Opinion ID: 399146
Heading Depth: 2
Heading Rank: 1

Heading: Failure to disclose estimates of value.

Text: 21 Appellants argue that disclosure of the board's estimates of the fair market value of the SAVI properties was required by Rule 14a-9 because the listing in the proxy materials of the historic book value of the properties without current market information was misleading. The district court rejected this argument and held that the failure to disclose the estimates was not a proxy violation, stating, 22 As a rule the S.E.C. disfavors inclusion of appraisal information in proxy materials because of the inability of the commission to effectively review the accuracy of such estimates of value and the tendency of shareholders to place undue reliance upon them. (Citations). An exception to this rule is recognized when the proposed estimates of value are objective, reasonably certain data, such as commodity prices prevailing in an active market. (Citations). This Court finds that the board's appraisals fall in the former category and were properly excluded from the proxy materials. 23 Appellants claim that the district court erred in its interpretation of the S.E.C.'s position regarding appraisal information and that the S.E.C. in fact favors the disclosure of current market value appraisal information in proxy materials. We disagree. 24 Both the courts and the S.E.C. have consistently discouraged the inclusion of appraised asset valuations in proxy materials. See, e.g., Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1292-94 (2d Cir. 1973); Kohn v. American Metal Climax, Inc., 458 F.2d 255, 265 (3d Cir. 1972); Denison Mines Limited v. Fibreboard Corporation, 388 F.Supp. 812, 819 (D.Del. 1974). In a note accompanying Rule 14a-9, the S.E.C. has listed examples of what, depending upon particular facts and circumstances, may be misleading within the meaning of this section. The first example is (p)redictions as to specific future market values. 17 C.F.R. § 240.14a-9 (1981). Admittedly, this note does not refer specifically to appraisals of current market value. We agree, however, with the Second Circuit that it is clear that the policy embodied in the note to Rule 14a-9 has consistently been enforced to bar disclosure of asset appraisals as well as future market values.... Gerstle v. Gamble-Skogmo, Inc., supra, 478 F.2d at 1292. 25 Appellants dispute this reading of S.E.C. policy and argue that the position of the S.E.C. on the issue of appraisal disclosure is reflected in an amicus brief filed by the S.E.C. staff in Gerstle v. Gamble-Skogmo, Inc., supra. Appellants read the position taken in this brief to approve disclosure of appraisal of current fair market value of assets when a liquidation of those assets is contemplated and their current liquidating value is substantially higher than their historic book value. Under such circumstances, according to appellants, the appraisal must be disclosed if reliable. 26 We are unpersuaded by appellants' argument for two reasons. First, Commission policy is properly expressed through publicly available rules and policy statements. See, id. at 1294, n. 13. We have no more reason than did the court in Gerstle to recognize a substantial modification, if not reversal of the SEC's position on disclosure of appraisals in proxy statements on the basis of an amicus brief reflecting staff views which have been neither formally approved by the Commission nor publicly disseminated. Id. at 1294. Indeed, we have even less reason. It was noted in Gerstle that the Commission was in the process of reevaluating its policy and that new rules regarding appraisals appeared to be forthcoming. Id. However, since Gerstle, the Commission has issued certain releases, but no new rules changing its position on disclosure of appraisals. 3 27 Second, even if we were to apply the policy stated in the Gerstle amicus brief, we would still affirm the district court's ruling that the SAVI board's valuations were properly excluded from the proxy materials. As noted by the court in Gerstle, the text of the amicus brief stated that although appraisals generally cannot be disclosed because they may be misleading, existing appraisals of current liquidating value must be disclosed if they have been made by a qualified expert and have a sufficient basis in fact. Id. at 1292 (emphasis added). Here, the district court found that the SAVI board's valuations were neither based on objective, reasonably certain data nor prepared by a qualified expert. 28 This conclusion rests on several factors. The first is that the board members, though having considerable experience in real estate in some cases, are not uniformly qualified to value real property. None of the directors are professional appraisers. Second, it is not clear what assumptions were made by each member in assigning a high and low value to each parcel. Without precise information as to the method by which these figures were reached, the board's estimates are potentially misleading. It is precisely such subjective information that the S.E.C. policy is designed to exclude. Failure to include the board's valuation figures was, therefore, not a proxy violation. 29 We cannot say that these findings are clearly erroneous. It is undisputed that the SAVI directors were not professional or expert appraisers. The board members employed no uniform method of valuation in making their estimates. No guidelines or standards were followed for the selection of relevant data nor for the manner in which data were to be weighed and evaluated. There was no agreement as to the basic assumptions underlying the valuation process. Rather, each director, drawing upon his personal knowledge and experience and relying on subjective assumptions, individually arrived at a high, middle and low figure for each property. It appears that these assumptions were not communicated among the board members. One director apparently based his high estimates on a number of contingencies so that his figures did not necessarily reflect his opinion as to the current value of the property. In addition, the board never formally approved the estimates, and some board members did not know what figures had been selected until they saw the accountants' report. Nor did the board know how the individual figures were compiled, that is, whether the highest and lowest figures were chosen, whether the figures were averaged, or whether some other method was used. 4 30 Confronted with similarly subjective appraisals in Gerstle, the court stated that (w)e seriously doubt that this is what the SEC had in mind when it stated (in its amicus brief) that it would allow the work of expert appraisers to be disclosed in proxy statements in some circumstances. 478 F.2d at 1292, n. 10. Thus, even if we were to accept appellants' argument that current S.E.C. policy is reflected in the Gerstle amicus brief, that policy would still bar the disclosure of the SAVI board's valuations in the proxy materials. 5 31