Appeal from a judgment of the United States District Court for the Southern District of New York following a non-jury trial before Lloyd F. McMahon, J., which permanently enjoined Curtiss-Wright from voting certain shares and proxies of Kennecott Corper Corporation and dismissed Curtiss-Wright's counterclaim seeking similar relief against Kennecott. Reversed in part and affirmed in part.
Before Oakes, Van Graafeiland and Meskill, Circuit Judges.
Curtiss-Wright Corporation has appealed from a judgment of the United States District Court for the Southern District of New York entered in the midst of a proxy fight between Curtiss-Wright and Kennecott Copper Corporation. At issue was the election of directors to the board of Kennecott, in which Curtiss-Wright had become a minority shareholder. The judgment, dated May 1, 1978, permanently enjoined Curtiss-Wright from further solicitation of Kennecott proxies and from voting the shares and proxies it then held at the May 2, 1978, annual meeting of Kennecott. On May 2, 1978, prior to the meeting, this Court granted a stay of the district court's judgment and an expedited appeal. For reasons that follow, we have concluded that the judgment must, in substantial part, be reversed.
In 1968, Kennecott, the largest producer of copper in the United States, sought to diversify by acquiring Peabody Coal Company. This acquisition was attacked by the Federal Trade Commission on antitrust grounds, and in 1977, following the Commission's order to divest, Peabody was sold. As consideration, Kennecott received $809 million in cash and some five per cent subordinated income notes due in 2007, which were in the face amount of $400 million but were carried on Kennecott's balance sheet at a value of $171 million. A number of shareholders urged the company to distribute the proceeds of the sale, either by making a cash tender offer for outstanding shares or by declaring an extraordinary cash dividend. Indeed, one shareholder commenced a shareholders' suit, the underlying purpose of which was to force such a distribution. Instead of acceding to these requests, Kennecott, in January 1978, purchased the Carborundum Company for $567 million in cash.
In November 1977, Curtiss-Wright, a diversified manufacturing company, decided to acquire an interest in Kennecott. By March 13, 1978, when Curtiss-Wright filed its Schedule 13D*fn1 with the Securities and Exchange Commission, it had acquired 9.9 per cent of the outstanding Kennecott shares at a cost of approximately $77 million. On March 15, officials of Curtiss-Wright met with Kennecott officials to determine whether they could work together, and Curtiss-Wright suggested the nomination of a joint slate of candidates for Kennecott's board which would give Curtiss-Wright's nominees a minority position on the board. When these overtures were rejected, Curtiss-Wright, on March 23, 1978, announced its own slate and a campaign platform which, in effect, took up the cause of the shareholders who had sought distribution of the Peabody proceeds. In essence, Curtiss-Wright proposed that Kennecott try to sell Carborundum at or above the $567 million which Kennecott had paid for it and use the proceeds and other Kennecott funds to make either a tender offer for half the outstanding Kennecott shares at $40 per share, or a $20 per share cash distribution.
Kennecott did not wait for the battle lines thus to be drawn; it struck first. It had substantial holdings in the State of Utah. On March 21, 1978, acting through its local counsel, Kennecott induced that state to obtain an ex parte temporary restraining order in the state court enjoining Curtiss-Wright from purchasing any additional Kennecott shares or soliciting proxies anywhere in the United States.*fn2 On the following day Kennecott commenced the instant action in the District Court for the Southern District of New York.
Kennecott's original complaint alleged both securities and antitrust law violations arising out of Curtiss-Wright's acquisition of Kennecott stock. On April 5, 1978, Curtiss-Wright counterclaimed, alleging improper proxy solicitation by Kennecott. On April 17, 1978, the district court permitted Kennecott to amend its complaint to allege improper proxy solicitation by Curtiss-Wright. Each party sought injunctive relief. The trial commenced on April 24 and was completed on April 27.
The district court held that (a) Curtiss-Wright's proxy solicitations had violated section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), and Rule 14a-9(a) of the Commission, 17 C.F.R. § 240.14a-9(a), but Kennecott's solicitations had not; (b) Curtiss-Wright's acquisition of Kennecott stock and the proposed election of a Curtiss-Wright director to the Kennecott board violated sections 7 and 8 of the Clayton Act, 15 U.S.C. §§ 18 and 19; and (c) Curtiss-Wright's acquisition of Kennecott stock, prior to the filing of its Schedule 13D, was not a "tender offer" for purposes of the Williams Act, 15 U.S.C. § 78n(d). The court enjoined Curtiss-Wright from voting its shares and proxies, while permitting Kennecott's annual meeting to go forward. It deferred decision as to the appropriate relief for the antitrust violations.
On appeal, Curtiss-Wright challenges holdings (a) and (b). In connection with holding (b), Curtiss-Wright also argues that the district court erred in requiring it to go to trial on the antitrust issue without giving it adequate time to prepare. Finally, Curtiss-Wright contends that the relief granted by the district court was wholly inappropriate. Although Kennecott filed no cross-appeal, it now seeks to support the decretive portion of the district court's judgment by overturning holding (c).
RULE 14a-9(a) DISCLOSURES
Rule 14a-9(a) prohibits solicitation by a proxy statement that is false or misleading with respect to a material fact or which omits to state a material fact needed to make other statements therein not false or misleading. This rule, a typical securities regulation, was enacted to implement a "philosophy of full disclosure." Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 477-78, 97 S. Ct. 1292, 51 L. Ed. 2d 480 (1977); Cole v. Schenley Industries, Inc., 563 F.2d 35, 43 n. 17 (2d Cir. 1977). If full and fair disclosure is made, the wisdom and fairness of the program for which support is solicited are of tangential concern. Santa Fe Industries, Inc. v. Green, supra, 430 U.S. at 478, 97 S. Ct. 1292; Popkin v. Bishop, 464 F.2d 714, 720 (2d Cir. 1972).
Curtiss-Wright's program, which followed upon its investment of $77 million in Kennecott, was not created in a vacuum. Although its officers were not privy to the inner workings of Kennecott, they studied the annual reports of Kennecott and its competitors and publications of the financial and copper industries. Curtiss-Wright's executive vice-president analyzed Kennecott's balance sheet, made a number of suggestions as to how it could be improved, and prepared a pro forma balance sheet showing the effect of Curtiss-Wright's proposals. However, Curtiss-Wright's consideration of the effect of its proposed plan was limited in nature, and it said so. Its April 4 proxy statement contained the following caveat:
Curtiss-Wright has not made a detailed study of the consequences to Kennecott of the program described above. It and the nominees believe, however, that the program would not result in Kennecott's inability to continue its metals operations or to finance them. This belief is based upon the following: In the approximately nine years during which Kennecott owned Peabody it contributed approximately $532 million to Peabody's capital. Peabody thus represented a very substantial cash drain on Kennecott during the period it operated Peabody. Despite this Kennecott was able to continue its metals operations and to finance them.
The sale of Peabody produced $809 million in cash plus $400 million in subordinated income notes which are now valued by Kennecott at $171 million. The Peabody sale thus yielded approximately $980 million in present value of assets, of which $567 million was invested in Carborundum. The program of the nominees, described above, envisages the sale of Carborundum for about the same price and a distribution equivalent to approximately $20 per share, or $663 million in the aggregate. This would leave the Kennecott metal operations with approximately $317 million more in assets than were available to them at the time Kennecott owned Peabody, and without the need for continued cash contributions to Peabody.
Despite this clear and unequivocal statement by Curtiss-Wright that it had not made a "detailed study of the consequences to Kennecott of the program," the district judge held that its "proxy materials misled shareholders to believe that the feasibility of the plan had been thoroughly studied." He based this holding on a belief that Curtiss-Wright's disclaimer of a "detailed study" did not fully disclose that it had not conducted a thorough investigation. In making a Rule 14a-9(a) violation out of this semantic differentiation between "detailed study" and "thorough investigation," the district court erred.*fn3
Rare indeed is the proxy statement whose language could not be improved upon by a judicial craftsman sitting in the serenity of his chambers. See Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937, 948 (2d Cir. 1969). This is particularly so where the statement is prepared in the "hurly-burly" of a contested election. Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1300 n. 19 (2d Cir. 1973); General Time Corp. v. Talley Industries, Inc., 403 F.2d 159, 162 (2d Cir. 1968), Cert. denied, 393 U.S. 1026, 89 S. Ct. 631, 21 L. Ed. 2d 570 (1969). "Not every corporate counsel is a Benjamin Cardozo . . .", Ash v. LFE Corp., 525 F.2d 215, 221 (3d Cir. 1975), and nit-picking should not become the name of the game. Kohn v. American Metal Climax, Inc., 458 F.2d 255, 267 (3d Cir.), Cert. denied, 409 U.S. 874, 93 S. Ct. 120, 34 L. Ed. 2d 126 (1972); Electronic Speciality Co. v. International Controls Corp., supra, 409 F.2d at 947.
Assuming for the argument that the words "thorough investigation" would have been more descriptive than "detailed study," the latter term conveyed a sufficiently accurate picture so as not to mislead. See Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 800 (2d Cir. 1969), Cert. denied, 400 U.S. 822, 91 S. Ct. 41, 27 L. Ed. 2d 50 (1970). "There is no requirement that a material fact be expressed in certain words or in a certain form of language." Richland v. Crandall, 262 F. Supp. 538, 553-54 (S.D.N.Y.1967) (Mansfield, J.). Fair accuracy, not perfection, is the appropriate standard. Laurenzano v. Einbender, 448 F.2d 1, 6 (2d Cir. 1971); Allen v. Penn Central Co., 350 F. Supp. 697, 706 (E.D.Pa.1972).
Kennecott found no need to clarify in its own proxy statements the language that Curtiss-Wright had used. In its proxy materials dated April 7, 1978, April 12, 1978, and April 21, 1978, Kennecott emphasized in bold-face type that Curtiss-Wright admitted it had "not made a detailed study of the consequences to Kennecott of the program."*fn4 Kennecott also advised its shareholders that Curtiss-Wright's president had admitted "he did not have the necessary imformation to determine what is in the best interests of Kennecott's shareholders" and that there was no indication that Curtiss-Wright's candidates had made any more of a "study" than had the president. We are satisfied that the lack of a thorough investigation by Curtiss-Wright was "thoroughly aired" in this contested proceeding, See McConnell v. Lucht, 320 F. Supp. 1162, 1164 (S.D.N.Y.1970), and that, as to this matter, there was no violation of Rule 14a-9(a).*fn5
Because of the stay granted by this Court, Kennecott's annual meeting went on as scheduled; and this Court has been informed that management's slate was elected by a narrow margin. There is a strong likelihood, however, that the election results were influenced by the criticism of Curtiss-Wright contained in the district court's election-eve decision.*fn6 See General Time Corp. v. Talley Industries, Inc., 283 F. Supp. 832, 837 (S.D.N.Y.), Aff'd., 403 F.2d 159 (2d Cir. 1968), Cert. denied, 393 U.S. 1026, 89 S. Ct. 631, 21 L. Ed. 2d 570 (1969); Sherman v. Posner, 266 F. Supp. 871, 874 (S.D.N.Y.1966). ...