18-CIV-01274 IRENE LAUDEMAN VS. PALO ALTO PARK MUTUAL WATER COMPANY

IRENE LAUDEMAN CHRISTOPHER J. KELLY PALO ALTO PARK MUTUAL WATER COMPANY

APPLICATION FOR AN ORDER SUMMARILY DIRECTING THE GIVING OF THE NOTICE OF A SPECIAL SHAREHOLDERS’ MEETING BY IRENE LAUDEMAN TENTATIVE RULING:

A. Applicant Has Standing to Request a Special Meeting.

Applicant has presented evidence that she holds shares and holds proxies of other shareholders representing approximately 43 percent of the corporation’s voting shares, which meets the requirements of Corporations Code section 600, subdivision (d) and Article IV of Respondent’s bylaws. Respondent contends that the proxies of Simon, Haines and White are forgeries. Respondent does not contend that omitting these three proxies reduces Applicant’s representative proxies and shares below the 10 percent required by Corporations Code section 600 or the onethird of shares required by the Article IV of the Bylaws.

Respondent also argues that Applicant presented only copies of the proxies, whereas the corporation’s “common practice and procedure” is to review originals. (Declaration of Mitchell para. 2.) Respondent offers no evidence that the use of copies of proxies is prohibited. Nothing in the Corporations Code or the Bylaws requires that the shareholder present only original proxies, and not copies, when requesting a special meeting of shareholders. Therefore, the use of copies does not present a legal ground for the Court to deny Applicant’s request.

Finally, Respondent contends that the proxies did not include a Spanish translation. Respondent identifies no law or bylaw provision that requires a translation into Spanish or any other language. Regardless, a parenthetical notice at the top of each proxy appears to indicate that a Spanish translation was on the reverse side of the proxies. (See Applicant’s Exhibit G.)

Applicant has standing to request a special meeting of shareholders.

B. The Meeting Shall Occur No Later than May 4, 2018.

Respondent argues that Applicant’s requested date, April 14, 2018, does not afford sufficient 30days’ notice to shareholders as required by Article XVII of the Bylaws. Article XVII, however, pertains to Annual Meetings, not special meetings. The Bylaws contain no notice requirements for a special meeting of shareholders. Regardless, unless Applicant can show good cause for a notice period shorter than 30 days, the Court rules that the special meeting occur no earlier than May 4, 2018 and no later than May 11, 2018. Respondent shall have the obligation of complying with a 30-day notice requirement.

C. Election of Directors.

Shareholders have the authority to remove directors at any time. (Corp. Code sect. 303, subd. (a).) One of the proposed agenda items is “Voting on the removal of the current members of the Board of Directors.” (See Notice of Application at 1:17.) This is a permissible action.

Another item is to nominate five candidates for the Board and vote on them. (Id. at 1:19-25.) The Bylaws provide that directors are to be elected at the Annual Meeting of Shareholders (Art. II). Respondent contends that board vacancies are filled by a vote of the remaining directors, pursuant to Article III. However, Article III is limited to vacancies created by “death, resignation, or inability to serve as a Director.” Article III does not apply to vacancies created by removal.

In contrast, “Unless the articles or a bylaw adopted by the shareholders provide that the board may fill vacancies occurring in the board by reason of the removal of directors, such vacancies may be filled only by approval of the shareholders.” (Corp. Code sect. 305, subd. (a).) Further, shareholders may elect a director “at any time” to fill any vacancy not filled by the directors.” (Id. sect. 305, subd. (b).)

Since the Bylaws do not provide a mechanism for filling director positions resulting from shareholder removal, the shareholders are entitled to hold an election to fill the vacancies “at any time” (Id. sect. 305, subd. (b)). The election may occur at a special meeting of shareholders.