discretion or
powers of the board of directors. . . .
Del.Code Ann. tit. 8, § 350 (1974). This section is only
applicable to a close corporation which elects to be treated as
such under section 344 of the Delaware General Corporation Law.
Del.Code Ann. tit. 8, § 341 (1953); Chapin v. Benwood
Foundation, Inc., 402 A.2d 1205 (Del. Ch. 1979), aff'd
415 A.2d 1068 (Del.Supr. 1980). However, in Zion v. Kurtz, 50 N.Y.2d 92,
428 N.Y.S.2d 199, 405 N.E.2d 681 (1980), the New York Court of
Appeals, applying Delaware law, held that where, as here, the
corporation would be eligible for close corporation status,
there are no intervening