Long Island Lighting Co. v. Barbash

WINTER, Circuit Judge,

dissenting:

In order to avoid a serious first amendment issue, I would construe the federal regulations governing the solicitation of proxies as inapplicable to the newspaper advertisement in question. See Lowe v. Securities and Exchange Commission, — U.S. -, 105 S.Ct. 2557 , 86 L.Ed.2d 130 (1985). Further discovery would then be unnecessary, and I therefore respectfully dissent.

I

First, the facts. The Long Island Lighting Company (LILCO) is a state-regulated public utility. It is currently the subject of controversy in its service area concerning the safety of a nuclear power plant, the cost of constructing that plant, the level of electricity rates, and service difficulties resulting from a recent hurricane.

One of LILCO’s principal antagonists is John W. Matthews, a defendant in this litigation. During the fall of 1985, Matthews was the Democratic candidate for County Executive in Nassau County and appears to have focused much of his campaign upon LILCO issues. During this campaign, Matthews purchased a sufficient number of shares of LILCO’s preferred stock to force a special shareholders’ meeting pursuant to its Charter. On October 9, 1985, he made a demand for such a meeting. The next day, a corporation that is controlled by Matthews and owns LILCO common stock asked to inspect and copy LILCO’s list of common stockholders. The stated purpose of this request was to enable it and Matthews to communicate with LILCO shareholders with regard to the election of LILCO’s Board and to whether LILCO should be sold to Nassau and Suffolk Counties.

Another group of antagonists are the other individual defendants, who constitute a group styled “Citizens to Replace LIL-CO.” On October 15 the Citizens to Replace LILCO published the newspaper advertisement that has given rise to the present litigation. That advertisement accused LILCO of mismanagement and of attempting to pass through to ratepayers needless costs relating to construction of the nuclear power plant. It also noted that a publicly owned power authority would not have to pay dividends to stockholders. The advertisement argued strenuously that ratepayers would be better off if a Long Island Power Authority were created to replace LILCO as a supplier of power. It asked readers to join the Committee and to give it financial support.

LILCO’s complaint alleges that Matthews and the defendant members of the Citizens to Replace LILCO acted in a concerted fashion to publish this advertisement in order to influence the exercise of proxies by LILCO shareholders. It alleges that the advertisement was false and misleading in numerous respects relating to alleged advantages for ratepayers in the creation of a public power authority. Claiming a violation of federal proxy regulations, LILCO asked for an injunction prohibiting the defendants from soliciting proxies until they make appropriate filings with the Securities and Exchange Commission and correct the false and misleading statements in the ad. The relief requested would prevent further publication of the ad.

After the truncated discovery described by my colleagues, the district judge denied the injunction and granted summary judgment for the defendants. He stated that in his view: “Even if defendants did conspire to influence the outcome of the proxy fight ... this fact would be irrelevant.” The case as framed on appeal thus raises two *798 issues. First is the question, fully briefed and argued by the parties and amici, whether the federal regulation of proxy materials applies to newspaper advertisements such as the one at issue and, if so, whether those regulations so applied do not violate the first amendment. Second is the question whether, assuming that the proxy regulations do apply and pass constitutional muster, the case should be remanded for further discovery.

It is clear, of course, that the second issue — the need for further discovery — cannot be determined until the relationship of the proxy regulations to the first amendment has been resolved. If, for example, the first amendment protects such advertisements regardless of the motive of those who purchase them, further discovery would be irrelevant. My colleagues, asserting that “the district court’s determination was predicated on a mistaken notion ... on the relationship between the proxy rules and the First Amendment,” believe such motives are relevant. I respectfully disagree.

II

The content of the Committee's advertisement is of critical importance. First, it is on its face addressed solely to the public. Second, it makes no mention either of proxies or of the shareholders’ meeting demanded by Matthews. Third, the issues the ad addresses are quintessentially matters of public political debate, namely, whether a public power authority would provide cheaper electricity than LILCO. Claims of LILCO mismanagement are discussed solely in the context of their effect on its customers. Finally, the ad was published in the middle of an election campaign in which LILCO’s future was an issue.

On these facts, therefore, LILCO’s claim raises a constitutional issue of the first magnitude. It asks nothing less than that a federal court act as a censor, empowered to determine the truth or falsity of the ad’s claims about the merits of public power and to enjoin further advocacy containing false claims. We need not resolve this constitutional issue, however.

Where advertisements are critical of corporate conduct but are facially directed solely to the public, in no way mention the exercise of proxies, and debate only matters of conceded public concern, I would construe federal proxy regulation as inapplicable, whatever the motive of those who purchase them. This position, which is strongly suggested by relevant case law, see infra, maximizes public debate, avoids embroiling the federal judiciary in determining the rightness or wrongness of conflicting positions on public policy, and does not significantly impede achievement of Congress’ goal that shareholders exercise proxy rights on the basis of accurate information.

It is of course true that LILCO shareholders may be concerned about public allegations of mismanagement on LILCO’s part. However, shareholders are most unlikely to be misled into thinking that advertisements of this kind, particularly when purchased in the name of a committee so obviously disinterested in the return on investment to LILCO’s shareholders, are either necessarily accurate or authoritative sources of information about LILCO’s management. Such advertisements, which in no way suggest internal reforms shareholders might bring about through the exercise of their proxies, are sheer political advocacy and would be so recognized by any reasonable shareholder.

To be sure, the fact that a corporation has become a target of political advocacy might well justify unease among shareholders. No one seriously asserts, however, that the right to criticize corporate behavior as a matter of public concern diminishes as shareholders’ meetings become imminent.

Ill

Potential conflicts between first amendment values and federal regulatory goals have arisen before and have been resolved by the Supreme Court by construing the particular regulatory scheme not to reach *799 activities which clearly implicate the first amendment. These decisions pay heed to the precepts counselling against unnecessary adjudication of constitutional issues. See Ashwander v. TVA, 297 U.S. 288, 346-48 , 56 S.Ct. 466, 482-83 , 80 L.Ed. 688 (1936) (Brandéis, J., concurring); United States v. Curcio, 712 F.2d 1532 , 1541 n. 14 (2d Cir.1983). “Thus, if a case can be decided on either of two grounds, one involving a constitutional question, the other a question of statutory construction or general law, the Court will decide only the latter.” Ask-wander, 297 U.S. at 347 , 56 S.Ct. at 483 .

This very year, in the Lowe case, the Supreme Court construed the Investment Advisors Act not to reach non-personalized investment advice in an investment newsletter even where the source of that advice was a person barred from being a professional investment advisor because of past criminal conduct. In Lowe , the congressional purpose of protecting the public from investment advice by persons determined to be untrustworthy was far more deeply implicated by the newsletter than are the purposes of federal proxy regulation implicated by the advertisement at issue in the present case. Lowe actually involved the giving of investment advice by one barred from the profession by the Investment Advisors’ Act, whereas the relationship of the advertisement in this case to the exercise of shareholder proxies is on its face very attenuated.

Similarly, in Eastern Railroad Conference v. Noerr, 365 U.S. 127 , 81 S.Ct. 523 , 5 L.Ed.2d 464 (1961), the Supreme Court construed the Sherman Act not to reach appeals to the public designed to further a political campaign for a legally protected monopoly even where those appeals were false in their content as well as in their purported source. 1 Again, the congressional purpose of preventing monopolization was more deeply implicated by the activities in Noerr than is in the congressional purpose of proxy regulation implicated by the advertisement in the present case.

Applying Lowe and Noerr to the present case, I believe the advertisement in question is not subject to federal proxy regulation regardless of Matthews’ participation in its publication or the motives of its authors. Further discovery is irrelevant in my view, 2 and I would affirm.

. Unethical or deceptive conduct is not protected under Noerr 1 s progeny when it occurs in the context of adjudicatory tribunals. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508 , 92 S.Ct. 609 , 30 L.Ed.2d 642 (1972); Landmarks Holding Corp. v. Bermant, 664 F.2d 891 (2d Cir.1981); Litton Systems Inc. v. American Telephone and Telegraph Co., 700 F.2d 785 (2d Cir.1983).

. Such discovery itself may raise a constitutional issue to the extent that it enables one political antagonist to inquire into the associational activities of its enemies. NAACP v. Alabama, 357 U.S. 449 , 78 S.Ct. 1163 , 2 L.Ed.2d 1488 (1958).