NEW YORK CITY EMP. RET. SYS. v. Dole Food Co.

• Decision Date: 24 April 1992
• Docket Number: No. 92 CIV 2551 (KC).,92 CIV 2551 (KC).
• Citation: 795 F. Supp. 95
• Parties: The NEW YORK CITY EMPLOYEES' RETIREMENT SYSTEM, Plaintiff, v. DOLE FOOD COMPANY, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

795 F. Supp. 95

The NEW YORK CITY EMPLOYEES' RETIREMENT SYSTEM, Plaintiff, v. DOLE FOOD COMPANY, INC., Defendant.

No. 92 CIV 2551 (KC).

United States District Court, S.D. New York.

April 24, 1992.

Hillary Klein and Steve Stein Cushman, Asst. Corp. Counsel, New York City, for plaintiff.

Andrew J. Frackman and Achilles Perry, O'Melveny & Myers, New York City, for defendant.

MEMORANDUM & ORDER

CONBOY, District Judge:

Proceeding by an order to show cause, the New York City Employees' Retirement System ("NYCERS") brings this action for a preliminary injunction that would enjoin defendant Dole Food Company, Inc. ("Dole") from the solicitation of shareholder proxies for Dole's upcoming annual meeting without informing shareholders of NYCERS' shareholder proposal. In the alternative, NYCERS seeks inclusion of the proposal on a supplemental mailing prior to the annual meeting.

I. Background

NYCERS is a public pension fund that owns approximately 164,841 shares of common stock in Dole Food Company, Inc. ("Dole"). Affidavit of Elizabeth Holtzman Dated April 8, 1992 ("Holtzman Afft.") ¶ 3. On December 12, 1991, New York City Comptroller Elizabeth Holtzman, in her capacity as the custodian of NYCERS' assets, wrote to the executive vice president of Dole, requesting Dole to include the following proposal ("the NYCERS proposal") in its proxy statement prior to its annual meeting:

NEW YORK CITY EMPLOYEE'S sic. RETIREMENT SYSTEM

SHAREHOLDER RESOLUTION ON HEALTH CARE

TO DOLE FOOD COMPANY, INC.

WHEREAS: The Dole Food Company is concerned with remaining competitive in the domestic and world marketplace, acknowledging the positive relationship between the health and well being of its employees and productivity, and the resulting effect on corporate growth and financial stability; and

WHEREAS: Sustained double-digit increases in health care costs have put severe financial pressure on a company attempting to continue to provide adequate health care for its employees and their dependents; and

WHEREAS: The company has a societal obligation to conduct its affairs in a way which promotes the health and well being of all;

BE IT THEREFORE RESOLVED: That the shareholders request the Board of Directors to establish a committee of the Board consisting of outside and independent directors for the purpose of evaluating the impact of a representative cross section of the various health care reform proposals being considered by national policy makers on the company and their sic. competitive standing in domestic and international markets. These various proposals can be grouped in three generic categories; the single pay-or model (as in the Canadian plan), the limited payor (as in the Pepper Commission Report) and the employer mandated (as in the Kennedy-Waxman legislation).

Further, the aforementioned committee should be directed to prepare a report of its findings. The report should be prepared in a reasonable time, at a reasonable cost and should be made available to any shareholder upon written request.

SUPPORTING STATEMENT

Our nation is now at a crossroads on health care. Because of cutbacks in public programs, jobs that offer no benefits and efforts by employers to shift health care costs to workers, 50 million Americans have health care coverage that is inadequate to meet their needs and another 37 million have no protection at all.

The United States spends $2 billion a day, or eleven percent of its gross national product, on health care. As insurance premiums increase 18 to 30 percent a year, basic health care has moved well beyond the reach of a growing number of working families. This increase also places heavy pressure on employer labor costs. There is no end in sight to this trend.

As a result and because of the significant social and public policy issues attendant to operations involving health care, we urge shareholders to SUPPORT the resolution. Holtzman Afft., Exhibit B (emphasis in original).

On January 16, 1992, J. Brett Tibbitts, deputy general counsel of Dole Food Company, Inc., wrote to the office of chief counsel of the Securities & Exchange Commission's ("SEC") division of corporation finance and stated Dole's position that Dole could exclude the NYCERS proposal from its proxy statement because the proposal concerned employee benefits, an assertedly "ordinary business operation," and both SEC regulations and the law of the Dole's state of incorporation relegate such ordinary business operations to management, not shareholder, control.

On February 10, 1992, John Brousseau, special counsel to the SEC's division of corporation finance, responded to Tibbitts' letter with the following written statement:

The proposal relates to the preparation of a report by a Committee of the Company's Board of Directors to evaluate various health-care proposals being considered by national policy makers.

There appears to be some basis for your view that the proposal may be excluded pursuant to rule 14a-8(c)(7) because the proposal is directed at involving the Company in the political or legislative process relating to an aspect of the Company's operations. Accordingly, we will not recommend enforcement action to the Commission if the proposal is omitted from the Company's proxy materials. In reaching a position, the staff has not found it necessary to address the alternative basis for omission on which the Company relies. Holtzman Afft., Exhibit D.

On March 19, 1992, Brousseau reported to NYCERS that the SEC had denied NYCERS' request for the SEC to review the SEC staff determination on the NYCERS proposal. Holtzman Afft., Exhibit E. On April 9, 1992, NYCERS brought the instant action. In conjunction with NYCERS' request for an order to show cause, NYCERS submitted an affidavit of Theodore R. Marmor, a professor of political science and public policy at Yale University. In his affidavit, Professor Marmor averred, inter alia, that (1) at least 37 million Americans have no health insurance; (2) the United States spends more on health per capita than any other developed nation; (3) health care expenditures in 1989 represented 56 percent of pre-tax company profits in 1989, as compared to 8 percent in 1985; and (4) the national average cost for health care per employee is $3,200, and some large companies pay $5,000 or more per employee. Affidavit of Theodore Marmor Dated April 6, 1992 ("Marmor Afft.") at ¶¶ 5, 7, and 10. Professor Marmor also defined and explained the three major categories of national health care proposals pending in Congress:

14. First, there is the so-called "play or pay" model. The Kennedy-Waxman bill pending in Congress adopts this approach. Under this plan, American businesses would be required either to offer health coverage to their employees or to pay a premium to a centralized pool. The pool would be used to ensure that all Americans not covered by their employer would receive some form of health care coverage.

15. Another approach is a unitary funding arrangement, the so-called "single payor" system, and there are proposals pending in Congress modeled on the Canadian health care system. The system creates a single pool of dollars (or its equivalent) that is publicly accountable and that is created through a form of tax or fee. Each year it is determined roughly how much will be spent on health care, and then negotiations take place with physicians, hospitals and other medical institutions over how much they will be paid. Further, a set of comprehensive medical benefits is established, which allows all residents to receive treatment for any medically necessary procedure. This results in less administrative overhead. The plans tend to minimize out-of-pocket expenses from patients, instead of paying for health care out of one pool of funds.

16. A third model is the "limited-payor" approach. This approach was suggested by the Pepper Commission, a bipartisan congressional commission which issued a five-year health care reform plan in September, 1990. The plan would provide small employers with various kinds of tax deductions and credits for purchasing health plans from existing health insurance carriers. For large employers, it would adopt a "play or pay" approach, requiring employers to provide coverage for their employees after purchasing health plans from insurance carriers or by paying for coverage by the federal government. The federal government also would provide coverage for the unemployed and the poor by replacing and expanding the role currently performed by states through the Medicaid program. When job-based coverage and the federal program are fully implemented and in place, all individuals would be required to obtain health care coverage either from their employers or the federal program. For both public and private coverage, the Pepper Commission recommended a federally-specified minimum benefit package. Individuals would be responsible for a share of premiums and service costs on all preventative service up to a minimum and subject to their ability to pay. Lower income workers and nonworkers would receive subsidies to keep their contributions low. Id. at ¶¶ 12-16 (emphasis supplied).

II. Discussion

A party seeking a preliminary injunction must normally establish a) irreparable harm and b) either a substantial likelihood of success on the merits, or sufficiently serious questions on the merits to make them fair grounds for litigation with a balance of hardships tipping decidedly toward the moving party. Abdul Wali v. Coughlin, 754 F.2d 1015, 1025 (2d Cir. 1985). In this case, NYCERS must prove a substantial likelihood of success on the merits because NYCERS requests a so-called mandatory injunction, i.e., one that disturbs the status quo, and the relief that NYCERS seeks from the preliminary injunction is identical to that sought as the ultimate relief in the action. Abdul Wali, 754 F.2d at 1025-26.

A. Substantial Likelihood of Success on the Merits

The federal securities regulation that...