Before HASTINGS, Chief Judge, and KILEY and SWYGERT, Circuit Judges.
This action was brought in the district court by Frank Brown, a stockholder in Chicago, Rock Island & Pacific Railroad Company, against defendants, Union Pacific Railroad Company and Rock Island. Plaintiff proceeded individually and did not seek relief on behalf of others. Plaintiff sought to enjoin defendants from alleged unlawful proxy solicitation*fn1 and an order requiring defendants to retract or correct statements made in the alleged proxy solicitation.
The Securities and Exchange Commission was granted leave to participate in the district court proceedings as amicus curiae and to file a legal memorandum supporting plaintiff's position. The Commission also argued orally before this court.
In the district court, Rock Island filed a motion to dismiss the action under Rule 12(b) (6), Federal Rules of Civil Procedure, 28 U.S.C.A., and for summary judgment under Rule 56(b). Union Pacific filed a motion to dismiss under Rule 12(b) (6). The district court granted each of the several motions and rendered judgment accordingly. Plaintiff appealed.
Each of the motions filed below was supported by evidence and affidavits and plaintiff testified in the hearing thereon. We shall treat the motions to dismiss as motions for summary judgment, as did the district court.
The following events preceded the alleged unlawful proxy solicitation.
On May 13, 1963, management representatives of Rock Island and Union Pacific, after several months of negotiation, publicly announced their agreement to recommend to their respective boards of directors a plan for merger of the two railroads.
On or about June 24, 1963, Chicago & North Western Railway Company publicly announced, by a press release and distribution of a brochure to a group of security analysts in New York City, and transmitted by letter to Rock Island, its offer to purchase control of Rock Island. This offer, in essence, was that North Western would exchange $5.00 in cash, one North Western 6% collateral trust income bond due in fifty years with a face value of $30.00 and .2778 of a share of North Western common stock for one share of Rock Island common stock.
On June 27, 1963, the Rock Island and Union Pacific boards of directors formally adopted and executed the plan for merger which had been recommended to them on May 13, 1963.
On or about July 3, 1963, North West ern filed two applications with the Inter state Commerce Commission. One application sought Commission approval, under § 5(2) of the Interstate Commerce Act, 49 U.S.C.A. § 5(2), of North Western's proposal to acquire Rock Island stock.The other application sought Commission approval, under § 20a of the Interstate Commerce Act, 49 U.S.C.A. § 20a, of North Western's proposal to issue common stock and a new security as part of its exchange offer to Rock Island stockholders.
On July 25, 1963, Union Pacific filed a petition with the Commission opposing North Western's applications. This petition was entitled:
"Petition of Union Pacific Railroad Company for Leave to Intervene, and Motion to Dismiss the Applications on the Ground that the Authorities Sought are Contrary to the Public Interest and the Applications on Their Face are Otherwise Defective."
Union Pacific published the advertisement, which is in issue in this case, in about forty-five newspapers in the United States on July 26, 1963*fn2 There was no subsequent publication or other distribution of the advertisement.Each city in which the advertisement was published was served by either Union Pacific or Rock Island, except New York City and Washington, D.C.
The advertisement was prepared and published by Union Pacific.The only evidence connecting Rock Island with the advertisement was a telephone conversation, in which the proposed advertisement was discussed, between an attorney in Chicago representing Union Pacific in the proposed merger and an officer of Union Pacific in New York. An officer of Rock Island heard this conversation by means of a "loudspeaker" conference telephone in Chicago. He was present in the attorney's office in connection with other business and did not participate in such telephone conversation.
In the district court, plaintiff contended that the advertisement was an unlawful proxy solicitation in violation of Section 14 of the Securities and Exchange Act of 1934 and Regulations promulgated thereunder, supra, because no proxy statement accompanied the advertisement.
On appeal, plaintiff contends that the advertisement was an illegal solicitation, as a matter of law. In the alternative, plaintiff contends that a question of fact exists on the issue of whether the advertisement was an illegal proxy solicitation, and that the district court erred in granting the motions for summary judgment.
SEC Reg., 17 C.F.R. § 240.14a-1 defines "solicitation" as follows:
"(f) Solicitation . (1) The terms 'solicit' and 'solicitation' include:
"(i) Any request for a proxy whether or not accompanied by or included in a form of proxy;
"(ii) Any request to execute or not to execute, or to revoke, a proxy; or
"(iii) The furnishing of a form of proxy or other communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy."
Plaintiff contends that the advertisement was a "communication to security holders under circumstances reasonably calculated to result in the procurement * * * of a proxy." Defendants assert that the circumstances surrounding the publication of the advertisement and the advertisement itself demonstrate otherwise.
Twenty-three days before the advertisement was published, North Western filed the above-mentioned applications with the Interstate Commerce Commission seeking approval of North Western's proposal to acquire Rock Island stock. In considering North Western's applications, the Commission is required to give weight to, "(1) The effect of the proposed transaction upon adequate transportation service to the public; (2) the effect upon the public interest of the inclusion, or failure to include, other railroads in the territory involved in the proposed transaction; (3) the total fixed charges resulting from the proposed transaction; and (4) the interest of the carrier employees affected." Interstate Commerce Act § 5, 49 U.S.C.A. § 5(2) (c). Approval is to be granted only if "compatible with the public ...