Justin Industries, Inc. v. Choctaw Securities, L.P.
| Decision Date | 18 December 1990 |
| Docket Number | No. 90-1823,90-1823 |
| Citation | 920 F.2d 262 |
| Parties | , Fed. Sec. L. Rep. P 95,883 JUSTIN INDUSTRIES, INC., Plaintiff-Counter-Defendant, Third Party Defendant-Appellee, v. CHOCTAW SECURITIES, L.P., Sutherland Lumber-Southwest, Inc., Reatta Partners, L.P., Barry Rosenstein Limited Partnership, Barry S. Rosenstein Corp., Perry H. Sutherland, Barry S. Rosenstein, Dwight D. Sutherland, Christopher L. Sutherland, and Nancy L. Sutherland, Defendants-Counter-Claimants, Third Party Plaintiffs-Appellants, v. John JUSTIN, Marvin Gearhart, Robert E. Glaze, Dee J. Kelly, Oran F. Needham, John V. Roach, Dr. William E. Tucker, and Bayard H. Friedman, Counter-Defendants, Third Party Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Rod Phelan, James Allen Cox, Baker & Botts, Dallas, Tex., George Zimmermann, Skadden, Arps, Slate, Meagher & Flom New York City, R. Paul Yetter, Baker & Botts, Houston, Tex., for defendants-counter-claimants, third party plaintiffs-appellants.
Donald Herrmann, Edmund Glen Johnson, Kelly, Hart & Hallman, Ft. Worth, Tex., for plaintiff-counter-defendant, third party defendant-appellee.
David M. Becker, Wilmer, Cutler & Pickering, Washington, D.C., for Justin, Gearhart, Glaza, et al.
Appeal from the United States District Court for the Northern District of Texas.
Before RUBIN, HIGGINBOTHAM, and SMITH, Circuit Judges.
I.
Sutherland Lumber-Southwest, Inc. (Sutherland), is seeking to acquire Justin Industries, Inc. (Justin), in a hostile takeover. As part of its takeover defense, Justin adopted a supermajority provision in its bylaws that made it difficult to remove its directors. Justin failed to disclose its amendments in several filings with the Securities & Exchange Commission (SEC), in violation of the securities laws.
Although the bylaw amendments subsequently were rescinded, Sutherland claims that it was injured by the amendments because, while they were in force, Justin's directors were re-elected. Even though the directors ran unopposed, Sutherland contends that some of the shareholders might have nominated an opposing slate, had they known of the bylaw amendments.
Sutherland urges that we set aside Justin's election and, by preliminary injunction prior to trial on the merits, order Justin to hold a new election in which Sutherland can run its own candidates. The district court refused to grant such a mandatory injunction to Sutherland, 747 F.Supp. 1218, and Sutherland now appeals that denial. We affirm the denial of a preliminary injunction and remand the matter for further proceedings.
II.
In early 1989, Sutherland began acquiring stock in Justin. Justin has a nine-member board of directors, eight of whom are outside directors and also appellees in this case. At issue is the validity of the re-election of these directors.
Beginning in the fall of 1989, Sutherland proposed that it take over Justin. Justin rejected these overtures and adopted a number of "shark repellants," including a shareholder rights plan ("poison pill") (enacted on October 6, 1989) and a requirement of a supermajority vote for removal of directors (enacted on November 3, 1989). In addition, at its regularly scheduled December meeting, Justin's board considered stock option amendments, pension plan amendments, and "golden parachutes" for top managers. The board, however, did not adopt any of these measures; instead, it authorized management to investigate these options and to present them at a subsequent meeting.
On February 20, 1990, Justin sent out proxy solicitations for its annual meeting. The only item on the agenda was the election of directors, all of whom were running unopposed. The proxies did not indicate that Justin had changed its bylaws; all directors were re-elected by wide margins on March 23, 1990. Immediately after the election, Justin's board passed several change-of-control measures, including the golden parachutes.
On March 26, 1990, Justin filed its Form 10-K 1989 annual report with the SEC. The report disclosed the golden parachutes but did not mention the amendments to the bylaws. On August 24, 1990, Justin filed a Form 8-K amendment with the SEC to note the bylaw amendments adopted nine months previously. On September 7, 1990, Justin's board met again and rescinded the supermajority removal clause.
Justin sued Sutherland, alleging, inter alia, that Sutherland had violated section 13(d) of the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. Sec. 78m(d) (1988), by purchasing more than five percent of Justin's stock without filing with the SEC. Sutherland counterclaimed, alleging that Justin deliberately and knowingly had kept the bylaw amendments and golden parachutes secret, in violation of section 14(a) of the 1934 Act, 15 U.S.C. Sec. 78n(a) (1988), and SEC Rule 14a-9, 17 C.F.R. Sec. 240.14a-9 (1990).
At the hearing, Choctaw Securities, L.P. (Choctaw), Sutherland's co-defendant, filed a motion for an injunction. Choctaw contended that there was no need for a trial on the merits because all material facts were agreed upon. Justin contested the motion for injunction, contending that what Choctaw really was requesting was a summary judgment without complying with the terms of Fed.R.Civ.P. 56.
The district court denied Sutherland's motion, holding that Sutherland had failed to satisfy the prerequisites for the issuance of any injunction, as Sutherland had an adequate remedy at law. Since Sutherland held more than ten percent of Justin's outstanding stock, the court reasoned, it could call a special shareholders' meeting, pursuant to the bylaws, to elect new directors, making equitable relief superfluous. The court concluded by stating that even if this were not true, Justin's failure to disclose its bylaw amendments was not a material omission.
III.
Justin challenges the jurisdiction of this court to hear Sutherland's appeal. Choctaw entitled its request a "Motion for an Order Requiring Justin To Hold an Annual Shareholders Meeting for the Election of Directors." Choctaw believed that this was a request for a permanent injunction. The district court did not characterize Choctaw's motion, as it concluded that no matter how Choctaw's motion was classified, Choctaw had failed to meet the requirements for a preliminary or a permanent injunction. 1
We conclude that the district court's order was appealable under 28 U.S.C. Sec. 1292(a)(1) (1988). Although arguably few facts may remain for development, Justin correctly notes that it is entitled to a trial on the merits before permanent relief can be granted. Accordingly, we hold that Choctaw's motion was for a preliminary injunction, reviewable under section 1292(a)(1). 2
Our disposition of this matter depends, however, upon how the motion is characterized. When faced with a procedurally ambiguous motion, we look to its substance rather than to how the parties label it. See Tuley v. Heyd, 482 F.2d 590, 593 (5th Cir.1973); Smith v. Grady, 411 F.2d 181, 186 (5th Cir.1969).
Justin also contends that we have no jurisdiction because a federal court cannot order new elections for the failure to disclose bylaw amendments. But this ignores our authority "to provide such remedies as are necessary to make effective the congressional purpose" of ensuring full and fair disclosure to shareholders. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 386, 90 S.Ct. 616, 622, 24 L.Ed.2d 593 (1970). Thus,
where duplicity or material nondisclosures result in the election of directors by deceived stockholders the election may be set aside. If such an election were allowed to stand, the innocent stockholders would suffer the consequences of the violations and this is the very group that the Securities Act of 1934 is designed to protect. 3
The law is the same in this circuit. See Gladwin v. Medfield Corp., 540 F.2d 1266, 1271 (5th Cir.1976) ().
Justin also urges that we should not grant relief because even if we order the requested new elections, the only persons who could run would be those who ran in the previous, unopposed election. This argument has weight, as we will not grant equitable relief where doing so would be useless.
What Justin overlooks, however, is that if the tainted election were overturned, the clock would not merely turn back to the day of the election. Rather, the appropriate point is the date upon which the disclosure should have been made. Under the facts of this case, that would have been during the period of time during which nominations still could have been made.
Accordingly, what is important is not just how shareholders would have chosen to vote, but also whether the disclosure might have influenced someone else to run. "Materiality does not depend on which way the information is likely to influence the shareholders to vote; rather it depends on whether the information is likely to influence the decision to vote." Gladwin, 540 F.2d at 1270 (emphasis in original). The directors might not have been unopposed had they disclosed the entrenching bylaw changes. In an appropriate case, therefore, a federal court would have the power to order the relief sought. We therefore have jurisdiction over this appeal.
IV.
The district court found that Justin's failure to disclose its bylaw amendments and golden parachutes was not material. Because materiality is "a mixed question of law and fact," TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450, 96 S.Ct. 2126, 2132-33, 48 L.Ed.2d 757 (1976), the standard of review varies, depending upon the particular question we are considering. The denial itself is evaluated under an abuse of discretion standard, 4 though we will review de novo the conclusions of law underlying the denial of injunctive relief. In re Fredeman Litig., 843 F.2d 821, 824 (5th Cir.1988).
Section 14(a) makes it unlawful to solicit proxies in violation of the...
To continue reading
Request your trial
-
National Asbestos Workers Medical v. Philip Morris
...is immediately appealable even though the district court has not specifically denied injunctive relief. See Justin Indus. v. Choctaw Sec., L.P., 920 F.2d 262, 265-66 (5th Cir.1990); see also United States v. Microsoft Corp., 56 F.3d 1448, 1456-57 (D.C.Cir.1995) (order refusing to enter cons......
-
J.H. v. Edwards
...Ass'n of Hidalgo Cnty. Tex., Inc. v. Suehs, 692 F.3d 343, 348 (5th Cir. 2012) (quotation and citation omitted); Justin Indus. v. Choctaw Sec., L.P., 920 F.2d 262 (5th Cir. 1990)). "Failure to establish any of these elements results in the denial of the motion for injunctive relief." Sacal-M......
-
MI Familia Vota v. Abbott
...of another. Id. The established irreparable injury must occur "during the pendency of the litigation." Justin Indus., Inc. v. Choctaw Secs., L.P. , 920 F.2d 262, 268 n.7 (5th Cir. 1990). For this reason, "[t]he purpose of a preliminary injunction is merely to preserve the relative positions......
-
Aldridge v. Cain
... ... Home ... Builders Assn. of Miss., Inc. v. City of Madison, 143 ... F.3d 1006, ... 83, 97, and n. 2 (1998); Clarke v. Securities ... Industry Assn., 479 U.S. 388, 394-395 ... See ... e.g., Justin Indus., Inc. v. Choctaw Sec., L.P. , 920 ... ...
-
HELL AND HIGH WATER: HOW CLIMATE CHANGE CAN HARM PRISON RESIDENTS AND JAIL RESIDENTS, AND WHY COVID-19 CONDITIONS LITIGATION SUGGESTS MOST FEDERAL COURTS WILL WAIT-AND-SEE WHEN ASKED TO INTERVENE.
...clearly established the 'burden of persuasion' as to each of the four requisites."); see also Justin Indus., Inc. v. Choctaw Sec, L.P., 920 F.2d 262, 269 n.7 (5th Cir. 1990) (providing that courts should compel certain actions through granting mandatory injunctive relief where the movant sh......