The opinion of the court was delivered by: GAGLIARDI
GAGLIARDI, District Judge:
Plaintiff Delo Caspary commenced this action against the Louisiana Land and Exploration Company ("LL&E") and the members of the board of directors alleging that defendants violated section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), and Rule 14a-9 promulgated thereunder, 17 C.F.R. § 240.14a-9 (1982) ("Rule 14a-9") by disseminating materially misleading proxy materials in connection with defendants' campaign for re-election at LL&E's May 12, 1983 shareholders' meeting.
Plaintiff seeks an injunction invalidating the results of the May 12 election and requiring resolicitation of proxies and corrective disclosures by defendants. Pursuant to Rule 42(b), Fed. R. Civ. P., the court on June 21, 1983 held a separate trial on the claim that defendants' proxy materials were materially misleading with respect to the significance of LL&E's profits for the first quarter of 1983. With respect to this claim, the court makes the following findings of fact and conclusions of law pursuant to Rule 52(b), Fed. R. Civ. P.
LL&E is a Maryland corporation with its principal place of business in New Orleans, Louisiana. LL&E is engaged primarily in exploration for and development of petroleum, natural gas and minerals. The capital stock of LL&E is registered with the Securities and Exchange Commission ("SEC") and is traded on the New York Stock Exchange.
In 1980, LL&E earned profits of 180.2 million dollars or $4.74 per share. In 1981 those figures dropped to 145.2 million or $3.82 per share and in 1982 they fell again to 76.3 million dollars or $2.01 per share. Beginning in the latter part of 1982, LL&E's staff began the preparation of the company's financial forecast for 1983 ("1983 forecast"). Those figures, which were shown to LL&E's board of directors at its February 9, 1983 meeting, predicted that the company's 1983 earnings would decline to 60.6 million dollars or $1.60 per share.
Plaintiff, a resident of Texas and owner of 117,100 shares of capital stock of LL&E, is chairman of the Louisiana Land Committee for New Management (the "Committee"), which was formed to solicit from LL&E's shareholders proxies for the Committee's candidates for the LL&E board of directors. On April 7, 1983, the Committee initiated its proxy campaign with a letter introducing to LL&E's shareholders the Committee's nominees and their business backgrounds. That letter emphasized that the most important issue in the upcoming proxy battle was the decline in LL&E's earnings for the period from 1980 to 1982. During the course of the proxy battle, defendants, who sought to retain their positions on the LL&E board of directors, communicated with the shareholders on a number of occasions.
On May 12, 1983, the annual meeting of the LL&E shareholders took place. That afternoon when the polling had ended, John G. Phillips, chairman of the LL&E board of directors, held a press conference announcing his belief that the tabulation of the votes would indicate that the shareholders had voted for the incumbent board of directors. On May 25, 1983, it was disclosed that a preliminary count of the votes cast at the May 12 shareholders' meeting, defendants had obtained a majority. This litigation ensued.
Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) ("section 14(a)") makes it unlawful for "any person . . . in contravention of such rules and regulations as the [SEC] may prescribe . . . to solicit . . . any proxy . . . in respect of any security . . . ." Rule 14a-9, promulgated by the SEC, prohibits misleading statements and omissions in proxy materials. Specifically, the rule provides (emphasis added):
(a) No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has been false or misleading.
Whether proxy information is misleading with regard to a material fact is an issue to be determined with a view to the context in which the information was generated. As the Second Circuit has stated:
Rare indeed is the proxy statement whose language could not be improved upon by a judicial craftsman sitting in the serenity of his chambers . . . . This is particularly so where the statement is prepared in the "hurly-burly" of a contested election . . . . Fair accuracy, not perfection is the appropriate standard.
Kennecott Copper Corp. v. Curtiss-Wright Corp., 584 F.2d 1195, 1200 (2d Cir. 1978).
Plaintiff argues that a press release, letters to the shareholders and other statements issued by defendants as part of the proxy fight were misleading with respect to material facts relevant to LL&E's future performance. Specifically, plaintiff charges that defendants suggested that the first quarter 1983 figures represented a reversal of the prior earnings decline, even though they knew from their 1983 forecast that the first quarter figures were an aberration. Plaintiff contends that defendants failed to disclose information indicating that the earnings for the last three quarters of 1983 were sure to decline from the level of earnings for the corresponding quarters of 1982. Defendants do not dispute that facts relevant to the determination of LL&E's future performance are material within the meaning of Rule 14a-9. Rather, ...