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Keywords

contractlitigationappealtrial

contractplaintiffdefendantarbitrationappealcorporationarbitration clause

Related Cases

Neuman v. Pike, 591 F.2d 191

Facts

Neuman and Pike, who together owned 52% of the Long Island Nursing Home Ltd., entered into a written agreement in 1975 to manage their stock and elect directors. The contract specified that they would vote for three directors and that if they could not agree on how to vote, none of their shares would be voted. Disagreements arose when Neuman attempted to assert a right to designate a fourth director based on an alleged prior oral agreement, leading to litigation after Neuman sent proxy solicitations without Pike's knowledge.

The Long Island Nursing Home Ltd., a stock corporation, has operated a psychiatric hospital in Suffolk County since 1887. In 1952 it added a nursing home which now has 80 beds, and in 1974 it added a 120-bed health-related facility. In 1975, plaintiff Neuman and defendant Pike combined their resources to obtain a controlling stock interest in this valuable property.

Issue

Did the district court err in finding that Pike violated an implied covenant of reasonableness in the written agreement by unreasonably withholding consent to Neuman's nominee for the board of directors?

The Court of Appeals, Van Graafeiland, Circuit Judge, held that since it was the clearly expressed intention of the parties, who together owned 52 percent of corporation's outstanding shares of stock, that when they disagreed the 48 percent minority interests would be given an opportunity to participate in corporate management.

Rule

Under New York law, the expressed intention of contracting parties is paramount, and a court should not create a contrary intent by implication if the written agreement is clear.

Under New York law, two or more shareholders may agree in writing that, in exercising any voting rights, the shares held by them shall be voted as provided in the agreement.

Analysis

The Court of Appeals found that the written contract clearly expressed the parties' intentions regarding corporate management and the voting of shares. The court emphasized that since Neuman was aware of the terms of the contract when he signed it, he could not later claim a right to designate a fourth director based on a superseded oral agreement. The court concluded that the trial court's addition of an implied covenant was inappropriate and undermined the written agreement.

Inasmuch as we are reversing the judgment in Neuman's favor and dismissing his complaint, Pike's contention that the court should have directed the arbitration of the parties' differences under the arbitration clause of their written contract becomes moot.

Conclusion

The Court of Appeals affirmed in part and reversed in part the district court's judgment, dismissing Neuman's complaint and ruling that the rights of the parties were governed by their written contract.

Judgment affirmed in part and reversed in part.

Who won?

Pike prevailed in the appeal because the Court of Appeals determined that the trial court had erred in adding an implied covenant to the written agreement, which was clear in its terms.

The court concluded that the granting of this relief was error, and we reverse.

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