Kennecott Copper Corp. v. Curtiss-Wright Corp.
United States Court of Appeals for the Second Circuit
584 F.2d 1195 (1978)
Kennecott Copper Corp. (Kennecott) (plaintiff) sold Peabody Coal Company for $809 million and notes payable in 2007 with a face value of $400 million. Some of Kennecott’s shareholders wanted the proceeds to be distributed by a dividend or a tender offer. Kennecott instead bought Carborundum Company (Carborundum) for $567 million. Curtiss-Wright Corp. (Curtiss) (defendant) purchased a 9.9 percent interest in Kennecott. Curtiss met with Kennecott and proposed a joint nomination of directors that would include minority representation for Curtiss. When Kennecott refused, Curtiss proposed its own directors and advocated the sale of Carborundum and distribution of the money to shareholders by a $20 dividend or a $40 tender offer. Curtiss’ proxy solicitations included a disclaimer that it had not conducted a “detailed study of the consequences to Kennecott of the program.” Kennecott’s proxy solicitation stated that disbursing the funds “would not be consistent with the maintenance of Kennecott as a viable company,” though it does not appear Kennecott’s board or financial advisers ever came to that conclusion. Kennecott alleged that Curtiss’ plan would result in Kennecott defaulting on a loan contract. The contract gave the banks the option to declare the full amount due in case of breach, and the banks would not sign a letter stating that they would do so. Kennecott sued in the District Court for the Southern District of New York accusing Curtiss of securities and antitrust violations and seeking injunctive relief. Curtiss filed a counterclaim arguing that Kennecott’s proxy solicitations were invalid. The court found Curtiss’ proxy solicitations misleading because they failed to state that Curtiss “had not conducted a thorough investigation” and violated the Securities Exchange Act of 1934 § 14(a) and Securities and Exchange Commission (SEC) Rule 14a-9(a). An injunction barring Curtiss from voting at Kennecott’s meeting was issued. Kennecott’s directors were elected by a slight majority. Curtiss appealed to the United States Court of Appeals for the Second Circuit.
Rule of Law
Holding and Reasoning (Van Graafeiland, J.)