992 F.2d 455 (2nd Cir. 1993), 705, Grimes v. Ohio Edison Co.

Docket Nº:705, Docket 92-7812.
Citation:992 F.2d 455
Party Name:C.L. GRIMES, Plaintiff-Appellant, v. OHIO EDISON COMPANY, Defendant-Appellee.
Case Date:May 03, 1993
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 455

992 F.2d 455 (2nd Cir. 1993)

C.L. GRIMES, Plaintiff-Appellant,


OHIO EDISON COMPANY, Defendant-Appellee.

No. 705, Docket 92-7812.

United States Court of Appeals, Second Circuit

May 3, 1993

Argued Jan. 4, 1993.

Thaddeus Holt, Law Office of Thaddeus Holt, Washington, DC, for plaintiff-appellant.

Thomas F. Clauss, Jr., Winthrop, Stimson, Putnam & Roberts, New York City, for defendant-appellee.

Before: PRATT and MAHONEY, Circuit Judges, and ZAMPANO, [*] District Judge.

ZAMPANO, Senior District Judge:

Appellant C.L. Grimes appeals from a judgment of the United States District Court for the Southern District of New York, Thomas P. Griesa, District Judge, entered June 30, 1992, dismissing his action against appellee Ohio Edison Company on the grounds that under federal securities laws: (1) Ohio Edison was not required to include Grimes' proposed amendment to the company's Articles of Incorporation in its distribution of proxy materials for its annual shareholders' meeting of April 25, 1991; and (2) Ohio Edison's failure to disclose to shareholders that Grimes would offer his amendment at the meeting did not render the proxy materials false and misleading. 1


Ohio Edison's Amended Articles of Incorporation and By-Laws vest the authority to make capital expenditures solely in the Board of Directors, except in certain circumstances not applicable here. On October 23, 1990, Grimes, a shareholder in Ohio Edison, requested that the Company enclose in the proxy materials for the next shareholders' meeting the following amendment to the Articles of Incorporation which would require stockholder approval of capital and construction expenditures in excess of a defined amount:

The Company (or in the aggregate any combination of the Company and/or its subsidiaries) shall not without the formal

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prior consent of the common shareholders in each instance, expend in any calendar year any monies by way of capital or construction expenditures in excess of $300,000,000; provided, however, that the consent of such shareholders shall not be required unless the amount of such expenditures exceeds the cash amount paid to the common shareholders as dividends in the preceding calendar year.

Securities and Exchange Commission ("SEC") Rule 14a-8 requires a registrant such as Ohio Edison to include in its proxy materials a shareholder proposal that complies with the Rule's procedural requirements unless the proposal falls within any of thirteen exemptions, one of which--exemption 7--is relevant here. 2 The pertinent parts of Rule 14a-8 provide:

(c) The registrant may omit a proposal and any statement in support thereof from its proxy statement ... under any of the following circumstances:

* * * * * *

(7) If the proposal deals with a matter relating to the conduct of the ordinary business operations of the registrant; ...

If the registrant corporation determines that a shareholder proposal falls within an exemption, it must file the proposal with the SEC, together with a written explanation of why the proposal falls within the stated exemption. SEC Rule 14a-8(d).

In response to Ohio Edison's submission, the SEC's staff issued a "no-action" letter advising that the proposal appeared to concern a matter relating to the Corporation's ordinary business operations, and that it thus would not recommend enforcement action to the Commission if the proposal were omitted from the proxy materials. 3

Thereafter, Ohio Edison distributed proxy materials...

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