Wenz v Globecomm Sys., Inc.

[*1] Wenz v Globecomm Sys., Inc. 2012 NY Slip Op 52134(U) Decided on November 14, 2012 Supreme Court, Suffolk County Whelan, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 14, 2012
Supreme Court, Suffolk County

Harvey Wenz and JOAN WENZ, on behalf of himself and all others similarly situated, Plaintiffs,

against

Globecomm Systems, Inc., DAVID E. HERSHBERG, KEITH A. HALL, RICHARD E. CARUSO, HARRY L. HUTCHERSON, JR., BRIAN T. MALONEY, JACK A. SHAW, A. ROBERT TOWBIN and C.J. WAYLAN, Defendants.



31747-12



FARUQI & FARUQI, LLP

Attys. For Plaintiffs

369 Lexington Ave.

New York, NY 10017

JASPAN, SCHLESINGER

Attys. For Plaintiffs 300 Garden City Plaza

Garden City, NY 11530

KRAMER, LEVIN, NAFTALIS, ESQS.

Attys. For Defendants

1177 Avenue of the Americas

New York, NY 10036

HAMBURGER, MAXSON, YAFFE ET AL

Attys. For Defendants

225 Broadhollow Rd.

Melville, NY 11747

Thomas F. Whelan, J.

Upon the following papers numbered 1 to13read on this motionfor an order enjoining defendants from holding the shareholder vote; Notice of Motion/Order to Show Cause and supporting papers 1 - 3; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers4-6; Replying Affidavits and supporting papers7; Other 8 (plaintiffs' supplement to motion); 9 (Stipulation dated 10/18/12); 10 (plaintiffs' memorandum); 11 (defendants' memorandum); 12 (verification of Joan Wenz); 13 (affidavits of service); and after hearing counsel in support of and in opposition to the motion on November 13, 2012, it is

ORDERED that this motion (#001) by Plaintiffs seeking an order enjoining Defendants from holding the shareholder vote on Proposal 2 and Proposal 4 scheduled to be held at the annual shareholder meeting of Globecomm Systems Inc. on November 15, 2012, until the Court hears Plaintiffs' motion for a preliminary injunction or Defendants disclose the information sought by plaintiffs is denied; and it is further

ORDERED that a preliminary conference is scheduled for December 14, 2012, at 9:30 a.m., in Part 45, at the courthouse located at 1 Court Street - Annex, Riverhead, New York.

The instant motion seeks to enjoin the shareholder vote scheduled to be held at the annual general meeting of shareholders of defendant Globecomm Systems Inc. (Globecomm) until such time as more complete disclosures regarding Proposal 2 and Proposal 4 are made to the shareholders. Proposal 2 seeks to amend Globecomm's 2006 Stock Incentive Plan to increase the number of shares of common stock issuable under that plan by 1,500,000 shares. Proposal 4 is a non-binding, advisory vote to approve Globecomm's executive compensation. As set forth in the Proxy Statement at issue, the purpose of the 2006 Stock Incentive Plan is "to allow the Company to continue to utilize equity incentives in acquisitions and to retain the services of key individuals who are essential to the Company's long term growth and financial success" (Proxy at 38, Ex. B to Monteverde Aff.) It is plaintiffs' position that the 46-page Proxy Statement filed with the Securities and Exchange Commission on October 5, 2012 is incomplete. In particular, plaintiffs believe that insufficient information has been disclosed to shareholders concerning the dilutive effect Proposal 2 may have on existing shareholders, in addition to the consideration by the Board of Directors of various analyses that have not been made available to shareholders. Plaintiffs are seeking this Court's assistance in postponing the Shareholder vote on the proposals to afford "the Board time to correct its breaches of fiduciary duty and avoid the potential protracted litigation ..." (Plaintiffs' Memorandum of Law, p 17).

This motion for preliminary injunctive relief was commenced by order to show cause dated [*2]November 2, 2012 (Whelan, J). The order directed that service of the papers "by overnight mail of a copy of this order together with the papers on which it is based upon the parties herein on or before November 6, 2012, shall be deemed good and sufficient service." At oral argument held on November 13, 2012, the return date of the motion, it was admitted by the plaintiffs that service was not effectuated in keeping with the terms of the order to show cause.

It is well established that the failure on the part of a plaintiff or other party who moves for an order by interposition of an order to show cause to timely serve all of the parties in the manner directed by the court is a jurisdictional defect and warrants denial of the motion (see US Bank Natl. Assoc. v Hickey, 53 AD3d 544, 862 NYS2d 87 [2d Dept 2008]; Contimortgage Corp. v Garrett, 32 AD3d 977, 820 NYS2d 887 [2d Dept 2006]; Scharmann's, Inc. v 388 West Broadway, LLC, 258 AD2d 262, 685 NYS2d 33 [2d Dept 1999]; see also Mittleman & Son Meat Processing, Inc. v Meat Packers & Butchers Supply Co., Inc., 272 AD2d 531, 708 NYS2d 897 [2d Dept 2000]). A motion not properly served must be denied as the court is without jurisdiction to determine the merits thereof (see Bianco v Ligneci, 298 AD2d 482, 748 NYS2d 503 [2d Dept 2002]; Golden v Golden, 128 AD2d 672, 513 NYS2d 171 [2d Dept 1987]).

Here, the plaintiffs failed to provide due proof that timely service on the individual defendants, as directed by the order to show cause, was effected. Since a company acts only through its directors (see Arnold v Socy. For Sav. Bancorp, 678 A2d 533, 540 [Del 1996]), injunctive relief is not possible if service is not made upon the directors.

The untimely service of the motion, on November 11, 2012, the day before oral argument, on three of the eight directors does not provide this Court with jurisdiction to entertain the motion. Pursuant to CPLR 6311 a motion for a preliminary injunction may be served with or after the service of the summons. A court has no authority to issue a preliminary injunction unless the underlying action has been properly commenced (see eg Hart Is. Comm. v Koch, 150 AD2d 269, 541 NYS2d 790 [1st Dept 1989]). A preliminary injunction is not a free-standing remedy and without timely service in keeping with the mandates of the Order to Show Cause, the application must be denied.

Additionally, the application for preliminary injunctive relief is not supported by an affidavit as required by CPLR 6312(a) (see Weinstein, Korn & Miller, New York Civil Practice ¶ 6312.01 [4] [2012]). The required affidavit must show that the underlying action falls within one of the grounds for a preliminary injunction specified in CPLR 6301. To the contrary, by stipulation dated October 18, 2012, the plaintiff and defendant Globecomm Systems Inc. agreed that plaintiff would not submit on this motion "an affidavit from or the live testimony of (i) Plaintiff Harvey Wenz, (ii) any fact witness, or (iii) any expert." In keeping therewith, no affidavit is submitted describing any claim of injury of any kind.

A review of the underlying Amended Class Action Complaint, in particular the Wherefore declarations thereof, discloses that it does not request permanent injunctive relief and that only tort relief is sought, that is, breach of fiduciary duties by the Directors, aiding and abetting by the Corporation in connection with the issuance of the Proxy, and an award to plaintiffs and the Class [*3]of appropriate damages. While a request is sought for a preliminary injunction ("enjoining defendants from consummating the Shareholder vote on Proposal 2 and/or 4 unless and until the Company provides adequate disclosure regarding its cost and effects to Globecomm shareholders"), no request for a permanent injunction is set forth in the complaint.

The statute, CPLR 6301, specifies two circumstances in which preliminary injunctive relief may be granted. The first is when a defendant threatens to harm plaintiff's rights in the subject of the action and such harm could render the judgment ineffectual. The "subject of the action" category is usually a specific res in which the plaintiff has a pre-existing interest (see eg Dinner Club Corp. v Hamlet on Olde Oyster Bay Homeowners Assn., Inc., 21 AD3d 777, 801 NYS2d 25 [2d Dept 2005]; F.F. Shore & Co. v Romaner, 1 AD2d 690, 146 NYS2d 788 [2d Dept 1955]). The second category is commonly the action for a permanent injunction, that is, a judgment is sought restraining the defendant from injurious conduct that would also injure the plaintiff if committed during the course of the action. As noted, the instant amended complaint does not seek permanent injunctive relief and there is no showing how the relief requested falls under the "subject of the action" category.

A review of the complaint reveals that this is not a situation in which the plaintiff is asserting "rights respecting the subject of the action" (see CLR 6301; see also Credit Agricole Indosuez v Rossiyskiy Kredit Bank, 94 NY2d 541, 548, 708 NYS2d 26 [2000]; Coby Group, LLC v Hasenfeld, 46 AD3d 593, 847 NYS2d 239 [2d Dept 2007]). Under such circumstances, the Court should deny the motion for a preliminary injunction without reaching the issue of whether plaintiffs satisfied the test for the granting of such relief (see Dinner Club Corp. v Hamlet on Olde Oyster Bay Homeowners Assn., Inc., 21 AD3d 777, 779, supra).

In any event, upon examining the relief sought in the complaint, and since the plaintiffs could be adequately compensated by damages, as requested, there was a failure to demonstrate irreparable injury absent the granting of a preliminary injunction (see Leo v Levi, 304 AD2d 621, 759 NYS2d 94 [2d Dept 2003]). Temporary injunctive relief preventing the stockholders from voting on proposals at a corporate meeting should be granted only in such extreme circumstances as would render the issuance of the injunction imperatively necessary to prevent irreparable wrong or damage (see Katz v R. Hoe & Co., 99 NYS2d 899 [Sup Ct New York County 1950], modified on other grounds 277 AD 966, 99 NYS2d 853 [1st Dept 1950]). Here, a clear right to the relief sought has not been established.

This Court recognizes the Delaware caselaw, in particular the decisions of Chancellor Leo E. Strine, Jr., in the field of corporate merger or reclassification of common stock, that has typically found a threat of irreparable harm to exist when it appears stockholders may make an important voting decision on inadequate disclosures and limited injunctions are issued requiring additional disclosure (see eg Netsmart Tech., Inc. Shareholders Litig., 924 A2d 171[Del Ch 2007]; Staples, Inc. Sharholders Litig., 792 A2d 934 [Del Ch 2001]; Mony Group Inc. Shareholder Litig., 852 A2d 9 [Del Ch 2004]). This Court is not convinced that New York's long-standing rules of common law equity and the application of same to the issuance of a preliminary injunction, that is, the [*4]preferred remedy being the after-the-fact monetary damages claim, when available, must give way to a constant search for "adequate" or "fair" disclosures.

Probably the most critical factor militating against the granting of preliminary injunctive relief includes the notion that the movant can be fully recompensed by a monetary award or other adequate remedy at law (see 306 Rutledge, LLC v City of New York, 90 AD3d 1026, 935 NYS2d 619 [2d Dept 2011]; DiFabio v Omnipoint Communications, Inc., 66 AD3d 635, 636—637, 887 NYS2d 168 [2d Dept 2009]; Mar v Liquid Mgt. Partners, LLC, 62 AD3d 762, 880 NYS2d 647 [2d Dept 2009]). Moreover, a preliminary injunction will not issue in cases wherein the irreparable harm claimed is remote or speculative or where it is economic in nature (see Rowland v Dushin, 82 AD3d 738, 917 NYS2d 702 [2d Dept 2011]; Family-Friendly Media, Inc. v Recorder Television Network, 74 AD3d 738, 903 NYS2d 80 [2d Dept 2010]; Quick v Quick, 69 AD3d 827, 892 NYS2d 769 [2d Dept 2010]; EdCia Corp. v McCormack, 44 AD3d 991, 845 NYS2d 104 [2d Dept 2007]). This Court sees no need to carve out an exception to the above-mentioned rules of what constitutes irreparable harm in order to accommodate claimed disclosure deficiencies by class action shareholder plaintiffs, unless confronted with extreme circumstances where a clear legal right is shown.

Here, a review of the record before the Court, including the deposition transcript offered to the Court at oral argument, leads to the conclusion that the disclosure claims alleged by the plaintiffs fail to show that any of the omitted information complained of significantly would have altered the "total mix" of information available to shareholders in deciding whether to vote on Proposals 2 and 4 (see Micromet, Inc. Shareholders Litig., 2012 WL 681785 *10 [Del Ch 2012]; Answers Corp. Shareholders Litig., 2011 WL 1366780 [Del Ch 2011]; Wayne County Employees' Retirement Sys. v Corti, 954 A2d 319 [Del Ch 2008]).

Accordingly, the motion is denied. This constitutes the decision and order of the Court.

DATED: __________________________________________________

THOMAS F. WHELAN, J.S.C.