United Paperworkers Intern. Union v. International Paper Co.
| Decision Date | 12 February 1993 |
| Docket Number | D,Nos. 865,999,s. 865 |
| Citation | 985 F.2d 1190 |
| Parties | , 61 USLW 2527, Fed. Sec. L. Rep. P 97,342, 24 Envtl. L. Rep. 20,591 UNITED PAPERWORKERS INTERNATIONAL UNION, Plaintiff-Appellee-Cross-Appellant, v. INTERNATIONAL PAPER COMPANY, Defendant-Appellant-Cross-Appellee. ockets 92-9199, 92-9225. |
| Court | U.S. Court of Appeals — Second Circuit |
Richard G. McCracken, San Francisco, CA (Michael T. Anderson, Davis, Cowell & Bowe, San Francisco, CA, Bruce H. Simon, Stephen Presser, Cohen, Weiss & Simon, New York City, on the brief), for plaintiff-appellee-cross-appellant.
Henry L. King, New York City (Gary G. Lynch, Lisa L. Lang, Marianne Fogarty Stephen Edward Spelman, Davis Polk & Wardwell, on the brief), for defendant-appellant-cross-appellee.
Mary A. Kenny-Callan, Washington, DC (Joel T. Thomas, Washington, DC, of counsel), for the Coalition for Environmentally Responsible Economies as amicus curiae in support of appellee.
Before: KEARSE, WINTER, and ALTIMARI, Circuit Judges.
Defendant International Paper Company ("Paper Co." or the "Company") appeals from a final judgment of the United States District Court for the Southern District of New York, Charles L. Brieant, Chief Judge, (1) declaring that a Paper Co. proxy statement, in opposition to a shareholder proposal submitted for consideration at the Company's 1992 annual meeting, contained misleading statements and omitted material facts, in violation of § 14(a) of the Securities Exchange Act of 1934 ("1934 Act" or the "Act"), 15 U.S.C. § 78n(a) (1988), and Rule 14a-9, 17 C.F.R. § 240.14a-9 (1992), promulgated thereunder by the Securities and Exchange Commission ("SEC"), and (2) enjoining the Company to resubmit the shareholder proposal at its 1993 annual meeting. On appeal, Paper Co. contends principally that the district court erred in ruling that the proxy statement was misleading in light of the total mix of information available to shareholders. Plaintiff United Paperworkers International Union (the "Union") cross-appeals from so much of the judgment as reflects the district court's refusal to require Paper Co., in its next proxy solicitation on the resolution, to notify shareholders of the court's ruling in the present case. For the reasons below, we reject the contentions of Paper Co., and we conclude that the judgment should be modified to require the Company to allow the sponsor of the resolution to include a fair description of the judgment in the proxy materials to be mailed by the Company.
The events and statements are not in dispute. Paper Co., a corporation whose shares are traded on the New York Stock Exchange, is a major manufacturer of paper and paper products. In connection with the Company's annual meeting scheduled for May 12, 1992, the Presbyterian Church (USA) of Louisville, Kentucky (the "Church"), which owned some 31,000 shares of the Company's stock, and the Sisters of Saint Dominic of Blauvelt, New York (collectively the "Sponsors"), sought to have the Company's shareholders adopt a resolution dealing with corporate accountability for issues concerning the environment. The resolution called for the adoption of the so-called "Valdez Principles" developed by the Coalition for Environmentally Responsible Economies ("CERES"), which called on corporations to, inter alia, reduce waste matter and provide for its safe treatment, market safe products and services, and provide redress for environmental damage. The Company printed the proposed resolution ("Valdez Resolution" or "proposal # 6"), together with the Sponsors' supporting statement, in its 1992 Proxy Statement ("Proxy Statement") mailed to shareholders on March 31, 1992. The resolution read as follows:
RESOLVED, that shareholders request our company to:
1. sign and actively implement the Valdez Principles; and
2. engage with shareholders, CERES, and affected communities in a continuing process to achieve a genuine and publicly trusted measure of public environmental accountability.
The Sponsors' supporting statement expressed, inter alia, the belief that "the growing significance of environmental issues and the impact of our company's environmental practices demand a comprehensive policy and commitment to public environmental accountability."
In the Proxy Statement, Paper Co. opposed the resolution, stating that the Company had already addressed environmental matters "in an appropriate and timely manner" and indeed was in the "forefront" with respect to environmental protection; that certain of the Valdez Principles "may not be applicable to the Company"; and that implementation of the Valdez Resolution "would not provide any greater environmental protection than now exists." Paper Co. stated that its Board had adopted a comprehensive statement of Environmental, Health and Safety Principles ("Company Principles"), which it described as "the most recent articulation of the Company's longstanding commitment to the protection of the environment, which has been an explicit Company policy for many years." The Proxy Statement continued by stating that
the Company's environmental conduct code in fact is both more stringent and more industry specific than the Valdez Principles. In the areas of waste disposal, air emissions and groundwater, the Company has invested hundreds of millions of dollars ($110 million in 1991 alone) in technology, equipment, facilities and personnel to be at the forefront in the enhancement and protection of the environment. An environmental staff was formed by the Company many years ago to maintain compliance with environmental laws and regulations as well as Company policy. The Company regularly audits each operating unit for compliance with the letter and the spirit of those rules. A committee of the Board, the Environment, Health & Technology Committee, meets regularly to review environmental, safety and health policies and programs throughout the Company, and advise the Board of the effectiveness of these policies and programs.
The Board believes the Valdez Principles, though well-intentioned, are in many respects ambiguous and certain of them may not be applicable to the Company. The Board does not believe, for example, that the Company and its shareholders should be burdened with duplicative independent audit requirements and costs associated with additional reports, as called for by the Principles. Moreover, the Board believes that the Principles calling as they do for the selection of one director "qualified to represent environmental interests" are inappropriate since there are many and varied interests which shareholders have that should be the concern of all directors. Finally, the Board believes that implementation of the proposal would not provide any greater environmental protection than now exists and could be significantly more costly.
In summary, the Board believes that protection of the environment is critical to any business today, but that the environmental affairs of the Company and the interests of our shareholders are already being addressed in an appropriate and timely manner.
Approval of Item No. 6 requires the affirmative vote of the holders of a majority of the shares voting on this proposal.
The Company Principles, which were appended to the Proxy Statement, stated, inter alia, that "International Paper is dedicated to safe and environmentally sound products, packaging and operations"; that "[e]nvironmental stewardship has always been an important part of International Paper's business"; that "[t]he principles are consistent with International Paper's long-standing policies on environment, health and safety"; and that the Company had a "strong environmental compliance program."
Prior to mailing the proxy materials to shareholders, Paper Co. had, as required by SEC regulations, submitted its response to the resolution's Sponsors. The Sponsors had not objected to it.
In April 1992, however, the Union, which in recent years had had an unusually tense relationship with the Company and which owned 25 shares of the Company's stock, commenced the present action, contending that the Company's Proxy Statement response to the Valdez Resolution contained false and misleading representations and omissions. As discussed in greater detail below, the Union alleged that, as revealed in Paper Co.'s Form 10-K Report, which was filed with the SEC but not distributed to shareholders, the Company had been accused of numerous environmental offenses, had pleaded guilty to felonies, had agreed to pay huge fines, and had been the target of numerous administrative complaints.
The Union moved for a preliminary injunction to delay the annual meeting pending communication by the Company to shareholders of complete and accurate information with regard to its environmental record. In opposition, the Company argued that the shareholders had or had access to sufficient information. After an expedited hearing on the motion, the court declined to enjoin the meeting. At the meeting, the Valdez Resolution was defeated, receiving only 5.937% of the votes cast. Though this response was just short of the percentage needed to require the Company to resubmit the proposal to shareholders in 1993, the Company notified the Sponsors that it would voluntarily place the proposal on the agenda for the 1993 annual meeting.
Following its denial of the preliminary injunction motion, the district court, with the consent of the parties, converted that motion into cross-motions for summary judgment. The Company, in support of judgment in its favor, argued, inter alia, (1) that its Proxy Statement was not misleading standing alone, and (2) that, in any event, that statement was not misleading when read in conjunction with (a) its annual report, which was mentioned in its Proxy Statement, had been mailed to all shareholders,...
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