## Facts

- International Paper Company, a publicly traded paper manufacturer, solicited proxies for its May 12, 1992 annual shareholder meeting.
- Shareholder sponsors submitted a resolution urging adoption of specified environmental principles and related auditing and reporting mechanisms.
- In management’s proxy materials opposing the resolution, the company described itself as having long-standing environmental policies, significant environmental investments, and a strong environmental compliance program.
- Separately, the company’s SEC filings disclosed accusations of numerous environmental offenses, guilty pleas to environmental felonies, and substantial fines.
- The union alleged that shareholders voting on the resolution typically received the proxy statement but not the SEC filing detailing the environmental violations.
- The union’s attempt to delay the 1992 meeting failed; the resolution was defeated with about 6% of votes cast.
- The union sued under Exchange Act § 14(a) and SEC Rule 14a-9, alleging material misstatements and omissions in the proxy solicitation.

## Issues

1. Whether the proxy statement opposing the environmental shareholder proposal contained materially false or misleading statements or omissions in violation of Exchange Act § 14(a) and Rule 14a-9.
2. Whether the company’s publicly filed Form 10-K could be treated as part of the “total mix” of information reasonably available to shareholders, such that it cured any misleading impression created by the proxy statement.
3. Whether equitable relief should require not only resubmission of the proposal but also inclusion in proxy materials of a fair description of the court’s judgment.

## Decision

- The Second Circuit affirmed that the proxy statement was materially misleading and violated § 14(a) and Rule 14a-9.
- The court held that a publicly filed Form 10-K was not part of the relevant “total mix” for materiality where it was not distributed to shareholders in connection with the proxy solicitation.
- The court affirmed the injunction requiring resubmission of the shareholder proposal at the next annual meeting.
- On the union’s cross-appeal, the court modified the remedy to require the company to allow the proposal’s sponsor to include a fair description of the judgment in the proxy materials for the resubmitted vote.

## Legal Principles

- Rule 14a-9 prohibits proxy solicitations containing materially false or misleading statements, or omissions of material facts necessary to make statements not misleading, in light of the circumstances.
- A fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote, including if it would significantly alter the “total mix” of information.
- The “total mix” does not necessarily include all publicly available information; documents not disseminated with the proxy solicitation (including an SEC-filed Form 10-K) may fall outside what shareholders can reasonably be expected to consider for a particular vote.
- When a proxy statement presents favorable claims about compliance or performance, omission of serious contrary facts (such as recent criminal violations and fines) can be materially misleading.
- Courts may grant equitable relief for proxy violations to restore an informed shareholder vote, including resubmission of a proposal and permitting corrective disclosure related to the adjudicated violation.

## Conclusion

The Second Circuit held that International Paper’s proxy opposition to an environmental shareholder resolution violated § 14(a) and Rule 14a-9 by presenting a favorable environmental-compliance narrative while omitting serious environmental criminal violations; because the Form 10-K was not circulated with the proxy, it did not cure the misleading solicitation, and the court ordered resubmission of the proposal with sponsor-provided, fair disclosure of the judgment in the proxy materials.


United Paperworkers Int’l Union v. Int’l Paper Co., 985 F.2d 1190 (2d Cir. 1993)