Kevin E. Miniat v. Ed Miniat, Inc., and South Chicago Packing Co.

Citations: 315 F.3d 712; 2002 U.S. App. LEXIS 22653; 2002 WL 31429803Docket: 02-1094

Court: Court of Appeals for the Seventh Circuit; October 31, 2002; Federal Appellate Court

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Kevin E. Miniat, a shareholder in Ed Miniat, Inc. (EMI) and South Chicago Packing Co. (SCPC), filed a diversity suit seeking a declaratory judgment to invalidate the 2000 elections for the companies' boards of directors. The U.S. Court of Appeals for the Seventh Circuit affirmed the district court's summary judgment in favor of the defendants. 

Edmund Miniat, Sr. and his sons established EMI in 1958 and acquired SCPC in 1972. By 1994, Ronald Miniat and Edmund Miniat, Jr. became equal shareholders, later transferring 6.5% of shares to Ronald’s son, David Miniat, the president. In 1996, the shareholders entered agreements to restrict voting rights to ensure management continuity. A key provision required shareholders to vote for a board with a majority of "involved directors," including the president.

In April 2000, during the first election attempt for SCPC's board, Kevin insisted on a non-preprinted ballot, which was declared invalid by SCPC due to non-compliance with the shareholder agreements. A second election using a preprinted ballot confirmed David and three involved directors. Later that day, during EMI's board election, Kevin objected to the ballot and the requirement to allocate votes to the president. EMI postponed the vote pending legal interpretation, which supported the requirement for shareholders to ensure a majority of involved directors on the board.

In June 2000, a meeting was held to elect EMI's board, where shareholders, including Kevin, used preprinted ballots from Sachnoff. The election resulted in the appointment of David, Ron, Ed Jr., and was deemed valid. In March 2001, Kevin sued SCPC and EMI for a declaratory judgment asserting the validity of an earlier SCPC vote and the invalidity of both a subsequent SCPC vote and the EMI vote. He argued that Section 2.3.1(ii) of the shareholder agreements was void due to indefiniteness and should be governed by the Illinois Business Corporation Act. Alternatively, he contended that the section does not mandate shareholder votes for the President or a majority of "involved directors." The district court granted summary judgment for the defendants, stating Kevin's interpretation was illogical. Kevin’s motion for reconsideration, which included a challenge to the definition of "involved directors" in the ballots, was denied, leading to the appeal.

The appeal centered on whether Section 2.3.1(ii) necessitated a board majority of "involved directors," including the President. Kevin argued that the clause should modify "involved directors" rather than "majority," and that as long as shareholders favored a majority of "involved directors," the requirement was met. The court rejected his arguments, finding his interpretation conflicted with the contract's overall meaning and the intent of the drafters. The court noted that similar definitions used definitive language elsewhere in the agreements, and Kevin’s reading would make some terms superfluous, contrary to Illinois contract law principles.

Section 2.3.1(ii) is interpreted to require shareholders to vote their shares to ensure that a majority of "involved directors," which includes the President, is elected to the board. The phrase "which shall include the President" alongside "which may include other management employees" supports this interpretation. Kevin's reliance on the "last antecedent" rule, which limits qualifying phrases to the last antecedent, does not apply effectively here, as the proper antecedent is "majority of involved directors." Kevin also contends that the quotation marks around "involved directors" imply a special definition, but this contradicts the overall contract structure, where other quoted terms are defined and formatted differently. Furthermore, the argument that merely voting for a majority of "involved directors" suffices without ensuring a majority is elected is rejected. This interpretation would render the term "election" meaningless, contradicting the principle that every term in a contract should be given effect. The language of Section 2.3.1(ii) clearly indicates that an actual election is necessary, and no justification is provided to ignore the term "election."

Kevin's interpretation of Section 2.3.1(ii) is found to be incorrect, and he argues that the provision is void due to indefiniteness, claiming the term "involved directors" is unclear because it lacks specific criteria. However, the court disagrees, stating that Illinois law requires only that a contract be sufficiently definite to determine the parties' intentions. Section 2.3.1(ii) clearly mandates shareholders to vote for a majority of qualified management employees, including the President, and Kevin does not dispute the qualifications of the directors elected in 2000.

Kevin also contends that a preprinted ballot improperly restricted "involved directors" to management employees. While the district court agreed with Kevin, it deemed the error insignificant. The court clarifies that Section 2.3.1(ii) indeed limits "involved directors" to management employees, interpreting the phrase "which may include" to modify "majority" rather than "involved directors." This means that while the majority must include the President, shareholders may choose other qualified management personnel at their discretion. 

Ultimately, the court concludes that the construction of Section 2.3.1(ii) requires shareholders to elect a board with a majority of "involved directors," including the President and other qualified management employees, affirming the district court's judgment regarding the elections challenged by Kevin Miniat.