Opinion ID: 437628
Heading Depth: 2
Heading Rank: 1

Heading: Sale Prices of Expansion Franchises

Text: 20 Appellants argue that the proxy statement should have disclosed not only the Patriots' share of the income from the Tampa Bay and Seattle expansion franchises, but also the sale prices of the franchises themselves. They point out that in order to decide whether to vote in favor of the merger or against it, they had to judge whether the offered price of $15.00 per share represented the fair value of their stock. If they judged that the fair value of their stock was considerably higher than $15.00, they would vote against the merger. If a majority of shareholders voted against the merger, New Patriots would be forced to raise its offering price or abandon the merger plans; if those who opposed the merger were in the minority, they could still exercise their statutory appraisal rights in order to obtain a judicial determination of the fair value of their shares. Appellants argue that the value of the NFL expansion franchises was some indication of the value of the Patriots franchise, that the value of the Patriots franchise was a material component of the corporation's net asset value, and that the net asset value was a significant part of the fair value of Patriots shares. By this circuitous route appellants arrive at the conclusion that the sale prices of the Tampa Bay and Seattle franchises were material and should have been disclosed to Patriots stockholders. 3 21 The district court did not focus on the relevance of the franchise value in a statutory appraisal proceeding. Instead, it found that franchise value would only be relevant in a liquidation of Patriots' assets, and that this information was not material because there was a negligible chance that nonvoting stockholders would participate in a liquidation in the near future. 22 Although it is possible that franchise value would be material in the context of an appraisal proceeding, we think it unlikely that Sec. 14(a) requires a corporation to disclose every piece of information that might be relevant in a state appraisal proceeding. In fact, several courts have suggested that for a corporation to include asset appraisals in a proxy statement might constitute a violation of Sec. 14(a) because such appraisals are inherently speculative and may mislead shareholders. See, e.g., South Coast Services Corp. v. Santa Ana Valley Irrigation Co., 669 F.2d 1265, 1271 (9th Cir.1982) (Both the courts and the S.E.C. have consistently discouraged the inclusion of appraised asset valuations in proxy materials); Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1292 (2d Cir.1973) ([I]t is clear that the policy embodied in the note to Rule 14a-9 [which gives examples of misleading disclosures] has consistently been enforced to bar disclosure of asset appraisals as well as future market values, earnings, or dividends). Given these cases, we find that Patriots had no duty to appraise its assets and disclose their value, particularly when the relevance of doing so would simply be to help a shareholder decide whether to assert a statutory appraisal right. Nor do we see any duty to disclose the similarly speculative piece of information here at issue, the relevance of which is related only to this asset value. 23 Appellants rely on Securities and Exchange Commission v. Parklane Hosiery, 558 F.2d 1083 (2d Cir.1977), for the proposition that the proxy must disclose to shareholders all information disclosed to the investment banking firm that appraises the value of the corporation's shares and recommends an offering price. Appellants misconstrue Parklane, which actually holds that when a corporation fails to disclose vital information to the investment banking firm appraising its shares, this defect in the appraisal is a material fact that must be disclosed to shareholders. 558 F.2d at 1087, 1089. Although appellants quarrel with some of Kidder, Peabody & Co.'s computations, they have not shown that the firm based its appraisal of share value on inadequate information. In fact, the firm's opinion letter reveals that it considered the sale prices of the Seattle and Tampa Bay franchises in determining Patriots' value as a going concern. 24 Even if we were to assume that Patriots had a duty to disclose any information that would have been relevant in a Massachusetts appraisal proceeding, it was by no means obvious in 1976, when the proxy statement was drafted, that the value of NFL expansion franchises would play a significant role in such a proceeding. Appellants rely heavily on a case decided several years later, in which a Massachusetts court considered net asset value an important component of the fair value of the stock in a professional hockey team and used the sale price of a new franchise as the starting place for determining the asset value of the established team's franchise. Piemonte v. New Boston Garden Corp., 377 Mass. 719, 387 N.E.2d 1145 (1979). We note, however, that the SEC has not imposed a clairvoyance requirement on the drafters of proxy statements: the drafters are charged with disclosing information that is material at the time and in the light of the circumstances under which the proxy statement is drafted. See Rule 14a-9(a). At the time the Patriots' proxy statement was drafted, the role of new franchise prices in determining the value of an existing franchise was not established, and the significance of net asset value itself varied from one appraisal proceeding to the next. See, e.g., Endicott Johnson Corp. v. Bade, 37 N.Y.2d 585, 587, 376 N.Y.S.2d 103, 106, 338 N.E.2d 614, 616 (1975) ([T]he weight to be accorded to [net asset value, investment value, and market value] varies with the facts and circumstances in a particular case). At the time the Patriots' proxy statement was written, the sales prices of expansion franchises were not material to the shareholders' decision whether or not to vote in favor of the merger.