Mony Group v. Highfields Capital Management

• Citation: 368 F.3d 138
• Decision Date: 13 May 2004
• Docket Number: Docket No. 04-0678.
• Parties: MONY GROUP, INC., Plaintiff-Appellant, v. HIGHFIELDS CAPITAL MANAGEMENT, L.P., Longleaf Partners Small-Cap Fund, Southeastern Asset Management, Inc., or any working in connection with them or on their behalf, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

368 F.3d 138

MONY GROUP, INC., Plaintiff-Appellant, v. HIGHFIELDS CAPITAL MANAGEMENT, L.P., Longleaf Partners Small-Cap Fund, Southeastern Asset Management, Inc., or any working in connection with them or on their behalf, Defendants-Appellees.

Docket No. 04-0678.

United States Court of Appeals, Second Circuit.

Argued: April 1, 2004.

Decided: May 13, 2004.

James P. Smith III, Dewey Ballantine LLP, New York, N.Y. (Richard W. Reinthaler, John E. Schreiber, Joseph Czerniawski, Corinne D. Levy, of counsel), for Plaintiff-Appellant MONY Group, Inc.

R. Todd Cronan, Goodwin Procter LLP, Boston, MA (Gus P. Coldebella, on the brief), for Defendant-Appellee Highfields Capital Management, L.P.

Samuel Kadet, Skadden, Arps, Slate, Meagher & Flom, LLP, New York, N.Y. (Lauren E. Aguiar, Timothy K. Giordano, Gregory A. Litt, of counsel), for Defendant-Appellees Longleaf Partners Small-Cap Fund and Southeastern Asset Management, Inc.

Before: JACOBS, B.D. PARKER, Circuit Judges, and BLOCK, District Judge.^*

JACOBS, Circuit Judge.

This expedited appeal pursuant to 28 U.S.C. § 1292(a)(1) arises against the backdrop of a proxy vote among shareholders of Plaintiff-Appellant MONY Group, Inc. ("MONY"), whose management seeks shareholder approval of a proposed merger of MONY with French insurance conglomerate AXA Financial, Inc. ("AXA"). Defendants-Appellees are institutional shareholders of MONY that oppose the merger and seek to distribute an exempt proxy solicitation to MONY shareholders under Rule 14a-2(b)(1) ("Rule 14a-2(b)(1)"), 17 C.F.R. § 240.14a-2(b)(1). This solicitation consisted of (i) a letter urging MONY shareholders to withhold their approval of the proposed merger, and (ii) a duplicate copy of the proxy card that had been sent to shareholders by MONY management after MONY had filed a proxy statement to the Securities and Exchange Commission ("SEC") under Rule 14a-3(a) ("Rule 14a-3(a)"), 17 C.F.R. § 240.14a-3(a).

Rule 14a-2(b)(1) exempts from SEC proxy regulations "[a]ny solicitation by ... any person who does not ... seek ... the power to act as proxy ... and does not furnish... a form of revocation" to a company's shareholders as part of the solicitation. MONY argues that the duplicate proxy card is a "form of revocation" within the meaning of Rule 14a-2(b)(1), and sought a preliminary injunction in the United States District Court for the Southern District of New York (Holwell, J.) barring Appellees from including the duplicate card with their solicitations. On February 11, 2004, the district court denied MONY's request, concluding that it was unlikely to succeed on the merits of its claim against Appellees under Section 14(a) of the Exchange Act of 1934 ("Section 14(a)"), 15 U.S.C. § 78n(a).

We conclude that, in the circumstances of this case — a proxy vote to authorize a proposed merger under Delaware law — a duplicate of management's proxy card, when included in a mailing opposing a proposed merger, is a "form of revocation" under Rule 14a-2(b)(1). We also conclude that MONY will suffer irreparable harm if Appellees enclose the duplicate card in their solicitations to MONY shareholders without first satisfying the disclosure regulations promulgated under Section 14(a).

Background

MONY is a New York-based life insurance and financial services company incorporated in Delaware and registered under the Exchange Act. Defendants-Appellees Highfields Capital Management ("Highfields"), Longleaf Partners Small-Cap Fund ("Longleaf"), and Southeastern Asset Management ("Southeastern") collectively own approximately eight percent of MONY stock. On September 17, 2003, MONY (through its management) agreed to be acquired by AXA, a French life insurance and financial services conglomerate, in an all-cash merger valued at approximately $1.5 billion. Under the merger terms, MONY shareholders were to receive $31 per share of MONY common stock and a dividend to be paid by AXA based on MONY's earnings in the second half of 2003. After a full review by the SEC, MONY issued its definitive proxy statement on January 8, 2004 and scheduled a shareholder vote for February 24, 2004. Under Delaware law, a merger agreement is binding only if a majority of all issued and outstanding company shares approve it. See 8 Del. C. § 251(c).

Reaction to the merger announcement was mixed; many shareholders argued that AXA's offer (representing 75 percent of MONY's book value) substantially undervalued the company and that the $90 million severance payments for MONY's management were excessive and suggestive of a conflict-of-interest. The MONY/AXA merger announcement also spawned numerous lawsuits;² this appeal arises from MONY's action challenging Appellees' proxy solicitations.

In late January 2004, Appellees began considering a proxy solicitation to MONY shareholders that would be exempt under Rule 14a-2(b)(1) from the proxy regulations promulgated by the SEC. On January 22, 2004, Southeastern announced its intention to vote its MONY shares against the AXA merger, urged other MONY shareholders to do likewise, and indicated that Southeastern would further communicate its views "by means of an exempt solicitation under the federal proxy rules." By January 27, 2004, Highfields had begun exploring a similar shareholder communication and sought advice from SEC staff on any constraints imposed by the Exchange Act, particularly on whether an exempt solicitation under Rule 14a-2(b)(1) could "include a copy of MONY's proxy card in its mailing for the convenience of MONY shareholders to facilitate ... voting [against the merger]."

Highfields was advised by SEC staff that "although it [had] not been released formally, the Office of Mergers and Acquisitions at the SEC had considered and adopted a `nonpublished position'" in an informal April 1993 interpretation (circulated internally among SEC staff) that gave qualified approval to shareholders seeking to mail duplicates of management proxy cards as part of an exempt proxy solicitation under Rule 14a-2(b)(1). On the basis of these discussions with SEC staff, Highfields planned an exempt proxy solicitation to MONY shareholders that included duplicates of MONY's proxy card and conformed to the restrictions described in the April 1993 opinion.³

MONY commenced an action on February 3, 2004 in the United States District Court for the Southern District (Preska, J.) seeking a temporary restraining order and a preliminary injunction blocking Appellees from sending the duplicate proxy cards without first filing a proxy statement under Rule 14a-3(a). After a hearing on February 3, 2004, Judge Preska granted MONY's request for a restraining order, stating that "[t]he exemption set out in Rule 14a-2(b)(1)] does not apply here because [Appellees'] solicitation `furnishes or otherwise requests a form of revocation.'" Judge Preska also noted that a few votes changed by reason of the possibly invalid proxy solicitation would cause irreparable harm to MONY "[b]ecause of the requirement that 51% of [MONY] shareholders vote in favor of the proposal...."

Judge Preska ordered Appellees to show cause on February 6, 2004 as to why a preliminary injunction should not issue prohibiting Appellees from sending the duplicate cards. In the interim, Highfields and Longleaf sent solicitation letters to MONY shareholders (without the duplicate proxy cards) that detailed how shareholders could vote, change, or revoke their proxies.

The case was assigned to Judge Holwell, who extended the restraining order "for the reasons set forth in Judge Preska's initial order" until he had considered the arguments of all of the parties. Judge Holwell also invited the SEC to submit an amicus letter brief setting forth its position on

whether a party is entitled to the [Rule 14a-2(b)(1)] exemption if (1) the party sends shareholders a proxy solicitation that includes a proxy voting card which is an exact duplicate of a card previously sent to shareholders as part of a proxy solicitation by a non-exempt party who complied with the SEC's disclosure rules;

(2) the party solicits the shareholders to use the duplicate proxy card to vote against the proposal recommended by the company's Board of Directors and thereby to revoke any proxy previously given;

(3) this duplicate card is sent with instructions that, once marked, it be returned to the party (or agent thereof) who sent the original proxy card; and

(4) the duplicate card does not provide for any exercise of authority by the party who sent it, nor does it ever come back into the possession or under the control of the party who sent it.

By fax on February 10, 2004, Alan L. Beller, Director of the SEC's Division of Corporation Finance, and Giovanni P. Prezioso, General Counsel of the SEC, declined to take a formal position on behalf of the Commission: "In light of [the] short time frame, we have not had an opportunity to seek the view of the Commission with respect to the specific question raised by your letter." The letter-brief instead provided "background to Rule 14a-2(b)(1) and positions that the [SEC had] taken historically," noting that, in an informal April 1993 internal opinion, the SEC had considered whether

a person otherwise qualified to rely on [the exemptions of Rule 14a-2(b)(1) could] provide a solicited shareholder with a copy of management's proxy card for the purposes of facilitating the shareholder's revocation of a previous card or a vote in favor of a proposal supported by the soliciting party

The SEC's letter summarized this internal April 1993 opinion⁴ as follows:

• the provision of Rule 14a-2(b)(1) would not be violated since providing a copy of management's proxy card — which would be returned directly to management — does not create any proxy authority in the soliciting party; and

• although management's proxy card could have the effect of a revocation of an earlier dated proxy submitted by the same shareholder, this should not constitute a "form of...