CSX Corp. v. Children's Inv. Fund Mgmt. (UK) LLP - 654 F.3d 276 (2d Cir. 2011)

Rule:

Two or more entities do not become a group within the meaning of § 13(d)(3) of the Williams Act, 15 U.S.C.S. § 78m(d), unless they act as a group for the purpose of acquiring securities of an issuer.

Facts:

The Children's Investment Fund Management ("TCI") and 3G Capital Partners ("3G") were hedge funds that entered into cash-settled total return equity swap agreements referencing shares of CSX Corporation ("CSX"). They later sought to elect a minority slate of candidates to CSX's board of directors. Alleging that TCI and 3G ("the Funds") had failed to comply in a timely fashion with the disclosure requirements of section 13(d) of the Williams Act, 15 U.S.C. § 78m(d), CSX brought the present action. It sought injunctions barring the Funds from any future violations of section 13(d) and preventing the Funds from voting CSX shares at the 2008 CSX annual shareholders' meeting. The District Court held that the Funds had violated section 13(d) and granted a permanent injunction against further such violations with respect to shares of any company. However, the Court declined to enjoin the Funds from voting their CSX shares. CSX appealed the denial of the voting injunction; the Funds cross-appealed the granting of the permanent injunction.

Issue:

Did the hedge funds in question form a “group” for the purpose of acquiring the company’s securities, thereby making the disclosure requirements under § 13(d)(3) of the Williams Act, 15 U.S.C.S. § 78m(d)(3) applicable?

Answer:

No.

Conclusion:

The court noted that SEC Rule 13d-5(b)(1) provided that the disclosure requirements under § 13(d)(3) of the Williams Act, 15 U.S.C.S. § 78m(d)(3) applied to the aggregate holdings of any "group" formed for the purpose of acquiring, holding, voting, or disposing of equity securities of an issuer. In this case, the court held that although the district court found that the hedge funds had violated § 13(d) by failing to make timely disclosure of having formed a "group" with respect to the company's securities, the district court did not explicitly find that a group was formed for the purpose of acquiring the company's securities. According to the court, two or more entities did not become a group within the meaning of § 13(d)(3) unless they acted as a group for the purpose of acquiring securities of an issuer. Accordingly, the court vacated the injunction issued to prohibit future violations of § 78m(d) and affirmed the denial of the injunction against the voting of shares acquired by the funds to elect a minority slate of candidates to the company's board of directors.