UNITED PAPERWORKERS INTERN. v. International Paper

• Decision Date: 17 August 1992
• Docket Number: No. 92 Civ. 2941 (CLB).,92 Civ. 2941 (CLB).
• Citation: 801 F. Supp. 1134
• Parties: UNITED PAPERWORKERS INTERNATIONAL UNION, Plaintiff, v. INTERNATIONAL PAPER COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

801 F. Supp. 1134

UNITED PAPERWORKERS INTERNATIONAL UNION, Plaintiff, v.INTERNATIONAL PAPER COMPANY, Defendant.

No. 92 Civ. 2941 (CLB).

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

August 17, 1992.

Richard McCracken, Davis Cowell & Bowe, San Francisco, Cal., Bruce Simon, Cohen Weiss & Simon, New York City, for plaintiff.

Henry King, Gary G. Lynch, Lisa L. Lang, Davis, Polk & Wardwell, New York City, for defendant.

MEMORANDUM DECISION

BRIEANT, Chief Judge.

By motions fully submitted on June 4, 1992, plaintiff United Paperworkers International Union and defendantInternational Paper Company("the Company") each have moved for summary judgment pursuant to Fed.R.Civ.P. 56(c).Jurisdiction is based on the Securities Exchange Act of 1934,15 U.S.C. § 78aa(Supp.1992), and on 28 U.S.C. § 1331(Supp.1992).There is no genuine disputed issue of material fact.

On April 23, 1992, plaintiff brought an Order To Show Cause and a Temporary Restraining Order, seeking to enjoin further solicitation and voting of proxies in connection with defendant International Paper's Annual Meeting.That meeting was scheduled to take place on May 12, 1992.Specifically, the plaintiff alleged that the defendant's Board of Directors, in response to a shareholders' proposal, authorized and included in its proxy materials a statement which contained false and misleading representations, intended to procure the defeat of the proposal, as well as material omissions.Though the plaintiff was not a sponsor of the shareholders' proposal, it was and is the beneficial owner of twenty-five shares of International Paper's stock.

After a conference with counsel, this Court, sitting in Part I in Foley Square, signed a Consent Order withdrawing the proposed Order to Show Cause.The Order to Show Cause was withdrawn because it appeared that, under Local Rule 21, the case should have been assigned to White Plains.Plaintiff then refiled in White Plains, and the case was assigned by random selection to this Court.On May 5, 1992, the Court held an expedited hearing on the plaintiff's motion for a preliminary injunction, pursuant to Fed.R.Civ.P. 65(a).The Court denied the motion for a preliminary injunction at that time.Essentially, the Court concluded that the plaintiff had raised colorable claims, but that the balance of equities weighed heavily in favor of the defendant, primarily because of the disruption of the Company's Annual Meeting attendant to the entry of an injunction.

After directing the parties to notify the sponsors of the shareholders' proposal of the pendency of this action, the Court, with the consent of counsel, converted the motion into cross-motions for summary judgment.The following represent the Court's statement of material facts and conclusions of law.

Defendant International Paper is a New York corporation whose shares are publicly traded on the New York Stock Exchange.¹On March 31, 1992, the Company sent its shareholders a Notice of Annual Meeting and a Proxy Statement.Included in the proxy materials was a "Shareholder Proposal Concerning the Valdez Principles".This proposal, denominated as ItemNo. 6, had been submitted to the Company by the Presbyterian Church (USA) pursuant to Rule 14a-8 of the Securities Exchange Act of 1934. 17 C.F.R. § 240.14a-8(1992).²This rule was promulgated by the Securities and Exchange Commission under its rulemaking authority, 15 U.S.C. § 78n(a)(1981).It permits shareholders who have owned either 1% of the Company's equity securities or $1,000 worth of its stock for a specified period of time to submit proposals for a vote of the Company's shareholders.17 C.F.R. § 240.14a-8(a)(1)(1992).

The text of proposal # 6 was as follows:

"RESOLVED, that the shareholders request our company to:

1. sign and 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".Ex.A to April 27Agee Affidavitat 20.

The sponsors of this proposal also appended a statement in support of their resolution.The statement outlines the Valdez Principles,³ which were developed by CERES,⁴ and recommends inter alia that the Company report its compliance with these principles to the CERES group.

Applicable regulations, specifically 17 C.F.R. § 240.14a-8(e), permit the Company's Board of Directors to offer a written response to such shareholder proposals.Thus, immediately following the sponsors' statement in support of ItemNo. 6 is a statement describing the position of the Company's Board on this proposal.That statement, which is the focal point of this litigation, states in full:

"Position of the Company's Board of Directors"

"Your Board of Directors recommends that the shareholders vote AGAINST the proposal for the reasons set forth below:"

"The Board, at the recommendation of Company management, has adopted a comprehensive statement of Environmental, Health and Safety Principles and implementing guidelines (set forth in Appendix B).This statement of Principles is 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.We believe 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 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 ItemNo. 6 requires the affirmative vote of the holders of a majority of the shares voting on this proposal."Ex. A to April 27 Agee Affidavitat 22-23.

The "Statement of Principles" adopted by defendant and referred to in this text was annexed as Appendix B to the proxy materials.This statement is as follows:

"Environmental, Health and Safety Principles"

"Environmental stewardship has always been an important part of International Paper's business.The company has an obligation to the communities where it does business to ensure that its actions protect both the people who live there and the surrounding environment.While the company must obey all laws, it must also have a set of values that guides decision-making and actions".

"The principles are consistent with International Paper's longstanding policies on the environment, health and safety.Combined with a strong environmental compliance program, they serve as a challenge and mandate for every manager, supervisor and employee of International Paper:

* To make environmental, health and safety considerations priorities in operating existing facilities, as well as in planning new operations.

* To recognize, in developing and designing products to meet customer needs, the environmental, health and safety effects of product manufacture, distribution, use and disposal.

* To monitor its environmental, health and safety performance and to report regularly on these matters to the Board of Directors, as well as to confirm its adherence to these principles annually to the American Paper Institute.

* To train employees in their environmental, health and safety responsibilities, and to promote awareness and accountability on these matters.

* To improve environmental, health and safety performance through support of research and development that advance the frontiers of knowledge.

* To communicate with employees, customers, suppliers, the community, public officials and shareholders to build greater understanding on environmental, health and safety matters.

* To participate constructively in the development of public policies on environmental, health and safety matters.

* To continue to pursue energy conservation, increased energy efficiency, greater utilization of alternatives to fossil fuels and opportunities for cogeneration of electricity."Ex.A to April 27 Agee Affidavit at B-1.

Each of these principles is followed by "Implementing Guidelines".These guidelines are far too lengthy and long-winded to be reproduced here in full.⁵Their flavor is conveyed adequately by the following excerpts:

"International Paper is dedicated to safe and environmentally sound products,

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