Litwin v. Oceanfreight, Inc.
865 F. Supp. 2d 385
S.D.N.Y.2011Background
- Litwin sues on behalf of OceanFreight shareholders seeking a TRO and preliminary injunction to enjoin a November 3, 2011 shareholder vote on DryShips’ merger with OceanFreight.
- OceanFreight and DryShips are Marshall Islands corporations with NASDAQ listings; DryShips holds about 50.5% of OceanFreight via Kandylidis.
- Special Committee of independent OceanFreight directors negotiated the merger with DryShips; by July 26, 2011 the merger agreement was signed and announced.
- DryShips acquired Kandylidis’s majority stake by August 24, 2011; the proxy statement for the vote stated that approval was assured.
- Litwin’s federal securities claims target alleged Form F-4 timing and misstatements; Marshall Islands law governs fiduciary duties, with Delaware law as a surrogate.
- Court promptly denies the TRO/preliminary injunction and any expedited discovery, finding no likelihood of success on merits, no irreparable harm, and no public-policy reason to enjoin.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether timing of proxy materials violated securities rules | Litwin argues 17 days violated 20-day rule and timeliness guidance. | DryShips/OceanFreight are foreign private issuers; Rule 14a-9-inapplicable; Marshall Islands law permits 17 days. | No likelihood; Rule 14a-9 inapplicable; 17 days permissible under home-country practice. |
| Whether proxy disclosures were materially misleading under federal law | Omissions about projections, inputs, and comparators rendered proxy misleading under 14a-9. | Foreign private issuer exemption applies; even if not, causation requires essential link which minority votes could not affect. | Litwin fails on merits; 14a-9 exemptions apply and causation lacking under Grace/Virginia Bankshares. |
| Whether OceanFreight’s board breached fiduciary duties | Board failed to maximize value, neglected alternative transactions, and approved deal protections harming minority. | Special Committee independence; Delaware/Marshall Islands law allows non-auction path; protections were reasonable and not coercive. | Board conduct reasonable; no clear Revlon violation; no actionable breach. |
| Whether Litwin suffers irreparable harm and the balance of equities | Injunction is necessary to prevent irreparable harm to shareholders’ ability to vote informedly. | Approval is assured; delaying the merger would harm all shareholders; no irreparable harm from timing or proxy adequacy. | No irreparable harm; equities favor denial; public policy supports letting the transaction proceed. |
Key Cases Cited
- Salinger v. Colting, 607 F.3d 68 (2d Cir. 2010) (injunction requires balancing harms and public interest)
- Winter v. Natural Resources Defense Council, 555 U.S. 7 (Supreme Court 2008) (preliminary injunction standards; likelihood of success and irreparable harm)
- Grace v. Rosenstock, 228 F.3d 40 (2d Cir. 2000) (causation when minority votes cannot affect outcome)
- Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991) (causation in proxy-fraud claims; requires essential link to transaction)
- Tower Semiconductor Ltd. v. Tower Semiconductor Ltd., 449 F.3d 286 (2d Cir. 2006) (foreign private issuer exemptions and securities-law applicability)