The opinion of the court was delivered by: RYAN
This action was filed by six stockholders
of Metro-Goldwyn-Mayer, Inc. (MGM), a Delaware corporation with its principal place of business in New York. The defendants named are MGM and five of the thirteen members of its Board of Directors.
They are part of present MGM corporate management; all of them serve as officers or as members of the Executive Committee.
Plaintiff, Philip Levin, is and has been a director of MGM since February, 1965 and all of the plaintiffs hold substantial blocks of MGM common stock.
The present action flows from a conflict for corporate control between present management - called "the O'Brien group" and "the Levin group." Each group intends to nominate a slate of directors at the MGM stockholder annual meeting which is to be held on February 23, 1967; each has been actively soliciting proxies for this meeting.
The action was commenced on January 19, 1967 in the Supreme Court, County of New York, when defendants MGM and Melniker were served with the summons and complaint. Defendant Killion appeared in the action on January 24, 1967. These three defendants on the same day removed the action to this Court. No motion to remand has been made; jurisdiction of this Court has not been questioned; and diversity and federal jurisdiction appear to be pleaded in the complaint.
With the state court process, a state Supreme Court order to show cause was served. It is upon a similar order to show cause issued out of this court that we consider the plaintiffs' application for injunctive relief pendente lite.
Plaintiffs complain of the manner, method and means employed by defendants in the solicitation of proxies for the coming annual meeting of MGM stockholders. Specifically, plaintiffs charged that the defendants, in connection with the proxy solicitation contest, have wrongfully committed MGM to pay for the services of specially retained attorneys, a public relations firm and proxy soliciting organizations, and, in addition, have improperly used the offices and employees of MGM in proxy solicitation and the good-will and business contacts of MGM to secure support for the present management. Plaintiffs, in their complaint, pray for temporary and permanent injunctive relief
against defendants' continuing this method of solicitation of proxies and against defendants' voting the proxies so obtained at the annual meeting. They also seek money damages of $2,500,000 on behalf of MGM from the individual defendants.
The temporary injunctive relief now sought is precisely the same injunctive relief prayed for as a final judgment in the complaint.
Although disapproving of the proxy solicitation methods of "the O'Brien group", and of certain financial and business policies applied in the conduct of corporate activities of MGM, Levin heretofore has described Robert H. O'Brien, the President and the Chief Executive Officer of MGM, as "able and dedicated." In a letter to MGM stockholders sent out in May, 1966, Levin wrote of the Directors - "I have never impugned the integrity of any of my fellow board members."
Plaintiffs' counsel during the presentation of their arguments have stated that no charge is made by plaintiffs that defendants or any of them or any one acting for them or on their behalf have made any false or fraudulent statements in their solicitation of proxies. Plaintiffs make no charge of corruption in the conduct of the corporate affairs for direct personal gain or profit by any of the defendants.
Plaintiffs maintain the injunctive relief sought is required to prevent (1) the unlawful use of the corporate organization - its employees, good-will and offices and of corporate funds in the solicitation of proxies, (2) the retention of "the four top proxy-soliciting concerns and the passing of their bill for their services to the corporation rather than to the individuals" and (3) the employment at corporate expense of special counsel "for the sole and exclusive and no other purpose than the waging of a proxy contest on behalf of the individual defendants who have every right to pay for his valuable services" with their own private funds, particularly in view of the fact that regularly employed attorneys are available to represent the corporate interests of MGM.
Because of the nature of plaintiffs' allegations, we weigh the merits of this application for injunctive relief against the financial and business background of MGM. As of August 31, 1966, MGM had total assets of $251,132,000 and a gross income for its 1966 fiscal year of approximately $185,000,000. It is one of the major producers and distributors of motion pictures in the world and markets to exhibitors films produced by others as well as its own films. MGM has 31 branch distribution offices in the United States. It operates 49 theatres in foreign countries, and it licenses its feature productions and its "shorts" to local as well as network affiliated television stations. It operates a record manufacturing plant, pressing records for its own labels and for others and it produces and distributes records for itself and others. It also has a majority stockholding in one of the leading music publishing companies. MGM's gross revenue in the past fiscal year from music publishing and record distribution are stated to have been over $30,000,000. MGM owns and operates a motion picture producing studio in California and another in England, where feature films are produced by it, often involving expenditure of eight to ten million dollars on a single production. MGM is one of the "giants" in the entertainment industry.
Much has been said by the defendants of the need for expert knowledge in the entertainment field, in the specialized demands for financing, and in the management of an enterprise of the magnitude and diversity of MGM. This is undoubtedly required. Defendants point with unabashed pride to the results they have achieved in their direction of the affairs of MGM. We do not question that the successful operation of MGM has been accomplished in no small measure by diligent and intelligent application to corporate affairs and by the exercise of sound and informed business judgment. The decision as to the continuance of the present management, however, rests entirely with the stockholders. A court may not override or dictate on a matter of this nature to stockholders. When we speak of stockholders, we have especially in mind the large number of stockholders who are not firmly committed to or aligned with either of the two contesting groups; majority voting power is vested in them. It is the concern of the law and of the Court that they be fully and truthfully informed as to the merits of the contentions of those soliciting their proxy. It is equally important that the Court should not unnecessarily exercise its injunctive power in such matters lest such judicial action operate to unduly influence a stockholder's decision as to which faction should receive his proxy.
It is quite plain that the differences between "the O'Brien group" and "the Levin group" are much more than mere personality conflicts. These might readily be resolved by reasoning and hard-headed, profit-minded business men. There are definite business policies advocated by each group, so divergent that reconciliation does not seem possible. They appear so evident from the papers before us that detailed analysis would be a waste of time.
However, in such a situation the right of an independent stockholder to be fully informed is of supreme importance. The controlling question presented on this application is whether illegal or unfair means of communication, such as demand judicial intervention, are being employed by the present management. We find that they are not and conclude that the injunctive relief now sought should be denied.
The proxy statement filed by MGM under date of January 6, 1967, opens with the statement that "MGM will bear all cost in connection with the management solicitation of proxies." It discloses the purpose of the management to solicit proxies and "to request brokerage houses, custodians, nominees and others who hold stock in their names to solicit proxies from the persons who own such stock, pursuant to the rules of the New York Stock Exchange." It sets forth that MGM will reimburse them "for their out-of-pocket expenses and reasonable clerical expenses." It discloses the employment of Georgeson & Co. at $15,000 and Kissel-Blake Organization, Inc. at $5,000 for services and estimated out-of-pocket expenses. It informs the reader that "officers and regular employees of MGM and its subsidiaries" may request the return of proxies for which no additional compensation will be paid them. It advises that "Proxies may also be solicited in newspapers or other publications" and that the total ...