Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Definitive proxy statement
[x] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
OREGON TRAIL FINANCIAL CORP.
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(Name of Registrant as Specified in Its Charter)
OREGON TRAIL FINANCIAL CORP.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
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RECENT DEVELOPMENTS
Dear Shareholder:
In the last few days before our shareholders' meeting, you should know
these important new facts:
SHARE REPURCHASES TOTALED 33%
The Company repurchased 331,900 shares of its outstanding common stock at
an average price of $15.77 per share, in this recent repurchase program, which
began on January 19, 2001 and was completed September 25, 2001. Since
converting to a stock company, the Company has repurchased 1,566,841 shares,
or 33%, of its shares of common stock initially outstanding.
INVESTOR SHAREHOLDER SERVICES, INC.'S RECOMMENDATION FOR MANAGEMENT
The Stilwell Group has been critical of our financial performance. The
quality of any company's financial performance raises complicated issues that
require careful analysis. Hundreds of institutions and corporate clients rely
on the research and advice of Investor Shareholder Services, Inc., an
independent firm, for recommendations regarding contested elections like this
one. We are pleased that ISS has recommended a vote FOR management's
nominees, John Gentry and John Lienkaemper.
U.S. DISTRICT COURT ISSUES DETAILED OPINION REGARDING TRUTHFULNESS OF
STILWELL'S PROXY MATERIAL
In repeated mailings, the Stilwell Group has falsely accused our
directors of improper or illegal conduct. Making materially false and
misleading statements in proxy materials is a violation of federal law.
Because we believe that the Stilwell Group's unfounded and offensive
statements about our directors have been harmful to the Company, Oregon Trail
filed a Complaint against the Stilwell Group in U.S. District Court. The
trial on this matter may not be held until after the shareholders' annual
meeting on October 12, 2001, but just this week Magistrate John Jelderks made
a number of significant preliminary findings against the Stilwell Group.
Please review the enclosed press release for more detail.
EVEN IF YOU HAVE PREVIOUSLY SENT IN THE STILWELL GROUP'S
PROXY CARD, YOU MAY STILL CHANGE YOUR VOTE BY SIGNING,
DATING AND MAILING MANAGEMENT'S GREEN PROXY. WE HOPE YOU
WILL DO SO.
Very truly yours,
/s/Stephen R. Whittemore
Stephen R. Whittemore, Chairman
OREGON TRAIL FINANCIAL CORP.
FOR IMMEDIATE RELEASE
---------------------
U.S. DISTRICT COURT ISSUES OPINION AND ORDER
Baker City, OR, September 28, 2001 / Oregon Trail Financial Corp.
(Nasdaq:OTFC), the holding company for Pioneer Bank, announced today that
United States Magistrate John Jelderks has ruled on OTFC's motion for
preliminary injunction against the Stilwell Group and its director-nominee,
Kevin D. Padrick. OTFC had sued the Stilwell Group (including Padrick) for
violation of federal securities laws forbidding false and misleading proxy
materials. OTFC alleged that the Stilwell/Padrick proxy materials included a
number of false and misleading statements and material omissions, the most
serious involving incumbent directors Chuck Rouse and Ed Elms. Stilwell had
previously filed unsuccessful lawsuits against both Mr. Rouse and Mr. Elms to
try to remove them from the OTFC Board.
The trial on the merits might not take place before the October 12, 2001
annual shareholders' meeting. But in a detailed opinion on the preliminary
injunction motion, Magistrate Jelderks stated in part, "[t]hroughout the proxy
contest, Stilwell has made it clear he believes OTFC should be sold, and the
sooner the better. OTFC's present management disagrees with Stilwell's plans
for the company. It is not this court's province to decide which of these
views is "correct" or to tell the shareholders how to vote their proxies in
the upcoming election. What does concern this court is that the debate has
gone beyond the merits of competing visions of the company's future, and
descended into what, on this record, appear to be unfounded personal attacks
on the integrity of the incumbent directors. It is also troubling that the
state and federal courts have been used as a vehicle to mount some of these
personal attacks." (Emphasis added.) Magistrate Jelderks also found that
"[t]here is a strong probability that OTFC will be able to establish, at
trial, that the allegations against Rouse (and the other Board members) were
not well founded." (Emphasis added.)
Magistrate Jelderks continued,"Stilwell also filed suit against director
Edward Elms, accusing him of committing a felony perjury and demanding that
Elms be removed from office. *** [O]nce again, the allegations do not appear
to have been well founded. I dismissed the Elms case for lack of
jurisdiction, but I would almost certainly have found in favor of Elms had
there been a trial on the merits."
And finally, "[a]t trial, there is a strong probability that OTFC could also
show that this course of conduct by Stilwell was part of a calculated attack
upon the integrity of the incumbent directors and management." (Emphasis
added.)
" In summary," Magistrate Jelderks concluded, "there is a strong probability
that, at trial, OTFC will succeed on its claim against Stilwell for
violation(s) of Rule 14a-9 [the anti-fraud proxy regulation.]"
The defendants had filed a counterclaim asserting that OTFC's materials were
materially false and misleading, and they filed their own motion for
preliminary injunction. Magistrate Jelderks denied the motion, saying "I
conclude that Stilwell is unlikely to prevail, at trial, upon his claim that
OTFC has violated Rule 14a-9. Accordingly, I deny his motion for preliminary
injunction."
The entire Opinion and Order was filed today with the SEC as additional
soliciting material under Schedule 14A, and can be accessed via the Internet
at www.freeedgar.com or by calling the Company.
CONTACT: Berniel L. Maughan, President and CEO, Oregon Trail Financial Corp.,
(541) 523-6327.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
OREGON TRAIL FINANCIAL CORP., )
an Oregon corporation, )
)
Plaintiff, ) CV 01-1346-JE
)
v. ) OPINION AND
) ORDER
)
STILWELL ASSOCIATES, L.P., a )
Delaware limited partnership; STILWELL )
VALUE PARTNERS II, L.P., a Delaware )
limited partnership; STILWELL VALUE )
LLC, a Delaware limited liability company; )
JOSEPH STILWELL, an individual; and )
KEVIN D. PADRICK, an individual, )
)
Defendants. )
)
-------------------------------------------------
This action arises from a proxy contest between defendant Joseph Stilwell
("Stilwell")(1) and plaintiff Oregon Trail Financial Corporation ("OTFC").
This court has subject matter jurisdiction
----------
(1) Aligned with Stilwell are three related entities, defendants Stilwell
Associates, L.P., Stilwell Value Partners II, L.P., and Stilwell Value LLC. In
this opinion, I refer to them collectively as Stilwell.
1 - OPINION AND ORDER
pursuant to 28 USC ss.1331. Pending before the court are the parties'
cross-motions for a preliminary injunction.
BACKGROUND
Two seats on the six member Board of Directors will be filled at the
annual shareholder's meeting. Stilwell has urged OTFC's shareholders to reject
the nominees proposed by management and, instead, to support his nominee,
defendant Kevin Padrick. As the election draws near, the proxy contest has
become increasingly antagonistic. Five lawsuits have been filed this year
between the parties or their surrogates. In the present action, each side
accuses the other of violating federal securities law by making false or
misleading statements to OTFC's shareholders.
SUBSTANTIVE LAW
The Securities and Exchange Act of 1934 prohibits the solicitation of
proxies in a manner that violates rules established by the Securities and
Exchange Commission ("SEC") for the protection of shareholders. 15 USC
ss.78n(a).
17 CFR ss. 240.14a-9 (commonly known as Rule 14a-9) states in relevant
part that:
(a) No solicitation subject to this regulation shall be made by means of
any proxy statement . . . or other communication . . . containing any
statement which, at the time and in the light of the circumstances under
which it is made, is false or misleading with respect to any material
fact, or which omits to state any material fact necessary in order to
make the statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of a proxy for the same meeting or subject matter which has
become false or misleading.
The Rule gives some "examples of what, depending upon particular facts and
circumstances, may be misleading within the meaning of this section,"
including:
(b) Material which directly or indirectly impugns character, integrity or
personal reputation, or directly or indirectly makes charges concerning
improper, illegal or immoral conduct or associations, without factual
foundation.
2 - OPINION AND ORDER
A fact is "material" if there is a substantial likelihood that a
reasonable shareholder would consider it important in deciding how to vote.
TSC Industries, Inc. v. Northway, Inc., 426 US 438, 449 (1976). The standard
is an objective one; it is not necessary to show that any votes were actually
changed by the alleged misrepresentation or omission. See id. Although the
Supreme Court has never expressly decided this question,(2) it seems clear
that a misrepresentation need not be intentional; if the shareholders have
been materially misled, equitable relief may be appropriate regardless of
whether the misrepresentation was deliberate.
In J.I. Case Co. v. Borak, 377 US 426 (1964), the Supreme Court held that
there is a private right of action to enforce violations of Rule 14a-9,(3)and
that the courts are empowered "to provide such remedies as are necessary to
make effective the congressional purpose," including injunctive relief. Id. at
430-34. If a court finds that there has been a violation of Rule 14a-9, the
court has very broad equitable powers to remedy the violation. Among other
things, the court may declare certain statements to be false or misleading;
order a party to make corrective disclosures; void any proxy procured with the
aid of a false or misleading statement; delay the annual meeting to allow time
for distribution of corrective disclosures, or for revoting, or to permit
shareholders to revoke existing proxies if they wish; set aside the results of
a tainted election, and order a new election; and award attorney fees and
costs to the prevailing party.
----------------
(2) See Virginia Bankshares, Inc v. Sandberg, 501 US 1083, 1090, n 5
(1991).
(3) In recent years, the Supreme Court has limited private rights of
action for some securities law violations, but has shown no inclination to
overrule Borak.
3 - OPINION AND ORDER
See, e.g., Kaufman v. Cooper Companies, Inc., 719 F Supp 174, 185-86 (SDNY
1989)(voiding all proxies and rescheduling annual meeting to allow time to
resolicitproxies); Edelman v. Salomon, 559 F Supp 1178 (D Del 1983)
(postponing annual meeting and voiding tainted proxies).(4)
The more difficult questions are (1) the extent to which the court should
intervene in a proxy contest, and (2) the timing of that intervention. This is
largely left to the considered discretion of the district court.
One line of cases holds that a proxy contest is not like a political
contest where anything goes. Rather, Congress has determined that shareholders
are entitled to receive only truthful information, and the courts are to
aggressively enforce that mandate. See, e.g., May, 229 F2d at 124. A second
line of cases counsels restraint. The court should try to avoid placing its
finger on the scale and tipping the election to one side or the other. See
Kennecott Copper, 584 F2d at 1200. The court must be wary of telling
shareholders that the views of one side or the other are correct, unless a
statement is demonstrably false or misleading. Instead, the court should
generally focus on ensuring that both sides have a fair opportunity to
articulate their respective views to the shareholders. Ultimately, it is the
----------
(4) See also Berkman v. Rust Craft Greeting Cards, Inc., 454 F Supp 787
(SDNY 1978) (postponing annual meeting); Gladwin v. Medfield Corp., 540 F2d
1266 (5th Cir 1976) (ordering new election); Central Foundry Co. v. Gondelman,
166 F Supp 429, 446-47 (SDNY 1958) (voiding proxies obtained through the
misleading solicitation and rescheduling annual meeting); SEC v. May, 134 F
Supp 247, 258 (SDNY 1955) (same), aff'd, 229 F2d 123 (2d Cir 1956); Krauth v.
Executive Telecard, Ltd., 890 F Supp 269, 297 (SDNY 1995) (requiring company
to issue revised proxy statement); Lebhar Friedman, Inc. v. Movielab, Inc.,
Fed Sec L RepP. 93,162 (SDNY 1987) (voiding proxies obtained through
misleading proxy materials and requiring corrective disclosures); Telvest,
Inc. v. Wisconsin Real Estate Investment Trust, 489 F Supp 250, 255 (ED Wisc
1980) (voiding all proxies previously obtained by either side) ; Chambers v.
Briggs & Stratton, 863 F Supp 900, 907 (ED Wisc 1994) (voiding proxies
procured prior to issuance of the corrective disclosures).
At oral argument and in a subsequent letter, Stilwell asserted that no
court has ever ordered the type of relief sought by OTFC. Clearly Stilwell is
wrong.
4 - OPINION AND ORDER
shareholders, not the court, who must decide the election. See Pantry Pride,
Inc. v. Rooney, 598 F Supp 891, 901-02 (SDNY 1984).
I lean towards this latter view, of judicial restraint. Just as there
probably will never be a perfect trial, it is unlikely that there will ever be
a perfect proxy contest. Simply because the court might have worded a
statement differently does not necessarily make that statement false or
misleading. Kennecott Copper Corp. v. Curtiss-Wright Corp., 584 F2d 1195, 1200
(2d Cir 1978). Rather, the court must consider the "total mix" of information
available to the shareholders, and whether any errors are likely to affect the
outcome.
Judges also differ on whether the court should intervene before the
election, or wait until afterwards. In some circumstances, intervention before
the election is preferable. See, e.g., Electronic Specialty Co. v.
International Controls Corp., 409 F2d 937, 947 (2d Cir 1969) ("injunctive
relief at an earlier stage of the contest is apt to be the most efficacious
form of remedy"); Chambers, 863 F Supp at 905-06 (that the court could later
undo the damage by voiding the results of the election is not an adequate
alternative when it is possible to avert the harm by providing the
shareholders with the correct information and voiding any proxies procured by
the misleading solicitations). In other circumstances, waiting until after the
election is the preferred course. See, e.g., D&N Financial Corp. v. RCM
Partners Limited Partnership, 735 F Supp 1242, 1253 (D Del 1990) (court can
always set aside the results, if found to have been tainted, and order a new
election); United Canso Oil & Gas, Ltd. v. Clark, 497 F Supp 111, 115 (SDNY
1980) (same).
LEGAL STANDARD FOR ISSUANCE OF A PRELIMINARY INJUNCTION
The classic purpose of a preliminary injunction is to preserve the status
quo, or to prevent irreparable injury, pending a final determination on the
merits. Chalk v. U.S. Dist.
5 - OPINION AND ORDER
Court Cent. Dist. of California, 840 F2d 701, 704 (9th Cir 1988). The moving
party must show either (1) a combination of probable success on the merits and
the possibility of irreparable injury, or (2) that serious questions are
raised and the balance of hardships tips sharply in its favor. Id. These are
not separate tests, but the outer reaches "of a single continuum." Los Angeles
Memorial Coliseum Comm'n v. National Football League, 634 F2d 1197, 1201 (9th
Cir 1980); Harper v. Farm Credit Admin., 628 F Supp 1030 (D Or 1985). Serious
questions are those sufficiently substantial to warrant further consideration
by the court and to present fair ground for litigation. See Gilder v. PGA
Tour, Inc., 936 F2d 417, 422 (9th Cir 1991). If the balance of hardships tips
decidedly toward the plaintiff, less likelihood of success on the merits is
required. Wilson v. Watt, 703 F3d 395, 399 (9th Cir 1983). The district court
must also consider the public interest, if applicable. American Motorcyclist
Association v. Watt, 714 F2d 962, 965 (9th Cir 1983).
A court must tread carefully when the effect of the preliminary injunction
would be to "grant the moving party the full relief to which he might be
entitled if successful at the conclusion of a trial. This is particularly true
where the relief afforded, rather than preserving the status quo, completely
changes it." Tanner Motor Livery, Ltd. v. Avis, Inc., 316 F2d 804, 808-09 (9th
Cir 1963). See also Krauth, 890 F Supp at 287. Nevertheless, there is ample
precedent acknowledging the court's authority to issue a preliminary
injunction in a proxy contest. See, e.g., Chambers, 863 F Supp at 905-07.(5)
----------
(5) To avoid this problem, I proposed to hold an immediate trial on the
merits, but Stilwell declined that invitation.
6 - OPINION AND ORDER
DISCUSSION
I. Likelihood of Prevailing on the Merits
The threshold question is whether either party is likely to prevail on its
claims.
A. OTFC's Claims Against Stilwell
Throughout the proxy contest, Stilwell has made it clear he believes OTFC
should be sold, and the sooner the better. OTFC's present management disagrees
with Stilwell's plans for the company. It is not this court's province to
decide which of these views is "correct" or to tell the shareholders how to
vote their proxies in the upcoming election.
What does concern this court is that the debate has gone beyond the merits
of competing visions of the company's future, and descended into what, on this
record, appear to be unfounded personal attacks on the integrity of the
incumbent directors. It is also troubling that the state and federal courts
have been used as a vehicle to mount some of these personal attacks.
Stilwell first brought suit against director Charles Rouse, alleging that
the latter "unlawfully holds the office of director of OTFC," and demanding
that the court remove Rouse from office and also "impos[e] a fine against
defendant, in the maximum amount permitted under law . . ." Complaint, State
ex rel. Stilwell Associates, L.P. v. Rouse, Multnomah County No. 01-02-01777
(hereafter, "Rouse"). Stilwell has widely publicized these allegations, both
in materials sent directly to OTFC shareholders and also in newspaper
advertisements targeted at shareholders. In addition, Stilwell publicly
accused other OTFC directors of misconduct for their actions regarding Rouse.
There is a strong probability that OTFC will be able to establish, at
trial, that the allegations against Rouse (and the other Board members) were
not well founded. Judge Wilson recently entered summary judgment in favor of
Rouse. The transcript of the oral argument makes it clear that Judge
7 - OPINION AND ORDER
Wilson did not consider it to even be a close question. During the briefing
and argument in the present action, Stilwell vigorously attacked Judge
Wilson's ruling, but none of his arguments gave this court any reason to doubt
the correctness of her decision.
Stilwell also filed suit against director Edward Elms, accusing him of
committing a felony-- perjury--and demanding that Elms be removed from office.
Stilwell Associates v. Elms, CV 01-740- JE (hereafter, "Elms"). Again, the
allegations were widely publicized by Stilwell in mailings to shareholders and
in newspaper advertisements. And, once again, the allegations do not appear to
have been well founded. I dismissed the Elms case for lack of jurisdiction,
but I would almost certainly have found in favor of Elms had there been a
trial on the merits.(6)
Stilwell argues that his statements to the shareholders, concerning these
lawsuits, were not false or misleading because he accurately summarized the
claims made in those lawsuits. However, Stilwell was not just "reporting" the
news, he was also "making" the news that he reported. A party to a proxy
contest may not escape the reach of Rule 14a-9 by filing a lawsuit containing
false or misleading statements, and then quote from his own lawsuit.
Stilwell cites Atlas Corporation v. Blasius Industries, 705 F Supp
190(D Del 1988), but it is easily distinguished. The statements in Atlas
concerned a lawsuit then pending in the state court. The federal court
understandably declined to pass judgment upon the merits of a case, in another
court, that had yet to be decided. Here, by contrast, Judge Wilson has already
ruled upon the merits of the Rouse litigation, and I have already dismissed
Elms (and am well informed regarding the issues in that case).
----------
(6) During the briefing in Elms, the parties filed extensive deposition
transcripts and other materials setting forth the evidence and their
respective contentions in considerable detail.
8 - OPINION AND ORDER
Furthermore, even if Stilwell's original statements regarding the Rouse
and Elms cases are regarded as true, because they accurately reported his
allegations, Rule 14a-9 also applies to statements that--though true at the
time they were made--have been rendered false or misleading by subsequent
events. Stilwell's allegations against Rouse, Elms, and other OTFC directors
clearly imply wrongdoing on their part. Even assuming that Stilwell originally
advanced these allegations in good faith, the shareholders are entitled to
know that the allegations have since proven to be meritless.
Stilwell argues that his proxy statements contained adequate disclaimers,
i.e., by reciting that Rouse, Elms, and OTFC denied any wrongdoing. Such
disclaimers are of only limited utility. Allegations of wrongdoing frequently
"stick" despite being accompanied by a denial. Indeed, the image of wrongdoing
often persists even after charges are dropped or an accused is found not
guilty. Moreover, Stilwell repeated these allegations on several occasions
without accompanying disclaimers, or his allegations were in large type and
prominent while the disclaimers were in small print and buried in a larger
document. Under the circumstances, these disclaimers are not sufficient to
remove the possible taint flowing from these repeated allegations of
wrongdoing.
At trial, there is a strong probability that OTFC could also show that
this course of conduct by Stilwell was part of a calculated attack upon the
integrity of the incumbent directors and management. This strategy is amply
demonstrated by the letter from Stilwell dated August 29, 2001, which contains
numerous allegations of misconduct, and also some clear misstatements or
omissions.(7)
----------
(7) For instance, Stilwell concedes that the Board members do not
"automatically re-elect themselves every year" (emphasis in original) as he
asserted in that letter. Stilwell's paraphrasing of Rouse's deposition
testimony, concerning the reasons he liquidated his business, is also suspect.
As even Stilwell concedes, the testimony was ambiguous, and could be
interpreted in a manner quite different (and more favorable to Rouse) than
Stilwell has portrayed. Stilwell's subsequent corrective disclosure was
inadequate; the context of Rouse's statement can be determined only by
examining the
9 - OPINION AND ORDER
It might be argued that some of these misstatements, individually, are
not sufficient to affect the election. However, OTFC is justifiably concerned
about the cumulative effect of these statements which, when taken together,
appear calculated to convey an image of impropriety on the part of the
incumbent directors. The "total mix" of information presented to the
shareholders has been skewed by these allegations.
Stilwell also argues that the challenged statements are not "material"
because this proxy contest will turn upon economic issues. However, that
argument is undercut by Stilwell's decision to feature these allegations so
prominently in communications such as the August 29 letter to the
shareholders. Stilwell's own conduct demonstrates that he believed these
allegations to be material.
Stilwell's affirmative defenses merit little discussion. There is no
evidence that OTFC unduly delayed bringing this action, to Stilwell's
detriment. If anything, the record demonstrates that Stilwell repeatedly urged
OTFC to delay filing this action. Nor would it have been improper for OTFC to
delay filing this action until Judge Wilson ruled in the Rouse case; a federal
judge would have been very reluctant to pass judgment on the merits of a
pending state court action. For the reasons discussed more fully below, I also
am unpersuaded by Stilwell's "unclean hands" defense.
In summary, there is a strong probability that, at trial, OTFC will
succeed on its claim against Stilwell for violation(s) of Rule 14a-9.
B. Stilwell's Claims Against OTFC
Stilwell seeks a preliminary injunction against OTFC for alleged
violations of Rule 14a-9.
----------
several pages of testimony on either side. Stilwell also overstated the facts
somewhat by asserting that the Board members "award themselves free shares and
free options on shares every year." The letter also repeated Stilwell's
allegations of serious misconduct by Rouse and Elms.
10 - OPINION AND ORDER
1. Forcing a Quick Sale
Stilwell complains about the following statements:
** Stilwell "want[s] to force a quick sale of Oregon Trail and
its 100-year old community bank."
** "Joseph Stilwell, an investor from New York, and his Group
want to force a sale of your Company."
These statements do not appear to be false or misleading. On the
contrary, Stilwell's own proxy materials state:
"WE BELIEVE A VOTE FOR THE GROUP NOMINEE IS A VOTE TO BEGIN
THE PROCESS TO SELL THE COMPANY."
* * * *
"If elected, the Group Nominee . . . will work diligently
toward a sale of the Company." Ex. 1, page 4 (Stilwell proxy
materials)
2. Beholden to Stilwell
Stilwell complains about the following statements:
** "We are concerned that Mr. Stilwell's nominee will only pursue
Mr. Stilwell's personal agenda."
** "Padrick is beholden to the Stilwell Group."
** "Stilwell is asking you to vote for his handpicked director."
These statements appear to be within the range of fair argument given
the circumstances, including the relationship and financial arrangements
between Stilwell and Padrick.
11 - OPINION AND ORDER
3. Impact of Stilwell's Lawsuits on Company Profits
Stilwell complains about the following statement:
** "Without the expenses caused by Stilwell and his many lawsuits
aimed at gaining control of your Company, your COMPANY'S
EARNINGS WOULD HAVE INCREASED 71% [for the quarter ended March
31, 2001]"
The record is not sufficient to make any determination regarding this
statement. It is also unclear whether the parties are using the same
definition of "expenses."
4. Seeking Reimbursement from the Company
Stilwell complains about the following statements:
"A Vote for Padrick Could Cost the Company Up to an Additional
$300,000 in Legal Fees and Other Expenses.
"If Padrick is elected, [T]HE GROUP INTENDS TO SEEK
REIMBURSEMENT FROM THE COMPANY FOR THOSE EXPENSES INCURRED BY
THE GROUP IN CONNECTION WITH PROXY SOLICITATION, AS WELL AS
ALL EXPENSES INCURRED BY THE GROUP SINCE [November 17,
2000]....
* * * *
"THE ONLY WAY YOU CAN ENSURE THAT THE COMPANY IS NOT ALSO
SADDLED WITH THE STILWELL GROUP'S EXPENSES IS TO SAY 'NO' TO
ITS CANDIDATES BY VOTING FOR MANAGEMENT'S NOMINEES."
These statements do not appear to be false or misleading. Stilwell does
not deny that he intends to seek reimbursement if he prevails. Although a vote
for Padrick won't guarantee that Stilwell is reimbursed--since it must still
be approved by the Board--a vote against Padrick all but ensures that Stilwell
won't be reimbursed. Which is all that this says.
I conclude that Stilwell is unlikely to prevail, at trial, upon his claim
that OTFC has violated Rule 14a-9. Accordingly, I deny his motion for
preliminary injunction.
12 - OPINION AND ORDER
13 - OPINION AND ORDER
II. Irreparable Harm
Since OTFC has established that it is likely to prevail at trial on its
claim that Stilwell violated Rule 14a-9, the court must decide what
provisional relief, if any, to grant in advance of trial. OTFC has asked this
court to void all proxies previously obtained by OTFC. The argument in favor
of this remedy is that (1) the proxies were procured with the aid of false or
misleading statements, so they should be thrown out, and (2) inertia (or
fatigue from repeated solicitations) may deter voters from actively revoking a
proxy already cast. Stilwell argues that voiding the previously obtained
proxies could potentially disenfranchise the shareholders who supported
him,(8) and that OTFC has not shown irreparable harm warranting immediate
relief because the court can always set aside the election results following a
trial.
If the election proceeds as scheduled, there are three possible outcomes.
First, Stilwell may lose, in which event the question of relief becomes
largely academic. Second, Stilwell might win by such a wide margin that it
would be unlikely the results were materially altered by the disputed
statements. Or, lastly, the result may be very close, in which case the
disputed statements might assume greater importance. In that event, however,
the court has discretion to set aside the results if it concludes the outcome
of the election was influenced by the violation of Rule 14a-9.
Although it is a close question, I will deny OTFC's request to void the
proxies that Stilwell has already procured. Voiding of proxies is a strong
remedy generally reserved for the most egregious cases. The court's principal
role in a proxy contest is to ensure that the shareholders have a fair
----------
(8) To avoid that danger, at oral argument I suggested the possibility of
invalidating all outstanding proxies and sending the shareholders a new ballot
allowing them to vote for either side's candidate. However, the parties were
unable to agree on what materials would accompany that ballot and other
logistical issues.
14 - OPINION AND ORDER
opportunity to cast an informed vote. The parties agree that a shareholder may
revoke a prior proxy simply by signing and returning a new proxy. OTFC has
advised the court that it plans to send shareholders proxy cards along with a
request to execute the new proxy.
It is preferable that corporate disputes be resolved in the board room,
not the court room. Accordingly, my primary concern is to ensure there is
sufficient time (1) for OTFC to circulate materials discussing the recent
developments in this case and a proxy card, and (2) for a shareholder to mail,
and the administrative entity to receive and process, a new proxy changing the
shareholder's vote, if that is desired. The annual meeting has been
rescheduled for October 12, which should provide sufficient time, albeit with
little room to spare because of the federal holiday on October 8.
I will not order Stilwell to send corrective disclosures at this time,
although he certainly has that option. Either party may, of course, quote from
or otherwise make reference to this opinion, taking care that any such
references are not misleading.
Although I have found that certain statements by Stilwell were likely
false or misleading, no one should infer from this that the court endorses
either side in this proxy contest. Quite the contrary, it is my desire to
avoid influencing this contest, to the extent possible. Ultimately, the votes
that count should be those cast by shareholders and not by judges.
CONCLUSION
Stilwell's motion (# 13) for preliminary injunction is DENIED, since
Stilwell has not shown that he is likely to prevail on the merits at trial.
OTFC's motion (# 7) for preliminary injunction is DENIED, because OTFC has not
shown that it will be irreparably harmed unless immediate relief is granted.
The rescheduling of the annual meeting should allow sufficient time for the
mailing of additional materials and for shareholders to alter their votes if
they wish to do so.
15 - OPINION AND ORDER
IT IS SO ORDERED.
Dated this 26(TH) day of September, 2001.
/s/ John Jelderks
--------------------------------
John Jelderks
UNITED STATES MAGISTRATE JUDGE
16 - OPINION AND ORDER