## Facts

- CSX Corporation, a publicly traded railroad company, faced an activist campaign by The Children’s Investment Fund Management (UK) LLP and affiliated entities (TCI) and by 3G Capital entities (3G).
- TCI accumulated a large economic position in CSX through cash-settled total-return equity swaps referencing CSX shares; swap counterparties commonly hedged by purchasing CSX shares.
- CSX alleged TCI and 3G sought to influence or obtain control while avoiding or delaying disclosure required by Exchange Act §13(d) and related SEC rules.
- CSX sued in the Southern District of New York asserting that defendants (i) failed to disclose beneficial ownership attributable to swaps and (ii) failed to timely disclose that they had formed a §13(d)(3) “group” whose holdings exceeded 5%.
- The district court found §13(d) violations, entered a permanent injunction against future violations, but denied CSX’s request to enjoin defendants from voting their shares at the 2008 annual meeting.
- CSX appealed the denial of voting “sterilization,” and defendants cross-appealed the §13(d) liability findings and injunction.

## Issues

1. Whether injunctive “sterilization” of voting rights is an available remedy for §13(d) violations when corrective disclosures occur with sufficient time before a shareholder vote.
2. Whether the record and findings adequately supported a conclusion that defendants formed a §13(d)(3) “group” with respect to shares owned outright, triggering a timely Schedule 13D filing obligation.
3. To what extent cash-settled total-return swap positions can support §13(d) beneficial ownership (addressed by the district court, but only marginally reached on appeal).

## Decision

- The Second Circuit affirmed the denial of an injunction preventing defendants from voting their shares.
- The court held that voting-rights sterilization is not warranted where shareholders had adequate time to evaluate belated §13(d) disclosures before voting.
- On defendants’ cross-appeal, the court vacated and remanded in part because the district court did not make sufficiently specific findings to permit appellate review of a §13(d)(3) group violation based on outright share ownership.
- The court limited its disposition largely to group-based ownership of actual shares and did not squarely adopt or reject the district court’s swap-based beneficial-ownership analysis.

## Legal Principles

- Remedies under the Williams Act are generally disclosure-oriented; courts are reluctant to shift the balance of a control contest through vote-disabling relief once adequate corrective disclosure has been made before the shareholder decision.
- Injunctive “sterilization” of shares is generally unavailable when the market and shareholders have sufficient time to digest delayed §13(d) disclosures prior to a vote.
- A §13(d)(3) “group” finding requires specific factual findings showing concerted action regarding the securities; generalized findings may be insufficient to sustain liability on appeal.
- Appellate review of §13(d) group liability turns on when and how the alleged group formed and what securities the coordinated action covered (e.g., outright shares versus derivative-based exposure).

## Conclusion

The Second Circuit rejected vote-sterilization as a remedy where late §13(d) disclosures were made with adequate time before the shareholder vote and remanded for more detailed findings on whether and when the activists formed a §13(d)(3) group with respect to outright CSX shareholdings, leaving the swap-based beneficial-ownership question largely unresolved at the circuit level.


CSX Corp. v. Child.'s Inv. Fund Mgmt. (UK) LLP, 654 F.3d 276 (2d Cir. 2011)