decided: October 3, 1975; As Amended October 24, 1975.
Appeal from dismissal of claims under Securities and Exchange Act and from procedural rulings, in the United States District Court for the Southern District of New York, Thomas P. Griesa, Judge. The dismissal of the substantive claims is affirmed. The appeal from the procedural rulings is dismissed.
Smith, Mansfield and Oakes, Circuit Judges.
The instant appeal involves the scope and substance of § 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) [hereinafter § 14(a)],*fn1 and the Securities and Exchange Commission regulations promulgated pursuant to § 14(a), 17 C.F.R. § 240.14a-1 et seq. In addition, we are asked to review the denial by the United States District Court for the Southern District of New York, Thomas P. Griesa, Judge, of plaintiffs' request for certain pretrial orders pursuant to Rules 16*fn2 and 56(d) of the Federal Rules of Civil Procedure.
For the reasons stated below, we affirm the decision of the district court both to dismiss plaintiffs' claims under § 14(a) and to deny the requested pretrial orders.
In 1972, defendant DASA Corporation was confronted with an immediate shortage of working capital. In response to this problem, DASA decided to secure additional working capital by selling its computer equipment for cash. Under the terms of the DASA bondholders' trust indenture, the sale of the computer equipment required approval by the class of bondholders. Since the bonds outstanding were convertible to DASA stock, DASA induced the bondholders to consent to the sale by offering, in return, to reduce the conversion price of their convertible bonds, thereby increasing the value of the bondholders' rights.
Bondholder approval of the sale was thus secured over the objections of a small group of bondholders who felt that the new conversion price offered by DASA was insufficiently favorable to bondholder interests. These dissident bondholders sought a new conversion price even lower than that offered by DASA.
The dissident bondholders organized themselves into the Browning Debenture Holders' Committee [hereinafter Browning]. When the Browning bondholders could not secure a conversion price lower than that offered by DASA, they instituted suit against DASA claiming five violations of federal securities law. Three of the claims, which are not relevant to this appeal, assert violations of bondholder rights. Two of the Browning claims [hereinafter claims one and two] assert violations from the perspective of the DASA stockholders. In particular, the Browning bondholders argue that the proxies for the 1972 DASA annual meeting were solicited fraudulently in violation of § 14(a) of the Securities Exchange Act of 1934 and two SEC regulations promulgated thereunder, SEC Rule 14a-9, 17 C.F.R. § 240.14a-9 and Rule 14a-3(b)(2), 17 C.F.R. § 240.14a-3(b)(2).*fn3
The Browning group did not assert claims for monetary damages from the conduct of the 1972 DASA shareholders' meeting. The Browning Committee merely sought, in claims one and two, a declaration from the district court that the 1972 meeting had been conducted illegally as a result of the allegedly fraudulent proxy solicitation. District Judge Griesa, at defendant's urging, ruled that claims one and two were mooted by the subsequent shareholder meeting in 1973. The judge therefore dismissed the § 14(a) claims on the ground that, absent a request for monetary damages or injunctive relief, the claims did not pose a justiciable controversy. The plaintiffs, on their own behalf and on behalf of the Browning Committee, appeal to this court.
II. The § 14(a) Claims*fn4
Plaintiffs' claim one asserts that various proxy materials and shareholder reports mailed by DASA in 1972 to its stockholders in connection with its annual meeting were materially false and therefore violative of § 14(a) and the SEC Rule 14a-9 prohibition against misleading proxy solicitations. Claim two asserts with somewhat greater specificity that the DASA annual report discussing 1971 as well as the DASA financial statements covering 1971 were also materially misleading and therefore violative of § 14(a) and SEC Rule 14a-3(b)(2). The implication of these first two assertions is that the 1972 DASA stockholder meeting was illegal since the proxies used therein were fraudulently solicited in a manner contrary to federal law.
Judge Griesa dismissed these two claims on the ground that the subsequent DASA stockholder meetings in 1973 (and, by implication, 1974) rendered the issue of the 1972 meeting moot. Whatever violations may have occurred in the solicitation of proxies for the 1972 meeting, Judge Griesa held, the officers elected then have fulfilled their terms in office (and subsequently been re-elected in 1973 and 1974). The year 1972, everyone would agree, is over, and it is therefore impossible to enjoin the meeting already held.
Both sides apparently acknowledge that the issue of the 1972 meeting and proxy solicitation materials would not be moot if plaintiffs asserted a claim for monetary damages stemming from the conduct and preparation of the 1972 meeting. Since, however, we cannot enjoin a meeting already held, the Browning group in effect merely seeks declaratory relief (i.e., a declaration that the 1972 meeting was conducted illegally). Judge Griesa therefore held that continuing with the lawsuit (as it ...