CSX Corp. v. Children's Investment Fund Management (UK) LLP
2011 U.S. App. LEXIS 14653
| 2d Cir. | 2011Background
- TCI and 3G entered into cash-settled total-return equity swaps referencing CSX stock and engaged in a proxy contest against CSX management.
- CSX sued for violation of Williams Act section 13(d); District Court held there were violations and issued a broad injunction against future violations, but denied a voting injunction regarding CSX shares.
- District Court determined TCI was a beneficial owner under Rule 13d-3(b) due to evasion concerns and found a group with respect to CSX securities, timing the formation no later than February 13, 2007.
- CSX appealed the voting injunction ruling; the Funds cross-appealed, challenging the group findings and the evasion/beneficial ownership theory.
- This Second Circuit opinion limits its review to whether a group existed for the purpose of acquiring CSX shares outright and remands for further factual findings on group formation and timing.
- If a group owning outright shares crossed the 5% threshold before disclosure, a Section 13(d) violation would require timely disclosure; remand directs the district court to determine formation timing and potential injunctive relief scope.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a group under §13(d)(3) was formed by TCI and 3G for CSX securities | CSX contends a group existed by Feb. 13, 2007, warranting disclosure. | TCI/3G argue no proper group formation for outright CSX shares was proven at that date. | Remanded for explicit findings on group formation and purpose. |
| Whether long parties to cash-settled swaps can be deemed beneficial owners under Rule 13d-3(a) | CSX asserts long parties have investment or voting power over hedge shares. | TCI/3G argue swaps do not grant direct or indirect control over hedged shares absent an agreement. | District Court's reasoning on beneficial ownership via hedges rejected; remand for proper factual development; issues kept open. |
| Whether Rule 13d-3(b) evasion applies to cash-settled swaps | CSX contends swaps were used to prevent vesting of ownership to evade disclosure. | TCI/3G argue evasion provisions do not apply where swaps do not confer ownership rights and were genuine hedging tools. | Evasion theory rejected as applied to this limited issue; remand for group findings and scope of relief. |
Key Cases Cited
- Treadway Companies, Inc. v. Care Corp., 638 F.2d 357 (2d Cir. 1980) (injunction under §13(d) only for irreparable harm and likelihood of future violations)
- Reliance Electric Co. v. Emerson Elec. Co., 404 U.S. 418 (U.S. 1972) (mechanical nature of §16(b); relevance to interpreting beneficial ownership)
- Roth v. Jennings, 489 F.3d 499 (2d Cir. 2007) (group formation and joint action standards under §13(d))
- Piper v. Chris-Craft Indus., Inc., 430 U.S. 1 (U.S. 1977) (purpose of the Williams Act and disclosure timing context)