Opinion ID: 221139
Heading Depth: 2
Heading Rank: 4

Heading: Injunctive Sterilization of the Disputed Shares

Text: The District Court concluded that it was foreclosed as a matter of law from enjoining the Funds' voting of CSX shares acquired between the latest date on which their section 13(d) disclosure obligations might have begun and the date on which they actually made those disclosures. See CSX I, 562 F.Supp.2d at 568-72. CSX argues that the Court should have enjoined the voting of those shares on three grounds: (I) courts generally have broad powers to grant injunctive relief; (ii) a sterilization injunction was necessary to promote the ends of the Williams Act both by leveling the playing field in the contest for corporate control in order to partially restore the integrity of the shareholder franchise and by deterring future violations of the Act's disclosure provisions; and (iii) courts have inherent authority to sanction litigation misconduct. In Treadway Companies, Inc. v. Care Corp., 638 F.2d 357 (2d Cir.1980), we held that an injunction will issue for a violation of § 13(d) only on a showing of irreparable harm to the interests which that section seeks to protect. 638 F.2d at 380. We also said that [t]he goal of § 13(d) is to alert the marketplace to every large, rapid aggregation or accumulation of securities... which might represent a potential shift in corporate control. Id. (internal quotation marks omitted) (second alteration in original); see also Rondeau, 422 U.S. at 58, 95 S.Ct. 2069 (The purpose of the Williams Act is to insure that public shareholders who are confronted by a cash tender offer for their stock will not be required to respond without adequate information regarding the qualifications and intentions of the offering party.). Thus, the interests that section 13(d) protects are fully satisfied when the shareholders receive the information required to be filed. Treadway, 638 F.2d at 380; see also United States v. O'Hagan, 521 U.S. 642, 668, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997) (Congress designed the Williams Act to make disclosure, rather than court imposed principles of `fairness' or `artificiality,'... the preferred method of market regulation.) (internal quotation marks and citation omitted) (alteration in original). Consequently, in Treadway, we held that because shareholders had received the required information four months before the proxy contest in that case, there was no risk of irreparable injury and no basis for injunctive relief. 638 F.2d at 380. In the present matter, the Funds' section 13(d) disclosures occurred in December 2007, approximately six months before the June 25, 2008, shareholders' meeting. Therefore, following Treadway, we conclude that injunctive share sterilization was not available. CSX, however, argues that the Williams Act does not aim merely at timely dissemination of information but more broadly seeks to provide a level playing field and to promote compliance. Appellant's Brief at 48. For this proposition, CSX relies on a passing remark, in a footnote, in which the Supreme Court expressed skepticism about whether `deterrence' of § 14(e) violations is a meaningful goal, except possibly with respect to the most flagrant sort of violations which no reasonable person could consider lawful. Piper v. Chris-Craft Indus., Inc., 430 U.S. 1, 40 n. 26, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977). Far from supporting CSX's claim, this remark mentions none of the goals of the Williams Act, concerns section 14(e) rather than section 13(d), and actually casts doubt upon the usefulness of determining remedies with an eye toward promoting compliance. CSX also rests its level playing field claim on two Supreme Court cases that include fair corporate suffrage as among the original goals of the Securities Exchange Act of 1934: Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1103, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991), and J.I. Case Co. v. Borak, 377 U.S. 426, 431, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). However, neither case attributed that goal to the Williams Act, and there is no reason to conclude that adequate timely disclosure of the information covered by the Williams Act would be insufficient to ensure the fairness of a subsequent shareholder vote. CSX also argues that the importance of deterring violations of section 13(d) provides a general policy-based reason for prohibiting the Funds from voting the disputed shares. Refusing to sterilize the voted shares would, CSX argues, leave the Williams Act toothless. However, a statutory provision is not necessarily rendered toothless for lack of a particular sanction. We also note that the proposed sanction might have injured those shareholders who, fully informed, chose to vote with the insurgents. The inappropriateness of share sterilization in such circumstances leaves open the question of what remedies might be appropriate when disclosure that is timely with respect to a proxy contest is not made, and we do not reach that issue here. CSX quotes Franklin v. Gwinnett County Public Schools, 503 U.S. 60, 112 S.Ct. 1028, 117 L.Ed.2d 208 (1992), to the effect that once a federal right of action exists there is a traditional presumption that courts can use all available remedies unless Congress clearly has provided otherwise. 503 U.S. at 72, 112 S.Ct. 1028. In a similar vein, CSX argues that because the District Court found that officials of both Funds testified falsely, see CSX I, 562 F.Supp.2d at 573, the Court was permitted to issue an injunction to sterilize the Funds' disputed shares as a way of sanctioning abuses of the judicial process. However, neither the presumption about the general availability of remedies nor the responsibility of federal courts to protect the integrity of their proceedings, see, e.g., In re Martin-Trigona, 737 F.2d 1254, 1261 (2d Cir.1984), supersedes Treadway 's holding: in the case of section 13(d), an injunction prohibiting the voting of shares is inappropriate when the required disclosures were made in sufficient time for shareholders to cast informed votes. See Treadway, 638 F.2d at 380. Whether timely or not, the stated purpose of disclosure  allowing informed action by shareholders, see supra note 5  was fulfilled.