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An Illinois court has considered whether shareholders in a multiple listing service were entitled to injunctive relief based on allegations that the corporation’s bylaws were not followed during a merger vote.
The Multiple Listing Service of Northern Illinois (“MLS”) provided notice of the annual shareholder meeting in November 2006. The meeting agenda included confirmation of the 2006 and 2007 Board of Directors, and also sought shareholder approval of the proposed merger (“Merger”) between the MLS and the MAP MLS (“MAP”). The Merger of the multiple listing services would create a new entity, which would alter the voting rights of the MLS’s shareholder associations.
The MLS is owned by ten REALTOR® associations, each holding 100 shares. The MLS’s bylaws specify that an action of the shareholders requires a quorum to be present, and if a quorum is present, then the action can be accomplished by a majority vote of the shareholders present at the vote. MAP is a multiple listing service owned by real estate brokerages.
At the annual shareholder meeting, only five of the ten shareholder associations (“Merger Proponents”) attended the meeting. A dispute arose whether a quorum was present. A legal opinion was obtained by the Merger Proponents that they constituted a quorum because they had the most votes, based on a 2004 voting agreement (“Voting Agreement”) which distributed voting power based on the number of licensees each association had at the beginning of each year. These associations argued that the Voting Agreement constituted a proxy, allowing them to conduct a shareholder vote by proxy because the associations present held a majority of the voting shares. The other associations (“Merger Opponents”) who did not attend the annual meeting argued that the Voting Agreement only affected their voting rights and did not affect their interest in the MLS as a shareholder, so therefore at least six shareholders must be present for a quorum.
The Merger Proponents approved the Merger. The Merger Opponents filed a lawsuit, seeking an injunction blocking the merger on the grounds that a quorum was not present at the meeting. The Merger Proponents filed a counterclaim against the Merger Opponents, alleging that the Merger Opponents had breached their obligations as shareholders by boycotting the merger vote and they filed a motion with the trial court seeking partial judgment in their favor.
The Circuit Court of Cook County (Illinois), Chancery Division, ruled that the merger vote was invalid but ordered all shareholder associations to attend a shareholder meeting within 30 days to vote on the merger. The court listed the factors which must be established for a party to receive a preliminary injunction: first, an ascertainable right in need of protection; second, likelihood of success on the merits; third, risk of irreparable harm if the injunction is not granted; and finally, no other adequate remedy at law is available to the party. The court can also consider the public policy interests and balance the equities in considering whether to grant injunctive relief.
Looking at the MLS’s bylaws, the court found that the bylaws required a majority of shareholders to be present for there to be a quorum. Since only five of the ten shareholders were present at the meeting and so there was not a quorum present for the vote, the Merger Opponents had demonstrated a right in need of protection, namely their right to vote. The court agreed that the Voting Agreement only effected the voting rights of the shareholders, not whether a quorum was present. The court found that the Merger Opponents had satisfied the other requirements for receiving injunctive relief barring the vote from taking effect and so the court granted the injunction. The court did state that in balancing the equities in this case, those equities “heavily favored” the Merger Proponents.
Next, the court considered the Merger Proponents allegations. In the Voting Agreement, the shareholders agreed that at all meetings held for the election of directors, they would “vote all of their shares to unanimously elect the board of directors”. In addition to approving the merger, the annual meeting also involved a vote on the MLS’s board of directors.
The court found that the Merger Opponents breached the Voting Agreement by refusing to participate in the board of directors vote at the meeting. In order to determine the appropriate measure of relief, the court looked at other cases involving “closed corporations” (which is a corporation composed of a few shareholders holding all of the stock). Based on that review, the court determined that the appropriate measure of relief would be to order all shareholders to attend a vote on the Merger and a confirmation of the MLS’s board of directors. The court also stated that if any of the shareholder associations failed to appear, they would be deemed present for purposes of determining the quorum. Therefore, the court declared the Merger vote void but ordered a meeting to vote on the Merger within thirty days of the court’s ruling.
Aurora Tri-County Ass’n of REALTORS® v. Multiple Listing Serv. of N. Illinois, No. 06CH25691 (Ill. Cir. Ct. Ch. Div. May 9, 2007). [Note: This opinion was not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]