The opinion of the court was delivered by: LASKER
In this suit under Sections 14(a) and 13(d) of the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78n(a), 78m(d), Vornado, Inc. moves for a preliminary injunction restraining Interstate Properties from further soliciting proxies from Vornado's stockholders in connection with the scheduled election of three directors to Vornado's Board of Directors, exercising proxies previously obtained, and voting its shares of Vornado's common stock. It is alleged that the Schedule 13D and seven amendments filed by Interstate in connection with its acquisition of Vornado's stock, and Interstate's proxy statement to Vornado's stockholders, are materially misleading.
Interstate Properties is a partnership in the business of developing and operating shopping centers. Vornado, Inc. owns a chain of large retail discount stores. In January, 1978, the partners of Interstate, under the leadership of Steven Roth, Managing Partner, determined that purchase of the stock of Vornado would be a profitable investment because, in their opinion, its market value was notably low in relation to its book value. In particular, Roth was struck by the fact that Vornado, as the result of liquidating several of its large stores in the west coast area, had large reserves of cash. Moreover, his analysis led him to believe that Vornado's operations were over extended. It was his view that it would strengthen Vornado's financial position to dispose of stores separated from its clustered New Jersey and Philadelphia area operations, since the small number and outlying location of those other stores prevented Vornado from being a force in the markets in which they were located.
Prompted by these considerations, Interstate determined to make an investment in Vornado in a sum of $ 5,000,000. to $ 7,000,000., the largest single sum by far which it had theretofore invested in another company. Accordingly, Interstate embarked on a program of purchasing Vornado's stock, and by May 31, 1978, had acquired more than 5% Of the outstanding shares of Vornado. As a result, it was required to and did file a Schedule 13D with the Securities and Exchange Commission. Between that date and April 12, 1979, as Interstate acquired more stock of Vornado, or its intentions with regard to the use of the stock altered, it filed seven amendments to its Schedule 13D.
In the summer of 1978 and through October 10th of that year, Roth met five or six times with Frederick Zissu, Chairman of the Board and Chief Executive Officer of Vornado. At these meetings, Roth sought to persuade Zissu of Interstate's view that Vornado had more cash than it needed; that it should distribute to its stockholders an appropriate portion of the cash on hand from the past sale of stores; and that it should also sell the "outlying stores" referred to above. At one of the early meetings, Zissu rejected Roth's suggestion that Vornado distribute to its stockholders some of the "excess" cash realized through the sale of Vornado's west coast stores, and Roth did not raise the issue again. Roth and Zissu discussed the possibility that Vornado might sell all or some of its outlying stores to third parties, and also their possible sale to Interstate itself. In connection with this proposal, Roth conducted informal discussions, limited in number, with other large scale merchandisers such as F.W. Woolworth and Stop and Shop (to some of which Interstate had leased store space), to determine whether they might be interested in leasing or purchasing the outlying stores. Roth did not inform Zissu of these discussions.
Shortly before October 10, 1978, Mr. Zissu advised Roth that in the opinion of Vornado's counsel, Vornado could not enter into any negotiations with Interstate for the sale or lease of the outlying stores because of what Vornado's attorney believed to be Interstate's status as an insider. Accordingly, on October 10th, Roth and Zissu met at the offices of Zissu's counsel, together with Interstate's counsel, to discuss the matter. At that meeting, Roth suggested the possibility of an auction of the properties as a device which might cure the problem if it existed, but Vornado rejected the suggestion of any possible sale or lease to Interstate. No meetings of Roth or Zissu, or other representatives of the parties, occurred before the initiation of this litigation.
On April 28, 1979, Interstate mailed a proxy statement to Vornado's shareholders, soliciting support for its candidates for election to the three Vornado directorships to be filled this year. In its proxy statement, Interstate proposes a plan for the company's future. It consists not only of the sale of the outlying stores which Roth discussed with Zissu but also specifies that the proceeds from such a sale be distributed to Vornado's stockholders by the mechanism of a tender offer. The Interstate proxy statement specifically refrains from suggesting what the terms of such a tender offer should be; and specifically excludes a current commitment by Interstate to accept such an offer if one is made in the future.
This motion for a preliminary injunction was filed May 4, 1979 promptly upon the filing of the complaint. It was brought on by Order to Show Cause because Vornado's scheduled annual meeting of the stockholders was to be held on May 22, 1979. Although that meeting has been held as scheduled, the matter is not moot because Vornado continues to request that its relief be granted prior to completion of the count of stockholder votes, which will not occur until May 29, 1979 at the earliest. A hearing on the motion was held on May 14th, 15th and 16, 1979.
Vornado contends that Interstate's Schedule 13D and its amendments are materially misleading because they fail to disclose the true substance of the discussion between Roth and Zissu during the summer and fall of 1978, and various incidents that Vornado alleges occurred during these discussions, and because they fail to disclose that Interstate contemplated a tender offer by Vornado for its own stock as a means of distributing to Vornado's stockholders a portion of the proceeds from past or future sales of Vornado stores.
Moreover, Vornado alleges that Interstate's proxy statement to the Vornado stockholders in connection with the election of directors at the May 22, 1979 meeting is misleading, and therefore violates Section 14(a) of the Exchange Act, 15 U.S.C. § 78n(a), and Rule 14a-9 promulgated thereunder, 17 C.F.R. § 240.14a-9, in the following respects: first, it does not describe Interstate's proposed program for the sale of outlying stores and the distribution to stockholders of the proceeds in adequate detail; second, it does not adequately disclose the obstacles to the implementation of the proposed program; third, it inaccurately states that Vornado's management rejected a similar proposal; fourth, it inaccurately represents Interstate's intentions with regard to a tender of its own Vornado holdings in the event a tender offer is made in an effort to distribute to stockholders the proceeds for past or future sales of Vornado stores; fifth, it fails to disclose Interstate's business dealings with Vornado's competitors; sixth, it inaccurately represents that Interstate enjoys expertise in retailing and mass merchandising; and seventh, the use of a quotation from Forbes Magazine in the proxy statement inaccurately implies that Forbes has taken an editorial position favorable to Interstate and its program.
In answer Interstate argues that 1) neither its Schedule 13D nor the amendments thereto nor its proxy statement violate the law on account of omissions or misrepresentations; 2) that if any facts are omitted from such documents or such documents do contain any misrepresentations, the omissions or misrepresentations are immaterial; and 3) citing Rondeau v. Mosinee Paper Corporation, 422 U.S. 49, 95 S. Ct. 2069, 45 L. Ed. 2d 12 (1975), that no preliminary injunction can be granted to redress violations of the Williams Act except upon a showing of irreparable harm, and that no such showing has been made.
This case is governed by the provisions of the Williams Act as construed by the courts. A purpose of the Act is to ensure that public shareholders, when called upon to consider a proposed change of management or control of their company are furnished adequate information regarding the qualifications and intentions of the party proposing the change. See Rondeau, supra, at page 58, 95 S. Ct. 2069. It is the norm that the stockholders themselves be free to decide such questions by their votes without interference by the courts. For this reason among others, the Supreme Court has determined that an injunction may be granted under the Act only ...