(Dow Jones circulated the following story by Chad Bray on June 20.)
NEW YORK — A federal appeals court on Friday denied a request by CSX Corp. (CSX) to temporarily put to the side a little more than 6% of its shares held by two hedge funds in a proxy fight over its board.
In an order Friday, the 2nd Circuit Court of Appeals said it won’t hold in escrow shares to be voted by hedge funds The Children’s Investment Fund Management LLP, or TCI, and 3G Capital Partners LP at CSX’s annual meeting next week pending the outcome of an appeal by the Jacksonville, Fla., railroad operator.
The hedge funds, which most recently combined to hold 8.3% of the company’s shares, have nominated a competing slate of five directors for CSX’s 12-member board.
CSX is appealing a ruling by U.S. District Judge Lewis A. Kaplan in Manhattan last week in which the judge said he was precluded from blocking the hedge funds from voting their shares at CSX’s annual meeting.
The judge agreed with CSX that TCI and 3G skirted certain disclosure requirements in the months prior to a bitter and public proxy fight over the railroad operator’s board.
However, the judge said the disclosures, while belated, failed to cause irreparable harm to the company’s shareholders. As result, he only granted CSX’s request to enjoin the funds from future violations of securities laws.
The railroad operator had wanted to hold to the side 6.4% of CSX shares acquired by the funds during a period when the judge found they had not satisfied their disclosure obligations.
In its order Friday, the appellate court outlined a briefing schedule for the appeal and said it will hear oral arguments in the matter in August.
“We are pleased that the Second Circuit has rejected the extreme remedy sought by CSX and agreed with the District Court that we should not be prevented from voting our shares,” the funds said in a statement Friday.
“We are pleased that the court granted our request for an expedited appeal, and we look forward to presenting the issues to the court,” a CSX spokesman said in a statement.
CSX shares were unchanged at $64.83 in after-hours trading.