pfp objections to 2008 special master's report
TRANSCRIPT
-
8/14/2019 PFP Objections to 2008 Special Master's Report
1/37
{00220849.DOC / 6}
DISTRICT COURT, SECOND JUDICIAL DISTRICTCITY & COUNTY OF DENVER, STATE OF COLORADO
1437 Bannock Street
Denver, CO 80202720.865.8301
In re Application of:P.F.P. FAMILY HOLDINGS, L.P.
And Concerning
STAN LEE MEDIA, INC., an administratively dissolved
Colorado corporation
COURT USE ONLY
Attorneys for P.F.P. Family Holdings, L.P.:KAMLET SHEPHERD & REICHERT, LLP
Stephen D. Gurr, No. 19789
E. Lee Reichert, No. 22667R. Livingston Keithley, No. 35786
1515 Arapahoe Street
Tower I, Suite 1600
Denver, CO 80202303-825-4200
303-825-1185 (fax)
Martin Garbus, Esq.,pro hac vice
Martin Garbus LLC
100 West 57th StreetNew York, NY 10019
212-242-9001
Case No. 2008 CV 8584Ctrm: 3
APPLICANTS OBJECTIONS TO SPECIAL MASTERS REPORT
COMES NOW, Applicant P.F.P. Family Holdings, L.P. (the Applicant),
through its undersigned counsel, pursuant to C.R.C.P. 53(e)(2), and hereby files its
Objections to the Special Masters Report tendered to the Court on February 10, 2009 by
-
8/14/2019 PFP Objections to 2008 Special Master's Report
2/37
{00220849.DOC / 6} 2
Special Master Cathy S. Krendl, Esq. (the Interim Report).1
Applicant states as
follows:
INTRODUCTION
This Court must reject the Special Masters recommendation to conclude that that
no quorum was present when the Annual Meeting was initially called to order at 9:00
a.m. on December 15, 2008, because the recommendation is based upon erroneous
interpretation of applicable law and at least three purely legal errors contained in the
Interim Report.
The Interim Report finds that 5,277,952 were present for quorum purposes,
representing 31.75% of the outstanding shares.2
In order words, the Interim Report finds
a deficiency for quorum purposes of 262,463 shares. In determining whether to adopt the
Special Masters recommendation, this Court need to make a simple determination was
there a quorum present at 9:00 a.m. on December 15, 2008 when the court-ordered
2008 Annual Meeting commenced?
1 As noted in the Applicants Motion for Forthwith Order to Direct Special Master to Reconvene
and Conclude the Annual Meeting, filed February 17, 2009 (the Motion to Reconvene Meeting), the
Annual Meeting has not yet concluded and the Special Master has not yet completed her assignment fromthe Court as ordered on November 12, 2008. As such, the Special Masters role and tender of the Interim
Report to the Court and the issues addressed therein are not yet concluded, making the Interim Report aninterim, rather than final, report. Applicant reserves its rights to further object, pursuant to C.R.C.P.
53(e)(2), to any revisions or supplements made by the Special Master to the Interim Report upon
conclusion of the meeting.2 The Special Masters rejection of 42 proxies, and acceptance of one proxy revocation which was
tendered after the 2008 Annual Meeting was called to order and the proxy appointment was exercised,resulted in the disenfranchisement of an astonishing 33% of the Companys shareholders who attempted to
attend the 2008 Annual Meeting.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
3/37
{00220849.DOC / 6} 3
While the Applicant believes that the Interim Report contains a variety of factual
and legal errors as described in this brief,3
this Court should focus on the following three
fundamental legal errors set forth in the Interim Report:
The rejection of the proxy appointment for quorum purposes of StephenGordon, the record owner of 242,000 shares, where there is absolutely no
evidence about the validity of his signature on the proxy appointment.
The rejection of undated proxy appointments for quorum purposesdelivered to the Special Master representing 66,747 shares (the Undated
Proxies) before the commencement of the meeting where there is no
dispute as to the validity of the signatures thereon; and
The determination that the proxy appointment of Knight Equity Partners,L.P. (Knight) the record owner of 186,719 shares, would be given
retroactive effect where the revocation was not received until after the
meeting commenced, a vote was taken, the meeting adjourned to be
reconvened at a later date and the votes were tallied.
Once this Court properly accepts the proxy appointment of one shareholder,
Stephen Gordon and either (i) properly accepts the Undated Proxies for quorum purposes
or (ii) determines that a purported revocation submitted by Knight on January 7, 2007 can
cannot be given retroactive effect for purposes of determining a quorum, a quorum will
have existed at the 2008 Annual Meeting.
3The Applicant believes that many of the errors in the Interim Report could have been avoided if
the Special Master had provided the parties with a draft of the Interim Report and allowed the parties to
comment on the draft report as she did with regard to the 2007 Report.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
4/37
{00220849.DOC / 6} 4
Any other result effectively disenfranchises the nearly 133 shareholders of the
Company that attempted to attend the 2008 Annual Meeting to exercise their fundamental
corporate right to elect directors.
BACKGROUND
For nearly two years, Objector Stan Lee has been waging a strenuous fight before
this Court to try and prevent the statutorily required annual shareholder meetings for the
Company to take place and the election of directors for the Company at such meetings.
See Motion to Reconvene Meeting at pp. __. Mr. Lee has fought so strenuously not
because he is trying to protect the Companys assets or his investment in the Company;to
the contrary, he is exploiting this Courts processes to collaterally attack claims that have
been filed against himfor the Company in federal courts in California and New York.
In the pending actions, the Company is seeking to recover significant assets it
obtained from Mr. Lee in 1998. Mr. Lee subsequently surreptitiously transferred these
assets to other entities without the knowledge or consent of the Company or its
shareholders. Mr. Lee has argued before the federal courts in California and New York
that the claims against him are not authorized and must be dismissed before their merits
can be heard and presented because there are no officers or directors of the Company. He
is manipulating the annual meeting process in this Court to avoid responding to valid
claims in those federal cases.
Indeed, on January 20, 2009, Judge Stephen Wilson of the United States District
Court for the Central District of California found that Mr. Lee had wrongfully and
illegally transferred assets from the Company to companies he created specifically to
acquire the assets while the Company was under bankruptcy protection,without the
knowledge of the bankruptcy court. ( authorized the Company to proceed with its
-
8/14/2019 PFP Objections to 2008 Special Master's Report
5/37
{00220849.DOC / 6} 5
claims against Mr. Lee for those transfers subject to a Board being elected??). See
Motion to Reconvene Meeting, at pp. __. In making its ruling, the California federal
district court further found that Mr. Lee had made numerous misrepresentations to the
bankruptcy court and to the federal district court concerning the transfers of assets from
the Company. See California Order at p. 4-5, 10. In the hearing on the summary
judgment motion, Judge Wilson further noted on the record his impression that Mr. Lees
counsel, Mark Williams, repeatedly had been somewhat deceptive with the court. why
not add more of Wilson's quote here??Mr. Lees actions before and during the
Companys bankruptcy are exactly the type of corporate fraud that are unfortunately all
too common and familiar to securities regulators and the public today, and cannot be
countenanced by the legal process.
Judge Wilson in California noted that the remaining proceedings before him
necessarily involve the Company, which does not have anyone to speak on its behalf
due to the lack of directors.explain why??? See Motion to Reconvene Meeting at p. __.
As a result, it is critical that shareholders of the Company be permitted to vote for
directors.
Perhaps nothing better reflects what is really going on with regard to the
Company than the press release issued on February 13, 2009 by POW! Entertainment
(POW!), the public company controlled created by Mr. Lee specifically to take the
assets from the Estate of the Company in Bankruptcy -- and the very company to
which Judge Wilson found earlier last month Mr. Lee illegally tried to transfer Company
assets into. In the press release, attached hereto as Exhibit A, POW! announced that the
Interim Report is a clear victory for Stan Lee and POW! Entertainment, even though
-
8/14/2019 PFP Objections to 2008 Special Master's Report
6/37
{00220849.DOC / 6} 6
the only connection that POW! has to the Company is the illegal transfer of Company
assets by Mr. Lee.4
Throughout the 2008 Annual Meeting process, Mr. Lee has engaged in a
continuous and un-ending character attack upon his former co-founder of the Company
Peter Paul (who himself is individually not even a awkward record shareholder of the
Company) to poison the Special Masters well and taint this election process in a
legally irrelevant, ad hominem attempt topreventthwart directors from being elected
that intend to use litigation by the Company to hold Mr lee accountable for multiple
bankruptcy, securities, fiduciary frauds that have converted tens of millions in
assets owned by the companycan answer the claims in litigation against himself. In his
attacks upon certain proxy appointments tendered to the Special Master for the Annual
Meeting, Mr. Lee did not rely upon any Colorado statute or provision of the By-Laws.
These character attacks should have been completely irrelevant to the job that the
Special Master was charged with by this Court -- presiding over the 2008 Annual
Meeting. Unfortunately, however, these character attacks appear to have caused the
Special Master to adopt and apply certain rules that are contrary to the Companys By-
Laws and applicable Colorado law and public policy against using techincal issues to
disenfranchise shareholders desiring to vote for directors, and to stray in bad faith
from the procedures she used in presiding over the 2007 Annual Meeting, and ultimately
reject enough proxy appointments that were valid on their face so as to recommend that
this Court determine that a quorum was not present at the 2008 Annual Meeting.
4 It is beyond the scope of this brief to address the securities law implications or potential violations
by POW! as a result of this press release.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
7/37
{00220849.DOC / 6} 7
ARGUMENT
I. The Interim Report Reflects the Application of Unduly NarrowRequirements in Reviewing Proxy Appointments.
a. Colorado Law Sets forth Applicable Statutory Standard of Review.The Colorado Business Corporation Act, C.R.S. 7-101-101 et seq. (the
CBCA), sets forth the relevant provisions that governs the review of proxy
appointments and any possible rejection of such proxies.
As the Special Master noted in the 2007 Special Masters Report and the Interim
Report, there is a strong policy of Colorado law to accept proxies. See 2007 Special
Masters Report at 70; Interim Report at p. __. Consistent with Colorados well-
established policy, the Section of the American Bar Associations handbook on
shareholder meetings entitled Acceptance of Votes notes that:
The great bulk of instruments executed in the name of or on
behalf of a shareholder are in fact authorized and the
corporation and its officers should be encouraged to acceptthem rather than adopt unduly narrow requirements.
American Bar Association Handbook for the Conduct of Shareholders Meetings, ABA
Handbook on Meeting 5.04, official comment 3 (2000) (emphasis added); see also 2
American Bar Association, Model Business Corporation Act Annotated 7.24, official
comment 4 (4th ed. 2008) (same) (the MBCA).5
On the other hand, Section 7-107-205(3) of the CBCA allows for rejection of a
vote or proxy appointment in only two limited circumstances: where the agent
authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about
5 The CBCA, including the provisions regarding proxies, is based in large part on the MBCA and,
as a result, the comments to the MBCA are persuasive.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
8/37
{00220849.DOC / 6} 8
(i) the validity of the signature on the proxy appointment or (ii) the signors authority to
sign for the shareholder.
As detailed below, in rejecting the Stephen Gordon proxy appointment the
Applicant believes the Special Master failed both the good faith and reasonable basis
for doubt prongs of the statutory requirement. With regard to the Undated Proxies, no
one -- including the Special Master or Mr. Lee -- disputes either the validity of the
signatures on the proxy appointments or the signatures authority to sign. Rather, the
Special Master has recommended that this Court reject the Undated Proxies based on a
purported rule she adopted, which as described further below, she had no authority to
adopt, and which in any event is inconsistent with the Companys By-Laws, Colorado
law and directly contrary to precedent from other jurisdictions.
b. The Special Master has No Statutory Authority to Adopt Rules toReject Proxies.
Section 7-107-205(3) of the CBCA allows for rejection of a vote or a proxy
appointment inonly two limited circumstances. There is no statutory authority under the
CBCA for the Special Master to adopt rules to reject proxy appointments. Cf. 7-107-
205(2) (allowing the adoption of rules for the acceptance of votes and proxy
appointments but only for situations where the name signed on the vote or the proxy
appointment does not correspond to the name of the shareholder). The Special Master
could no more adopt a rule to reject undated proxies than she could adopt a rule to
prevent voting by proxy in the first instance or to prevent shareholders from attending the
2008 Annual Meeting by phone. Notably, the Interim Report cites to 7-107-203 of the
CBCA as the basis for the Special Masters adoption of rules to reject proxy
appointments. There is absolutely no language in 7-107-203 (or for than mater in 7-
-
8/14/2019 PFP Objections to 2008 Special Master's Report
9/37
{00220849.DOC / 6} 9
107-205) authorizing the Special Master to adopt any such rules regarding rejection of
proxy appointments.
c. There is no Proxy Fight Here.In determining whether there was a quorum present at the 2008 Annual Meeting,
this Court should heed the guidance contained in comment 3 to Section 7.24(c) of the
MBCA:
In the absence of a proxy fight or a seriously contested
issue, instruments should be rejected only if there seems to
be no basis for finding the signature regular on its face(emphasis added).
The 2008 Annual Meeting of the shareholders of the Companydoes not involve a
proxy fight, but rather is a fight over proxies in an attempt solely to prevent the
existence of a quorum. Mr. Lee did not attend the 2008 Annual Meeting, to specifically
withhold inclusion of his 3.6 million shares for quorum purposes (should we
reference that unlike the 133 shareholders who paid for their shares to vote, lee
acquired his shares for rights from being or propose a separate slate of directors as in a
traditional proxy contest. See Motion to Reconvene Meeting at p. __. Rather, Mr. Lee
had his long-time employee Junko Kobayashi (who owns 11 shares and was part of the
conspiracy to transfer Company assets to Mr. Lees company that Judge Wilson
determined to be illegal), execute a proxy appointment so that an employee of Mr. Lees
law firm could attend the 2008 Annual Meeting to try and prevent the existence of a
quorum by objecting to proxy appointments. Id. at __.
A fight over proxies (or more accurately an attempt to try and convince this Court
to reject certain proxy appointments based on no actual evidence in the record so as to
prevent a quorum) is not the same as a proxy fight or proxy contest and, as such, this
-
8/14/2019 PFP Objections to 2008 Special Master's Report
10/37
{00220849.DOC / 6} 10
Court should not adopt unduly narrow requirements or apply a more cautious
standard that otherwise may be appropriate in reviewing proxies in a true proxy contest.
Where, as here, no one votes in favor of a competing slate of directors or in opposition to
the reinstatement issue, this Court cannot reasonably conclude there are seriously
contested issues. The only issue that is contested is whether technical issues can be
contrived by or through the former chairman of the company to deny shareholders
their rights to hold an annual shareholders meeting and elect a Board of Directors
to operate the company.
d.
The Special Masters Finality Concerns are Misplaced.
A shareholders right to vote for the board of directors of a corporation is a
fundamental corporate right. Seidman and Associates, LLC v. G.A. Financial, Inc., 837
A.2d 21, 22-23 (Del. Ch. 2003); Mainiero v. Microbyx Corporation, 699 A.2d 320, 322
(Del Ch. 1996); Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 659 n.2 (Del. Ch.
1988). Based on the nature of this fundamental right, courts vigilantly guard against
shareholder disenfranchisement, particularly as it relates to the election of directors. See
Duffy v. Loft Inc., 151 A. 223, 227-28 (Del. Ch. 1930), affd 152 A. 849 (Del.Supr.
1930); see also Dynamics Corp. of America v. CTS Corp., 643 F.Supp. 215, 219 (N.D.Ill.
1986) (quoting Washington State Labor Council v. Federated Am. Ins. Co., 474 P.2d 98,
103 (Wash. 1970) (a shareholders right to vote for directors should not be annulled for
purely technical reasons)).
The Interim Report determines that a quorum was not initially present at the 2008
Annual Meeting. To the extent that a quorum was not initially present, no valid vote
could have been taken with regard to election of directors (or with regard to
-
8/14/2019 PFP Objections to 2008 Special Master's Report
11/37
{00220849.DOC / 6} 11
reinstatement) at the 2008 Annual Meeting. See 18A Am. Jur. 2d Corporations 849
(2008).
It is black letter law that the only possible legal action that can be taken at a
corporate shareholders meeting at which no quorum is present is to adjourn the meeting
to a later date. Id. This is consistent with the motion on December 15, 2008 at the 2008
Annual Meeting and the Companys By-Laws which limit the adjournment for a period
not to exceed 120 days. See By-Laws at Art. II, 8.
In the Interim Report, the Special Master recommends that this Court disregard
the well-established body of precedent protecting against shareholder disenfranchisement
out of concerns of finality. See Interim Report at p. __. This concern is misplaced for
a number of reasons.
First, to the extent a quorum does not exist, no valid vote on directors has taken
place. By definition, there can be no final action that needs to be respected.
Secondly, in cases where there is a proxy contest with competing slates of
directors, finality concerns may make sense and in very limited circumstances may
prevail over the strong policy disfavoring shareholder disenfranchisement because a
proxy contest interrupts the orderly conduct of corporate affairs and distracts
management of the Company from their regular task of operating the business. In this
case, however, there are no directors or officers in place. As a result, far from promoting
finality, in the event that for some reason a quorum is not present at the reconvened 2008
Annual Meeting, the Special Masters recommendation will force the shareholders to go
to the unnecessary time and expense of having the Court order yet another special
meeting to elect directors. See Duffy at ___, (if after the contest has been waged one
-
8/14/2019 PFP Objections to 2008 Special Master's Report
12/37
{00220849.DOC / 6} 12
side defeats a decision by mere tactical maneuvers, the whole business must be gone
through with again with the consequences of expense and disturbance).
II. The Special Master Incorrectly Applied Colorado Law and the CompanysBy-Laws in Rejecting (A) the Undated Proxies and (B) Proxies Submitted byStephen Gordon.
If the name signed on a . . . proxy appointment corresponds to the name of a
shareholder, the corporation, if acting in good faith, is entitled to accept the . . . proxy
appointment and to give it effect as the act of the shareholder. C.R.S. 7-107-205(1);
accord C.R.S. 7-107-203(10); By-Laws at Art. II, 11. As noted above, a Colorado
corporation may only reject a proxy appointment in two limited circumstances. C.R.S.
7-107-205(3); By-Laws at Art. II, 11; see also 2007 Report at 44 (only bases listed by
Special Master for rejecting proxy appointments was if there were a reasonable basis for
doubt as to the validity of the signature on it or about the signatorys authority to sign for
the shareholder).
A proxy cannot be rejected because it is merely a facsimile and not an original.
See C.R.S. 7-107-203(4); By-Laws at Art. II, 9; 2007 Report at 44 (any complete
copy, including an electronically transmitted facsimile, of a proxy appointment form
could be substituted for, or used in lieu of, the original appointment for any purpose).
Likewise, the fact that a proxy appointment is undated has no bearing under applicable
Colorado statutes and Company By-Laws upon whether the signatory had authority to
execute the proxy and whether the proxy appointment may therefore be rejected, but
rather is only relevant to the term for which the proxy appointment is valid. See C.R.S.
7-107-203(3) (proxy appointment is valid for eleven months unless a different period is
expressly provided in the appointment form); By-Laws at Art. II, 9.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
13/37
{00220849.DOC / 6} 13
a. The Special Master Makes an Error of Law by Improperly RejectingUndated Proxies.
In her Interim Report, the Special Master recommends that this Court rejects the
proxy appointment forms from twelve shareholders representing 66,747 shares for all
purposes, because the forms were signed by the shareholder but not dated. Under
Colorado law and the Company By-Laws, however, there is no legal requirement that a
proxy appointment form must be dated (for quorum or for voting purposes). Further,
although the Special Master established rules forcounting the votes of shareholders who
had appointed proxies in her 2007 Rules, she did not establish any rules concerning the
establishment of a quorum at the Annual Meeting or for rejecting proxy appointments.
As such, the Special Master has no legal basis to reject those shareholders who appointed
proxies and this Court should determine that these twelve shareholders representing
66,747 shares were present at the Annual Meeting for purposes of quorum.
1) There is no requirement under Colorado law or theCompanys By-Law that proxies be dated.
The primary reason that proxies for Colorado corporations often contain a date is
because under C.R.S. 7-107-203(3), a proxy appointment is valid for eleven months
unless a different period is expressly provided in the appointment form.6
In this case, no
one including the Special Master or Mr. Lee disputes whether any of the undated
proxies submitted in connection with the 2008 Annual Meeting were executed within the
preceding eleven month period.
6 Similarly, there is no legal requirement for language such as ONLY THE LAST DATED,
VALID PROXY WILL BE COUNTED to be included on a proxy appointment; rather, this type oflanguage typically is used to help avoid situations where a corporation receives conflicting proxies and
must determine which proxy to count.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
14/37
{00220849.DOC / 6} 14
The proxy appointment forms themselves are prima facie evidence they were
executed after November 26, 2008, because they are all on the form the Special Master
specifically approved for the 2008 Annual Meeting, see Interim Report at 9 and Schedule
19. As such, there is no question that these undated proxies were executed within the
eleven month period of validity contemplated by C.R.S. 7-107-203(3).
Under remarkably similar facts, the Fourth Circuit Court of Appeals held in
Rogers v. First National Bank of St. George, 410 F.2d 579 (4th Cir. 1969), that undated
proxies were valid because the proxies at issue were addressed to specific questions and
were necessarily executed at some time between the notice of the meeting and the
meeting itself. Notably, this was the result even when the South Carolina corporate
statutes (unlike the Colorado statute) had an express statutory requirement that proxies
be dated.
In its holding, the Fourth Circuit stated:
It is clear that the South Carolina requirement that all proxies be dated is designed to enforce the rule that no
proxy shall be valid more than eleven months after the date
of its execution. Here, the proxies were addressed to thespecific question of merger and necessarily were executed
at some time between the first notice of the meeting and the
stockholders meeting, a period of approximately two
months. The ill sought to be cured by the South Carolinastatute is the prevention of the voting of a general proxy
over a prolonged period. We decline to hold it applicable
to a proxy on a specific question which could not have beenexecuted earlier than two months before its exercise.
Rogers, 410 F.2d at 528. This is not a new corporate law concept. See In re Election of
Directors of St. Lawrence Steamboat Co., 44 NJL 529 (N.J. 1882) (overturning
inspectors decision to reject proxies that were undated because they were obviously
prepared for meeting).
-
8/14/2019 PFP Objections to 2008 Special Master's Report
15/37
{00220849.DOC / 6} 15
The Special Master attempts to distinguish Rogers because there were no court-
established, agreed upon rules in Rogers that required proxies be dated. See Interim
Report at p. 34. The Applicant takes issue that it ever agreed to such rules.7
Regardless, in point of fact, there was a rule requiring proxies to be dated in Rogers,
specifically South Carolina Annotated 12-16.14(c) (cum. Supp. 1968). Even in the face
of this statutory provision, the Fourth Circuit determined that such undated proxies
should be counted.
The Special Master also suggests that the rule she adopted is designed to
prevent fraud. There is nothing in the 2007 Special Masters Report that suggests that
was actually the reason behind the rule. Moreover, it is unclear how such a rule
actually could prevent fraud, particularly as here where the Special Master accepted a
proxy appointment containing a pre-printed date from Ms. Kobayashi.
2) The Special Master did not, and legally could not haveadopted, a rule that a proxy had to be dated to be valid.
The Special Master states that she rejected undated proxies for quorum purposes
because of a rule set forth in her 2007 Report. The Special Master, however, did not
adopt, and legally has no statutory authority under Colorado law, to adopt a rule stating
that a proxy appointment would be rejected if it was not dated. Rather, her rule merely
references the statutory provision in the CBCA that a proxy appointment is valid for
eleven months.
7 Mr. Lee did not object to any undated proxies even though he made numerous other objections
which provides some evidence as to Mr. Lees contemporaneous view of this rule. See Interim Report at
___. The Special Master sua sponte first rejected a proxy because it was undated on December __, 2008.Prior to the commencement of the 2008 Annual Meeting, the Applicant objected to any rejection on this
basis.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
16/37
{00220849.DOC / 6} 16
The purported Rule set forth in the Special Masters 2007 Report, under the
section entitled Acceptance of Votes, states in its entirety that the Special Master
would:
[a]ccept a proxy appointment form or ballot if the name
corresponds to the name of a shareholder on the Record
Shareholders List and Beneficial Shareholders List if theproxy appointment form were signed and dated no earlier
than 11 months prior to the Annual Meeting unless the
proxy appointment form stated a different expiration date(C.R.S. 7-107-203).
2007 Report at p. 44. Immediately below this statement, the Special Master states that
she would only reject a proxy appointment form if there were a reasonable basis for
doubt as to the validity of the signature on it or about the signatorys authority to sign for
the shareholder. Id.
The Special Masterdoes not say that she would reject a proxy appointment if it is
undated or that she wouldonly accept dated proxy appointments. Rather the language in
the 2007 Report that a proxy appointment be dated no earlier than 11 months prior to the
Annual Meeting is expressly tied to the statutory requirement that a proxy is valid for
only 11 months. Indeed, that is the very statute to which she cited to in her 2007 report.
It would be an unlawful expansion of the only two statutory bases for rejection
under Colorado law to allow the Special Master to inject a new, third basis for rejecting a
proxy appointment simply because a line unrelated to the identity of the signor was not
filled in. See C.R.S. 7-107-205(3) (corporation may only reject vote or proxy
appointment based upon reasonable basis for doubt as to shareholders signature or the
signatorysauthority to sign).
3) The Special Masters rule regarding undated proxies isdirectly contrary to established corporate practice.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
17/37
{00220849.DOC / 6} 17
No experienced corporate attorney, let alone any shareholder of the Company,
would conclude that the rule adopted by the Special Master was intended to create a
rule completely contrary to standard corporate practice, which prevails even in actual
hotly contested proxy contests. Delaware courts, which have developed the most widely
respected body of corporate jurisprudence, have taken judicial notice of the fact that
proxies are often undated, and yet consistently accept such undated proxies. See
Investment Associates v. Standard Power [need citation]; e.g., Concord Financial Group,
Inc. v. Tri-State Motor Transit Co. of Delaware, 567 A.2d 1, 17 (Del. Ch. 1989).
Renowned securities law professor Jay Brown of the University of Denver School
of Law similarly has noted that while proxy appointments typically contain a space to
date the proxy appointment, ordinarily, the absence of a date does not affect the proxys
validity. See R.F. Balotti et al., Meetings of Shareholders 4.14, at 4-30 (3d. ed. Supp.
2003)); see also 18A Am. Jur. 2d Corporations 908 (2008) (minor irregularities on the
face of a proxy appointment, such as a failure to fill in blanks, will not invalidate a proxy
appointment); see also Cupo v. Community Nat'l Bank & Trust Co of New York, 324 F.
Supp. 1390 (D.C.N.Y. 1971) (refusing to reject proxies and recognizing that shareholders
tend to make minor errors on proxy forms because they often lack funds to hire the kinds
of experts and clerical help available to management).
The reason there is no citation in the Interim Report is because there simply are
no cases where a corporation has rejected a proxy merely because it is undated that would
support the Special Masters recommendation to reject the Undated Proxies.
4) The Special Masters statement that a proxy appointment hadto be dated only applied to tallying and acceptance of votes,
and should have no effect of determining shareholders who
were present for quorum purposes.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
18/37
{00220849.DOC / 6} 18
The Special Masters statement that a proxy appointment had to have been
signed and dated within the past 11 months, see 2007 Report at 44, was contained in
the section concerning tallying and Acceptance of Votes. Id. As a matter of corporate
law, the determination of shareholders present at a meeting for purposes of quorum is
different from the acceptance of votes from a shareholder and must occur prior to any
valid vote occurring. The fact that the Special Master states she would only accept[] the
vote of a shareholder pursuant to a proxy if the proxy appointment form was signed and
dated within the past 11 months does not mean that the proxy needed be dated to count
the shareholder present for purposes of quorum.
Notably, the language on the proxy appointment form suggested by the Special
Master merely states that PROXIES CANNOT VOTE THESE SHARES UNLESS
YOU SIGN, DATE AND RETURN THIS APPOINTMENT. This language is entirely
consistent with the provisions of the CBCA and counting the shares present for quorum
purposes, but not counting the votes with regard to the issues, as did the Special Master
with proxies (such as Mr. Kobayashis) on which the boxes were not checked. See
C.R.S. 7-107-206(2) (a proxy appointment is effective against the corporation when
received by the corporation).
Once a share is represented for any purpose at a meeting, including the purpose of
determining that a quorum exists, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of that meeting. C.R.S. 7-107-
206(2). The presence of holders of proxies at a meeting renders the shares that they
represent present for purposes of a quorum, regardless of whether the written proxies are
produced. Berlin v. Emerald Partners, 552 A.2d 482, 493 (Del. 1989)(quoting 1 R.F.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
19/37
{00220849.DOC / 6} 19
Balotti & J. Finkelstein, The Delaware Law of Corporations and Business Organizations
7.15 at 361).
Here, the Special Master received written notice from ninety-four shareholders 90
minutes prior to the commencement of the 2008 Annual Meeting that Christopher
Belland or Jose Abadin had been appointed as their proxy for that meeting, including the
twelve who did not date the proxy appointment. Importantly, the Special Masterdoes not
dispute the validity of the signature of any of the twelve shareholders who did not date
their proxy appointment.
Pursuant to C.R.S. 7-107-206(2), there is no requirement that a share actually be
voted at a meeting, only that it be represented at a meeting, for purposes of determining
a quorum. When Mr. Belland and Mr. Abadin came to the 2008 Annual Meeting in
person and the meeting was called to order,at that moment the shares of those twelve
whose proxy appointments had been delivered to the Special Master were represented at
the meeting for quorum purposes. The fact that the Special Master may not thereafter
decide not to accept the votes submitted on behalf of these twelve shareholders (because
their proxy appointment forms did not have the date filled in) does not destroy the fact
that the shareholders were present at the 2008 Annual Meeting at 9:00 a.m. for purposes
of determining a quorum existed.
5) The Special Masters compounded her legal error by refusingto allow Undated Proxy appointments to be cured.
The Interim Report notes that the Special Master refused to allow the Undated
Proxies to be cured, thereby completing disenfranchising these shareholders. See Interim
Report at __. This is inconsistent with the procedures followed in 2007 with regard to the
replacement proxy appointments for the Paul Entities which the Special Master permitted
-
8/14/2019 PFP Objections to 2008 Special Master's Report
20/37
{00220849.DOC / 6} 20
to be dated and delivered after the date of 2007 Annual Meeting. See 2007 Report at p.
70. Pursuant to this Courts Order, the Special Master should have afforded the same
opportunity to the shareholders who provided the Undated Proxies.
For the foregoing reasons, this Court should reject the Special Masters
recommendation concerning these twelve shareholders, and at a minimum determine that
these twelve shareholders were present at the 2008 Annual Meeting for purposes of
establishing a quorum.
b. In rejecting Stephen Gordons two proxies, the Special Masterviolates Mr. Gordons legal rights as a shareholder and makes an
error of law in holding him to a higher standard than othershareholders without notice.
In recommending that this Court reject the two proxies tendered by Stephen
Gordon, a shareholder owning 220,000 shares of Company stock, the Special Master
continually moved the goal posts and increased the requirements upon Mr. Gordon to
validate the proxy appointments he submitted, in violation of Colorado law and the
Companys By-Laws. To adopt this recommendation, this Court would also have to
disregard the undisputed fact that Mr. Gordon himself executed proxy appointments that
the Special Master had in her possession when the 2008 Annual Meeting was called to
order. See Affidavit of Stephen Gordon, attached hereto as Exhibit B, at 7 [hereinafter,
Gordon Affidavit].
Mr. Gordon followed the same rules as all the other shareholders as he had done
in 2007 when his proxy appointment was accepted by the Special Master, but has been
disenfranchised by the Special Master who recommends that his proxy appointments be
rejected solely because he was incarcerated at the time he executed the proxies and
-
8/14/2019 PFP Objections to 2008 Special Master's Report
21/37
{00220849.DOC / 6} 21
because the Special Master believes he is a bad actor. This Court should accept Mr.
Gordons proxies on which there is no dispute as to the validity of his signature.
Mr. Gordon executed two proxy appointments on December 11, 2008, appointing
Christopher Belland as his proxy at the 2008 Annual Meeting, and authorized them to be
electronically transmitted to Applicants counsel. See Gordon Proxies, attached hereto as
Exhibit C. These proxies were signed by Stephen Gordon and were dated. Thereafter,
the Applicants counsel submitted to the Special Master these proxies by the Special
Masters required deadline of 90 minutes before the commencement of the 2008 Annual
Meeting on December 15, 2008. The proxies are regular on their face, and the signature
upon them matches the signature from the proxy appointment submitted by Mr. Gordon
for the 2007 Annual Meeting, which had been accepted without question by the Special
Master. See 2007 Gordon proxy, attached hereto as Exhibit D.
On December ___, 2009, however, in announcing the tally of the votes, the
Special Master stated that she tentatively rejected the Gordon proxy appointments, for
two reasons: (a) because an original was not submitted, and (b) because she did not send
a Notice of the 2008 Annual Meeting to Mr. Gordon. The Special Master stated that
these deficiencies could be cured by (a) producing an original of the proxy appointment,
and (b) providing additional information (verification of shareholders new address).
See Rejected Proxy Breakdown, emailed to parties on December ___, attached hereto as
Exhibit E. Not only did the Special Master fail to indicate that there was a notary
requirement for Mr. Gordon, but after request by the Applicants counsel, refused to
provide any further guidance or allow for review of the additional information, as she had
done after the 2007 Annual Meeting. See Interim Report at __.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
22/37
{00220849.DOC / 6} 22
By the Special Masters deadline of January 7, 2009 (the deadline for curing
documents), Mr. Gordon provided the Special Master with his original proxy
appointments, and also with an original signed statement indicating his current address.
See statement, attached hereto as Exhibit F. Despite the fact he submitted all of the
information requested by the Special Master, in her Interim Report the Special Master
suddenly and without proper notice rejected Mr. Gordons proxy appointments simply
because they were not notarized. The Special Master has disenfranchised Mr. Gordon,
even though there is absolutely no question that the signatures on his proxy appointments
are valid.
1) Mr. Gordon gave his originals to the Special Master, eventhough under Colorado law, the By-Laws, and the Special
Masters own rules, a proxy appointment form cannot be
rejected because it is not an original.
The Special Masters requirement that Mr. Gordon had to submit original proxy
appointments for it to be valid is clearly contrary to Colorado law, the By-Laws, and the
Special Masters own rules. See C.R.S. 7-107-203(4); By-Laws at Art. II, 9; 2007
Report at 44. In her Interim Report, the Special Master ultimately determined that, as to
all other proxy appointment forms except Mr. Gordon, an original was not required from
the shareholder. See Interim Report at 10, 26 (accepting proxies initially tendered
electronically for eleven other shareholders representing 320,413 shares). However, only
as to Mr. Gordon and his 242,000 shares, the Special Master deemed the lack of originals
to be an irregularity in support of her recommendation that this Court reject his two
proxy appointments, contrary to law and her own rules.
Second, the Special Master fails to inform the Court in her Interim Report that
Mr. Gordon actuallydid provide his original proxies to her, through Applicants counsel,
-
8/14/2019 PFP Objections to 2008 Special Master's Report
23/37
{00220849.DOC / 6} 23
on January 7, 2009. See Interim Report at Schedule 21, bates-label 2-SM 400 and 2-
SM 401. For comparison purposes, Applicants counsel also tendered to the Special
Master a copy of the original email transmission from Dale Patrick, sent on Mr. Gordons
behalf, emailing the proxies to Applicants counsel on December 11, 2008. See id. at
bates-label 2-SM 402 through 2-SM 404. When the Special Master initially rejected
the proxy appointments on December 17, 2008, she stated that Mr. Gordons (and other
shareholders) lack of an original may be overcome by providing original or by
providing evidence that the proxy was transmitted by the shareholder, see Rejected
Proxy Breakdown at 1 (emphasis added). Mr. Gordon satisfiedboth of these methods, by
tendering his original as well as evidence showing he had authorized electronic
transmission of the copies prior to the Annual Meeting.
Because it is contrary to Colorado law, by By-Laws, and the 2007 Rules, and
because Mr. Gordon provided his original proxy appointments upon request by the
Special Master, this is not a valid basis for which to reject Mr. Gordons proxy
appointments.
2) The Special Master improperly added a new rule for 2008 bystating that she would provisionally reject Mr. Gordons proxy
appointments because she did not send him a Notice of the
Annual Meeting; in any event, Mr. Gordon complied with her
stated cure requirements.
The Special Masters second basis for rejecting Mr. Gordons proxy appointment
that she did not send him Notice of the Annual Meeting has no basis in Colorado law
or the By-Laws, and is actuallycontrary to her rules and procedures from 2007. As such,
the Special Masters rejection of Mr. Gordons proxies on this basis must be rejected as
well.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
24/37
{00220849.DOC / 6} 24
In 2007, the Special Master sent out Notices to all shareholders of record and
beneficial owners. See 2007 Report at 5. Notably, in her 2007 Report, the Special
Master identified 227 shareholders for whom the Notice was returned by the Post Office
as undeliverable. See 2007 Report at Exhibit 19. On this list, there were fifteen
shareholders (including eight non-Paul Entity shareholders and specifically including Mr.
Gordon representing 373,154 shares8) whose Notice was returned but whose votes were
counted in 2007. As noted in Exhibit 19 to the 2007 Report, the Special Master got the
Notice back for all but two of these shareholders prior to the 2007 Annual Meeting, and
got the Notice for those remaining two before she issued her final 2007 Report. Nowhere
in the 2007 Report does the Special Master state that getting the Notice back provided
any sort of basis to reject or even question those shareholders proxies and votes the
2007 Report was silent.
For the 2008 Annual Meeting, this Court ordered that the Special Master use her
rules for proxies and counting votes as articulated in the 2007 Report. See Nov. 12, 2008
Order at 2(c). Upon the request of the Special Master, the Court gave her the right not
to send Notices of the 2008 Annual Meeting to shareholders for whom she had received
Notices back in 2007. See Nov. 12, 2008 Order at 2(e).
However, there was no right given to the Special Master (and the Special Master
did not request or discuss the need) to also reject or question proxies from shareholders to
whom she did not send a 2008 Notice.9
Notwithstanding this, on December 17, 2008 the
8 Stephen Gordon, 242,000; Alexandra Gordon, 55,000; Stephen Gordon, as UTMA custodian for
Alexandra Gordon, 770; Jos Abadin, 29,386; BW Adams Enterprises, Inc., 16,666; Kenneth R. Hubbert &
Deborah Hubbert, 9,166; Kenneth Hubbard & Deborah Hubbard, 9,166; Frances Masters, 11,000.9 Indeed, undersigned counsel recalls that it was not until the Special Master actually convened the
2008 Annual Meeting that she stated, for the first time, that her staff was cross-referencing proxies
received with the list of shareholders to whom she sent the 2008 Notice, and that she would be questioning
-
8/14/2019 PFP Objections to 2008 Special Master's Report
25/37
{00220849.DOC / 6} 25
Special Master provisionally rejected Mr. Gordons 2008 proxies and the 2008 proxies
from four other shareholders totaling 474,210 shares, because she did not send 2008
Notices to these shareholders. To cure these proxies, she stated that this new, previously
unannounced defect could be overcome by providing additional information
(verification of shareholders new address). See Rejected Proxy Breakdown at 2.
On December 23, 2008, Mr. Gordon learned that his proxy appointments had
been provisionally rejected, and that he needed to provide the Special Master with an
updated address. See Gordon Affidavit, at 7. On December 24, 2008, Mr. Gordon
executed a statement of address, confirming his execution of the proxies and identifying
his then-current address as 1500 Cadet Road, Taft, California, 93268. See Gordon
Affidavit, at __. This was the address of Taft Federal Correctional Institution, where
Mr. Gordon was incarcerated. See Gordon Affidavit at 6; see also printout from United
States Bureau of Prisons Inmate Locator Service, http://www.bop.gov, dated Dec. 23,
2008 (indicating inmate Stephen Gordon incarcerated at Taft FCI), attached hereto as
Exhibit ___. This statement was submitted to the Special Master, along with Mr.
Gordons original proxies, on January 7, 2009 by Applicants counsel. Unbeknownst to
Applicants counsel, Mr. Gordon had been transferred to another correctional facility two
days before, on January 5, 2009. See Gordon Affidavit at 9.
In her Interim Report, the Special Master states that it is an irregularity
justifying rejection that Mr. Gordons address on January 7, 2009 was different than his
address when he executed his proxies and when he executed his statement of address.
proxies from shareholders to whom she did not send a 2008 Notice. This wasafter her deadline for
shareholders to submit proxies for the 2008 Meeting, and afterher deadline for shareholders to notify herthey would attend by telephone.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
26/37
{00220849.DOC / 6} 26
However, Mr. Gordons (or any other shareholders) whereabouts as of the date the
materials were provided to the Special Master (as opposed to the more relevant date of
the 2008 Annual Meeting, December 15, 2008) were never listed as being a relevant
criteria for consideration of a proxy appointment. See 2007 Report at 48. Likewise, the
parties and the shareholders were never notified that they needed to have current and
active addresses on record or their proxy appointments would be rejected, because no
such requirement appears in Colorado law or the By-Laws of the Company. Cf. By-Laws
at Art. II, 4 (notice deemed to be given when sent to shareholder at address as it appears
of-record; no requirement that shareholder actually receive the notice, only that it be
mailed).
The Special Master is using a new criteria that was not announced to anyone prior
to the 2008 Meeting itself, solely to justify her rejection of Mr. Gordons proxy
appointments. More troubling, the Special Master accepted cure documentation from all
of the other shareholders regarding their addresses in substantially the same form as
submitted by Mr. Gordon, see Interim Report at 30. The recommendation to adopt a
disparate treatment of this one shareholder on this issue should be rejected, and Mr.
Gordons proxy appointments should be counted for quorum purposes.
3) The Special Masters remaining 3 irregularities cited assupport for rejecting Mr. Gordons proxy appointments are
new requirements that were not included in the 2007 Report,
and were only announced as criteria in her Interim Report
after the Special Masters deadline for submitting cure
information had expired.
The Special Masters remaining three justifications offered to support rejecting
Mr. Gordons proxy appointments are new criteria never previously announced, with no
opportunity for Mr. Gordon to respond or rebut these allegations. The Special Master has
-
8/14/2019 PFP Objections to 2008 Special Master's Report
27/37
{00220849.DOC / 6} 27
clearly fashioned additional criteria specifically to justify a rejection of the proxy
appointments from this single shareholder, a procedure which is contrary to fairness and
equity, and must be rejected by the Court.
First, in the 2007 action, the Special Master was unquestionably aware that Mr.
Gordon was under indictment Mr. Lees attorneys tendered to her a copy of the
indictment and referenced Mr. Gordons incarceration in Stan Lees briefs. See 2007
Report, Exhibit 15, Brief at 4 n.2 (Stephen Gordon, who served 76 months in prison for
his role in defrauding SLMI) and exhibit thereto (copy of indictment of Peter Paul,
Stephen Gordon, Jeffrey Pittsburg, Charles Kusche, and Jonathan Gordon). The Special
Master specifically referred to this in the text of the 2007 Special Masters Report. See
2007 Report at p. ___.
It is disingenuous for the Special Master to state in her Interim Report, at 27 n.28,
that she was not aware [of Mr. Gordons past] at the time of the 2007 Matter, because
this statement directly contradicts the evidence that she had been told by Stan Lee at the
time and which she referenced in her report. Despite this, in her 2007 Report, the Special
Master had expressly stated that a criminal record (however serious) is not enough to
prevent a shareholder in a non-public company from voting and had accepted Mr.
Gordons proxy appointment without question. See 2007 Report at 54-55.
Second, as a matter of law, the validity of a shareholders ballot or proxy
appointment cannot be questioned on the basis that the shareholder did not check a box to
vote. This is completely irrelevant to the question of whether a proxy appointment
should be counted for quorum purposes. A shareholder not required to vote at any
meeting. The Special Master did not reject any other proxy appointments on the basis
-
8/14/2019 PFP Objections to 2008 Special Master's Report
28/37
{00220849.DOC / 6} 28
that they did not indicate how to vote (including the proxy appointment submitted by
Junko Kobayashi), and cannot apply a different standard to Mr. Gordon. Rather, the
effect of not checking the boxes is just as the Special Master indicated such votes are
merely deemed present for quorum purposes.
Third, the Special Master did not require any other individual shareholder to
notarize their proxy appointments or proxy appointment revocations. See Interim Report
at 9 (the Special Master did not require a signature guarantee as requested by Mr. Lees
counsel because, prior to examining the proxy appointment forms, she could not
determine that there was a reasonable basis for doubt), 31 (Special Master does not
believe a notarization is required from any shareholder but Mr. Gordon); see In re
Election of Directors of St. Lawrence Steamboat Co., 44 N.J.L. (inspectors of election
cannot reject a vote offered by proxy because the written proxy was not acknowledged).
It was only when the Special Master issued the Interim Report after she had accepted
Mr. Gordons proxy without question in 2007, after Mr. Gordon had supplied all
additional information in 2008 that she requested of him, and after all of her briefing
deadlines and document submission deadlines had passed that the Special Master for
the first time stated a new requirement that Mr. Gordons documents should have been
notarized.
It is telling that the Special Master did not contact the person that Mr. Gordon
identified as being authorized to transmit his proxy appointment in the first place, even
though the Special Master consistently did so with regard to other shareholders. See
Interim Report at ___. In his Address Statement, Mr. Gordon affirmatively identified Mr.
Dale Patrick, the legal officer at Taft FCI, who emailed Mr. Gordons proxies for the
-
8/14/2019 PFP Objections to 2008 Special Master's Report
29/37
{00220849.DOC / 6} 29
2008 Meeting, and provides contact information for Mr. Patrick. See statement at ___;
Gordon Affidavit at 7. Unlike her procedure to contact other shareholders to confirm
transmission of proxy appointments and statements of address, see Interim Report at 31,
the Special Master reports absolutely no effort on her part to substantiate the documents
provided by Mr. Gordon. This fact must be taken into account in evaluating whether the
Special Master satisfies the good faith statutory standard.
Because of the Special Masters failure to consider Mr. Gordons proxy
appointments according to her 2007 rules, to treat him under the same rules as the other
shareholders, and to give him fair notice and opportunity to cure his proxy appointments,
the Special Master has unfairly and inequitably disenfranchised Mr. Gordon without legal
justification.
To further assist this Court in determining that there is no reasonable basis to
doubt the validity of his signature on the original proxy appointments, attached to this
brief as Exhibit B is Mr. Gordons Affidavit (duly notarized) where he affirms his
signature upon the proxies that he submitted, and his authorization to electronically
transmit them for consideration at the 2008 Annual Meeting. See C.R.C.P. 53(e)(2)
(court may receive further evidence in considering Special Masters Report). Based
upon the conclusive evidence provided by Mr. Gordon at every turn, this Court should
reject the Special Masters inequitable determinations with regard to Mr. Gordons proxy
appointments, and accept his proxy appointments for quorum purposes.
III. The Special Master Applied Colorado Law Improperly When AllowingShareholder Knight Equity Partners, L.P. to Retroactively Revoke Its Proxy
for Quorum Purposes.
In her Interim Report, the Special Master accepts the proxy appointment from
Knight Equity Partners, L.P., a decision with which Applicant does not take issue. See
-
8/14/2019 PFP Objections to 2008 Special Master's Report
30/37
{00220849.DOC / 6} 30
Interim Report at __.10
However, she also accepts Knights revocation for all purposes,
including determination of a quorum, even though the revocation was received twenty-
three days after the 2008 Annual Meeting was adjourned. This retroactive acceptance of
Knights revocation is contrary to Colorado law and the Companys By-Laws as well as
caselaw from other jurisdictions.
a. The Special Masters retroactive revocation violates the CompanysBy-Laws and Colorado law.
Under Section 7-107-203(3) of the CBCA a proxy appointment is effective
against the corporation when received by the corporation. As such, it follows that at the
time of the commencement of the 2008 Annual Meeting (not to mention the time when
the vote was taken), the Knight proxy appointment was effective against the Company. It
logically follows that a revocation of a proxy appointment can only be effective against
the corporation when and after it is received by the corporation.
Under the Companys By-Laws, revocation of a proxy appointment only affects a
corporations acceptance of the proxys authority, as relevant here, if notice of the
revocation of the appointment is received by the secretary or other officer or agent
authorized to tabulate votes before the proxy exercises his authority under the
appointment. Company By-Laws, Art. II, 9 (emphasis added).
Here, Knight executed a proxy on December 12, 2008 appointing Mr. Belland as
its representative at the 2008 Annual Meeting, electronically transmitted a copy to the
Applicants counsel that day, and sent the original via Federal Express for delivery the
next business morning, December 15, 2008. The electronic copy was timely delivered to
the Special Master by her deadline of ninety minutes before the Annual Meeting
10 The Applicant notes that no one disputes the authority of the party who executed the proxy
appointment for Knight.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
31/37
{00220849.DOC / 6} 31
commenced, see Interim Report at 28, and the original was delivered later the same day
upon receipt from FedEx see id. Mr. Belland exercised his authority under the proxy
appointment both by attending the 2008 Annual Meeting and by voting Knights shares
in accordance with its proxy appointment form. See December 17, 2008 Tally Sheet,
attached as Schedule ___ to Interim Report, at ___.
Thereafter, the Special Master requested additional documentation to verify that
Mr. Andrew Greenstein had authority to execute the proxy on behalf of Knight. The
Interim Report neglects to mention that on December 19, 2008, Knight sent a Certificate
of Incumbency directly to the Special Master via email, confirming Mr. Greensteins
authority to sign on behalf of Knight. See email correspondence to Special Master,
attached hereto as Exhibit ___.11
This Certificate of Incumbency was executed by the
same individual who was listed in the Delaware Secretary of States office as being the
General Partners representative for the limited partnership. See Delaware Secretary of
State records, attached hereto as Exhibit ___.12
The Special Master states that she believes it is fair for her to retroactively
apply the revocation to destroy the quorum that was present at the Annual Meeting,
because certain shareholders had the right to cure proxies that she had provisionally
rejected. Not only does this retroactive revocation patently violate Colorado law and the
11 It is notable that, although the Special Master had contact information for Mr. Greenstein from the
date of the Annual Meeting (because his contact information was printed directly on the Knight proxy,
including his phone number) and then received a follow-up email from an in-house counsel of Knight on
December 19, 2008, she did not attempt to contact Mr. Greenstein or anyone else at Knight or otherwisediscuss his execution of the proxy or authority to do so, even though she consistently did so with regard to
other shareholders. This fact must be taken into account in evaluating whether the Special Master satisfies
the good faith statutory standard.
12 Unlike other proxy appointments on which the Special Master had her office check the public
records in Delaware in 2008 and in 2007, see Interim Report at ___, the Special Master did not do anysearch of the Delaware Secretary of State with regard to Knight. This fact must be taken into account in
evaluating whether the Special Master satisfies the good faith statutory standard.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
32/37
{00220849.DOC / 6} 32
Companys By-Laws, but it balances itself against something that the Special Master was
required to do in any event and is contrary to the rule she purportedly adopted
regarding revocation of proxy appointments.
In the 2007 Meeting, the Special Master expressly stated that she would allow
any proxies to which objections were made . . . to be corrected (including the submission
of necessary backup information/documents). See 2007 Report at 56-57. Thus, when
this Court ordered the Special Master to follow her 2007 Rules, it implicitly ordered her
to provide shareholders with a cure and correction period if their proxy was
objectionable.
13
Had she not allowed a cure opportunity, the Special Master would have
been in violation of this Courts November 12, 2008 Order of reference. It is incorrect
for the Special Master to thereafter imply that she somehow had discretion regarding
whether to allow cure documents, and it is hardly fair for her to say that her allowance
of cure documents somehow offsets her retroactive application of the Knight revocation.
Knight appointed Mr. Belland to act as its proxy, Mr. Belland fully acted pursuant
to that proxy appointment at the Annual Meeting on December 15, 2008 and Mr.
Bellands actions were accepted by the Special Master. The fact that Knight later had a
change of heart (perhaps based on contacts by Mr. Lee or his representatives) does not
mean that Knight, or any other shareholder, can retroactively alter or revoke their proxy
appointment to manipulate the outcome of the 2008 Annual Meeting. The Applicant
does not contest that Knights revocation, if it otherwise is a valid revocation of a proxy
13 It should be noted that the Special Master, in her Interim Report, incorrectly yet repeatedly
characterizes the right to cure as being solely the Applicants right. Because the appointment is executed
by each individual shareholder, it is the shareholders right to cure and to ensure that their proxy is counted
by the Special Master and this Court the Applicant and its counsel are merely a delivery conduit, as theApplicant is not even appointed as a proxy by any shareholder.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
33/37
{00220849.DOC / 6} 33
appointment under Colorado law, could prohibit Mr. Belland from voting Knights shares
at any reconvened meeting; however, acts originally taken pursuant to the valid
appointment are done. To follow the Special Master and hold otherwise would cause
corporate shareholder chaos.
The Special Masters justification for retroactively applying the revocation is
logically circular, and violates both Colorado law and her own rules for the 2008 Annual
Meeting. The Special Master states that she would allow Knight to revoke because,
although the meeting had been conducted and Mr. Belland had acted, she had notfinally
tallied the votes, see Interim Report at 29, even though there is no finally qualifier in
her rules. This same reasoning wouldrequire that the Special Master accept any new
proxy appointments tendered before she tallied the votes as well if the cut-off point is
when she finally tallied rather than the time of the 2008 Annual Meeting, then new
proxies received after the 2008 Annual Meeting but before the final tally should have
been accepted. As such, proper logic would dictate that any revocation, to be valid for the
2008 Annual Meeting, were also required by the Special Master to be tendered ninety
minutes before the 2008 Annual Meeting.
Alternatively, assuming that the Special Masters final tally rule was a decision
to allow the polls to remain open and for shareholders to change their vote prior to the
time the vote was announced, Knights revocation could only affect the vote tendered by
Mr. Belland, but as a matter of law could not destroy the fact that Knight was present via
proxy for quorum purposes. See C.R.S. 7-107-206(2).
-
8/14/2019 PFP Objections to 2008 Special Master's Report
34/37
{00220849.DOC / 6} 34
b. The Special Masters has no authority to adopt a rule with regard torevocation that conflicts with the Companys By-Laws.
The Special Master has no statutory authority to adopt a rule with regard to
revocation of proxy appointments, particularly one that directly conflicts with the
Companys By-Laws and the CBCA. Notwithstanding this, in any event, Knight did not
comply with the rule adopted by the Special Master. In point of fact, the Special
Master did in fact tally the votes and provided the parties with a copy of the tally on
December [17], 2008. See Interim Report at ___. Under a literal reading of the Special
Masters rule at such point the right to revoke a proxy appointment should have
expired.
c. The Special Masters retroactive revocation is contrary to caselawfrom other jurisdictions.
Not surprisingly, there is no case law cited in the Interim Report for the
recommendation of the Special Master. Giving retroactive effect to a revocation of a
proxy appointment is directly contrary to caselaw from other jurisdictions.
A revocation received by a corporation after a vote has been taken cannot be
given retroactive legal effect, whether for quorum purposes or for purposes of the votes
cast. See Atterbury v. Consolidated Coppermines Corp., 20 A.2d 743, 749 (Del. Ch.
1941) (refusing to give effect to revocations received after the commencement of an
annual meeting in which it was determined that no quorum initially was present); see also
Duffy, 151 A. at 228 (a quorum cannot be destroyed by withdrawal or by revocation of
proxies subsequent to the commencement of the meeting); affd 152 A. at 853 (same);
Berlin v. Emerald Partners, 552 A.2d 482, 493 (Del.Supr. 1988) (It will not do for a
stockholder who executes a general, unrestricted proxy . . . to come forward after it has
been acted upon and seek to repudiate what the [proxy] did in execution of the
-
8/14/2019 PFP Objections to 2008 Special Master's Report
35/37
{00220849.DOC / 6} 35
instruments plainly conferred powers[.]) Gow v. Consolidated Coppermines Corp., 165
A. 136, 145-46 (Del. Ch. 1933).
As a pure matter of law, this Court should reject the Special Masters
recommendation as to the effect of Knights revocation, and determine that Knight was
and remains present at the 2008 Annual Meeting for quorum purposes.
CONCLUSION
WHEREFORE, Applicant P.F.P. Family Holdings, L.P. respectfully requests that
this Court:
ACCEPT the two proxy appointments tendered at the 2008 AnnualMeeting from shareholder Stephen Gordon;
ACCEPT the proxy appointments tendered at the Annual Meeting fromshareholder Knight Equity Markets L.P. and DETERMINE that the
revocation tendered by Knight Equity Market L.P. is only effective from
January 7, 2009 onwards, and that Knight was present and continues to bepresent for purposes of quorum;
ACCEPT all proxy appointments tendered by shareholders which wererejected by the Special Master simply for being undated;
ACCEPT and ADOPT the Report of the Special Master as so modified; FIND that a quorum of at least 1/3 of the shareholders were present in
person, by telephone, or by proxy when the Annual Meeting commenced
at 9:00 A.M. on December 15, 2008;
DETERMINE that because of the presence of a quorum, the votes takenby the shareholders at that initial Annual Meeting were valid, and that Jos
Abadin, Nelson S. Thall, and Jeff Segal were duly elected as directors for
the Company.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
36/37
{00220849.DOC / 6} 36
Dated this 19th day of February, 2009.
KAMLET SHEPHERD & REICHERT,
LLP
By: /s/ Stephen D. Gurr
Stephen D. Gurr, No. 19789
Lee Reichert, No. 22667Livingston Keithley, No. 35786
Attorneys for Applicant P.F.P. Family
Holdings, L.P.
-
8/14/2019 PFP Objections to 2008 Special Master's Report
37/37
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on this 19th day of February, 2009, the
foregoing APPLICANTS OBJECTIONS TO SPECIAL MASTERS REPORT was
filed with the Court via Lexis/Nexis File and Serve and sent via email, properlyaddressed to:
Cathy S. Krendl
Krendl Krendl Sachnoff & Way, P.C.
370 17th Street, Suite 5350Denver, Colorado 80202
Special Master
Mark W. Williams
Marcy M. Heronimus
Sherman & Howard, LLC633 17th Street, Suite 3000
Denver, CO 80202
[email protected]@shermanhoward.com
Attorney for Objector Stan Lee
/s/Diana L. BrechtelIn accord with C.R.C.P. 121 1-26(7) & (8) a printed copy of this
document with original signatures is being maintained by the filing
party and will be made available for inspection by other parties or
the court upon request.