granting preliminary injunction and finding likelihood of success on the merits where plaintiff “made a credible claim that Defendants did not fully and accurately disclose their [investment] purposes” under Section 13(d)
How later courts described this case
- granting preliminary injunction and finding likelihood of success on the merits where plaintiff “made a credible claim that Defendants did not fully and accurately disclose their [investment] purposes” under Section 13(d)
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
}
TASEKO MINES Ltd., }
}
Plaintiff, }
}
v. } Civil Action No. 16-390 (GK}
}
RAGING RIVER CAPITAL, et al., }
}
Defendants. }
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MEMORDANDUM OPINION
Plaintiff Taseko Mines Limited ( "Taseko" or "the Company")
brings this action against Raging River Capital LP, Raging River
Capital GP LLC, Granite Creek Partners, LLC, Westwood Capital LLC,
Paul M. Blythe Mining Associates Inc., Jonathan G. Lee Partners
LLC, Paul Blythe, Nathan Milikowsky, Mark Radzik, Henry Park, and
Jonathan Lee (collectively "Defendants"), alleging violations of
Section 13(d) of the Securities Exchange Act of 1934 ("Exchange
Act"). 15 U.S.C. § 78m(d).
This matter is now before the Court on Plaintiff's Motion for
a Preliminary Injunction ("Injunction Motion") [Dkt. No. 38], as
well as Plaintiff's Motion for Reconsideration ("Recon. Motion")
[Dkt. Nos. 45, 46-2]. Upon consideration of the Motions, Opposition
[Dkt. Nos. 49-2], Reply [Dkt. No. 51-2], and the entire record
herein, and for the reasons set forth below, the Motions shall be
granted.
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I. Background
A. Factual Overview
Only a brief recitation of the facts is necessary at this
juncture to decide the present Motions. For a more detailed
summary, see the Court's April 26, 2016 Memorandum Opinion ("Mem.
Op. " ) [Dkt . No. 4 4] .
Taseko is a Canadian-based mining company whose shares are
traded on both the NYSE MKT and the Toronto Stock Exchange. Amended
Complaint ~ 2 ("Am. Compl.") [Dkt. No. 13]. In January 2016,
Defendants acquired more than 5% of Taseko common shares ("Taseko
Shares") and disclosed their acquisitions of shares by filing a
Schedule 13D on January 13, 2016 ("First 13D"), as required by the
Exchange Act. Id. ~ 5. In December 2015 and January and February
2016, Defendants acquired Taseko senior notes due in 2019
("Notes"). Am. Compl. ~ 38. During that same time period, Raging
River Capital 2 LLC also acquired Taseko senior notes due in 2019
("Additional Notes"). Opp'n at 26.
Shortly after acquiring their shares, Defendants called for
a shareholder meeting to vote on the removal of three current
Taseko directors and the addition of four new directors they
nominated. Id. The shareholder meeting is currently scheduled for
May 10, 2016.
Over the course of this litigation, Defendants have amended
their Schedule 13D disclosures on three separate occasions. See
2
First Amended 13D, Exhibit 2 to Motion to Dismiss [Dkt. No. 28-
2]; Second Amended 13D, discussed in Opp'n at 4; Third Amended
13D, Exhibit A to Reply to Motion to Dismiss [Dkt. No. 36-2].
On April 26, 2016, the Court granted in part Defendants'
Motion to Dismiss [Dkt. No. 4 3] . Plaintiff's remaining claim
relates to alleged undisclosed agreements regarding Taseko
securities. See Mem. Op. at 14-18. In its Motion for
Reconsideration, Plaintiff asks the Court to reconsider the
dismissal of its claim that Defendants have not properly disclosed
their purpose in purchasing the Notes.
B. Securities Exchange Act of 1934
Section 13 (d) of the Exchange Act requires entities that
acquire a 5% or more interest in an issuing corporation to file a
Schedule 13D setting forth certain information. See 15 U.S.C.
§ 78m(d); 17 C.F.R. § 240.13d-101.
Currently at issue is Item 4 of the Schedule 13D. The statute
requires, inter alia, that the filer state:
if the purpose of the purchases or prospective purchases
is to acquire control of the business of the issuer of
the securities, any plans or proposals which such
persons may have to liquidate such issuer, to sell its
assets to or merge it with any other persons, or to make
any, other major change in its business or corporate
structure;
15 U.S.C. 78m(d) (1) (C). Similarly, the Regulation requires that
the filer "[s]tate the purpose or purposes of the acquisition of
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securities of the issuer," including any plans that might relate
to the purchase of additional securities, extraordinary corporate
transactions, the sale or transfer of a material amount of assets
of the issuer, and other intended corporate changes or
transactions. 17 C.F.R. § 240.13d-101
II. Legal Standard
A. Reconsideration
A district court may revise its own interlocutory decisions
"at any time before the entry of a judgment adjudicating all the
claims and all the parties' rights and liabilities." Fed. R. Civ.
P. 54(b). Rule 54(b) permits the district court to reconsider an
interlocutory order "as justice requires," which requires
"determining, within the Court's discretion, whether
reconsideration is necessary under the relevant circumstances."
Cobell v. Norton, 224 F.R.D. 266, 272 (D.D.C. 2004)); see also
Singh v. George Washington Univ., 383 F. Supp. 2d 99, 101 (D.D.C.
2005). The term "' [a]s justice requires' indicates concrete
considerations" by the court, Williams v. Savage, 569 F. Supp. 2d
99, 108 (D.D.C. 2008), such as "whether the court patently
misunderstood the parties, made a decision beyond the adversarial
issues presented, made an error in failing to consider controlling
decisions or data, or whether a controlling or significant change
in the law has occurred." In Def. of Animals v. Nat' 1 Inst. of
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Health, 543 F. Supp. 2d 70, 75 (D.D.C. 2008) (internal citation
and quotation marks omitted) .
"Furthermore, the party moving to reconsider carries the
burden of proving that some harm would accompany a denial of the
motion to reconsider." Id. at 76. The court's discretion under
54(b) is "subject to the caveat that, where litigants have once
battled for the court's decision, they should neither be required,
nor without good reason permitted, to battle for it again." Singh,
383 F. Supp. 2d at 101 (internal citations omitted).
B. Preliminary Injunction
This court may issue interim injunctive relief only when the
rnovant demonstrates "[l] that [they are] likely to succeed on the
merits, [2] that [they are] likely to suffer irreparable harm in
the absence of preliminary relief, [3] that the balance of equities
tips in [his or her] favor, and [4] that an injunction is in the
public interest." Winter v. Natural Res. Def. Council, Inc., 129
S. Ct. 365, 374 (2008) (citing Munaf v. Geren, 128 S. Ct. 2207,
2218-19 (2008)). It is particularly important for the rnovant to
demonstrate a likelihood of success on the merits. Cf. Benten v.
Kessler, 505 U.S. 1084, 1085 (1992) (per curiarn). Indeed, absent
a "substantial indication" of likely success on the merits, "there
would be no justification for the court's intrusion into the
ordinary processes of administration and judicial review." Arn.
5
:·.
Bankers Ass'n v. Nat'l Credit Union Admin.,. 38 F. Supp. 2d 114,
140 (D.D.C. 1999) (internal quotation omitted).
The other critical factor in the injunctive relief analysis
is irreparable injury. A movant must "demonstrate that irreparable
injury is likely in the absence of an injunction." Winter, 129 S.
Ct. at 375 (citing Los Angeles v. Lyons, 461 U.S. 95, 103 (1983)).
Provided that the plaintiff demonstrates a likelihood of success
on the merits and of irreparable injury, the court "must balance
the competing claims of injury and must consider the effect on
each party of the granting or withholding of the requested relief."
Amoco Prod. Co. v. Gambell, 480 U.S. 531, 542 (1987).
Because a preliminary injunction is an extraordinary remedy,
courts should grant such relief sparingly. Mazurek v. Armstrong,
520 U.S. 968, 972 (1997). The Supreme Court has observed "that a
preliminary injunction is an extraordinary and drastic remedy, one
that should not be granted unless the movant, by a clear showing,
carries the burden of persuasion." Id. Therefore, although the
trial court has the discretion to issue or deny a preliminary
injunction, it is not a form of relief granted lightly. In
addition, any injunction that the court issues must be carefully
circumscribed and "tailored to remedy the harm shown." Nat' 1
Treasury Employees Union v. Yeutter, 918 F.2d 968, 977 (D.C. Cir.
1990) .
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III. Analysis
A. Motion to Reconsider
In their Reply in support of their Motion to Dismiss,
Defendants argued that their Third Amended 13D (filed the same day
as the Reply) mooted Plaintiff's claim that Defendants had failed
to properly disclose their purpose in acquiring the Notes. See
Reply to Motion to Dismiss at 10-11 [Dkt. No. 36). In the Third
Amended 13D, Defendants state for the first time that they
"acquired the Notes for investment purposes because they believed
the Notes represented an attractive investment opportunity" and
because they "intend to pursue a concerned shareholder campaign in
respect of the Issuer." Third Amended 13D at 2.
The purpose given for acquiring the Notes was the same given
as to why Defendants acquired the Taseko shares. Plaintiff did not
object to the sufficiency of Defendants' stated purpose for
acquiring the Taseko shares, nor did they file a Surreply
objecting, and therefore the Court presumed that Plaintiff
accepted that the stated purpose was likewise sufficient for the
Notes. See Mem. Op. at 13-14. Having found that Defendants had
sufficiently stated their purpose in acquiring the Notes, the Court
found Plaintiff's claim to have become moot and thereby dismissed
it. Id.
Plaintiff asks the Court to reconsider its ruling, see Recon.
Motion at 2, because Defendants "did not accurately disclose their
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purpose for acquiring the Notes, which was not and could not have
been the same as their purpose in acquiring Taseko common shares."
Id. Plaintiff also argues that, because Defendants filed their
Third Amended 13D on the same day they_filed their Reply to the
Motion to Dismiss, Plaintiff did not have an opportunity to address
the adequacy of the newly filed Third Amended 13D. Id. at 3-4.
Plaintiff further contends that Defendants did not disclose in the
Third Amended 13D their "true" purpose in acquiring the Notes and
that they misstated the purpose they did disclose. Injunction
Motion at 21-23.
First, Plaintiff states that Defendants could not have
acquired the Notes in order to carry out a concerned shareholder
campaign because ownership of the Notes does not entitle them "to
call a shareholder meeting, advance resolutions to be put to a
shareholder vote, solicit proxies, or vote on any corporate
matters, including board membership." Id. While Defendants may
have purchased the Notes to protect against the risks of the Taseko
shares, which they in turn purchased to pursue a concerned
shareholder campaign, the Notes themselves do not facilitate this.
Consequently, holders of Notes have no authority to participate in
Taseko's governance.
Second, Plaintiff argues that Defendants' stated purpose is
contrary to the purpose evidenced in the documents received in
discovery. Recon. Motion at 5. According to Plaintiff, the
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•.
documents indicate that Defendants acquired the Notes in order to
hedge against "the investment they made in the common shares, and
to gain leverage over common shareholders in the bankruptcy process
in the event [Taseko] were to become insolvent." Id. This
disclosure is critical, Plaintiff argues, because it places
Defendants' interests at odds with the interests of Taseko's other
shareholders. Id. at 5-6; Injunction Motion at 21-26.
Defendants reply that, even assuming arguendo that they
acquired the Notes to "hedge" against their investment in the
Taseko shares, their disclosure is still correct because hedging
is an investment purpose. Opp'n at 2. Even if Defendants acquired
the Notes for investment purposes, the Regulation requires them to
disclose the "purpose or purposes of the acquisition," 17 C.F.R.
§ 240 .13d-101 (emphasis added). In sum, Defendants are still
required to disclose any other purposes underlying their
acquisition, such as those alleged by Plaintiff.
The Court also agrees with Plaintiff that it did not have a
chance to properly respond to the adequacy of Defendants' newly
proffered purpose in acquiring the Notes. Thus, Plaintiff is
raising several arguments challenging the sufficiency of
Defendants' stated purpose in acquiring the Notes that the Court
did not have before it and which Plaintiff did not have
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sufficient opportunity to raise previously - when it decided the
Motion to Dismiss.
Accordingly, for the foregoing reasons, Plaintiff's Motion to
Reconsider is granted, the portion of the Court's prior decision
dismissing Plaintiff's claim regarding disclosure of the purpose
for the acquisition of the Taseko Notes is vacated, and the Motion
to Dismiss Plaintiff's claim regarding disclosure of the purpose
for the acquisition of the Taseko Notes is denied.
B. Preliminary Injunction
1. Taseko Is Likely to Succeed on the Merits
As discussed above, Taseko has made a credible claim that
Defendants did not fully and accurately disclose their purposes in
acquiring the Taseko Notes. On its face, the language of Section
13(d) does not indicate how much detail or specificity is required
in disclosures. However, it is clear in this instance that
Defendants' explanation that the Notes were acquired for
"investment purposes" does not sufficiently communicate to
investors their intentions. See Decicco v. United Rentals, Inc.,
602 F. Supp. 2d 325, 347 (D. Conn. 2009) ("The purpose of~
Schedule 13D filing is to notify the security issuer and the public
that a person has accumulated a significant position in a company's
[securities], and to disclose that person's intentions.")
Plaintiff has provided evidence suggesting that Defendants
were motivated in part to purchase the Notes to protect their
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investment in the Taseko shares - specifically to ensure influence
and protection in case of default or bankruptcy. Injunction Motion
at 23-24. Plaintiff further alleges that the documents describe
how, in the case of bankruptcy, Defendants could potentially make
more money than they would if Taseko remains solvent. Injunction
Motion at 29-30. This information is obviously important to
investors, as it indicates that Defendants' interests may not be
fully aligned with those of the shareholders.
While Defendants are correct that a conflict of interest
naturally arises by virtue of owning debt and equity at the same
time, the potential conflict is significant enough to have
additional implications here. Opp'n at 15. Plaintiff alleges that
Defendants sought a substantial bond position in order to have a
position of influence in case of bankruptcy, and to potentially
even profit from bankruptcy. Injunction Motion at 23-24.
Given the evidence suggesting Defendants did not fully
disclose their purposes in acquiring the Notes, and the misleading
nature of their disclosure, Plaintiff has shown that it is likely
to succeed on the merits of its claim.
2. Taseko Will Suffer Irreparable Harm
The Court finds that Taseko will suffer irreparable harm in
the absence of a preliminary injunction. "An uninformed
shareholder vote is often considered an irreparable harm,
particularly because the raison d'etre of many of the securities
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laws is to ensure that shareholders make informed decisions."
Allergan, Inc. v. Valeant Pharm. Int'l, Inc., No. SACV 14-1214
DOC(ANx), 2014 WL 5604539, at *16 (C.D. Cal. Nov. 4, 2014); see
also Irving Bank Corp. v. Bank of New York Co., 692 F. Supp. 163,
168-69 (S.D.N.Y. 1988) ("Forcing shareholders to make
decisions without full and accurate disclosure of material
information causes an irreparable injury") . That said,
noncompliance with Section 13(d) does not per se result in
irreparable harm. See Masters v. Avanir Pharm., Inc., 996 F. Supp.
2d 872, 885 (C.D. Cal. 2014) (rejecting per se rule).
Defendants do not dispute that the shareholder vote on
directors is an important one. Shareholders voting on the basis of
inadequate disclosures may significantly affect who wins several
director positions, and indeed control of the Board of Directors.
Although Plaintiff does not seek money damages, should Plaintiff
prevail, sorting out post-vote remedies is likely to be difficult
and further complicated by the fact that control of the Board of
Directors of Taseko--the Plaintiff in this case--may have shifted
to Defendants. See Injunction Motion at 33-34; see also Reply in
Support of Motion to Lift Stay at 3, 14 [Dkt. No. 31).
Defendants argue that irreparable injury does not
automatically exist whenever there is an alleged disclosure
violation, but fail to explain why in this instance the injury is
not irreparable. The crux of Defendants' arguments are that the
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necessary information is fully disclosed and therefore there is
"no danger of any 'uninformed stockholder vote'," and that
Plaintiff has already communicated its conflict of interest theory
to stockholders. Opp'n at 17-18. This argument goes to the merits
of Plaintiff's claim, which the Court has already found the
Plaintiff likely to succeed on.
3. Balance of Equities and Public Interest
Defendants have not shown that they will suffer any harm by
issuance of this injunction, particularly since Plaintiff is
willing to continue with the shareholder vote as scheduled on May
10, 2016, if Defendants file sufficient Schedule 13D disclosures
by May 6, 2016. Defendants' reticence in disclosing information
and failure to even disclose their purchase (or intention to
purchase 1 ) of the Notes in their First Schedule 13D also weighs
against them. Any harm suffered by Defendants is outweighed by the
harm Plaintiff will suffer from inadequate disclosures.
In addition, effective enforcement of the federal securities
laws promotes the public interest. Graphic Sciences, Inc. v. Int'l
Mogul Mines Ltd., 397 F. Supp. 112, 128 (D.D.C. 1974) ("The Court
concludes that the public interest demands uniform and exacting
i Item 4 requires the reporting person to describe "any plans or
proposals" they "may have which would relate to or would result
in: (a) The acquisition by any person of additional securities of
the issuer, or the disposition of securities of the issuer."
17 C.F.R. § 240.13d-101.
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enforcement of the securities laws and that policy encourages a
thorough review of possible violations thereof.") . Defendants'
only response is that Canada has a greater interest than the United
States in remedying any purported disclosure issues. Opp'n at 19.
It is not clear how Canada's interest diminishes the public
interest in disclosure or how denying an injunction would further
the public interest, either here or in Canada.
IV. Conclusion
For all of the foregoing reasons, Plaintiff's Motion for a
Preliminary Injunction is granted. An Order shall accompany this
Memorandum Opinion.
May 5, 2016 Gladys Kess]., r
United States District Judge
Copies to: attorneys on record via ECF
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