Management Assistance Inc. v. Edelman
| Decision Date | 21 March 1984 |
| Docket Number | No. 84 Civ. 667 (JFK).,84 Civ. 667 (JFK). |
| Citation | 584 F. Supp. 1021 |
| Parties | MANAGEMENT ASSISTANCE INC., Plaintiff, v. Asher B. EDELMAN, Arbitrage Securities Company, Plaza Securities Company, Minor Associates, L.P., Raymond French, Charles P. Stevenson, Jr. and Clark R. Mandigo, Defendants. |
| Court | U.S. District Court — Southern District of New York |
COPYRIGHT MATERIAL OMITTED
Rosenman, Colin, Freund, Lewis & Cohen, New York City, for plaintiff; Gerald Walpin, New York City, of counsel.
Schulte, Roth & Zabel by John S. Martin, Jr., New York City, for defendants except Charles P. Stevenson, Jr.
Newman, Tannenbaum, Helpern, Syracuse & Hirschritt by Ralph A. Siciliano, New York City, for defendant Charles P. Stevenson, Jr.
This action was brought by Management Assistance Inc., ("MAI") against Asher B. Edelman, Raymond French, Charles P. Stevenson, Jr., Clark R. Mandigo, Arbitrage Securities Company ("Arbitrage"), Plaza Securities Company ("Plaza") and Minor Associates, L.P. ("Minor") for violations of sections 13(d), 14(a) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. Sections 78m(d), 78n(a) and 78t(a), and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Sections 1961-1968. Injunctive relief and damages are sought.
MAI is a New York corporation which is engaged in the development, manufacturing and marketing of information processing systems and in furnishing repair, preventive maintenance and reconditioning service for information processing equipment. Arbitrage, Plaza and Minor are limited partnerships under Edelman's control that own MAI stock. Through these holdings Edelman beneficially owns approximately 12.8% of the outstanding shares of MAI common stock. Arbitrage, Plaza, Minor and Edelman have solicited proxies from the shareholders of MAI for the election of their nominees, French, Stevenson, Mandigo and Edelman to the board of directors at the meeting of shareholders scheduled for March 14, 1984.
The original complaint and a motion for expedited discovery were filed on January 30, 1984. On February 2, defendants filed a motion to dismiss MAI's original complaint pursuant to Fed.R.Civ.P. 12(b)(6), or in the alternative for an order pursuant to Fed.R.Civ.P. 26(c) limiting discovery. MAI filed an amended complaint on February 6. Defendants filed a motion to dismiss the amended complaint on February 9. By order of this Court dated March 6, 1984, 584 F.Supp. 1016, defendants' motion to dismiss was denied in all respects as to all defendants except defendant Stevenson. The section 13(d) claims against Stevenson were dismissed. On March 8, plaintiff was granted leave to file a second amended complaint that added two claims to the action.
On February 10, defendants answered the first amended complaint and asserted three counterclaims against MAI. Plaintiff filed a motion to dismiss the first counterclaim on February 14. That motion was granted by order of this Court dated March 6.
On March 6, 1984, plaintiff and defendant filed cross-motions for preliminary injunctive relief relating to the March 14, 1984 meeting of shareholders. Oral argument on both of these motions was heard on March 9. The Court took expert testimony relating to plaintiff's motion on March 12. The next day the Court issued an order denying plaintiff's request for relief. The Court did not rule on defendants' motion, as defendants had requested that their motion be considered only if plaintiff's motion was granted. This opinion sets forth the reasoning underlying the Court's March 13 order with more particularity than time allowed on that date.
Plaintiff's motion sought an injunction preventing defendants from (i) acquiring or attempting to acquire any additional shares of MAI common stock; (ii) soliciting or arranging for the solicitation of proxies for any MAI common stock; (iii) voting any shares of MAI common stock; (iv) otherwise using or attempting to use any MAI common stock as a means of controlling or affecting the management of MAI; (v) taking or attempting to take any other steps in furtherance of the unlawful scheme to acquire control of MAI; and (vi) selling or otherwise disposing of, pledging or otherwise encumbering any MAI common stock that they own, directly or indirectly, except in accordance with a plan approved in advance by the Court.
Plaintiff urged seven of the nine claims set forth in its second amended complaint as a basis for the relief sought. Two of the claims allege violations of section 13(d). The first claim is that defendants made a false and misleading statement in their Schedule 13D with regard to the purported interest of two companies in acquiring all or part of MAI. The second claim alleges failure to fully disclose in the Schedule 13D the source of funds used to purchase MAI stock. The next five claims involve violations of section 14(a). The first of these claims alleges that defendants' proxy statement contained a false and misleading statement with regard to the purported interest of the two companies. The next claim is for failure to disclose in the proxy statement that partnership securities were sold without a registration statement. Another claim alleges failure to disclose in the proxy statement that the partnerships comprise a single investment company in violation of the Investment Company Act. The final section 14(a) claims allege failure to disclose that defendants employed materially false, misleading and deceptive press releases to cause a rise in the price of the stock of Canal-Randolph Corporation, ("Canal-Randolph") of which three of the defendant nominees are directors, and that these activities violate section 10(b) of the Exchange Act and rule 10b-5, promulgated thereunder.
The question presented to this Court by plaintiff's motion is whether plaintiff has established that it is entitled to preliminary injunctive relief on any of the claims listed above. To establish that it is entitled to such relief, a plaintiff must show possible irreparable injury and either (1) probable success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting preliminary relief. E.g. Mattel, Inc. v. Azrak-Hamway International, Inc., 724 F.2d 357, 359 (2d Cir.1983); Jackson Dairy, Inc. v. H.P. Hood & Sons, 596 F.2d 70, 72 (2d Cir.1979); Condec Corporation v. Farley, 573 F.Supp. 1382, 1385 (S.D.N.Y.1983).
The Court recognizes that "serious questions going to the merits" may exist in this action. Such questions, standing alone, however, do not justify injunctive relief. Unless the balance of hardships tips decidedly in favor of the movant, the Court need not determine whether serious questions presenting a fair ground for litigation exist. Buffalo Courier-Express, Inc. v. Buffalo Evening News, Inc., 601 F.2d 48, 58 (2d Cir.1979). To prove that the balance of hardships tips in its favor, a movant must show that the harm it would suffer without the relief sought is decidedly greater than the harm its opponent would suffer if injunctive relief was granted. Buffalo Forge Co. v. Ampco-Pittsburgh Corp., 638 F.2d 568, 569 (2d Cir. 1981).
A preliminary injunction enjoining defendants from voting any shares of MAI stock at the meeting of shareholders for the election of directors would cause severe hardship to defendants and those shareholders whose proxies defendants hold. See Standard Metals Corp. v. Tomlin, 503 F.Supp. 586, 603 (S.D.N.Y.1980); cf. Rosenblatt v. Northwest Airlines, 435 F.2d 1121, 1128 (2d Cir.1970) (); Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937, 948 (2d Cir.1969) (). They would essentially be disenfranchised by such an order. See Kennecott Copper Corp. v. Curtiss-Wright Corp., 584 F.2d 1195, 1202 (2d Cir.1978); Willoughby v. Port, 277 F.2d 149, 150 (2d Cir.1960). The hardship alleged by plaintiff, which is essentially denial of fully informed corporate suffrage, is not greater than the hardship that would result from denial of the right of corporate suffrage altogether.1 As plaintiff has not satisfied the serious questions and balance of hardships prong of the preliminary injunction test, it would be improper for this Court to issue a preliminary injunction unless plaintiff has satisfied the probable success on the merits alternative with regard to any of its claims for relief.
Two of plaintiff's claims involve statements made in defendants Schedule 13D and proxy materials that purport to reflect statements made by Edelman at the January 12, 1984 meeting of the Board of Directors of MAI concerning the interest of two companies in purchasing all or part of MAI. The first statement that plaintiff claims violates section 13(d) was made in Amendment No. 5 to the Schedule 13D, filed on behalf of all defendants except Stevenson. That statement supplements Item 4 of the defendants' Schedule 13D, the purpose of transaction section, and reads as follows:
On Thursday, January 12, 1984, Mr. Edelman met with the Board of Directors of the Company at its invitation. During the meeting, Mr. Edelman informed the Board that he is aware of two companies, each of which would be interested in exploring the possibility of an acquisition of all or part of the company or its businesses. Raymond P. Kurshan, the Chairman of the Company, stated at the meeting that the Company would be willing to meet with these potential purchasers and suggested that Mr. Edelman request them to contact the company and its...
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