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Ruling for Greenlight Capital in Battle With Apple

Ruling for Greenlight Capital in Battle With Apple

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Published by DealBook
The federal judge's ruling backing Greenlight Capital's call for a preliminary injunction on shareholder vote for an Apple proxy proposal.
The federal judge's ruling backing Greenlight Capital's call for a preliminary injunction on shareholder vote for an Apple proxy proposal.

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Categories:Types, Business/Law
Published by: DealBook on Feb 22, 2013
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07/10/2013

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK 
  _____________________ 
No. 13 Civ. 900 (RJS)
 _____________________ 
G
REENLIGHT
C
APITAL
,
 
L.P.,
 
et al.
,
Plaintiffs,
VERSUS
A
PPLE
,
 
I
NC
.,
 
Defendant. _____________________ 
No. 13 Civ. 976 (RJS)
 _____________________ 
B
RIAN
G
RALNICK 
,
Plaintiff,
VERSUS
A
PPLE
,
 
I
NC
.,
 
Defendant. __________________ 
M
EMORANDUM AND
O
RDER
 February 22, 2013
  __________________ R
ICHARD
 J.
 
S
ULLIVAN
, District Judge:In preparation for its annual shareholdermeeting, Defendant Apple, Inc. (“Apple”)issued a definitive proxy statement (the“Proxy Statement”) and proxy card (the“Proxy Card”) soliciting shareholder votes ona range of proposals. Plaintiffs Greenlight
Case 1:13-cv-00900-RJS Document 28 Filed 02/22/13 Page 1 of 16
 
 
2Capital, L.P.; Greenlight Capital Qualified,L.P.; Greenlight Capital Gold, L.P.;Greenlight Capital Offshore Partners; andGreenlight Capital Offshore Master Gold,Ltd. (collectively, “Greenlight”) assert thatProposal Number 2 of the Proxy Statementand Proxy Card violates the “unbundlingrules promulgated by the Securities andExchange Commission (“SEC”), whichrequire that a proxy permit shareholders tovote separately on each matter presented forconsideration. Plaintiff Brian Gralnick(“Gralnick”), in addition to bringing his ownbundling claim with respect to ProposalNumber 2, asserts that Proposal Number 4 of the Proxy Statement and Proxy Card violatesthe “say-on-pay” rules promulgated by theSEC, which require disclosure of factorsaffecting executive compensation. Before theCourt are Greenlight’s and Gralnick’smotions seeking to preliminarily enjoin Applefrom giving effect to the challenged votes.For the reasons that follow, the Court grantsGreenlight’s and Gralnick’s motionsregarding Proposal Number 2, but deniesGralnick’s motion regarding ProposalNumber 4.I. F
ACTS
1
 A. BackgroundApple, the technology giant, is aCalifornia corporation with its principalplace of business in California and apermanent office in New York. (Green.Compl. ¶¶ 8, 11; Gral. Compl. ¶ 10.) Its
1
The facts are taken from Greenlight’s Complaint(“Green. Compl.”) and Gralnick’s Complaint (“Gral.Compl.”). In ruling on Plaintiffs’ motions, the Courtconsidered Greenlight’s memorandum of law(“Green. Mem.”); Apple’s opposition brief (“Opp’nto Green.”); and Greenlight’s reply brief (“Green.Reply”); as well as Gralnick’s memorandum (“Gral.Mem.”); Apple’s opposition (“Opp’n to Gral.”); andGralnick’s reply (“Gral. Reply”); along with thedeclarations and exhibits attached thereto.
stock is traded on the NASDAQ under thesymbol AAPL. (Green. Mem. 3.) TheGreenlight entities are three limitedpartnerships, a partnership, and a limitedliability company, all with their principalplaces of business in New York. (Green.Compl. 2-6.) Greenlight owned 1.3million Apple shares as of January 2, 2013,the record date for Apple’s shareholdermeeting. (
Id.
7.) Gralnick, an individual,has been an Apple shareholder since 2007.(Gral. Compl. ¶ 9.)In preparation for its annual shareholdermeeting, scheduled for February 27, 2013,Apple filed a preliminary proxy statementwith the SEC on December 27, 2012, andissued the Proxy Statement and Proxy Card toshareholders on January 7, 2013. (Green.Compl. ¶ 12, Ex. A; Gral. Compl. ¶ 11; Tr.Of Oral Arg., dated Feb. 19, 2013 (“Tr.”),35:23.) The proxy materials included sixproposals for shareholder consideration, twoof which are at issue in this action.1. Proposal Number 2Proposal Number 2 in the ProxyStatement (“Proposal No. 2”) seeks toamend Apple’s Restated Articles of Incorporation (the “Articles”). (Green.Compl. ¶ 13, Ex. A 1, 44-46, 54-61; Gral.Compl. ¶ 14.) Specifically, Proposal No. 2seeks proxies to:[(1)] eliminate certain languagerelating to the term of office of directors in order to facilitate theadoption of majority voting for theelection of directors; [(2)] eliminate“blank check” preferred stock; [(3)]establish a par value for [Apples]common stock of $0.00001 pershare; and [(4)] make otherconforming changes . . . , includingeliminating provisions in the Articles
Case 1:13-cv-00900-RJS Document 28 Filed 02/22/13 Page 2 of 16
 
 
3relating to preferred stock of [Apple].(Green. Compl. Ex. A 44.) The first item inProposal No. 2 would facilitate majorityvoting for incumbent members of Apple’sBoard of Directors (the “Board”) underCalifornia law. (
Id.
at 45.) Though Appleshareholders endorsed majority voting in2011, and the Board acceded in 2012, theamendment is necessary to conform theArticles to state law. (Oppn to Green. 16.) The second item would revoke the Board’spower to unilaterally issue preferred stock –that is, stock providing greater rights andprivileges than Apple common stock –thereby requiring shareholder approval of any future issuance. (Green. Compl. Ex. A45.) The third item would establish anominal par value for Apples commonstock in an attempt to avoid state feesstemming from Apple’s no-par shares. (
Id.
 at 45-46.) The final item would eliminatecertain obsolete provisions in the Articles.(
Id.
at 46.) The history of Proposal No. 2 is acontentious one. Presently, Apples Boardhas the authority to unilaterally issuepreferred stock. (
See
Opp’n to Green. 5-6.) This power commonly referred to as“blank check” authority – has been deridedby shareholder rights advocates given itspotential use as an anti-takeover tactic, and anumber of companies have removed suchprovisions from their charters. (
Id.
) In May2012, Apple began the process of eliminating the provision from its Articles.(
Id.
at 7.) However, that same month,Greenlight principal David Einhorn(“Einhorn”) approached Apple with aproposal to utilize its “blank check” power.(Decl. of David Einhorn, dated Feb. 6, 2013,Green. Doc. No. 6 (“Einhorn Decl. Feb. 6”),3.) In a conference call, Einhornencouraged Apple to issue perpetualpreferred shares to its existing shareholdersin a bid to return value to Apple investors.(
Id.
) Nevertheless, in September 2012,Apple rejected Einhorn’s proposal andinstead moved forward with the plannedelimination. (
Id.
; Opp’n to Green. 9.)On February 1, 2013, Greenlight urgedApple to withdraw the “blank check”amendment. (Green. Compl. 18.) OnFebruary 5, 2013, Greenlight reiterated itsrequest and, in the alternative, pressed Appleto break up Proposal No. 2 into separatevoting items given Greenlight’s support forat least two of the four amendments. (
Id.
;Einhorn Decl. Feb. 6 10-11.) Appledeclined. (Einhorn Decl. Feb. 6 12.)Accordingly, Greenlight filed suit onFebruary 7, 2013, alleging that the up-or-down vote on Proposal No. 2 violated SECRules 14a-4(a)(3) and (b)(1). (Green.Compl. 15);
see
17 C.F.R. § 240.14a-4(a)(3), (b)(1). Gralnick followed suit onFebruary 12, 2013, advancing similarclaims. (Gral. Compl. ¶ 15; Decl. of BrianGralnick, dated Feb. 12, 2013, Gral. Doc.No. 15 (“Gralnick Decl.”), ¶ 4.)2. Proposal Number 4Proposal Number 4 in the ProxyStatement (“Proposal No. 4”), or the “say-on-pay proposal,” seeks “advisory vote[s] toapprove the compensation of [Apple’s]named executive officers.” (Green. Compl.Ex. A 47.) Though Apples 2012 executivecompensation has already been paid, the“say-on-pay” vote permits shareholders anopportunity to express their opinion onApples compensation program. (
Id.
at 49.) The outcome of the vote may also informApples “future compensation decisions.”(
Id.
) To provide a basis for the vote, andpursuant to SEC disclosure rules, the ProxyStatement details Apple’s executivecompensation in a sixteen-page report called
Case 1:13-cv-00900-RJS Document 28 Filed 02/22/13 Page 3 of 16

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