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Ash v. GAF Corp.

decided: December 14, 1983.

ASH, RICHARD A., APPELLANT,
v.
GAF CORPORATION



Appeal from the United States District Court for the Eastern District of Pennsylvania.

Hunter and Higginbotham, Circuit Judges, and Gerry, District Judge.*fn*

Author: Higginbotham

Opinion OF THE COURT

A. LEON HIGGINBOTHAM, JR., Circuit Judge.

This appeal requires us to interpret and apply Rule 14a-3(b) of the Security and Exchange Commission (SEC) to determine whether GAF Corporation (GAF) violated the rule in sending its annual report to shareholders by third-class mail four to five days in advance of sending its proxy materials by first-class mail. If we find a violation, we then must decide whether that violation, without more, entitles shareholder-appellant Richard A. Ash, to relief under § 14(a) of the Securities Exchange Act. Unlike the district court, we hold that GAF violated Rule 14a-3(b) because its mailing procedure did not reasonably guarantee that the annual report to shareholders would "accompany or precede" the proxy materials. As appellant alleged insufficient evidence of injury, however, we affirm the district court's summary judgment ruling against him.

I.

The management of GAF, a public company registered pursuant to § 12 of the Securities Exchange Act, 15 U.S.C. § 781, scheduled an annual meeting of security holders at which directors were to be elected for April 27, 1982. On March 16 and 17, 1982, GAF mailed its annual report to shareholders by third-class mail. On March 21, 1982, it mailed a notice of annual meeting, a proxy solicitation, and a form of proxy to the same stockholders by first-class mail. The solicitation of proxy sought authority from the shareholders to elect as directors ten persons nominated by management. The proxy materials also asked the shareholders to return their proxies promptly and gave them a revocation option, exercisable at any time prior to the election. The management-nominated slate of directors was elected on April 27, 1982. The election was uncontested.

Ash, a GAF shareholder entitled to vote at the annual meeting, filed a complaint against GAF in district court on April 2, 1982, alleging that he received his proxy materials on March 23, 1982 and his annual report on March 25, 1982 -- in reverse order from that in which they were sent. He also alleged that an annual report sent by third-class mail could not be expected to arrive before proxy materials sent four to five days later by first-class mail. He thus claimed that GAF violated Rule 14a-3(b) by employing an improper mailing procedure, and he sought either to have the election invalidated or other appropriate equitable relief. He never sought a temporary restraining order or a preliminary injunction to prevent the election from taking place, he never asked the SEC for an interpretation of Rule 14a-3(b), and he neither exercised his proxy nor participated in the election.

The district court subsequently granted GAF's motion for summary judgment. Ash's motion for reconsideration was denied, and he appeals. We have jurisdiction under 28 U.S.C. § 1291.

II.

Appellant's primary contention is that the district court erred in interpreting and applying Rule 14a-3(b). That rule provides:

Information to be furnished security holders

(b) If the solicitation is made on behalf of the management of the issuer, and relates to an annual meeting of security holders at which directors are to be elected, each proxy statement furnished pursuant to paragraph (a) shall be accompanied or preceded by an annual report to security holders. . . .

17 C.F.R. § 240.14a-3(b) (emphasis added). He argues that the rule requires not only that the annual report be mailed at the same time or before the proxy materials, but that it arrive at the same time or before those materials. Because GAF sent its annual report by third-class mail four to five days in advance of sending its proxy materials by first-class mail, and because he received the annual report two days after receiving the proxy materials, appellant claims that the corporation violated the rule. He asks, therefore, that we prescribe a rule forbidding the mailing procedure used by GAF from being employed in ...


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