Wisconsin Investment Board v. Peerless

The State of Wisconsin Investment Board (SWIB) (plaintiff) was a large stockholder of Peerless Systems Corporation (Peerless), a Delaware corporation. Peerless sent to its stockholders a proxy statement for Peerless’s annual meeting of stockholders to be held on June 17, 1999. The proxy statement described three proposals: (1) the re-election of Peerless’s directors (Proposal 1), (2) an amendment to Peerless’s stock-option plan to increase the number of shares issuable under the plan (Proposal 2), and (3) the ratification of the appointment of Peerless’s auditors (Proposal 3). SWIB sent a letter to Peerless’s stockholders urging them to vote against Proposal 2 because the plan amendment could result in substantial stockholder dilution. At the annual meeting, Edward Galvadon, Peerless’s chairman, ordered the polls closed on Proposals 1 and 3, then adjourned the meeting for 30 days without closing the polls on Proposal 2. Proposals 1 and 3 both passed easily, but had the polls closed on Proposal 2, Proposal 2 would have been defeated. Peerless claimed the reason for the adjournment was low voter turnout on Proposal 2, which occurred because, under the rules of the New York Stock Exchange, brokers lacked authority to vote their customers’ shares on that proposal without the customers’ voting instructions. Peerless had an even lower level of voter turnout at a prior, special meeting of stockholders held for the purpose of voting on a merger, which was approved without adjournment. Peerless did not inform all stockholders of the annual-meeting adjournment but continued to solicit votes on Proposal 2 from selected stockholders. On July 16, 1999, at the reconvened annual meeting, Galvadon closed the polls on Proposal 2, which passed by a narrow margin. SWIB sued Peerless and Galvadon (defendants), alleging breach of the duty of loyalty for adjourning the annual meeting without closing the polls on Proposal 2. Both sides moved for summary judgment.