Seidman and Associates v. G.A. Financial

G.A. Financial, Inc. (GAF) (defendant) appointed Corporate Election Services, Inc. (CES) to serve as the inspector of elections for GAF’s 2003 annual shareholders meeting. That meeting featured a reelection challenge to GAF’s chairman of the board, John Kish (defendant), by Lawrence B. Seidman, the managing member of Seidman and Associates, L.L.C. (collectively, Seidman) (plaintiff). The Bank of New York (BONY) owned 859,647 shares on behalf of its clients (BONY shares). However, the Depository Trust Company (DTC) was the record owner of the BONY shares and thus had the right to vote them. The DTC issued an omnibus proxy granting BONY the right to vote the BONY shares. BONY then issued omnibus proxies to First Bankers Trust Company (FBT) and First Bank of Clayton (Missouri) (Clayton) for 625,771 and 1,500 shares, respectively. FBT voted 625,554 of its shares, and Clayton voted all its shares. BONY voted 233,200 shares through its proxy, Automated Data Processing (ADP). However, the cumulative votes by FBT, Clayton, and ADP (on BONY’s behalf) totaled 860,471, which was 824 votes more than BONY’s total GAF position. CES contacted both ADP and BONY to try to determine the reason for the overvote. ADP had no explanation. BONY acknowledged the FBT and Clayton proxies and stated that the FBT and Clayton votes looked fine and could see no obvious reason for the overvote. CES asked BONY to provide any further information by the May 2 election review and challenge session, but BONY provided no additional information. CES did not contact FBT and presumably did not contact Clayton. On May 2, CES resolved the overvote by counting all the votes that FBT and Clayton cast and rejecting all the votes that BONY cast via ADP, concluding that the overvote was limited to the ADP votes. Seidman objected, arguing that all the BONY shares, including those cast by FBT and Clayton, should have been disqualified and that it was improper to allow some BONY-share votes to be counted while rejecting other BONY-share votes. Based on CES’s resolution of the overvote, Kish was declared the election winner. However, Seidman would have won the election if CES had disqualified all the BONY-share votes, including those cast by FBT and Clayton. Seidman filed suit against GAF in Delaware Chancery Court, challenging Kish’s election.