Opinion ID: 221139
Heading Depth: 1
Heading Rank: 4

Heading: Voting Power

Text: The district court found no evidence of explicit agreements between TCI and the banks committing the banks to vote their shares in a specified way. CSX Corp., 562 F.Supp.2d at 543. Nevertheless, CSX argues that TCI's ability to select counterparties gave it voting power, 17 C.F.R. § 240.13d-3(a)(1), over the counterparties' hedge shares. In fact, TCI eventually consolidated its swap holdings in Citibank and Deutsche Bank. TCI hope[d] that Deutsche Bank would vote in [TCI's] favor because a hedge fund internal to Deutsche Bank, Austin Friars, also had investments in CSX. Brief of Cross-Appellee at 45-56. CSX argues further that when TCI chose its other swap counterparties, it selected banks that it knew were sympathetic to [its] voting objectives. Id. at 46 n. 26. CSX concedes that some of these counterparties had policies that prohibited them from voting their shares but argues that the effective removal of these counterparties' shares from the voting pool left TCI in a better position than if the votes of those shares had been left to chance. I disagree on both counts. That a short party's self-interest predisposes it to vote in favor of positions taken by a prospective long counterparty is insufficient, on its own, to show a transfer of voting power to the long counterparty for purposes of Section 13(d) and Rule 13d-3(a)(1). To hold otherwise would distort both the term beneficial owner and the word power. A short party's self-interest is not an obligation to vote as the long party would desire. Nor is it a right in the long party to compel the short party to vote in a particular way. [12] Indeed, were another putative acquirer to appear in competition with the long party, the long party might well find that the short party's self-interest was now at odds with its own. See Hu & Black, 79 S. Cal. L.Rev. at 839. Purchases by a short party with a policy against voting shares held solely as a hedge will not increase the voting power of a long party's shares. Abstaining can have influence only with regard to shares that, if not purchased by a short party as a hedge, would have been voted against the wishes of the long party. Because the hypothetical voting intentions of persons from whom the abstaining short parties purchased their shares on the open market are unknown, this asserted influence over shareholder votes is entirely speculative and hardly qualifies as voting power. The facts that the Funds hoped that Deutsche Bank would vote in the desired way, or that the Funds entered into cash-settled equity swap agreements with counterparties believed to be inclined to vote as the Funds desired, do not constitute the requisite power to direct the counterparties' vote. See 17 C.F.R. § 240.13d-3(a)(1). Indeed, the facts indicate the opposite: when TCI realized that it needed to exercise control and decided to wage a proxy battle, it started unwinding its swaps and buying shares in order to vote the shares as it pleased, indicating that the Funds' swap positions did not give the power, directly or indirectly, to direct the voting of the counterparties' CSX shares. Id. Finally, I note that my conclusion parallels Congress's earlier decision to exclude security-based swaps in determining whether a party is a 10 percent beneficial owner, for purposes of Section 16, triggering its reporting and disgorgement provisions, while requiring 10 percent owners to report security-based swap holdings and to disgorge short-swing profits in trading them. See supra note 7.