Long Island Lighting Co. v. Barbash
| Decision Date | 13 December 1985 |
| Docket Number | No. 658,D,658 |
| Citation | 779 F.2d 793 |
| Parties | , Fed. Sec. L. Rep. P 92,392 LONG ISLAND LIGHTING COMPANY, Plaintiff-Appellant, v. Maurice BARBASH, Norman E. Blankman, Nora Bredes, Elaine Benson, Leon Campo, Bill Chalaff, Frazer Dougherty, Jack Hohenberger, Dan Gluck, Leonard Goldschmidt, Lou Grasso, Joseph Kaufman, Nancy Kelly, Irving Like, Sharon Luscombe, William Marran, William Massino, Edward McGovern, Arthur Metzger, Deborah Perry, Nathan Pitt, Clair Siegal, Alex Sneddon, Judith Sneddon, Robert Snyder, Tom Twomey, Dave Willmott, John W. Matthews and Island Insulation Corp., Defendants-Appellees. ocket 85-7890. |
| Court | U.S. Court of Appeals — Second Circuit |
Michael Lesch, New York City (John G. Nicolich, Shea & Gould, New York City, of counsel), for plaintiff-appellant Long Island Lighting Co.
Thomas J. Schwarz, New York City (Jeremy A. Berman, Patrick J. Foye, Richard S. Simon, Cecelia M. Dempsey, Skadden, Arps, Slate, Meagher & Flom, New York City, of counsel), for defendants-appellees John W. Matthews and Island Insulation Corp.
Eugene R. Scheiman, New York City (Thomas E. Albright, Baer Marks & Upham, New York City, Irving Like, Reilly Like & Schneider, Babylon, N.Y., of counsel), for all defendants-appellees except John W. Matthews and Island Insulation Corp.
Before LUMBARD, CARDAMONE, and WINTER, Circuit Judges.
A Long Island utility furnishing that area with power has scheduled a stockholders meeting for Thursday December 12, 1985. It has been embroiled in public controversy over its construction of the Shoreham Nuclear Power Plant and adverse publicity intensified recently because of extended loss of service to customers arising from damages to the transmission system caused by Hurricane Gloria.
In this setting, the company, believing that several groups had begun to solicit proxies during October in anticipation of the upcoming stockholders meeting, brought suit to enjoin them. The district court judge first slowed the matter by adjourning the case until the fall election was over, and then speeded it up by directing discovery to be completed in one day. Such handling only demonstrates again that in the law it is wise--even when expeditious action is required--to make haste slowly.
Long Island Lighting Company (LILCO) brings this expedited appeal from a November 8, 1985 order of the United States District Court for the Eastern District of New York (Weinstein, Ch.J.) that granted summary judgment dismissing LILCO's complaint against the Steering Committee of Citizens to Replace LILCO (the Citizens Committee), John W. Matthews and Island Insulation Corp. LILCO brought this action to enjoin defendants' alleged violations of Sec. 14(a) of the Securities Exchange Act of 1934 and Rules 14a-9, 17 C.F.R. Sec. 240.14a-9 and 14a-11, 17 C.F.R. 240.14a-11, promulgated under that statute, that govern proxy solicitations. The complaint alleges that defendants have committed such violations by publishing a false and misleading advertisement in connection with a special meeting of LILCO's shareholders scheduled for the purpose of electing a new LILCO Board of Directors. For the reasons explained below, this matter is remanded to the district court.
Plaintiff LILCO is a New York electric company serving Nassau and Suffolk Counties on Long Island, New York. Its common and preferred stocks are registered in accordance with Section 12(b) of the Securities Exchange Act and are traded on the New York Stock Exchange. Defendant John W. Matthews was an unsuccessful candidate for Nassau County Executive in the election held November 5, 1985. During the campaign he strongly opposed LILCO and its operation of the Shoreham Nuclear Power Plant. As an owner of 100 shares of LILCO's preferred stock and a manager of an additional 100 shares of common stock held by his company, Island Insulation Corp., Matthews initiated a proxy contest for the purpose of electing a majority of LILCO's Board of Directors. The stated purpose of the other defendants, the Citizens Committee, is to replace LILCO with a municipally owned utility company. The Citizens Committee was formed prior to this litigation, in order to challenge LILCO's construction of the Shoreham atomic energy plant, its service and its rates.
LILCO filed its complaint on October 21, 1985 alleging that defendants published a materially false and misleading advertisement in Newsday, a Long Island newspaper, and ran false and misleading radio advertisements throughout the New York area. The ads criticized LILCO's management and encouraged citizens to replace LILCO with a state-run company. The complaint sought an injunction against further alleged solicitation of LILCO shareholders until the claimed false and misleading statements had been corrected and a Schedule 14B had been filed. The district court granted LILCO an expedited hearing on its appeal from Magistrate Scheindlin's decision denying expedited discovery and also set for hearing defendants' motions to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6).
On October 30, 1985 Chief Judge Weinstein adjourned the hearing until November 6 in order to prevent interference with Matthews' political campaign. The district court directed the defendants to bring the requested documents to the hearing on that date and told Matthews and others whom LILCO wished to depose to be available for such discovery. At the November 6 hearing the district judge directed LILCO's counsel to question Matthews under oath and overruled counsel's objections that he was unprepared to examine Matthews and that he had no prior opportunity to review the defendants' documents. The trial court also refused LILCO's request to question other defendants and told counsel that it must limit its questions to the alleged "conspiracy" between Matthews and the other defendants. Two days after this hearing the district court issued its Preliminary Memorandum Dismissing Complaint. Treating defendant's motion to dismiss as one for summary judgment, the district court granted summary judgment in favor of defendants on the ground that the proxy rules did not apply to the advertisements. This appeal followed.
LILCO argues first, that in view of the necessity in every case to determine whether a communication constitutes a "solicitation" under the proxy rates, the district court abused its discretion by limiting LILCO's opportunity for discovery. Second, LILCO asserts that the district court erroneously held that communications to shareholders through general and indirect publications can in no circumstances constitute "solicitations" under the proxy rules. Finally, LILCO contests the district court's view that this construction of the proxy rules is necessary to render them compatible with the First Amendment.
Although a district court has considerable latitude in determining the scope of discovery, it abuses its discretion when the discovery is so limited as to affect a party's substantial rights. Goldman v. Checker Taxi Company, 325 F.2d 853, 856 (7th Cir.1963); see Roelding v. Anderson, 103 U.S.App.D.C. 237, 257 F.2d 615, 619 (1958). Here the district court abused its discretion when it cut off discovery by suddenly ordering LILCO to examine Matthews under oath--without notice or an opportunity to review the documents that had just been produced. Further, the district court improperly circumscribed counsel's questions solely to conversations between Matthews and the other defendants when it denied counsel's requests to question anyone other than Matthews. Under these circumstances, LILCO was denied a meaningful opportunity to establish that the subject advertisement was a solicitation within the meaning of 14(a). See Sargent v. Genesco, Inc., 492 F.2d 750, 768 (5th Cir.1978).
Grants of summary judgment on an incomplete record are generally disfavored, and this is particularly true where we conclude that the district court's discretion over the fact-finding process has been tainted by an erroneous view of the law. See, e.g., Schlesinger Investment Partnership v. Fluor Corp., 671 F.2d 739 (2d Cir.1982) (); Landmark Land Co. v. Sprague, 701 F.2d 1065 (2d Cir.1983) (same). Therefore, LILCO is entitled to further discovery for the purpose of attempting to establish that the defendants' advertisement was, in the language of Rule 14a-1, 17 C.F.R. Sec. 240.14a-1(f)(1)(iii), a "communication to security holders under circumstances calculated to result in the procurement, withholding or revocation of a proxy."
In our view the district court further erred in holding that the proxy rules cannot cover communications appearing in publications of general circulation and that are indirectly addressed to shareholders. Regulation 14(a) of the Securities Exchange Act governs the solicitation of proxies with respect to the securities of publicly held companies, with enumerated exceptions set forth in the rules. 17 C.F.R. Sec. 240.14a-1 et seq. Proxy rules promulgated by the Securities Exchange Commission (SEC) regulate as proxy solicitations:
(1) any request for a proxy whether or not accompanied by or included in a form of proxy;
(2) any request to execute or not to execute, or to revoke, a proxy; or
(3) the furnishing of a form of proxy or other communications to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.
Rule 14a-1, 17 C.F.R. Sec. 240.14a-1.
These rules apply not only to direct requests to furnish, revoke or withhold proxies, but also to communications which may indirectly accomplish such a result or constitute a step in a chain of communications designed ultimately to accomplish such a result. Securities and Exchange Commission v. Okin, 132 F.2d...
To continue reading
Request your trial
-
Rossini v. Ogilvy & Mather, Inc.
...than on the scope of discovery. The abuse of discretion standard controls our review in either event. See Long Island Lighting Co. v. Barbash, 779 F.2d 793, 795 (2d Cir.1985) (discovery order); In re Martin-Trigona, 760 F.2d 1334, 1344 (2d Cir.1985) (evidentiary Seeking to ensure that "neit......
-
Nowling v. Aero Services Intern., Inc.
...The Nowling notice sent to shareholders could be a solicitation, as that term has been broadly construed. See Long Island Lighting Co. v. Barbash, 779 F.2d 793 (2 Cir.1985). Barbash teaches that "communications to security holders under circumstances reasonably calculated to result in the p......
-
In re Agent Orange" Product Liability Litigation
...court abuses its discretion only "when the discovery is so limited as to affect a party's substantial rights." Long Island Lighting Co. v. Barbash, 779 F.2d 793, 795 (2d Cir.1985). A party must be afforded a meaningful opportunity to establish the facts necessary to support his claim. Id. T......
-
Crouch v. Prior
...to "furnish, revoke or withhold proxies," or are a direct or indirect method of accomplishing the same result. Long Island Lighting Co. v. Barbash, 779 F.2d 793 (2d Cir.1985) (citing Securities and Exchange Comm'n v. Okin, 132 F.2d 784, 786 (2d Cir.1943)). A section 14(a) claim may be state......
-
The "watchman for Truth": Professional Licensing and the First Amendment
...Comm'n v. AVCO Fin. Corp., No. 97 Civ. 3119, 1998 WL 524901 (S.D.N.Y. June 29, 1998). 162. See Long Island Lighting Co. v. Barbash, 779 F.2d 793 (2d. Cir. 1985) (Winter, J., dissenting) (proxy 163. See Claude D. Montgomery et al., Solicitation Under Section 1125 of the Bankruptcy Code: Cent......
-
Replacing hostile takeovers.
...very broadly. See Rule 14a-I(;))(iii), 17 C.F.R. & 240.14a-(l)(iii) (1995); see also Long Island Lighting Co. v. Barbash, 779 F.2d 793, 796 (2d Cir. 1985) (holding that newspaper advertisements were not, as a matter of law, exempt from SS 14(a) of the Securities Exchange Act and remandi......