Sadler v. NCR Corp.
| Citation | 928 F.2d 48 |
| Decision Date | 07 March 1991 |
| Docket Number | D,No. 1283,1283 |
| Parties | William P. SADLER, Barbara K. Sadler, and American Telephone and Telegraph Company, Plaintiffs-Appellees, v. NCR CORPORATION, Defendant-Appellant. ocket 91-7018. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Greg A. Danilow, New York City (Dennis J. Block, Joseph S. Allerhand, Richard L. Levine, Jacqueline Abramson, Weil, Gotshal & Manges, New York City, on the brief), for defendant-appellant.
Michael W. Schwartz, New York City (Bernard W. Nussbaum, William C. Sterling, Jr., Barbara Robbins, Stephen R. Neuwirth, Jeffrey I. Lang, Wachtell, Lipton, Rosen & Katz, New York City; Charles W. Douglas, William O. Fifield, David F. Graham, Sidley & Austin, Chicago, Ill., on the brief), for plaintiffs-appellees.
Robert I. Harwood, Wechsler Skirnick Harwood Halebian & Feffer, New York City (Stephen G. Schulman, Milberg Weiss Bershad Specthrie & Lerach, New York City; Curtis V. Trinko, New York City, on the brief), filed a brief on behalf of amici curiae NCR Shareholder Class plaintiffs.
Before FEINBERG, NEWMAN, and WALKER, Circuit Judges.
This appeal concerns a limited but potentially important tactic in proxy contests--a stockholder's demand for a list of record shareholders and a list of beneficial owners of shares who do not object to disclosure of their names ("NOBO list"). The appeal raises issues under New York state law and the United States Constitution as to the power of New York to require an out-of-state corporation, doing business within New York, to provide resident shareholders with the list of record stockholders and to compile and produce the NOBO list, under circumstances where the requesting shareholders could not obtain such lists under the law of the state of incorporation. The lists are sought in connection with a tender offer and the solicitation of proxy votes in an effort to replace directors. These issues arise on an appeal by NCR Corporation ("NCR") from the January 28, 1991, order of the District Court for the Southern District of New York (Louis L. Stanton, Judge) requiring NCR to produce the lists in a suit filed by William P. and Barbara K. Sadler and American Telephone and Telegraph Co. ("AT & T"). The Sadlers and AT & T are shareholders of NCR.
We conclude that New York law authorizes production of the shareholder and NOBO lists in the circumstances of this case and that application of New York law does not violate the Commerce Clause of the Constitution. We therefore affirm.
NCR, a large computer company, is incorporated in Maryland and has its principal place of business in Dayton, Ohio. It is undisputed that NCR maintains at least eight offices in New York and conducts substantial business there. NCR has 75,000 shareholders. AT & T, the well-known telecommunications company, is a New York corporation with its principal executive offices in New York City. AT & T became a beneficial owner of 100 shares of NCR stock on November 21, 1990. The Sadlers are New York residents who own more than 6,000 shares of NCR stock and have been record holders of NCR stock for more than six months prior to this lawsuit.
On December 6, 1990, AT & T began a tender offer for the shares of NCR, offering to purchase all of the common stock of NCR for $90 a share. In compliance with Rule 14d-5 of the Securities and Exchange Commission, 17 C.F.R. Sec. 240.14d-5 (1990), NCR mailed the offer to purchase to all NCR stockholders. The NCR board rejected the tender offer and declined to redeem a "poison pill" shareholders' rights plan which presented and continues to present an obstacle to a hostile tender offer. AT & T responded to this opposition by soliciting NCR shareholders to convene a special meeting of stockholders to replace a majority of the NCR directors so that the barriers to the tender offer could be removed. Maryland law permits a special meeting of stockholders to be called upon the request of stockholders entitled to cast 25 percent of the votes at the meeting. Md. Corps. & Ass'ns Code Ann. Sec. 2-502 (1985 & Supp.1990). NCR's corporate charter permits directors to be replaced at a special meeting of stockholders upon the affirmative vote of 80 percent of all outstanding shares. Soon after soliciting calls for a special meeting, AT & T submitted to NCR requests for a special meeting from holders of more than half of NCR stock. NCR subsequently scheduled a special meeting for March 28, 1991, the date selected for its annual meeting.
Beginning in early January 1991, AT & T and the Sadlers, acting at AT & T's request, sought from NCR its stockholder list and related materials to facilitate communication with owners of NCR shares. In addition to the list of record owners, AT & T sought a magnetic computer tape of the list and daily transfer sheets showing changes in shareholders from the date of demand to the date of the annual meeting. AT & T also sought two other lists, a "CEDE list" and a "NOBO list." A "CEDE list" identifies the brokerage firms and other record owners who bought shares in a street name for their customers and who have placed those shares in the custody of depository firms such as Depository Trust Co.; these shares are reflected in the corporation's records only under the names of nominees used by such depository firms. Depository Trust Co. uses "CEDE & Co." as the name of the nominee for shares it holds for brokerage firms, and such lists, regardless of the nominee names adopted by other depository firms, are known as "CEDE lists." See Hatleigh Corp. v. Lane Bryant, Inc., 428 A.2d 350, 353-54 (Del.Ch.1981) (). A "NOBO list" (non-objecting beneficial owners) contains the names of those owning beneficial interests in shares of a corporation who have given consent to the disclosure of their identities. The Securities and Exchange Commission requires brokers and other record holders of stock in street name to compile a NOBO list at a corporation's request. See SEC Rule 14b-1(c), 17 C.F.R. Sec. 240.14b-1(c) (1990).
Upon NCR's refusal to produce the requested materials, the Sadlers and AT & T brought this suit in the Southern District, relying on section 1315 of the New York Business Corporation Law, N.Y.Bus.Corp.Law Sec. 1315 (McKinney 1986). Section 1315, which we consider in detail below, enables New York residents owning shares of a foreign corporation to obtain a list of the corporation's shareholders. On January 28, 1991, the District Court ruled that the Sadlers qualified under section 1315 to obtain NCR's stockholder list and that the statute could constitutionally be applied to require NCR to comply with their request, notwithstanding NCR's Commerce Clause objections. Later that day, Judge Stanton issued a supplemental ruling rejecting NCR's contention that the NOBO list was not producible under section 1315 because it was not then in existence but required compilation. He entered an order requiring NCR to produce all the materials sought by the Sadlers and AT & T.
This Court stayed the District Court's order and heard the appeal on an expedited basis on February 8. On February 11, we vacated all aspects of the stay except those relating to the NOBO list, on condition that NCR would promptly request compilation of a NOBO list, without prejudice to its rights. On February 20, we vacated the stay in its entirety, thereby permitting the District Court's order to go into effect.
Section 1315(a) permits any New York resident who for six months has been a stockholder of record of a foreign corporation doing business in New York, or who holds or acts for those who hold five percent of any class of outstanding shares to require the corporation, on five days' written notice, to produce "a record of its shareholders setting forth the names and addresses of all shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record." N.Y. Bus. Corp. Law (McKinney 1986). Such a resident is also entitled "to examine in person or by agent ... the record of shareholders" at specified locations. Id. The corporation may require the requesting shareholder to furnish an affidavit assuring that "inspection is not desired for a purpose ... other than the business of" the corporation and that the shareholder has not engaged in the sale of stockholder lists within the past five years. Id. Sec. 1315(b). A substantially similar provision of New York law applies to stockholder lists of New York corporations. N.Y. Bus. Corp. Law Sec. 624 (McKinney 1986). See Crane Co. v. Anaconda Co., 39 N.Y.2d 14, 18-20, 346 N.E.2d 507, 510-11, 382 N.Y.S.2d 707, 710-11 (1976) ().
The Sadlers qualify under section 1315 as persons entitled to obtain a "record" of NCR's shareholders. The Sadlers are residents of New York and have owned NCR stock for six months prior to their demand. The corporation whose stockholder list they seek does business in New York.
Nevertheless, NCR challenges the Sadlers' right to invoke section 1315 because of the arrangement between the Sadlers and AT & T under which the Sadlers initiated their request. Since AT & T had not held its NCR stock for more than six months, it sought out a New York resident who qualified under section 1315. AT & T's agreement with the Sadlers provides that the Sadlers will demand the NCR stockholder list, that AT & T will reimburse the Sadlers for any expenses and indemnify them for any losses arising out of the demand, and that the Sadlers will not settle any claim or lawsuit concerning the demand without the consent of AT & T, which will not be unreasonably withheld. Pursuant to this agreement, the Sadlers requested that NCR...
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