Speiser v. Baker

Speiser and Baker established a subsidiary of Health Chem (Chem), Medallion, which invested in Health Med (Med) and held 10% of the common shares and all of the convertible preferred shares, giving a 95% voting interest if converted. Speiser and Baker each held 45% of Med and Med received a 42% ownership interest in Chem. This complex structure enabled Speiser and Baker to purchase control of Chem, using Chem's money. Speiser and Baker had a falling-out and Speiser sued to compel an annual meeting, which required Baker's presence, and Baker filed cross-claims and counterclaims, seeking declaratory judgment that Med not be permitted to vote its 42% stock interest in Chem.

Delaware General Corporate Law Section 160(c) provides the following: "Shares of its own capital stock belonging to the corporation or to another corporation, if a majority of the shares entitled to voted in the election of directors of such other corporation is held directly or indirectly, by the corporation, shall neither be entitled to vote nor counted for quorum purposes." The court held that although the structure established by Speiser and Baker technically fell outside the scope of the statute, the statute's purpose was to prevent the type of voting structure established by Speiser and Baker. Thus, the voting structure was in violation of the statute.

The Voting System | Circular Voting Structures