Stancil v. Bruce Stancil Refrigeration, Inc.

344 S.E.2d 789 (1986)

Howard K. STANCIL
v.
BRUCE STANCIL REFRIGERATION, INC., Bruce Stancil, Sarah Barnes and Eva Stancil.

No. 857SC1309.

Court of Appeals of North Carolina.

July 1, 1986.

Narron, Holdford, Babb, Harrison & Rhodes by Henry C. Babb, Jr., Wilson, for petitioner-appellee.

Lane and Boyette by Wiley L. Lane, Jr., and Lee, Reece & Weaver by Cyrus F. Lee, Wilson, for respondents-appellants.

MARTIN, Judge.

Although respondents argue six assignments of error in their brief, this appeal essentially presents only two issues: whether the trial court had jurisdiction to act in this matter, and, if so, whether its order, declaring that Howard Stancil and Clara Stancil had been validly elected as directors and ordering that a new election be conducted solely for the purpose of electing a third director, is correct. After considering each of the arguments advanced by respondents we affirm the order of the trial court.

Respondents initially contend that the trial court did not obtain jurisdiction over their persons because they were not served with process in the manner provided by G.S. 1A-1, Rule 4(j). They candidly admit, however, that they may have waived this defect by their participation in the proceeding.

G.S. 55-71 provides a summary procedure for the resolution of disputes involving the election of corporate officers and directors. The proceeding is commenced by the filing of a verified petition, G.S. 55-71(c), and the issuance by the petitioner of a notice to the respondents named in the petition, designating a time and place for a hearing before a superior court judge. G.S. 55-71(e). The necessity for a summons is eliminated, but a copy of the petition and notice of hearing must be served on each respondent at least 10 days before the hearing. Id. Alternative methods of service are prescribed in the event a respondent cannot be served within the State. Id.

Assuming, without deciding, that the service required by G.S. 55-71(c) must be made in the manner required by Rule 4(j), we hold that respondents have waived their right to challenge personal jurisdiction. Respondents each received a copy of the petition and notice of hearing from petitioner's counsel more than 10 days prior to the hearing. They filed a joint response to the petition requesting that the court declare the entire 7 June 1985 election void but did not assert any defense of insufficiency of service of process. Moreover, they appeared at the hearing and participated fully. They have, therefore, lost their right to assert that the court lacked jurisdiction over their persons. G.S. 1A-1, Rule 12(h)(1); Simms v. Mason's Stores, Inc., 285 N.C. 145, 203 S.E.2d 769 (1974).

Respondents also contend that the court had no jurisdiction over the subject matter of this dispute. G.S. 55-71(d)(1) requires that the petition include "the title of the proceeding, which shall include as respondents the corporation, the person or persons whose purported election or appointment is questioned, and any person other than the petitioner, whom the petitioner alleges to have been elected or appointed." (emphasis added). By the terms of the statute, the corporation and all persons whose election or appointment is at issue in the proceeding are necessary parties thereto.

In his petition, Howard Stancil alleged that he and Clara Stancil had been elected directors of respondent corporation at the disputed meeting, however, Clara Stancil is not named in the title of the proceeding as either a petitioner or as a respondent. Respondents contend that this omission deprived the trial court of jurisdiction over the subject matter of this dispute. We disagree.

Respondents did not assert, at any time during the proceedings below, any defense based upon the fact that Clara Stancil was not named in the title of the proceeding, nor did they seek her joinder as a party. They raise the issue for the first time in this Court. Although a defense of lack of subject matter jurisdiction may not be waived and may be asserted for the first time on appeal; G.S. 1A-1, Rule 12(h)(3); Dale v. Lattimore, 12 N.C.App. 348, 183 S.E.2d 417, cert. denied, 279 N.C. 619, 184 S.E.2d 113 (1971); a failure to join a necessary party does not result in a lack of jurisdiction over the subject matter of the proceeding. 5 Wright and Miller, Federal Practice and Procedure: Civil § 1359 at 630 (1969) ("failure to join a party under Rule 19 is not a jurisdictional matter"). G.S. 1A-1, Rule 12(h)(2) provides, in pertinent part: "[A] defense of failure to join a necessary party, ... may be made in any pleading permitted or ordered under Rule 7(a), or by motion for judgment on the pleadings, or at the trial on the merits." The rule requires that a defense of failure to join a necessary party be raised in the trial court; it may not be asserted for the first time on appeal. Wright and Miller, supra, § 1392. Accordingly, we overrule respondents' assignment of error based upon the failure of the petition to name Clara Stancil as a party to the proceeding.

By their second and fourth assignments of error, respondents dispute the trial court's findings of fact with respect to Howard Stancil's exercise of his right to cumulatively vote his shares in the corporation and its conclusion, based on those findings, that Howard Stancil and Clara Stancil were elected as directors. Respondents concede that Bruce Stancil was not entitled to vote his shares "against" the opposing nominees and that the manner in which he sought to conduct the election was irregular. They maintain, however, that as a result of these irregularities, no directors were elected at the meeting.

It is well established that in a non-jury proceeding, the trial court's findings of fact are conclusive on appeal if they are supported by competent evidence. Williams v. Pilot Life Insurance Company, 288 N.C. 338, 218 S.E.2d 368 (1975). The materials before the trial court at the summary hearing included the petition, the response, the corporate charter and by-laws, and a verbatim transcript of the 7 June 1985 meeting. In addition, both Howard Stancil and Bruce Stancil testified at the hearing. We have reviewed the evidence, all of which is included in the record before us, and we are satisfied that the trial court's findings of fact 9 through 16 accurately chronicle the 7 June 1985 meeting and are fully supported by the evidence. Although denominated as findings of fact, findings 18 through 22, all of which are excepted to by respondents, actually contain mixtures of findings of fact and conclusions of law and are therefore reviewable on appeal to determine whether the facts found by the court are sufficient to support its conclusions that Howard Stancil properly exercised his right to vote his shares cumulatively; that his nominees received a plurality of the votes cast; and that Bruce Stancil's nominees were not elected. Brown v. Charlotte-Mecklenburg Bd. of Education, 269 N.C. 667, 153 S.E.2d 335 (1967).

The right of cumulative voting in an election of corporate directors is granted by G.S. 55-67(c). The statute provides, in part, as follows:

[D]irectors shall be elected by a plurality of the votes cast and at each election for directors every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares standing of record in his name for as many persons as there are directors to be elected and for whose election he has a right to vote, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of his shares shall equal, or by distributing such votes on the same principle among any number of such candidates. (emphasis added).

Id. The statute requires, however, that before the right of cumulative voting may be exercised, four things must be done: (1) a shareholder must announce in the open meeting, before the voting starts, that he intends to vote cumulatively; (2) upon such an announcement, the chair must declare that all shares have the right to vote cumulatively; (3) the chair must announce the number of shares present in person or by proxy; and (4) the chair must declare a recess of not less than one hour nor more than four hours, unless a different time period is unanimously agreed upon. Id.

The evidence shows, and the trial court found, that before the voting for directors began, Howard Stancil announced, through his attorney, that he intended to vote his shares cumulatively and requested that the vote be by written ballot, as provided by the by-laws. Bruce Stancil, who was acting as chairman, refused the request for vote by ballot and did not acknowledge the announcement of intention to vote cumulatively. He proceeded with the election without declaring a recess. Howard Stancil and Bruce Stancil were the only shareholders of the corporation and had stipulated, at the beginning of the meeting, that each owned 12,500 shares of stock. From these findings, it is apparent that the holders of all outstanding shares of the respondent corporation knew of Howard Stancil's intention to vote his shares cumulatively, that all shares were therefore entitled to vote cumulatively, and knew the number of shares present at the meeting. The first three requirements of G.S. 55-67(c) were met. The fourth requirement, that of a recess, was not met. However, the trial court found that the requirement was not met due to the conduct of Bruce Stancil, and concluded that he had suffered no prejudice as a result of his failure to call a recess. We agree. The four requirements imposed by G.S. 55-67(c) for the exercise of cumulative voting are designed, among other things, to (1) to prevent a shareholder, by a surprise announcement of his intention to vote cumulatively, from taking unfair advantage of other shareholders, and (2) to permit the shareholders an opportunity to determine how their votes may be distributed to their best advantage. Thus, the only person who could possibly have been prejudiced by the fact that no recess was taken after the announcement had been made was Bruce Stancil, whose duty it was, as chairman of the meeting, to declare the recess. He will not be permitted, by his own violation of the statute, to defeat his fellow shareholder's proper exercise of a right to vote cumulatively nor to void an otherwise valid election. We uphold, therefore, the trial court's conclusion that Howard Stancil was entitled to vote, and did vote, his shares cumulatively.

Having concluded that cumulative voting was proper, the outcome of the election may be ascertained by simple mathematics. Each shareholder was entitled to 37,500 votes (12,500 shares X 3 directors to be elected). Howard Stancil distributed 18,750 of his votes for himself and 18,750 for Clara Stancil, while Bruce Stancil distributed his votes equally among his three nominees, 12,500 votes for each. Thus, the trial court correctly concluded that Howard Stancil and Clara Stancil each received a plurality of the votes cast and were elected, while none of Bruce Stancil's nominees received a plurality of votes and were, therefore, not elected.

Finally, by their three remaining assignments of error, respondents contend that the trial court exceeded its authority by declaring that Howard Stancil and Clara Stancil were elected directors of respondent corporation and ordering that another election be held to elect a third director. They argue that the G.S. 55-71 is designed only to maintain the status quo, and cite us to our previous decisions in Foreman v. Bell, 56 N.C.App. 625, 289 S.E.2d 567, disc. rev. denied, 306 N.C. 383, 294 S.E.2d 207 (1982) and Swenson v. All American Assur. Co., 33 N.C.App. 458, 235 S.E.2d 793 (1977). Their reliance on these cases is misplaced. The provisions of G.S. 55-71(f) do provide for the entry of interlocutory orders to maintain the status quo and prevent "temporary corporate paralysis" pending a determination of the validity of the election. Thomas v. Baker, 227 N.C. 226, 229, 41 S.E.2d 842, 844 (1947); Foreman, supra; Swenson, supra. However, G.S. 55-71(h) vests the court with broad powers to provide complete relief in its determination of the controversy.

G.S. 55-71.

(h) Upon completion of the hearing the judge, in determining the matter, may:

(1) Declare the result of the election or appointment in controversy;

(2) Order a new election or appointment and may include in such order provisions with respect to the directors or officers who shall hold the contested offices until a new election is held or appointment is made;

(3) Determine the respective voting rights of the shareholders and of persons claiming to own shares;

(4) Direct such other relief as may be just and proper.

(Emphasis added). Judge Winberry acted well within these powers in declaring the result of the contested election, ordering that a new election be conducted to complete the board of directors of respondent corporation, and determining the respective voting rights of the shareholders at that election.

The order appealed from is

Affirmed.

HEDRICK, C.J., and WELLS, J., concur.