UPDATE 1-CSX, hedge funds face off in U.S. court

(Adds additional details from trial, paragraphs 10-14, updates stock price)

By Martha Graybow

NEW YORK, May 21 (Reuters) - The chief executive of CSX Corp (CSX.N: Quote, Profile, Research, Stock Buzz) said in court on Wednesday he felt targeted by activist investors seeking to get seats on the board of directors, but the rail company negotiated with them in good faith to try to find common ground.

CSX sued The Children's Investment Fund Management, a hedge fund known as TCI, and another fund, 3G Capital Partners, in March, contending they violated securities laws in their efforts to nominate a slate of directors for election at the company's annual shareholder meeting.

The funds are trying to get five directors onto the 12-member CSX board.

But CSX wants the court to block the funds from nominating their slate, bar them from voting some of their shares and force them to sell part of their CSX stake.

TCI and 3G deny CSX's accusations. In counterclaims, they accuse the railroad of securities law breaches including illegally enriching corporate directors. They say CSX engaged in bad faith discussions with TCI and that the company has sought to stifle dissenters seeking to shake up the board.

Under questioning in U.S. District Court in Manhattan at the start of the civil trial, CSX Chairman and CEO Michael Ward said he and presiding director Edward Kelly negotiated in good faith during discussions with money manager Christopher Hohn of TCI in January 2008.

When asked whether he felt he was a target of the investors, Ward said, "I do feel targeted by TCI, yes," and believed that the fund had intended to remove him as CEO.