Johnson v. Saba Capital Management, L.P.

Background

Charles B. Johnson, as trustee of the Johnson Family Trust, and Templeton Global Income Fund, also called GIM or the Fund, moved for a preliminary injunction. GIM is described in the opinion as a closed-end registered investment company overseen by an eleven-member board. The Johnson Family Trust owned at least 125,000 GIM shares. Saba Capital Management, L.P., Saba Capital Management GP, LLC, Saba Capital Master Fund, Ltd., and Boaz R. Weinstein were described as a hedge fund and its managers that invested in closed-end funds like GIM. Saba owned nearly 29% of GIM’s shares and was its largest shareholder.

GIM held a shareholder election on June 6, 2022. GIM’s proxy materials supported four GIM trustee nominees. Four Saba nominees issued a competing proxy statement supporting their own election and Saba’s proposal to terminate GIM’s long-time investment manager, Franklin Advisers, Inc. Two institutional shareholders initially supported the GIM nominees and opposed terminating Franklin. Shortly before the election, Saba entered purchase agreements with those shareholders that set different purchase prices depending on which slate won. The shareholders then revised their voting materials to support Saba, and the Saba nominees won the election.

Plaiffs’ Claims and Requested Relief

The plaintiffs alleged that the defendants’ proxy solicitation contained false or misleading statements in violation of Section 14(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 14a-9. They argued that Saba’s earlier proxy statement was false because Saba had not filed an amended Schedule 13D before the meeting, and that Saba was required to disclose its accumulation of voting power and agreements under Section 13(d) of the Exchange Act and Regulation 13D.

The plaintiffs asked the court to enjoin certification of the June 6, 2022 vote, prevent the Saba nominees from being seated or taking office as trustees, require Saba to distribute corrective disclosures, and order another shareholder meeting addressing the issues on a fully informed basis.

Preliminary-Injunction Standard

The court explained that a preliminary injunction is extraordinary relief. A party seeking one generally must show a likelihood of success on the merits, likely irreparable harm without preliminary relief, that the balance of equities favors an injunction, and that an injunction serves the public interest. Irreparable harm means an actual and imminent injury that is not remote or speculative and cannot be remedied after trial.

The parties disagreed about whether the requested relief was prohibitory, meaning it would preserve the existing situation, or mandatory, meaning it would change the existing situation. A mandatory injunction requires a stronger showing. The court did not resolve that disagreement because the plaintiffs failed to establish irreparable harm under either standard.

Court’s Analysis

The plaintiffs argued that shareholders would lose their ability to vote or change their votes on an informed basis and that Saba might make disruptive changes to the Fund. The court noted that an uninformed vote does not automatically constitute irreparable harm. Plaintiffs must instead provide evidence of concrete, imminent harm, including circumstances showing that later unwinding the consequences would be difficult or impossible.

The court found that the plaintiffs had not provided factual support for their claimed concrete injuries. The plaintiffs relied on Saba’s alleged actions involving other funds, Saba’s failure to identify a replacement manager for GIM, and considerations involving a potential merger. The court found that these allegations did not show that any harmful changes were imminent or that they would be irreparable or irreversible without judicial intervention. Conclusory assertions were insufficient.

Because the plaintiffs had not shown irreparable harm, the court did not address the other preliminary-injunction factors and did not decide the merits of the alleged proxy violations.

Disposition

The court denied the plaintiffs’ motion for a preliminary injunction. The parties were directed to file a letter by February 15, 2023, advising how they wished to proceed, and the Clerk was directed to terminate the motion at ECF No. 53.