testimony. Therefore, I decline to strike or disregard the Holtzman declaration.
ONBANC also requests that I strike paragraphs 7, 9, 10, 13, 24, 25, 28, 30 and 31 of the Garcia Declaration, dkt. no. 46, because they are not based on the declarant's personal knowledge. I agree as to all of the listed paragraphs except 7 and 9 and will disregard paragraphs 10, 13, 24, 25, 28, 30, and 31.
The party seeking a preliminary injunction must show (a) "it is likely to suffer possible irreparable injury" in the absence of an injunction and (b) "either (1) a likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in its favor." Reuters Ltd. v. United Press Int'l, Inc. 903 F.2d 904, 907 (2d Cir. 1990) (quoting Coca-Cola Co. v. Tropicana Prods, Inc., 690 F.2d 312, 314-15 (2d Cir. 1982)); see also Capital Real Estate Investors Tax Exempt Fund Ltd. Partnership v. Schwartzberg, 917 F. Supp. 1050, 1058 (S.D.N.Y. 1996) (applying standard to proxy solicitations). Irreparable injury is the most important criterion for granting a preliminary injunction. Reuters, 903 F.2d at 907. Lacking a showing that irreparable injury is likely, an examination of the merits is unnecessary. Id. Moreover, the harm alleged must be imminent, not remote or speculative. Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 975 (2d Cir. 1989). In the proxy solicitation context, "irreparable injury results from the use of false and misleading proxies when the free exercise of shareholders' voting rights will be frustrated." Krauth v. Executive Telecard, Ltd., 890 F. Supp. 269, 287 (S.D.N.Y. 1995) (citing J.I. Case Co. v. Borak, 377 U.S. 426, 431, 12 L. Ed. 2d 423, 84 S. Ct. 1555 (1980)).
IV. Irreparable Injury
ONBANC alleges that it will be irreparably injured in the absence of an injunction (1) requiring Holtzman to correct misleading information he has already interjected into the marketplace and (2) enjoining the dissident shareholder from committing any future violations of Section 14(a) of the Act and its implementing regulations. To make its showing on irreparable harm, ONBANC relies on a declaration by Walter A. Denby, senior vice president of D.F. King & Co., Inc, a proxy solicitation firm. Denby Decl., Dkt. No. 34. Denby states that it is his opinion that the cartoons and press release will "inevitably affect the way present and future ONBANC shareholders perceive ONBANC, its directors and its management and influence their investment and voting decisions relating to their ONBANC shares." Id. P 4. He claims that these influences will have effects lasting through the 1997 shareholders meeting. Id. In particular, Denby contends that materials attacking the integrity and competence of board members influence shareholders' votes on matters such as the election of directors and other strategically important issues and notes that five members of ONBANC's board must stand for reelection at the Spring 1997 meeting. Id. PP 7, 10. According to Denby, information on integrity "is also critical to an investor's fundamental investment decision as to whether to continue to hold a security." Id. P 7. Denby suggests that sales of the bank's stock "could drive shares into the hands of speculators who are only interested in short-term, one-time profits." Id. Denby also opines that Holtzman's valuation estimates could be "very influential to shareholders in making investment and voting decisions." Id. P 6. Finally, Denby claims that it will be difficult for ONBANC to correct the misleading impression left by Holtzman's materials because its communications to stockholders will be seen as self-serving. Id. P 9.
Holtzman counters that (1) the annual meeting is not scheduled until April 1997; (2) he has withdrawn his proposal to sell ONBANC and will not offer an alternate slate for the board of directors; (3) his proposal was only precatory and would not have been binding on the board of directors in any case; and (4) because he has withdrawn his proposal and the deadline for proposals has passed, the only proposals that will be presented to shareholders are ONBANC's own proposals.
According to both parties, the deadlines for submitting additional proposals and for nominating alternative directors for the 1997 shareholders meeting has now passed. At oral argument, ONBANC argued that notwithstanding Holtzman's -- or anybody else's -- inability to put proposals before the voters for the 1997 meeting, ONBANC had already suffered irreparable harm because of the harm done to its reputation in the marketplace and would continue to be subjected to irreparable harm because Holtzman could renew his fight in 1998.
In addition to its factual showing, ONBANC makes two legal arguments. First, the bank argues that a finding of irreparable harm flows inexorably from a showing that defendant has disseminated a materially false proxy solicitation. Second, ONBANC urges that Holtzman's possibly temporary withdrawal from the proxy wars does not defeat ONBANC's right to a preliminary injunction.
In support of its argument that irreparable harm is a presumed by-product of a materially false solicitation, ONBANC cites several cases. See, e.g., Mills v. Electric Auto-Lite Co., 396 U.S. 375, 382-83 n. 5, 24 L. Ed. 2d 593, 90 S. Ct. 616 (1970) (holding that where there had been material non-disclosure, shareholder need not show objective unfairness of a merger proposal to set aside shareholder vote approving it and stating in dictum that shareholder may obtain injunctive relief in advance of a shareholder meeting based on material non-disclosure); ICN Pharmaceuticals, Inc. v. Khan, 2 F.3d 484, 489 (2d Cir. 1993) (stating court could affirm issuance of preliminary injunction on basis of uncontested nondisclosures); Treadway Cos. v. Care Corp., 638 F.2d 357, 385 (2d Cir. 1980) (remanding case to district court to order a new election because district court's order prohibiting parties from disclosing certain of the court's tentative findings that were material to shareholders' vote conflicted with spirit of Section 14(a)); General Aircraft Corp. v. Lampert, 556 F.2d 90, 96-97 (1st Cir. 1977) (holding that district court properly enjoined shareholders from acquiring further shares of company stock and from soliciting proxies or consents until they amended filing required by Section 13(d) of the Exchange Act to make proper disclosure because "very raison d'etre of Section 13(d) was thwarted by appellants' continued failure to disclose the statutorily required information"); Studebaker Corp. v. Gittlin, 360 F.2d 692, 698 (2d Cir. 1966) (holding that plaintiff seeking preliminary injunction because of defendant's violation of the Exchange Act need only show "that unless an injunction is granted, the plaintiff will suffer harm which cannot be repaired").
ONBANC's argument lacks merit for several reasons. First, none of the cases ONBANC cites squarely holds that a showing of a materially false statement in a proxy solicitation obviates the need for a showing of irreparable harm.
Second, all of the cited cases involve live proxy battles. The Mills court considered a merger proposal that had been approved arguably based on misleading omissions. 396 U.S. at 377. Treadway addressed the results of an actual election. 638 F.2d at 360, 385. Similarly, in General Aircraft, the Second Circuit affirmed the district court's grant of an injunction in the context of a proxy contest the shareholder intended to wage at the corporation's imminent annual meeting. 556 F.2d at 93. In ICN Pharmaceuticals, the shareholder filed a "consent statement" seeking the authorization of shareholders to replace the corporation's board of directors prior to the time the district court entered its preliminary injunction. 2 F.3d at 486, 488. Finally, the district court in Studebaker entered an order forbidding a dissident shareholder from using shareholder authorizations he had solicited in violation of the Exchange Act to obtain a list of shareholders that he wanted to use to obtain more proxies for corporation's next annual meeting. 360 F.2d at 694. Therefore, to the extent any of these cases can be read to suggest that a violation of the Exchange Act ordinarily will give rise to irreparable harm, its holding is not transferable to a context like the present one in which there is no live proxy battle.
Finally, five years after the Supreme Court decided Mills, it held that Mills did not stand for the proposition that mere violation of the Exchange Act establishes irreparable harm. See Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 64-65, 45 L. Ed. 2d 12, 95 S. Ct. 2069 (1975). Instead, the court held that courts must judge an application for injunctive relief according to traditional equitable principles which require a separate showing of irreparable harm. Id. Therefore, ONBANC cannot prove irreparable harm merely by showing a material false solicitation.
ONBANC's second argument fares no better. In support of its argument that Holtzman cannot defeat its right to injunctive relief by a temporary cessation of allegedly illegal conduct, the bank cites SEC v. Okin, 139 F.2d 87 (2d Cir. 1943), and Canadian Javelin Ltd. v. Brooks, 462 F. Supp. 190, 194 (S.D.N.Y. 1978). Okin, which addressed the appeal of a district court order granting a permanent injunction, 139 F.2d at 88, is of limited utility in determining irreparable harm because irreparable harm is not a separate requirement for a permanent injunction. See Buckingham Corp. v. Karp, 762 F.2d 257, 262 (2d Cir. 1985). Moreover, ONBANC fails to distinguish between a proxy contestant's possibly temporary cessation of illegal conduct or promise to do so, see Canadian Javelin, 462 F. Supp. at 193, and Holtzman's actions in (1) withdrawing his proxy proposal and (2) failing to nominate directors or submit any new proposals before the deadline for the 1997 shareholders' meeting. Whether Holtzman took these measures for tactical reasons as suggested by ONBANC or because of his health, he is now effectively off the field of battle for the 1997 meeting.
I therefore judge ONBANC's application using traditional equitable principles. I find that ONBANC has not demonstrated irreparable harm and, in particular, has not demonstrated that the interest protected by Section 14(a) -- the free exercise of shareholders' voting rights -- likely will be harmed irreparably prior to a full trial in this matter. See Mills, 396 U.S. at 381. There will not be a contested election at the 1997 shareholders' meeting. Nor will the shareholders consider a proposal to sell the bank. Moreover, all proposals that the shareholders will consider have been submitted by management. ONBANC's reliance on the fact that five directors must stand for reelection at the 1997 meeting is simply too attenuated to meet the test for irreparable harm. See Tucker Anthony Realty, 888 F.2d at 975 (harm must be imminent, not remote or speculative). First, the fact that the directors will be unopposed presents a serious obstacle to any finding of irreparable harm.
Second, ONBANC does not even claim that Bennett, the only director identified in the cartoon, must stand for reelection in 1997. Similarly, ONBANC has not identified any particular proposal to be voted on at the 1997 meeting that arguably could be tainted by Holtzman's press release or cartoons. Finally, Denby's remaining claims concerning impact on investment decisions and corporate reputation are speculative and do not relate to the purpose of the proxy solicitation rules.
Preliminary injunctions "protect the moving party from irreparable injury during the pendency of the action." Buckingham, 762 F.2d at 261. There is no indication beyond speculation that ONBANC will be irreparably injured before this matter can be reached for trial. Because ONBANC has not demonstrated the likelihood of possibly irreparable injury before this matter can be reached for trial, I must deny its request for a preliminary injunction and need not consider plaintiff's showing on the merits. Both parties should cooperate in establishing a schedule that will allow trial on a reasonably expeditious basis, and I refer this matter to Magistrate Judge David N. Hurd for a scheduling conference.
For the reasons discussed, I deny ONBANC's request for a preliminary injunction.
Dated: March 10, 1997
Syracuse, New York
ROSEMARY S. POOLER
District Court Judge