ELR Citation: ELR 20591
No(s). s. 92-9199, -9225 (2d Cir. Feb 12, 1993)

The court affirms a district court decision that a company violated §14(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 14a-9 when its board of directors published, in the proxy statement for an annual stockholders meeting, a statement containing material misstatements and omissions in response to a shareholder proposal that the company adopt the "Valdez principles" on corporate environmental responsibilities. The board's statement recommended that the company's stockholders vote against the proposal, stating that a company policy on environmental protection, allegedly more stringent than the Valdez principles, already existed and that the company had a long-standing commitment to environmental protection. The statement failed to state that the company had pleaded guilty to felonies relating to violations of hazardous waste laws, that the U.S. Environmental Protection Agency had initiated proceedings to debar the company from doing business with the federal government for three years, and that the company was subject to over 50 suits, administrative proceedings, and settlement agreements relating to several alleged environmental violations.

The court first holds that plaintiff union has standing to bring suit for §14(a) and Rule 14a-9 violations, because the Securities Exchange Act empowered the SEC to adopt rules the Commission deemed necessary or appropriate to protect investors and plaintiff, which owns 25 shares of the company's stock, is an investor. Turning to the merits, the court holds that the board's statement was misleading. The court holds that the district court properly considered press reports and the company's Form 10-K filing with the SEC not to be part of the information reasonably available to stockholders. The press reports were few in number, narrow in focus, and remote in time. The Form 10-K was filed with the SEC, but not distributed to stockholders. Also, nothing in the annual report suggested that there existed additional environmental facts and proceedings adverse to the company, much less that such information could be learned from the company's Form 10-K.

The court holds that the proxy statement standing alone was materially misleading with respect to the company's environmental record, because the company represented therein that it had a long-standing commitment to the protection of the environment, that it had a vigorous compliance program, and that it had addressed such issues appropriately—an impression that was entirely false. The court holds that disclosures in the annual report failed to cure materially misleading representations and omissions in the proxy statement, because stockholders could have viewed the disclosures in the annual report as consistent with the company's claimed "achievement of a genuine and publicly trusted measure of public environmental accountability." The court next holds that the district court did not abuse its discretion in not ordering the company to include a description of the district court's decision in the board's statement opposing the resubmitted "Valdez principles" resolution in the 1993 proxy statement. The court, however, holds that the district court should modify its decision to allow the sponsor of the resolution to include a fair description of the district court decision in the proxy statement.

[The district court's decision is published at 24 ELR 20581.]

Counsel for Plaintiff
Bruce Simon
Cohen, Weiss & Simon
330 W. 42d St., New York NY 10036
(212) 563-4100

Counsel for Defendant
Henry King, Gary G. Lynch
Davis, Polk & Wardwell
450 Lexington Ave., New York NY 10017
(212) 450-4000

Before: KEARSE, WINTER, and ALTIMARI, Circuit Judges