to competition and alternatives are consistent with Dominium merely advancing alternative strategies for the Funds rather than proposing a competing bid, a reader of the letters and the press release would not be unjustified in concluding that Dominium was readying its own higher bid for the Funds. The declaration of the Funds' proxy solicitor suggests that at least some investors have drawn that conclusion. (Dennedy Decl. PP 4-7) Hence, the Court finds that plaintiffs have established a fair ground for litigation on their claim that the letters and the press release violated Rule 14a-9 by misleadingly suggesting that Dominium intends in the near future to make a bid for the Funds.
Nor are the claims that Dominium's communications were misleading because they failed fully to set forth the nature of its interest, the background of its efforts with respect to the Funds, and the basis for its accusations readily dismissed. The letters, addressed to "fellow BAC Holders," may have created the impression in some minds that Dominium's interest was as a fellow investor. Yet Dominium has no meaningful ownership interest. Its real concern, viewed most charitably to it, is in defeating the mergers to pave the way for an eventual takeover bid of its own. In these circumstances, the failure to disclose its own interest in an acquisition and its failure to finance a proposal at a price only marginally higher than one it now characterizes as "grossly inadequate" arguably was materially misleading. Hence, there is enough basis for concern with the accuracy and completeness of the letters and the press release in this regard to conclude that plaintiffs have established a fair ground for litigation on this point.
The Rule 14a-7 Claim
Rule 14a-7 provides a mechanism for those who wish to solicit proxies to obtain a list of security holders from the registrant. It restricts the use of that information, however, to communicating with security holders for that specific purpose and requires that the information be held in confidence. 17 C.F.R. § 240.14a-7(d).
Plaintiffs claim that Dominium is using the lists it has provided for the purpose of attempting to take over the Funds and thus for purposes not contemplated by the Rule. At the hearing on the motion, it pointed to the suggestion, at page 22 of the Preliminary, that the BAC holders "get yourselves new General Partners" as demonstrating Dominium's intention to use the lists for a proscribed purpose. Dominium promptly represented that it would delete the statement from its proxy statement.
Plaintiffs, in the Court's judgment, are not likely to prevail on this claim, particularly in view of the promised deletion. There is no question that Dominium is using the investor lists for the purpose of soliciting proxies in opposition to the mergers, precisely the proposed corporate action with respect to which the Funds are soliciting proxies. That Dominium may have to succeed in defeating the proposed mergers in order to accomplish its broader objectives seems quite beside the point. Any different view of the Rule would undermine dramatically the principle of shareholder democracy it is designed to serve by enabling issuers to withhold access to or restrict use of lists of security holders as long as they could characterize an opposing party's motive as one of serving purposes of its own beyond interests shared by all security holders in general. As proxy fights rarely if ever are mounted out of disinterested motives, the interpretation of the Rule proposed by plaintiffs, if adopted, effectively would repeal it and put an end to effective attacks on corporate action supported by the management in control of an issuer's proxy machinery.
The Equities and Relief
In assessing the threat of irreparable injury and the balance of the equities, it is important to bear firmly in mind that the objective of courts and of injunctive relief in cases like this not to "test the ingenuity of sophisticated corporate counsel." Smallwood v. Pearl Brewing Co., 489 F.2d 579, 592 (5th Cir.), cert. denied, 419 U.S. 873, 42 L. Ed. 2d 113, 95 S. Ct. 134 (1974). Nor is it "to punish." Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 61, 45 L. Ed. 2d 12, 95 S. Ct. 2069 (1975) (quoting Hecht v. Bowles, 321 U.S. 321, 329-30, 88 L. Ed. 754, 64 S. Ct. 587 (1944)) (upholding denial of injunction despite finding of securities law violation). Rather, it is to ensure that investors are provided in a timely fashion with the accurate information necessary to the intelligent exercise of the corporate franchise. E.g., Buffalo Forge Co. v. Ogden Corp., 717 F.2d 757, 760 (2d Cir. 1983) (quoting Edgar v. Mite Corp., 457 U.S. 624, 640, 73 L. Ed. 2d 269, 102 S. Ct. 2629 (1982)). Moreover, as Judge Friendly so aptly wrote, participants in proxy contests and tender offers "act, not 'in the peace of quiet chamber,' . . . but under the stresses of the market place." Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937, 948 (2d Cir. 1969) (quoting Hellenic Lines Ltd. v. Brown & Williamson Tobacco Corp., 277 F.2d 9, 13 (4th Cir.), cert. denied, 364 U.S. 879, 5 L. Ed. 2d 102, 81 S. Ct. 168 (1960)). "They act," he went on, "quickly, sometimes impulsively, often in angry response to what they consider, whether rightly or wrongly, to be low blows by the other side. Probably there will no more be a perfect tender offer [or proxy solicitation] than a perfect trial." 409 F.2d at 948. These considerations bear not only on the judgment to be applied in testing conduct and materiality, but in determining relief as well. See id.
Here, the two letters probably violated Rule 14a-3 because the failure to disclose the number of BACs owned by Dominium probably deprived it of the Rule 14a-12 exemption. Any such violation, however, was of the most technical sort. Dominium's contemporaneous disclosure in the press release of the number of shares owned demonstrates that it was not trying to hide the fact and made the information a matter of public knowledge. Certainly plaintiffs could tell the Funds' security holders of the small size of Dominium's holding if they think that fact likely to be persuasive. Plaintiffs in these circumstances are not threatened with irreparable injury by virtue of Dominium's omission of the number of shares from the two letters.
The next of plaintiffs' grievances is Dominium's allegedly false implication that it intends to make a superior offer in the near future. Plaintiffs claim that the prospect of such an offer has led BAC holders to delay giving proxies to management in the hope that a higher bid will be forthcoming. They point to the fact that the mergers must be approved by the affirmative vote of holders of a majority in interest of the outstanding BACs and argue that a vote withheld is in substance a vote against.
Plaintiffs' argument may well be correct -- for the moment. It seems clear, however, that if Dominium fails to make a superior offer before the scheduled BAC holder meeting, the Funds' security holders will realize that the mergers are the only game in town. To put the matter in more familiar parlance, plaintiffs may well be suffering injury at the moment in the sense that BAC holders have been led to delay, but the injury certainly is not irreparable. Plaintiffs can counter any misleading impression Dominium may have created by pointing out that Dominium's Preliminary does not contain another offer and that Dominium was unable to finance an earlier proposal. Moreover, plaintiffs need not even do so to avert difficulty. As the merger train comes closer and closer to departure without the emergence of the hoped-for better mode of transportation, more and more BAC holders will hop aboard rather than be left at the station.
The last of plaintiffs' complaints about the Dominium communications -- the failure to disclose Dominium's prior failed attempt to acquire the Funds and its inability to finance a proposal only marginally better than the mergers now scheduled for a vote -- involves both Rules 14a-3 and 14a-9. But the considerations controlling relief are the same with respect to each Rule. Plaintiffs are at liberty to make to the BAC holders the points they have made to this Court: essentially, that Dominium is acting as a spoiler which has tried and failed to top CAPREIT's bid for the Funds and which has no alternative transaction of its own to propose. Nor are they limited to their own assertion. There is ample evidence in Dominium's Preliminary. Moreover, Dominium has represented that its final proxy statement will be disseminated promptly when SEC clearance is received.
Assuming that the proxy statement goes out soon,
the threat of irreparable injury to plaintiffs is at most de minimis, and the balance of the equities, to the extent it is relevant here, does not tip decidedly in favor of the plaintiffs. The practical realities of the situation are that plaintiffs and Dominium, respectively, can and presumably will put the material facts into the hands of the BAC holders promptly. At that point, any misleading impressions created to date should be overcome, and the fate of the mergers will be for the BAC holders to decide. See, e.g., Treadway Companies, Inc. v. Care Corp., 638 F.2d 357, 380 (2d Cir. 1980) (deficiencies in Schedule 13D cured by subsequent filings); Burlington Industries, Inc. v. Edelman, 666 F. Supp. 799, 810 (M.D.N.C.), aff'd, No. 87-1622(L), 1987 WL 91498 (4th Cir. June 22, 1987); Data Probe Acquisition Corp. v. Datatab, Inc., 568 F. Supp. 1538, 1557 (S.D.N.Y.), rev'd on other grounds, 722 F.2d 1 (2d Cir. 1983), cert. denied, 465 U.S. 1052, 79 L. Ed. 2d 722, 104 S. Ct. 1326 (1984) (proxy statement cured disclosure deficiency in earlier communication); see also Gearhart Industries, Inc. v. Smith International, Inc., 741 F.2d 707, 716 (5th Cir. 1984); San Francisco Real Estate Investors v. Real Estate Investment Trust of America, 701 F.2d 1000, 1010-11 (1st Cir. 1983). The issuance of an injunction at this moment therefore would serve no useful purpose.
For the foregoing reasons, plaintiffs' motion for a preliminary injunction is denied. Plaintiffs may renew the motion before the undersigned in the event Dominium's proxy statement is not disseminated to BAC holders on or before October 21, 1996.
The foregoing constitute the Court's findings of fact and conclusions of law.
Dated: October 15, 1996
Lewis A. Kaplan
United States District Judge