GAF Corp. v. Heyman

724 F.2d 727 (1983)

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GAF Corp. v. Heyman

United States Court of Appeals for the Second Circuit
724 F.2d 727 (1983)

Facts

GAF Corporation (plaintiff) was a publicly traded manufacturing company. In 1983, a slate of incumbent directors headed by board chairman Jesse Werner sought reelection to GAF’s board. GAF shareholder Samuel Heyman (defendant) organized a shareholder’s committee (the committee) seeking new management for GAF. The committee nominated an insurgent slate of directors, including Heyman, and prepared for a proxy contest at the 1983 annual meeting. The committee sent shareholders proxy materials asserting that Werner was mismanaging GAF and harming shareholders. The committee also proposed changing GAF’s structure to maximize GAF’s value for shareholders. In response, the incumbent slate defended their performance and criticized the committee’s proposal. At the annual meeting, the shareholders voted to replace the incumbents with the insurgent slate. GAF asked a federal district court to order a new election, asserting that the committee’s proxy materials had failed to disclose that in 1982, Heyman’s sister Abigail had sued Heyman and Heyman’s mother for breach of trust. Abigail’s action alleged that Heyman had abused his position as Abigail’s attorney-in-fact and trustee of Abigail’s assets to deny Abigail financial information and convert some of Abigail’s assets for Heyman’s own use. Abigail’s action was stayed and sealed with all parties’ consent nine days after Abigail filed her complaint. GAF had sought discovery about the dispute to determine whether the dispute could cast doubt on Heyman’s fitness to serve as a GAF director. However, the Heymans had collectively opposed GAF’s request, and Abigail ultimately supported Heyman in the proxy contest. Nevertheless, the district court agreed with GAF that the committee had improperly failed to disclose the information about Abigail’s action. The district court enjoined the insurgent slate from assuming their directorships and ordered a new election and resolicitation of proxies that included information about Abigail’s action. Heyman appealed.

Rule of Law

Issue

Holding and Reasoning (Pratt, J.)

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