Long Island Lighting Company v. Barbash
779 F.2d 793 (2d Cir. 1985)

  • Matthews owned some shares in a private utility company called LILCO. He asked for a special shareholder’s meeting to decide if the company should become a publicly-owned utility.
    • Some of the other shareholders who agreed with Matthews placed an ad in the newspaper accusing the LILCO directors of mismanagement and urging support for the campaign to make the utility public.
  • LILCO sued to block the shareholders meeting.
    • LILCO argued that the ad was unlawful because it constituted a proxy solicitation for which no proxy statement had been filed with the SEC.
    • Basically, LILCO was arguing that the ad was a request to all the shareholders to vote for Matthews’ proposal. But Matthews’ proposal had not yet been approved by the SEC.
      • That would be a violation of Rule 14a-1. The SEC has very specific rules for what a proxy solicitation can and cannot contain. Mostly the rules are designed to forbid people from misleading the shareholders by telling them only one side of the story, or just outright lying about the implications of a vote.
  • The Trial Court found the ad was legal. LILCO appealed.
    • The Trial Court found that the ad was not a proxy solicitation because it was placed in a general newspaper, and wasn’t specifically directed at the LILCO shareholders. Therefore it would only indirectly affect the proxy contest.
  • The Appellate Court reversed.
    • The Appellate Court found that SEC proxy rules apply not only to direct requests to furnish, revoke, or withhold proxies, but also to communications which may indirectly accomplish such a result or constitute a step in the chain of communications designed ultimately to accomplish such a result.
      • See Rule 14a-6(g).
    • The Court felt that limiting the proxy solicitation rules to things that directly targeted the shareholders would make it too easy to evade the SEC requirements.
  • In a dissent it was argued that there was a 1st Amendment right to free speech, and the right to criticize corporate behavior doesn’t diminish as shareholder meetings become imminent.