RINGLING V.

RINGLING BROTHERS
Seitz, V.C. 1946 528 U.S. 923, 120 S. Ct. 286, 145 L. Ed. 2d 239
Doctrine Shareholders can agree to pool their votes and have a third party intercede when there is any disagreement
as to how to vote.

A voting trust is a device where two or more persons owning stock with voting powers, divorce the voting
rights from the ownership, retaining to all intents and purposes the latter in themselves and transferring the
former to trustees in whom the voting rights of all the depositors in the trust are pooled.
Summary Edith Ringling and Aubrey Haley signed an agreement to pool their voting stock and vote jointly. The
agreement provided for a specific arbitrator, Mr. Loos, to decide how the stock should be voted in case the
parties were unable to agree. But when the election for the company directors was held in 1946, Aubrey
Haleys proxy, her husband James Haley, voted against the recommendation of Mr. Loos. Edith Ringling
brought an action to contest the validity of the election, and the court of chancery nullified the election
ordering a new one. Aubrey Haley appealed on grounds that the agreement was illegal. DELAWARE
COURT OF CHANCERY: NOT ILLEGAL.
Facts Edith Ringling and Haley each owned 315 out of 1000 shares of Ringling Brothers-Barnum & Bailey
Combined Shows, with the remaining 370 shares owned by John Ringling North.
The companys board was comprised of 7 members, and if each shareholder voted independently
the most likely outcome would be for each shareholder electing two board members with North
selecting the extra member.
In 1941 Edith and Healey contracted to pool their votes, where they each selected 2 members and
then used their remaining votes to select a fifth. The contract called for an arbitrator, Karl Loos, to
resolve any disputes. The contract was terminated a year later with the parties still bound by the
provision that called for Loos to help decide how to vote.
In 1946, Haley could not attend the meeting and sent her husband in her place, and instead of
following Loos advice he chose to move for adjournment. Edith brought this action to force Healey
to vote according to Loos decision. Healey argued that the agreement between her and Edith
Ringling was invalid as it took the voting power away from the shareholders and gave it to Loos, a
third party.

Issues/Ratio W/N a voting agreement giving an arbitrator the power to make a binding decision as to how
collective votes should be cast in case of a dispute, is an illegal agreementNO.

Such agreement limits an arbitrators role to situations where the parties fail to agree. No arbitrator can be
given the power to vote shares or to compel another party to a voting agreement to vote in accordance with
his directions. Here, the agreement did not contemplate transferring to Loos any such powers. The parties
merely sought to bind each other, not to empower the arbitrator to enforce upon them decisions he might
make. The control of the voting shares remained vested in the shareholders, Edith Ringling and Aubrey
Haley. The agreement here was seen as a variation of a stock pooling agreement, which is different from a
voting trust.

The failure of Haley to exercise her voting rights in accordance with the decision of the arbitrator was a
breach of the voting agreement. However, this does not render the election null and void as was held by
the lower court. It merely means that the votes representing Haleys shares should not be counted. The
election of the 6 persons for whom Edith voted stands. This leaves one directorate vacant, to be filled at the
next shareholders meeting.

An agreement among stockholders to cast their votes collectively in a certain way, witha provision that an
appointed arbitrator will decide how their votes should be cast in case of dispute, is not illegal and
irrevocable under a statute prohibiting voting agreements by which the voting power of stock is irrevocably
separated from the ownership of that stock.

No other shareholders rights were violated and public policy was not violated, as the result of a pooling
agreement. Shareholders should be allowed to benefit as they see fit from their voting rights, and this often
means banding together to strengthen their position.

Held ELECTION VALID, but votes representing Aubrey Haleys shares should not be counted.

Prepared by: Bries [Corpo| Prof. Quevedo]