Roosevelt v. E.I. Du Pont de Nemours & Co.

• Citation: 958 F.2d 416
• Decision Date: 25 March 1992
• Docket Number: No. 91-5087,91-5087
• Parties: , 60 USLW 2571, Fed. Sec. L. Rep. P 96,527 Amelia ROOSEVELT, Appellant, v. E.I. DU PONT de NEMOURS & COMPANY, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 416

958 F.2d 416

294 U.S.App.D.C. 198, 60 USLW 2571, Fed.

Sec. L. Rep. P 96,527

Amelia ROOSEVELT, Appellant, v. E.I. DU PONT de NEMOURS & COMPANY, Appellee.

No. 91-5087.

United States Court of Appeals,

District of Columbia Circuit.

Argued Nov. 21, 1991.

Decided March 4, 1992.

Rehearing and Rehearing En Banc

Denied March 25, 1992.

Michael D. Hausfeld, with whom Richard S. Lewis and Cyrus Mehri, Washington, D.C., were on the brief, for appellant.

Daniel M. Gribbon, with whom Steven Semeraro, Washington, D.C., was on the brief, for appellee.

James R. Doty, General Counsel, Katharine Gresham, Asst. General Counsel, with whom Michael G. Lenett, Christopher Paik, and Paul Gonson, Sol., Washington, D.C., were on the brief, for amicus curiae, S.E.C.

Paul M. Neuhauser, Iowa City, Iowa, and David C. Vladeck, Washington, D.C., were on the brief for amicus curiae, Interfaith Center on Corporate Responsibility. Cornish F. Hitchcock, Washington, D.C., also entered an appearance for amicus curiae.

David A. Nicholas and Charles C. Caldart, Boston, Mass., were on the brief for amicus curiae, Nat. Environmental Law Center.

Beth-Ann Roth, Bethesda, Md., was on the brief for amicus curiae, Calvert Social Inv. Fund, Comptroller of the City of New York, and New York City Pension Funds.

Joel T. Thomas, Washington, D.C., was on the brief for amicus curiae, Nat. Wildlife Federation.

Before EDWARDS, RUTH BADER GINSBURG, and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge RUTH BADER GINSBURG.

RUTH BADER GINSBURG, Circuit Judge.

Amelia Roosevelt appeals the district court's judgment that E.I. Du Pont de Nemours & Co. ("Du Pont") could omit her shareholder proposal from its proxy materials for the 1992 annual meeting. The district court concluded that Roosevelt's proposal "deals with a matter relating to the conduct of [Du Pont's] ordinary business operations," and is therefore excludable under Securities and Exchange Commission ("SEC") Rule 14a-8(c)(7), 17 C.F.R. § 240.14a-8(c)(7). We affirm the district court's judgment and deal first with a threshold question. Consistent with congressional intent and Supreme Court case law, we hold, a private right of action is properly implied from section 14(a) of the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. § 78n(a), to enforce a company's obligation to include shareholder proposals in annual meeting proxy materials. Reaching the merits, we uphold the district court's determination that Roosevelt's two-part proposal is excludable under Rule 14a-8(c)(7).

I. Background

Prior to Du Pont's 1991 annual shareholder meeting, Friends of the Earth Oceanic Society ("Friends of the Earth") submitted a proposal, on behalf of Roosevelt, regarding: (1) the timing of Du Pont's phase out of the production of chlorofluorocarbons ("CFCs") and halons; and (2) the presentation to shareholders of a report detailing (a) research and development efforts to find environmentally sound substitutes, and (b) marketing plans to sell those substitutes. ¹ Du Pont opposed inclusion of the proposal in its proxy materials; as required by SEC rule, see 17 C.F.R. § 240.14a-8(d), the company notified the SEC staff of its intention to omit the proposal and its reasons for believing the omission proper. Friends of the Earth filed with the staff a countersubmission on Roosevelt's behalf urging that the proposal was not excludable.

The SEC staff issued a "no-action letter"; citing the Rule 14a-8(c)(7) exception for matters "relating to the conduct of the [company's] ordinary business operations," ² the staff stated that it would not recommend Commission enforcement action against Du Pont if the company excluded the proposal. Du Pont, SEC No-Action Letter (available March 8, 1991). Roosevelt did not seek Commission review of the staff's disposition.

Instead, with the 1991 meeting weeks away, Roosevelt filed a complaint and a motion for a temporary restraining order in federal district court. Denying the motion, the motions judge stated preliminarily that "[t]he Supreme Court has recognized an implied private right of action for alleged violations of Rule 14a-8." She found, however, that Roosevelt had not shown the requisite irreparable harm. If Du Pont mailed its proxy materials on March 18, as scheduled, without Roosevelt's proposal, the motions judge observed, a supplemental mailing containing the proposal could still be made in advance of the April 24 annual meeting date. C.A. No. 91-556, Memorandum Order (March 18, 1991) at 1, 3. The trial judge held an expedited trial on the morning of April 2, 1991; in a Memorandum Opinion filed two days later, he ruled that, based on the "ordinary business operations" exception in Rule 14a-8(c)(7), Du Pont could omit Roosevelt's proposal. C.A. No. 91-556, Memorandum Opinion (April 4, 1991) ("Mem.Op.").

We expedited Roosevelt's appeal when she informed us that she sought inclusion of her proposal in the proxy materials for Du Pont's 1992 annual meeting. C.A. No. 91-5087, Order (April 9, 1991) (per curiam). Before the appeal was heard, Du Pont had again advised the SEC that it intended to exclude the proposal, and the SEC staff had issued a second no-action letter, once more concluding that "[t]here appears to be some basis for [Du Pont's] view that the proposal may be excluded ... pursuant to rule 14a-8(c)(7)." Du Pont, SEC No-Action Letter (available Sept. 11, 1991). ³ Neither Roosevelt nor the SEC staff requested the Commission's view on the applicability of the "ordinary business operations" exception to Roosevelt's proposal. ⁴

II. The Implied Private Right of Action and Shareholder Proposals

Before reviewing the district court's application of Rule 14a-8(c)(7), we resolve a preliminary question: Does a shareholder have an implied right of action under section 14(a) of the Act and Commission Rule 14a-8 when a company refuses to include the shareholder's proposal in proxy materials? The existence of the right of action Roosevelt is pursuing was asserted by the motions judge, see supra p. 418, and assumed by all participants in these proceedings until Du Pont, in its answering brief on appeal, presented this boldface argument: "Congress Did Not Create A Private Right Of Action To Enforce The SEC Rule Governing Shareholder Proposals." Brief for Appellee at 32. While it is not our practice to entertain issues first raised on appeal, we regard this case as exceptional. ⁵ Between the district court's decision and our consideration of the appeal, a relevant Supreme Court decision intervened: Virginia Bankshares v. Sandberg, --- U.S. ----, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991). We follow the suggestion contained in Virginia Bankshares that, given the "state of evolving definition and uncertainty," an appellate court appropriately answers, and does not bypass, a (preliminary) question of such "importance to the administration of federal law." See 111 S.Ct. at 2761 n. 8.

A. Section 14(a) and Supreme Court Case Law on Implied Private Rights

A private right of action of the kind Du Pont shareholder Roosevelt asserts has been widely assumed, but scarcely addressed. See, e.g., Grimes v. Centerior Energy Corp., 909 F.2d 529 (D.C.Cir.1990) (right assumed without discussion), cert. denied, --- U.S. ----, 111 S.Ct. 799, 112 L.Ed.2d 860 (1991); Rauchman v. Mobil Corp., 739 F.2d 205, 207-08 (6th Cir.1984) (court assumed private action exists but had "substantial reservations"); Medical Comm. for Human Rights v. SEC, 432 F.2d 659, 671-72 (D.C.Cir.1970) (court stated "[t]here is no doubt" that shareholder whose proposal was excluded could seek redress through private action), vacated as moot, 404 U.S. 403, 92 S.Ct. 577, 30 L.Ed.2d 560 (1972); cf. New York City Employees' Retirement System v. American Brands, Inc., 634 F.Supp. 1382, 1386 (S.D.N.Y.1986) ("NYCERS ") (reasoned determination of existence of implied private right of action by shareholder to enforce company's obligation, under section 14(a) of the Act and Commission Rule 14a-8, to include shareholder proposal in proxy materials). Because the question merits full airing, we have tried to consider it comprehensively.

The Supreme Court first recognized a private right of action under section 14(a) of the Act in J.I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). Borak involved a merger allegedly infected by a false and misleading proxy statement. The plaintiff shareholder sought rescission or damages citing (1) section 14(a)'s proscription of proxy solicitation in contravention of Commission rules, ⁶ and (2) Rule 14a-9's ban on false or misleading statements in proxy solicitations. ⁷ The Court found it "clear" that section 27 of the Act afforded shareholders the requisite right to sue. Section 27 gives the federal district courts exclusive jurisdiction over violations of the Act and "of all suits in equity and actions at law brought to enforce any liability or duty created by [the Act] or the rules and regulations thereunder." ⁸ Borak served as the pathmarking decision for the Court's recognition of implied rights of action under section 14(a) and Rule 14a-9 in Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970), and later in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976).

Over the years since Borak, however, the Court has exercised greater restraint in the implication of private rights of action. Compare Cannon v. University of Chicago, 441 U.S. 677, 99 S.Ct. 1946, 60 L.Ed.2d 560 (1979), with Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979). In Touche Ross, the Court unsettled one premise of Borak 's reasoning. "Section 27," the Court said, is a prescription on federal court jurisdiction, venue, and service of process; it "imposes no liabilities" and "creates no cause of action of its own force and effect." Id. at 577, 99 S.Ct. at 2489. Nonetheless, the...