The opinion of the court was delivered by: LUMBARD
This is a motion by the Securities and Exchange Commission to enjoin preliminarily Mitchell May, Jr., Alfred W. Parry, Jr., and Wilbur E. Dow, Jr., individually and as members of an Independent Stockholders Committee of Libby, McNeill & Libby from soliciting through the mail or in interstate commerce any proxies in respect to the common stock of Libby, McNeill & Libby by means of any proxy statement or other communication which is false and misleading with respect to any material fact or which omits to state any material fact with respect to certain listed subjects. The injunction is also sought against soliciting any proxies without disclosing the names of all persons on whose behalf the solicitation is being made or the names of all the persons for whom the cost of solicitation will be borne, directly or indirectly. Libby, McNeill & Libby is a corporation whose stock is registered on the New York Stock Exchange, the Midwest Stock Exchange, and the San Francisco Stock Exchange.
The Commission also asks that the Committee be restrained from using any proxies already obtained. The Commission in its complaint filed on the same day, August 3, 1955, joined as a defendant the Company, Libby, McNeill & Libby. The Company as well as the three individual members of the Independent Stockholders Committee have appeared on this application.
Before turning to the specific allegations of the Commission's complaint, it may be helpful to outline the events which led up to its filing. On May 18, 1955 May and Parry representing themselves as an independent stockholders committee filed with the Commission a draft of a proposed proxy statement which the Committee proposed to send to Libby stockholders. Apparently because the Commission believed that the material submitted was deficient in several material respects, on June 6, May and two of the Committee's counsel conferred with members of the Commission's staff regarding these matters and the requirements of the proxy rules. The Commission was advised that Dow and Lawrence E. Brinn would be added to the Committee. It was understood that the material would be amended and that additional information would be supplied to the Commission.
About June 23 the Independent Stockholders Committee, now including Dow and Brinn, filed a further proposed proxy statement which did not include names of nominees for directors, which names were to be supplied shortly thereafter. At this time May conferred with Commission staff members and advised them that the information requested at the June 6 conference regarding purchase of the stock by Committee members, associates and backers would not be furnished.
On July 1 the Committee filed a further revised proxy statement which did not include the names of nominees for directors but it did list six persons who had already contributed or agreed to contribute specified sums toward solicitation expenses:
Walter W. Weismann $ 5,000.
Mitchell May, Jr. 5,000.
George Frankel 5,000.
Ladislas Pathy 2,500.
Alfred W. Parry, Jr. 1,500.
Max Rosenfield 5,000.
On July 6 the Commission wrote Committee counsel requesting information regarding certain persons named in the proposed proxy statement, including Committee members, and persons represented by them, and inquiring as to the nominees for directors. Meanwhile on July 7 the Committee filed a further proxy statement giving the names of six nominees for directors and stating that the expected cost of proxy soliciting would be approximately $ 25,000.
On July 8 the Committee filed for the first time a proposed letter to stockholders captioned 'It's Time For a Change'. This letter included the material complained of regarding comparison of Libby with other companies and alleged misleading questions implying manipulation of funds and non-disclosure of information.
On Monday, July 11 the Commission received from Committee counsel a letter dated July 7 stating that the Committee was unwilling or unable to furnish all the information requested in the Commission letter of July 6. The letter also advised that the Committee intended to proceed on July 11 'with the mailing of the Proxy Statement heretofore filed with you and also the letter to stockholders forwarded to you on this date under separate cover'.
On the same day, July 11, the Commission wired Committee counsel advising that the proposed letter to stockholders was inaccurate and misleading in material respects, and that it should be accompanied by a proxy statement and should not be released until amended to comply with the Commission's proxy rules. The information which had been asked for in the July 6 letter was again requested. Mr. Harvey A. Thorson of the Commission telephoned Committee counsel and read him the wire, and he and Mr. Ralph Hocker talked to counsel regarding the misleading nature of the proxy material and urged that it be not released until corrected. Mr. Hocker made it clear that if the Committee persisted in its proposed action the Commission might have to go to court.
On July 12 the Commission received a letter from Committee counsel repeating the refusal to comply with the Commission's July 6 letter request. Enclosed copies of a further draft of the proposed Committee proxy statement for the first time disclosed the full slate of nine nominees. On July 13 the Commission received from the Committee definitive copies of the proxy material, and by telegram on July 14 the Committee advised that the material was being mailed.
In the proxy material which the Committee mailed to stockholders under date of July 13 it was stated for the first time that proxy soliciting expenses would be approximately $ 75,000. Instead of the six individuals theretofore listed as pledging or contributing $ 24,000 toward these expenses, the names of George Frankel and Max Rosenfield were now omitted. Nothing was stated as to who would defray the balance of approximately $ 61,000.
Thus up to the time of mailing the proxy material to stockholders the Committee refused to fully inform the Commission regarding important and material matter; it submitted much new data at the last minute, and virtually refused to consider the Commission's views or to discuss the questions raised by members of the Commission's staff.
Thereafter on July 21 the Commission ordered a 'private investigation' to inquire into possible violations of its Regulations by the Company or the Committee or any of their agents, etc., and designated certain of its staff to conduct the investigation. Immediately following July 21 the president of Libby, McNeill & Libby, the members of the Committee and others were examined under oath in Chicago and New York.
On August 3 the Commission filed its complaint. By order to show cause signed the same day the Commission brought on this application for temporary injunction. Judge Dimock at that time denied an application for a temporary restraining order pending the hearing of this application.
II -- Allegations of Complaint
The complaint filed by the Commission pursuant to Section 21(e) of the Securities Exchange Act of 1934, 15 U.S.C.A. 78u(e), and the affidavits filed in support of this application, charge the Committee with having made false and misleading statements in printed matter sent to the stockholders soliciting their proxies for the annual meeting of the Company which is to be held August 17, 1955 at Portland, Maine, with omitting certain material facts necessary in order to make the statements not false or misleading, and in other respects failing to comply with Regulation X-14 relating to the solicitation of proxies and promulgated by the Commission under the Securities Exchange Act of 1934, 15 U.S.C.A. 78a et seq. These alleged false and misleading statements and alleged material omissions fall into five principal categories:
1. Comparison of Libby with Other Companies.
Representations and omissions regarding comparative earnings of the Company and other companies in the business of distributing food products for the years 1939 and 1953. These were set forth in the 'Time for a Change' letter to stockholders dated July 13, 1955.
2. Misleading Questions Implying Manipulation of Funds and Non-Disclosure of Information.
A series of questions contained in the same letter of July 13 to the stockholders. The Commission charges that these questions imply misuse of funds and mismanagement and failure to make certain disclosure of allegedly material facts to the stockholders where the Committee has no basis for implying an improper action or omission on the part of management.
3. Dow's Alleged Representation of Stockholders.
Statements by the Committee that the defendant Dow was acting on behalf of certain named stockholders, when in fact none of these individuals had authorized him to act as a Committee member on their behalf and in fact two of them had ...