The opinion of the court was delivered by: SWEET
Plaintiff Canadian Javelin Limited ("Javelin") is a Canadian corporation registered with the Securities and Exchange Commission (the "SEC") pursuant to Section 12 of the Securities Exchange Act (the "Exchange Act"), 15 U.S.C. § 78L. Javelin's shares have been traded on the American Stock Exchange, but are currently under suspension. Javelin commenced this action by filing a five-count complaint against nine Canadian citizens individually and against a shareholders' committee allegedly formed by three of them. Javelin has alleged that the defendants violated provisions of the Exchange Act and the Rules promulgated thereunder, and has moved for preliminary injunctive relief. Plaintiff's motion is granted in part and denied in part.
Defendants Brooks, Mitchell and Strolovitch (the "Brooks Defendants") are the shareholders of Javelin who have allegedly organized a "Protective Committee" (the "Committee") which has twice mailed material to Javelin's shareholders. The material which was mailed is unfavorable to Javelin's present management and to John Doyle, Javelin's principal shareholder. One of the mailings included a request for funds to support the work of the Committee. In the mailing, the Committee's purpose was described as "eliminating the influence of John Doyle with the removal of present management."
Defendants Wismer, Ayre, Wylie, Shirriff, Smith and Shemilt (the "Wismer Defendants") are former directors of Javelin who constitute the majorities of the Boards of Directors of Bison Petroleum & Minerals Limited ("Bison") and Dominion Jubilee Corporation Limited ("Jubilee"), both of which are Canadian corporations. Javelin alleges that its controlling interest in Bison and Jubilee was eliminated by an exchange of stock between Bison and Jubilee in February, 1977.
The validity of the exchange of stock under Canadian Law is the subject of a suit brought by Javelin in Canada. The Supreme Court of Ontario has temporarily restrained the voting of shares in both companies. After the exchange, Bison did not provide financial statements on a timely basis to Javelin. Javelin asserts that this failure has made it impossible for Javelin to file reports required by the SEC.
Count I of the complaint seeks an injunction against future violations of SEC Rules 14a-3 and 14a-6 by the Brooks Defendants. Javelin claims that the two mailings were in fact solicitations under the Proxy Rules. Thus, they should have contained information required by Rule 14a-3 and should have been filed with the SEC pursuant to Rule 14a-6.
Count II alleges that the Brooks Defendants and the Committee are "fronts" for the Wismer Defendants and seeks to enjoin the Wismer Defendants and "those acting in concert, conspiracy or participation with them" from violations of Section 14(a) of the Exchange Act and the regulations issued thereunder.
Count III charges the Wismer Defendants and those acting in concert with them with violations of Rule 14a-9 on grounds that the alleged solicitations misrepresented and omitted material facts. Plaintiff asks that all defendants be enjoined from future violations of Rule 14a-9.
Count IV is predicated on the exchange of stock between Bison and Jubilee. Plaintiff asserts that the exchange was fraudulent, in violation of Section 10(b) of the Exchange Act and Rule 10b-5. Plaintiff seeks to enjoin the Wismer Defendants and those acting in concert with them from future violations of Section 10(b) and Rule 10b-5. Additionally plaintiff seeks to enjoin defendants from voting the shares of Bison and Jubilee so exchanged, and to vote the shares they own or control in favor of cancelling the exchange. Finally, plaintiff seeks to have this court set aside or "sterilize" the exchange of stock.
Count V accuses defendant Wismer of violating Section 20(c) of the Exchange Act, and accuses the other Wismer Defendants of aiding and abetting his violation. Plaintiff asserts that Wismer, a stockholder of Javelin, has refused, or caused Bison to refuse, to provide Javelin with financial information about Bison which Javelin needs to file its consolidated financial reports required by the SEC. Javelin seeks to enjoin defendants from future violations of Section 20(c) of the Exchange Act, and to require defendant to provide Javelin with such information.
Additionally, in its complaint, plaintiff demands that, pursuant to Counts I, II, and III, defendants be required to return all monetary contributions made to the Committee in response to the allegedly illegal solicitations.
Wismer has submitted an answering affidavit in response to Javelin's motion, on behalf of himself and the other Wismer Defendants. Additionally, the Wismer Defendants have submitted a memorandum of law opposing Javelin's motion for a preliminary injunction. In his affidavit Wismer denies any involvement with the Committee, but acknowledges that he saw a draft of one of the alleged solicitations. Wismer describes Javelin's complaint as "frivolous" and has asked to be awarded costs and attorneys' fees. Brooks has submitted an affidavit denying the involvement of any of the Wismer Defendants in any of the activities of the Committee, and acknowledging that he is the organizer of the Committee.
Defendant Strolovitch has submitted an affidavit stating that he will not "participate in any proxy solicitations contrary to the laws of the Securities Exchange Act of 1934 and the Rules and Regulations promulgated by the Securities and Exchange Commission thereunder."
Defendant Mitchell has submitted an affidavit stating that he reviewed Javelin's financial statements at Brooks' request, that he did not prepare or review, in detail, the alleged solicitation, and that he has not communicated with Javelin's shareholders in the past, nor will he do so in the future.
The Alleged Proxy Rules Violations
Defendants do not deny that the Committee twice mailed material to Javelin's shareholders, substantially in the form submitted by plaintiff as exhibits to its complaint. Thus, the first question to be answered is whether such material is governed by Section 14(a) of the Exchange Act and the Proxy Rules. This court concludes that the material is so governed. Two mailings were sent by the Committee on or about September 20, 1977, and October 10, 1977. The first mailing consisted of two newspaper articles, generally unfavorable to John Doyle, describing Javelin's affairs, and a letter addressed "To the shareholders of Canadian Javelin." The letter was written under the letterhead of the "Canadian Javelin Shareholders' Protective Committee." The letter itself described the "machinations and contrivances of John C. Doyle," and various legal actions involving Canadian and American regulatory authorities, Doyle and Javelin. The letter ended with an appeal for funds to support the Committee, whose purpose was described in the letter as "eliminating the influence of John Doyle with the removal of present management."
The second mailing consisted of copies of newspaper articles entitled "John Doyle: Comfy in Panama," and "John C. Doyle, the fugitive financier enjoying his $ 20 million in Panama."
The objective of the mailings was to further the Committee's self-described purpose, viz. the removal of present management.
SEC Rule 14a-2 provides that the Proxy Rules apply to every solicitation of a proxy with respect to a security registered under Section 12 of the Exchange Act unless the solicitation is specifically exempted. None of the specified exemptions apply to this ...