## Facts

- Kennecott sold its Peabody Coal subsidiary for a package valued at about $809 million plus notes payable in 2007 and chose to reinvest rather than distribute the proceeds.
- Kennecott acquired Carborundum Company for approximately $567 million, a move some shareholders opposed in favor of a dividend or tender offer.
- Curtiss-Wright accumulated roughly 9.9% of Kennecott’s shares and disclosed it was considering soliciting proxies to elect directors.
- After Kennecott rejected a joint slate, Curtiss-Wright initiated a proxy contest proposing that Kennecott sell Carborundum and use cash for either a $20-per-share dividend or a $40-per-share tender offer.
- Curtiss-Wright’s proxy materials stated it had not conducted a detailed study of the program’s consequences and relied on public information and discussions.
- Kennecott’s proxy materials opposed the plan, warning that a large distribution could impair Kennecott’s viability and could trigger loan covenant defaults and potential debt acceleration, though Kennecott could not obtain bank confirmation that acceleration would occur.
- Kennecott sued for injunctive relief under § 14(a) and Rule 14a-9 (and asserted antitrust claims); Curtiss-Wright counterclaimed that Kennecott’s proxy materials were misleading.
- The district court found Curtiss-Wright’s proxy solicitation materially misleading and enjoined Curtiss-Wright from voting its shares and proxies at the annual meeting, after which Kennecott’s slate won narrowly.

## Issues

1. Whether Curtiss-Wright’s proxy materials contained materially false or misleading statements or omissions under Exchange Act § 14(a) and SEC Rule 14a-9 regarding the investigation, feasibility, and consequences of its proposed program.
2. Whether the district court properly exercised equitable discretion by disenfranchising Curtiss-Wright and barring it from voting its shares and proxies.
3. How to distinguish disclosure violations from disputes over the merits, fairness, or prudence of a proposed corporate program in a proxy contest.

## Decision

- The Second Circuit reversed the injunction that barred Curtiss-Wright from voting its shares and proxies.
- The court held that Curtiss-Wright’s disclosures, including explicit statements about the limited nature of its study and reliance on public information, were sufficient to inform reasonable shareholders of the basis and risks of the proposal.
- The court treated many challenged statements as opinions or predictions debated by both sides, and concluded any alleged deficiencies did not materially alter the total mix of information available to shareholders.
- The court ruled that the district court’s remedy was disproportionate because it effectively decided the election by judicial action without a showing of materially misleading solicitation warranting disenfranchisement.

## Legal Principles

- Rule 14a-9 prohibits proxy solicitations containing materially false or misleading statements or omitting material facts necessary to make statements not misleading.
- A fact is material if there is a substantial likelihood a reasonable shareholder would consider it important, or if disclosure would significantly alter the total mix of information available.
- Federal proxy regulation focuses on full and fair disclosure; courts generally do not evaluate the business wisdom or substantive merits of a proposed corporate program when disclosures are adequate.
- In proxy contests, clear disclosure of the limits of an analysis and reliance on available information can be sufficient to prevent an omission theory based on qualitative characterizations of investigative thoroughness.
- Equitable relief for § 14(a) violations must be proportionate and should not unnecessarily displace shareholder voting by disenfranchising a faction absent a strong showing of material deception.

## Conclusion

The Second Circuit held that the proxy rules required candid disclosure, not judicial screening of a challenger’s financial program, and it reversed an injunction that barred a 9.9% shareholder from voting because the record did not show materially misleading solicitation justifying such a drastic remedy.


Kennecott Copper Corp. v. Curtiss-Wright Corp., 584 F.2d 1195 (2d Cir. 1978)