Respondent Chris-Craft Industries was the unsuccessful tender
offeror in a contest for the control of a corporation. During the
course of the takeover contest, Chris-Craft brought suit for
damages and injunctive relief against the management of the target
corporation, its investment adviser, and Bangor Punta Corp., the
successful competitor, alleging,
inter alia, violations of
§ 14(e) and other provisions of the Securities Exchange Act of
1934, and Rule 10b-6 of the Securities and Exchange Commission.
Section 14(e) makes unlawful
"any fraudulent, deceptive, or manipulative acts or practices,
in connection with any tender offer . . . or any solicitation of
security holders in opposition to or in favor of any such offer. .
. ."
Rule 10b-6 prohibits issuers whose stock is in the process of
distribution from market tampering by purchasing stock or stock
rights until the distribution has been completed. After protracted
litigation, the Court of Appeals ultimately held that Chris-Craft
had standing to sue for damages under § 14(e) and Rule 10b-6, and
that a claim for damages had been established. The court stated
that it would not infer from the silence of the statute that
Congress intended to deny a federal remedy as a "means of
furthering the general
Page 430 U. S. 2
objective of § 14(e). . . ." On the merits the court found
violations of § 14(e) by all the defendants and violations of Rule
10b-6 by the successful competitor. The court then remanded for a
determination of the amount of damages, and instructed the District
Court to enjoin the successful competitor for at least five years
from voting the target company's shares acquired through violation
of § 14(e) and Rule 10b-6.
Held:
1. A tender offeror, suing in its capacity as a takeover bidder,
does not have standing to sue for damages under § 14(e); hence, the
Court of Appeals erred in holding that Chris-Craft, as a defeated
tender offeror, had an implied cause of action for damages under
that provision. Pp.
430 U. S.
24-42.
(a) The legislative history shows that the sole purpose of §
14(e) was the protection of investors who are confronted with a
tender offer. Congress was intent on regulating takeover bidders,
who had previously operated covertly, in order to protect
shareholders of target companies; tender offerors, the class
regulated by the statute, were not the intended beneficiaries of
the legislation. Pp.
430 U. S.
26-37.
(b) The creation of an implied cause of action for damages by
judicial interpretation, such as is urged by Chris-Craft, is not
necessary to effectuate Congress' objectives in enacting § 14(e).
This conclusion is confirmed by the four factors identified in
Cort v. Ash, 422 U. S. 66, as
"relevant" in determining whether a private remedy is implicit in a
statute not expressly providing one: (i) Chris-Craft, a member of
the class whose activities Congress intended to regulate for the
benefit of target shareholders, was not "
one of the class for
whose especial benefit [§ 14(e)] was enacted . . .'"; (ii) although
nothing in the legislative history manifests an intent to deny a
damages remedy to tender offerors, there is no material showing an
intention to create such a remedy, and the pervasive legislative
history negates any claim that the statute was intended to provide
tender offerors with additional weapons in contests for control;
(iii) it is not consistent with the underlying legislative purpose
to imply a damages remedy for the tender offeror in a statute
especially designed to protect shareholders of target corporations,
particularly where the damages award (here $36 million to
Chris-Craft) favors the tender offeror, not the "injured"
shareholders of the target; and (iv) the cause of action by a
tender offeror is one appropriately "relegated to state law," to
the extent that the offeror seeks damages for loss of an
opportunity to control a corporation. Pp. 430 U. S.
37-41.
2. In the context of this case, Chris-Craft has no standing to
sue for damages on account of the asserted Rule 10b-6 violations by
the
Page 430 U. S. 3
successful competitor, since Chris-Craft's complaint is not that
the price paid for the target company's shares was influenced by
the Rule 106 violations, but that the opportunity to gain control
of the target company was lost by virtue of those violations. Thus,
Chris-Craft's complaint does not implicate the concerns of Rule
10b, which is aimed at maintaining an orderly market for the
distribution of securities free from manipulative influences. Pp.
430 U. S.
42-46.
3. The Court of Appeals erred, under the circumstances presented
here, in awarding Chris-Craft injunctive relief. The case was tried
in the District Court exclusively as a suit for damages after
Chris-Craft expressly waived any claim to injunctive relief. Under
these circumstances, this Court's holding that Chris-Craft has no
cause of action for damages under either § 14(e) or Rule 106
renders the injunction granted by the District Court inappropriate,
premised as it was upon the impermissible award of damages. Pp.
430 U. S.
47-48.
516 F.2d 172, reversed.
BURGER, C.J., delivered the opinion of the Court, in which
STEWART, WHITE, MARSHALL, POWELL, and REHNQUIST, JJ., joined.
BLACKMUN, J., filed an opinion concurring in the judgment,
post, p.
430 U. S. 48.
STEVENS, J., filed a dissenting opinion, in which BRENNAN, J.,
joined,
post, p.
430 U. S. 53.
Page 430 U. S. 4
MR. CHIEF JUSTICE BURGER delivered the opinion of the Court.
We granted certiorari in these cases, 425 U.S. 910 (1976), to
consider, among other issues, whether an unsuccessful tender
offeror in a contest for control of a corporation has an implied
cause of action for damages under § 14(e) of the Securities
Exchange Act of 1934, as added by § 3 of the Williams Act of 1968,
82 Stat. 457, 15 U.S.C. § 78n(e), or under Securities and Exchange
Commission (SEC) Rule 10b-6, 17 CFR § 240.10b-6 (1976), based on
alleged antifraud violations by the successful competitor, its
investment adviser, and individuals constituting the management of
the target corporation.
I
Background
The factual background of this complex contest for control,
including the protracted litigation culminating in the cases now
before us, is essential to a full understanding of the contending
parties' claims.
The three petitions present questions of first impression,
arising out of a "sophisticated and hard-fought contest" for
control of Piper Aircraft Corp., a Pennsylvania-based manufacturer
of light aircraft. Piper's management consisted principally of
members of the Piper family, who owned 31% of Piper's outstanding
stock. Chris-Craft Industries, Inc., a diversified manufacturer of
recreational products, attempted to secure voting control of Piper
through cash and exchange tender offers for Piper common stock.
Chris-Craft's takeover attempt failed, and Bangor Punta Corp.
(Bangor or Bangor Punta), with the support of the Piper family,
obtained control of Piper in September, 1969. Chris-Craft brought
suit under § 14(e) of the Securities Exchange Act of 1934 and Rule
10b-6 alleging that Bangor Punta achieved control of the target
corporation as a result of violations of the federal securities
laws by the Piper family, Bangor Punta, and Bangor Punta's
Page 430 U. S. 5
underwriter, First Boston Corp., who together had successfully
repelled Chris-Craft's takeover attempt.
The struggle for control of Piper began in December, 1968. At
that time, Chris-Craft began making cash purchases of Piper common
stock. By January 22, 1969, Chris-Craft had acquired 203,700
shares, or approximately 13% of Piper's 1,644,790 outstanding
shares. On the next day, following unsuccessful preliminary
overtures to Piper by Chris-Craft's president, Herbert Siegel,
Chris-Craft publicly announced a cash tender offer for up to
300,000 Piper shares [
Footnote
1] at $65 per share, which was approximately $12 above the
then-current market price. Responding promptly to Chris-Craft's
bid, Piper's management met on the same day with the company's
investment banker, First Boston, and other advisers. On January 24,
the Piper family decided to oppose Chris-Craft's tender offer. As
part of its resistance to Chris-Craft's takeover campaign, Piper
management sent several letters to the company's stockholders
during January 25-27, arguing against acceptance of Chris-Craft's
offer. On January 27, a letter to shareholders from W. T. Piper,
Jr., president of the company, stated that the Piper Board "has
carefully studied this offer and is convinced that it is
inadequate, and not in the best interests of Piper's
shareholders."
In addition to communicating with shareholders, Piper entered
into an agreement with Grumman Aircraft Corp. on January 29 whereby
Grumman agreed to purchase 300,000 authorized but unissued Piper
shares at $65 per share. The agreement increased the amount of
stock necessary for Chris-Craft to secure control, and thus
rendered Piper less vulnerable to Chris-Craft's attack. A Piper
press release and letter to shareholders announced the Grumman
transaction, but failed to state either that Grumman had a "put" or
option to sell the shares back to Piper at cost, plus interest, or
that
Page 430 U. S. 6
Piper was required to maintain the proceeds of the transaction
in a separate fund free from liens.
Despite Piper's opposition, Chris-Craft succeeded in acquiring
304,606 shares by the time its cash tender offer expired on
February 3. To obtain the additional 17% of Piper stock needed for
control, Chris-Craft decided to make an exchange offer of
Chris-Craft securities for Piper stock. Although Chris-Craft filed
a registration statement and preliminary prospectus with the SEC in
late February, 1969, the exchange offer did not go into effect
until May 15, 1969.
In the meantime, Chris-Craft made cash purchases of Piper stock
on the open market until Mr. Siegel, the company's president, was
expressly warned by SEC officials that such purchases, when made
during the pendency of an exchange offer, violated SEC Rule 10b-6.
[
Footnote 2] At Mr. Siegel's
direction, Chris-Craft immediately complied with the SEC's
directive and canceled all outstanding orders for purchases of
Piper stock.
While Chris-Craft's exchange offer was in registration, Piper,
in March, 1969 terminated the agreement with Grumman
Page 430 U. S. 7
and entered into negotiations with Bangor Punta. Bangor had
initially been contacted by First Boston about the possibility of a
Piper takeover in the wake of Chris-Craft's initial cash tender
offer in January. With Grumman out of the picture, the Piper family
agreed on May 8, 1969, to exchange their 31% stockholdings in Piper
for Bangor Punta securities. Bangor also agreed to use its best
efforts to achieve control of Piper by means of an exchange offer
of Bangor securities for Piper common stock. A press release issued
the same day announced the terms of the agreement, including a
provision that the forthcoming exchange offer would involve Bangor
securities to be valued, in the judgment of First Boston, "at not
less than $80 per Piper share." [
Footnote 3]
While awaiting the effective date of its exchange offer, Bangor,
in mid-May, 1969, purchased 120,200 shares of Piper stock in
privately negotiated, off-exchange transactions from three large
institutional investors. All three purchases were made after the
SEC's issuance of a release on May 5 announcing proposed Rule
10b-13, a provision which, upon becoming effective in November,
1969, would expressly prohibit a tender offeror from making
purchases of the target company's stock during the pendency of an
exchange offer. The SEC release stated that the proposed rule was,
"in effect, a codification of existing interpretations under Rule
10b-6," [
Footnote 4] the
provision invoked by SEC officials against Mr. Siegel of
Chris-Craft a month earlier. Bangor officials, although aware of
the release at the time of the three off-exchange purchases,
Page 430 U. S. 8
made no attempt to secure an exemption for the transactions from
the SEC, as provided by Rule 10b-6(f). The SEC, however, took no
action concerning these purchases as it had with respect to
Chris-Craft's open market transactions.
With these three block purchases, amounting to 7% of Piper
stock, Bangor Punta, in mid-May, took the lead in the takeover
contest. The contest then centered upon the competing exchange
offers. Chris-Craft's first exchange offer, which began in mid-May,
1969, failed to produce tenders of the specified minimum number of
Piper shares (80,000). Meanwhile, Bangor Punta's exchange offer,
which had been announced on May 8, became effective on July 18. The
registration materials which Bangor filed with the SEC in
connection with the exchange offer included financial statements,
reviewed by First Boston, representing that one of Bangor's
subsidiaries, the Bangor & Aroostock Railroad (BAR), had a
value of $18.4 million. This valuation was based upon a 1965
appraisal by investment bankers after a proposed sale of the BAR
failed to materialize. The financial statements did not indicate
that Bangor was considering the sale of the BAR, or that an offer
to purchase the railroad for $5 million had been received.
[
Footnote 5]
In the final phase of the see-saw of competing offers,
Chris-Craft modified the terms of its previously unsuccessful
exchange offer to make it more attractive. The revised offer
succeeded in attracting 112,089 additional Piper shares, while
Bangor's exchange offer, which terminated on July 29, resulted in
the tendering of 110,802 shares. By August 4, 1969, at the
conclusion of both offers, Bangor Punta owned a total of 44.5%,
while Chris-Craft owned 40.6% of Piper stock. The remainder of
Piper stock, 14.9%, remained in the hands of the public.
Page 430 U. S. 9
After completion of their respective exchange offers, both
companies renewed market purchases of Piper stock, [
Footnote 6] but Chris-Craft, after purchasing
29,200 shares for cash in mid-August, withdrew from competition.
[
Footnote 7] Bangor Punta
continued making cash purchases until September 5, by which time it
had acquired a majority interest in Piper. The final tally in the
nine-month takeover battle showed that Bangor Punta held over 50%
and Chris-Craft held 42% of Piper stock.
II
Before either side had achieved control, the contest moved from
the marketplace to the courts. Then began more than seven years of
complex litigation growing out of the contest for control of Piper
Aircraft.
A
Chris-Craft's Initial Suit
May 22, 1969
On May 22, 1969, Chris-Craft filed suit seeking both damages and
injunctive relief in the United States District Court for the
Southern District of New York. Chris-Craft alleged that Bangor's
block purchases of 120,200 Piper shares in mid-May violated Rule
10b-6, and that Bangor's May 8 press release, announcing an $80
valuation of Bangor securities to be offered in the forthcoming
exchange offer, violated SEC "gun-jumping" provisions, 15 U.S.C. §
77e(c), and
Page 430 U. S. 10
SEC Rule 135, 17 CFR 230.135 (1976). Chris-Craft sought to
enjoin Bangor from voting the Piper shares purchased in violation
of Rule 10b-6, and from accepting any shares tendered by Piper
stockholders pursuant to the exchange offer.
B
District Court Decision on Preliminary
Injunction
August 19, 1969
On July 22, 1969, Chris-Craft moved for a preliminary injunction
against Bangor. In an opinion filed August 19, 1969, United States
District Judge Charles Tenney denied relief. Judge Tenney
concluded, first, that the May 8 press release had not violated the
gun-jumping provisions, and, second, that Bangor's block purchases
of Piper stock were not inconsistent with Rule 10b-6.
"Bangor Punta's cash purchases . . . effected
neither on the
Exchange nor from or through a broker or dealer, were
obviously not designed to place market pressures on the
distribution price of Piper, so as to create an artificially high
price for this security."
303 F.
Supp. 191, 198. (Emphasis supplied.) [
Footnote 8]
Judge Tenney accordingly concluded that neither irreparable
injury nor likelihood of probable success on the merits had been
established, particularly since the contest for control was still
open.
"[B]oth the Chris-Craft and Bangor Punta exchange offers have
expired. Neither party has gained control of Piper, and both are
still in a position to do so."
Id. at 199.
Page 430 U. S. 11
C
Court of Appeals' Decision on Preliminary
Injunction
April 28, 1970
On appeal, the Court of Appeals for the Second Circuit, sitting
en banc, affirmed Judge Tenney's denial of injunctive relief. 426
F.2d 569 (1970). In an opinion by Judge Waterman, the court held
that Bangor had properly been allowed to continue soliciting Piper
stock.
"Chris-Craft was free [at the time of the District Court's
decision] to compete equally with Bangor Punta for the remaining
Piper shares, and it did so. We do not understand Chris-Craft to
allege that prior misdeeds of Bangor Punta so determined the course
of the competition . . . that Chris-Craft was placed at any real
disadvantage."
Id. at 573.
The court concluded, however, that Bangor had violated SEC
"gun-jumping" provisions and Rule 10b-6, unless the three block
purchases fell within an established exemption to the Rule.
[
Footnote 9]
Chief Judge Lumbard, in dissent, agreed that injunctive relief
was unwarranted, but also accepted the District Court's
determination that Bangor had not violated the securities laws.
[
Footnote 10]
Id.
at 579.
Page 430 U. S. 12
The Court of Appeals remanded the case for further proceedings,
so that Bangor, among other things, could attempt to establish that
its block purchases fell within an exemption to Rule 10b-6.
D
District Court Decision on SEC Injunction
August 26, 1971
While Chris-Craft's private suit was pending, the SEC sought an
injunction against Bangor on account of the BAR omission in
Bangor's registration statement. The SEC sought both an offer of
rescission to Piper shareholders who accepted Bangor's exchange
offer and an injunction against Bangor from violating the
Securities Act of 1933 and the 1934 Act.
In an opinion by Judge Pollack, the District Court concluded
that Bangor's registration statement was unintentionally misleading
by virtue of the failure to disclose the fact that an offer had
been received for the sale of the BAR. Accordingly, the court
required Bangor to offer rescission to tendering Piper
shareholders; however, the District Court refused to grant an
injunction against future violations of the securities laws on the
ground that the SEC had failed to establish that Bangor and its
officials had a "propensity or natural inclination to violate the
securities law."
SEC v. Bangor Punta Corp., 331 F.
Supp. 1154, 1163 (1971).
E
District Court Decision on Liability
December 10, 1971
On remand from the Court of Appeals, Chris-Craft's private
action also came before Judge Pollack. Although its second amended
complaint, which added a claim based on the BAR omission, sought
both damages and injunctive relief, Chris-Craft, at a pretrial
hearing, expressly abandoned its
Page 430 U. S. 13
prayer for equitable relief; the case was thereafter treated
solely as an action for damages.
337 F.
Supp. 1128, 1136 n. 8.
Following trial before the District Court without a jury, Judge
Pollack, in December, 1971, dismissed Chris-Craft's complaint
against all defendants. In an exhaustive opinion, he concluded that
Chris-Craft had standing to seek damages for Bangor's Rule 10b-6
violations, 337 F. Supp. at 1133, but found it unnecessary to
decide whether § 14(e) could be invoked by one competitor for
corporate control against another. 337 F. Supp. at 1134. [
Footnote 11]
On the merits, the District Court held that the Piper
communications characterizing Chris-Craft's cash tender offer a
"inadequate" were not misleading. The court concluded that the
"more rational" view was that the statements referred to factors
other than price, such as Piper's views as to the quality of
Chris-Craft's management.
Id. at 1135. The court also
rejected Chris-Craft's contention that it had been injured by the
omission in the Grumman press release concerning the "put" or
option provision in the agreement. The District Court concluded
that Piper's complete description of the provision in a listing
application with the New York Stock Exchange, coupled with
Chris-Craft's major acquisitions of Piper stock after learning of
the "put," undermined Chris-Craft's claim that it was misled or
otherwise injured by the announcement of the Grumman transaction.
Ibid.
With respect to the May 8 press release, which the Court of
Appeals had held violative of the "gun-jumping" rules, the District
Court held that the release, although technically a violation, was
not false or misleading. Moreover, Chris-Craft had failed to show
that it was injured or disadvantaged by the release in its efforts
to acquire Piper stock.
Id. at 1137.
Page 430 U. S. 14
As to the claim of a misleading valuation of the BAR, Judge
Pollack held that Chris-Craft failed to show either
scienter or causation as required in a damages action
under the 1934 Act's antifraud provisions.
Scienter was
not established, the court concluded, since the BAR omission was
"mere negligent omission or misstatement of fact."
Id. at
1140. As to causation, the District Court specifically
distinguished this Court's decision in
Mills v. Electric
Auto-Lite Co., 396 U. S. 375
(1970), which established a presumption of causation in a § 14(a)
suit by minority shareholders challenging misleading proxy
materials. The omission in the proxy statement in that case, the
District Court reasoned, directly affected the shareholders on
whose behalf the suit was brought:
"It was in that particular context that the Supreme Court deemed
sufficient a set of facts under which shareholders
could
be misled. This does not aid Chris-Craft, as it is seeking to
recover because of the effect which a misstatement allegedly had on
third parties."
337 F. Supp. at 1139. (Emphasis in original.) (Footnote
omitted.) Given the differences between the instant case and
Mills, the District Court went on to hold that proof of
actual causation was required:
"There is no proof that a single exchanging Piper shareholder
would have refrained from the exchange
and taken an offer
for his shares from Chris-Craft instead of that from Bangor Punta.
In a damage suit, as distinct from one for equitable relief, such
proof is essential to sustain a 10b-5 claim."
Ibid. (Emphasis in original.)
On Chris-Craft's Rule 10b-6 claim, Judge Pollack held that,
although the block purchases did not fall within any exemption to
the Rule, Chris-Craft had no right to recovery:
"Even granting that the block purchases resulted
arithmetically
Page 430 U. S. 15
in Bangor Punta's achievement of control, there is no basis for
concluding that, absent Bangor Punta's acquisition of these blocks,
Chris-Craft would have achieved its goal of control."
Id. at 1142. Based on its findings with respect to
Piper and Bangor Punta, the District Court also held in favor of
First Boston; the court specifically exonerated the firm of having
"committed, or engaged in any course of conduct which operated as a
fraud or deceit upon Chris-Craft or the public shareholders of
Piper."
Id. at 1145.
F
Court of Appeals Decision on Liability
March 16, 1973
Chris-Craft appealed, and the SEC sought review of the District
Court's denial of injunctive relief against Bangor Punta. In the
Court of Appeals, each member of the panel wrote separately. All
three members of the panel agreed that Chris-Craft had standing to
sue for damages under § 14(e), and that a claim for damages had
been established. However, Judges Gurfein and Mansfield, over Judge
Timbers' dissent, sustained the District Court's denial of an
injunction against Bangor.
Court of Appeals Majority Opinion
The Court of Appeals directly answered the question concerning
Chris-Craft's standing under § 14(e), which the District Court had
not decided. [
Footnote 12]
The Court of Appeals based its holding "on the statute itself [§
14(e)] and such decisional law as there is that has touched on the
question." 480 F.2d 341, 358. The opinion noted that the Second
Page 430 U. S. 16
Circuit had on four occasions [
Footnote 13] addressed the issue whether a private cause
of action might be implied under § 14(e). Although acknowledging
that no case represented a square holding in this respect, the
court interpreted the cases to intimate "that such an implied right
of action would be reasonable." 480 F.2d at 360. The court then
noted that Chris-Craft could likely state a common law tort claim
in state court for "interference with a
prospective
advantage.'" Ibid.
"We will not infer from the silence of the statute that Congress
intended to deny a federal remedy and to extinguish a liability
which, under established principles of tort law, normally attends
the doing of a proscribed act."
Id. at 360-361.
With respect to the legislative history of § 14(e), the Court of
Appeals expressly acknowledged that the focus of congressional
concern was the protection of public shareholders. Given this
purpose, the court concluded:
"We can conceive of no more effective means of furthering the
general objective of § 14(e) than to grant a victim of violations
of the statute standing to sue for damages. . . . Particularly in
light of the enforcement rationale of [
J. I. Case Co. v.\]
Borak, [
377 U.S.
426 (1964),] we believe it is both necessary and appropriate
that [Chris-Craft] should be granted standing to sue for
damages."
480 F.2d at 361.
Page 430 U. S. 17
The court next reviewed the alleged § 14(e) violations for which
Chris-Craft sought damages. In contrast to the District Court's
conclusions, the Court of Appeals held that Piper's description of
the Chris-Craft offer as "inadequate," and the failure to disclose
the "put" provision in the Grumman agreement constituted actionable
violations of § 14(e). 480 F.2d at 36365. As to Bangor Punta, the
Court of Appeals agreed with Judge Pollack's determination that
Chris-Craft had not been injured by the "gun-jumping" press release
of May 8; on the other hand, the court held that the BAR omission
in Bangor's registration statement was actionable. The Court of
Appeals expressly rejected Judge Pollack's conclusion that the
registration statement was "unintentionally in error." On the
contrary, the Court of Appeals held that Bangor Punta's officers
"showed reckless disregard" in failing to disclose the BAR
negotiations, although the court conceded that the officers were
not shown to have had an "intent to defraud."
Id. at 369.
First Boston was likewise held culpable because its certification
of the registration statement "amounted to an almost complete
abdication of its responsibility [as an underwriter]. . . ."
Id. at 373.
The Court of Appeals also disagreed with the District Court's
analysis of causation. Although agreeing that Chris-Craft failed to
show that it would have won the takeover battle, [
Footnote 14] the court relied upon
Mills v. Electric Auto-Lite Co., 396 U.
S. 375 (1970), as establishing a presumption of
reliance
Page 430 U. S. 18
and causation applicable to Chris-Craft. Under
Mills,
so the court held, "we must presume that [Bangor's] offer was not
so appealing, considering the BAR loss, as to have attracted any
takers." 480 F.2d at 375.
"Since [Bangor] eventually acquired only about 51% of the
outstanding Piper shares, it is clear that the 7% acquired through
its exchange offer was critical to its success. Reliance and
causation have been shown."
Ibid.
In addition to the § 14(e) claim, the Court of Appeals held that
Chris-Craft could recover damages for Bangor's Rule 10b-6
violations; the three block purchases had a "presumptively . . .
stimulating effect . . . which misled the public." 480 F.2d at 378.
Since those purchases amounted to 7% of Piper stock, "[e]ven
arithmetically, it is apparent that the block purchases [by Bangor
Punta] . . . were essential to achieve control."
Id. at
379.
The Court of Appeals then remanded with directions to the
District Court to award damages in the amount of
"the reduction in the appraisal value of [Chris-Craft's] Piper
holdings attributable to [Bangor Punta's] taking a majority
position and reducing [Chris-Craft] to a minority position. . .
."
Id. at 380. Damages were to be awarded against all
defendants jointly and severally. In addition, without discussing
Chris-Craft's abandonment of its claim for equitable relief, the
court instructed the District Court to enjoin Bangor for a period
of at least five years from voting the Piper shares acquired
through the exchange offer and in violation of Rule 10b-6.
Ibid.
Finally, Judge Timbers, writing in dissent on this issue,
disagreed with the conclusion of Judges Mansfield and Gurfein that
the SEC request for an injunction against future violations by
Bangor Punta had properly been refused. In Judge Timbers' view, the
District Court employed an improper
Page 430 U. S. 19
legal standard in denying the SEC injunctive relief against
Bangor.
Judge Gurfein's Concurring Opinion
Judge Gurfein concurred "generally" in Judge Timbers' opinion
for the court. On the issue of standing, Judge Gurfein agreed with
the District Court's approach in considering the matter as one of
"causation before considering the question of standing." 480 F.2d
at 393. Under Judge Gurfein's approach, Chris-Craft had standing
because Bangor's acquisitions of Piper shares were necessary for
control. As to
scienter, Judge Gurfein was of the view
that "mere negligence" would not suffice, but that
"
recklessness that is equivalent to willful fraud' is required.
. . ." Ibid. (Citation omitted.)
Judge Gurfein disagreed, however, with Judge Timbers' analysis
of the alleged Rule 10b-6 violations. He refused to indulge the
presumption of "stimulating effect" embraced by Judge Timbers, and
concluded, rather, that, because "the [illegal] block purchases
were necessary for control, causation was established. . . ." 480
F.2d at 393.
With respect to the SEC action against Bangor Punta, Judge
Gurfein, writing for himself and Judge Mansfield, upheld the
District Court's refusal to grant a permanent injunction. Applying
the "abuse of discretion" standard, Judge Gurfein concluded
that
"the matter is not so clear that we should substitute our
judgment for the judgment of the experienced trial Judge below, who
sat as a chancellor in equity."
Ibid.
Judge Mansfield's Concurring and Dissenting Opinion
Judge Mansfield concurred in the "results" reached by Judge
Timbers, except with respect to the Piper family's liability. Judge
Mansfield agreed that the Piper communications violated § 14(e),
but concluded that Chris-Craft had failed to prove damages
resulting from those infractions.
Page 430 U. S. 20
Applying the principles of
Mills v. Electric Auto-Lite Co.,
supra, Judge Mansfield stated: "[Chris-Craft] must show that
it suffered some resulting loss. This it has failed to do."
480 F.2d at 401.
On the other issues addressed by the majority opinion, Judge
Mansfield concluded that Chris-Craft's standing under § 14(e)
rested solely on the policy of vigorous enforcement of the
antifraud provisions. 480 F.2d at 396. As to
scienter,
Judge Mansfield concluded that intent to defraud had not been
shown. He formulated instead the following test of
scienter:
"In short, the
scienter requirement would be met if the
corporate officer (1) knew the essential facts and failed to
disclose them, or (2) failed or refused, after being put on notice
of a possible material failure in disclosure, to apprise himself of
the facts under circumstances where he could reasonably have
ascertained and disclosed them without any extraordinary
effort."
Id. at 398. He concluded that the actions complained of
satisfied this standard.
Like Judge Gurfein, Judge Mansfield declined to indulge the
presumption that Bangor's Rule 10b-6 violations actually operated
to make its exchange offer deceptively attractive; he concurred
solely on the ground that, where a party achieves control through
violations of the securities laws, the party is liable as a matter
of law to an injured competitor. [
Footnote 15]
G
District Court Opinion on Relief
November 6, 1974
Pursuant to the remand, Judge Pollack took evidence on damages.
Although concluding that the Court of Appeals'
Page 430 U. S. 21
mandate required the use of "hypothetical figures," he
determined that Chris-Craft's damages were to be measured by
comparing the value of its Piper holdings prior and subsequent to
Bangor's achieving control.
384 F.
Supp. 507, 512 (1974). Employing this method, he concluded, on
the basis of expert testimony, that the fair market value of Piper
stock as of the day Bangor achieved control was $48 per share.
Id. at 517. After ascertaining that the value of
Chris-Craft's takeover opportunity amounted to 5% of the fair
market value of the stock, or $2.40 per share,
id. at 523,
the District Court awarded to Chris-Craft, based on its holdings of
697,495 shares, damages of $1,673,988.
Ibid. The District
Court also granted an award of prejudgment interest and entered an
injunction, consistent with the mandate of the Court of Appeals,
barring Bangor from voting the illegally acquired Piper shares for
five years.
Id. at 526.
H
Court of Appeals' Opinion on Relief
April 11, 1975
In the final phase of the litigation, the Court of Appeals
reversed on the damages issue and calculated Chris-Craft's damages
without further remand to the District Court. The Court of Appeals
fixed damages as the difference between what Chris-Craft had
actually paid for Piper shares and the price at which the large
minority block could have been sold at the earliest point after
Bangor Punta gained control. Application of this formula produced
damages in the amount of $36.98 per Piper share held by
Chris-Craft, or a total of $25,793,365. 516 F.2d 172, 190 (1975).
The court instructed the District Court to recompute prejudgment
interest based on the revised damages award.
Id. at 191.
This new computation increased Chris-Craft's prejudgment interest
from $600,000 to approximately $10 million.
It is this judgment which is now under review.
Page 430 U. S. 22
III
The Williams Act
We turn first to an examination of the Williams Act, which was
adopted in 1968 in response to the growing use of cash tender
offers as a means for achieving corporate takeovers. [
Footnote 16] Prior to the 1960's,
corporate takeover attempts had typically involved either proxy
solicitations, regulated under § 14 of the Securities Exchange Act,
15 U.S.C. § 78n, or exchange offers of securities, subject to the
registration requirements of the 1933 Act. § 77e. The proliferation
of cash tender offers, in which publicized requests are made and
intensive campaigns conducted for tenders of shares of stock at a
fixed price, removed a substantial number of corporate control
contests from the reach of existing disclosure requirements of the
federal securities laws.
See generally S.Rep. No. 550,
90th Cong., 1st Sess., 2 (1967) (hereinafter Senate Report);
H.R.Rep. No. 1711, 90th Cong., 2d Sess., 2-4 (1968) (hereinafter
House Report).
To remedy this gap in federal regulation, Senator Harrison
Williams introduced a bill in October, 1965, to subject tender
offerors to advance disclosure requirements. The original proposal,
S. 2732, evolved over the next two years in response to positions
expressed by the SEC and other interested parties from private
industry and the New York Stock Exchange. 113 Cong.Rec. 854 (1967)
(remarks of Sen. Williams). As subsequently enacted, the
legislation requires takeover bidders to file a statement with the
Commission indicating, among other things, the "background and
identity" of the offeror, the source and amount of funds or other
consideration to be used in making the purchases, the
Page 430 U. S. 23
extent of the offeror's holdings in the target corporation, and
the offeror's plans with respect to the target corporation's
business or corporate structure. 15 U.S.C. § 78m(d)(1).
In addition to disclosure requirements, which protect all target
shareholders, the Williams Act provides other benefits for target
shareholders who elect to tender their stock. First, stockholders
who accept the tender offer are given the right to withdraw their
shares during the first seven days of the tender offer and at any
time after 60 days from the commencement of the offer. § 78n(d)(5).
Second, where the tender offer is for less than all outstanding
shares and more than the requested number of shares are tendered,
the Act requires that the tendered securities be taken up
pro
rata by the offeror during the first 10 days of the offer. §
78n(d)(6). [
Footnote 17]
This provision, according to Senator Williams, was specifically
designed to reduce pressures on target shareholders to deposit
their shares hastily when the takeover bidder makes its tender
offer on a first-come, first-served basis. 113 Cong.Rec. 856
(1967). Finally, the Act provides that, if, during the course of
the offer, the amount paid for the target shares is increased, all
tendering shareholders are to receive the additional consideration,
even if they tendered their stock before the price increase was
announced. 15 U.S.C. § 78n(d)(7).
See generally 1 A
Bromberg, Securities Law: Fraud § 6.3 (551), p. 120.2 (1975).
Page 430 U. S. 24
Besides requiring disclosure and providing specific benefits for
tendering shareholders, the Williams Act also contains a broad
antifraud prohibition, which is the basis of Chris-Craft's claim.
Section 14(e) of the Securities Exchange Act, as added by § 3 of
the Williams Act, 82 Stat. 457, 15 U.S.C. § 78n(e), provides:
"It shall be unlawful for any person to make any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading, or to
engage in any fraudulent, deceptive, or manipulative acts or
practices, in connection with any tender offer or request or
invitation for tenders, or any solicitation of security holders in
opposition to or in favor of any such offer, request, or
invitation."
This provision was expressly directed at the conduct of a broad
range of persons, including those engaged in making or opposing
tender offers or otherwise seeking to influence the decision of
investors or the outcome of the tender offer. Senate Report 11.
The threshold issue in these cases is whether tender offerors
such as Chris-Craft, whose activities are regulated by the Williams
Act, have a cause of action for damages against other regulated
parties under the statute on a claim that antifraud violations by
other parties have frustrated the bidder's efforts to obtain
control of the target corporation. Without reading such a cause of
action into the Act, none of the other issues need be reached.
IV
Our analysis begins, of course, with the statute itself. Section
14(e), like § 10(b), makes no provision whatever for a private
cause of action, such as those explicitly provided in other
sections of the 1933 and 1934 Acts.
E.g., §§ 11, 12, 15 of
the 1933 Act, 15 U.S.C. §§ 77k, 77
l, 77
o; §§ 9,
16, 18, 20
Page 430 U. S. 25
of the 1934 Act, 15 U.S.C. §§ 78i, 78p, 78r, 78t. This Court has
nonetheless held that, in some circumstances, a private cause of
action can be implied with respect to the 1934 Act's antifraud
provisions, even though the relevant provisions are silent as to
remedies.
J. I. Case Co. v. Borak, 377 U.
S. 426 (1964) (§ 14(a));
Superintendent of Ins. v.
Bankers Life & Cas. Co., 404 U. S. 6,
404 U. S. 13 n. 9
(1971) (§ 10(b)).
The reasoning of these holdings is that, where congressional
purposes are likely to be undermined absent private enforcement,
private remedies may be implied in favor of the particular class
intended to be protected by the statute. For example, in
J. I.
Case Co. v. Borak, supra, recognizing an implied right of
action in favor of a shareholder complaining of a misleading proxy
solicitation, the Court concluded as to such a shareholder's
right:
"While [ § 14(a)] makes no specific reference to a private right
of action, among its chief purposes is 'the protection of
investors,' which certainly implies the availability of judicial
relief
where necessary to achieve that result."
377 U.S. at
377 U. S. 432.
(Emphasis supplied.)
Indeed, the Court in
Borak carefully noted that,
because of practical limitations upon the SEC's enforcement
capabilities, "[p]rivate enforcement . . . provides
a necessary
supplement to Commission action."
Ibid. (Emphasis
added.) Similarly, the Court's opinion in
Blue Chip Stamps v.
Manor Drug Stores, 421 U. S. 723,
421 U. S. 730
(1975), in reaffirming the availability of a private right of
action under § 10(b), specifically alluded to the language in
Borak concerning the necessity for supplemental private
remedies without which congressional protection of shareholders
would be defeated.
See also Rondeau v. Mosinee Paper
Corp., 422 U. S. 49,
422 U. S. 62
(1975).
Against this background, we must consider whether § 14(e), which
is entirely silent as to private remedies, permits this Court to
read into the statute a damages remedy for unsuccessful tender
offerors. To resolve that question, we turn to the
Page 430 U. S. 26
legislative history to discern the congressional purpose
underlying the specific statutory prohibition in § 14(e). Once we
identify the legislative purpose, we must then determine whether
the creation by judicial interpretation of the implied cause of
action asserted by Chris-Craft is necessary to effectuate Congress'
goals.
A
Reliance on legislative history in divining the intent of
Congress is, as has often been observed, a step to be taken
cautiously.
Department of Air Force v. Rose, 425 U.
S. 352,
425 U. S.
388-389 (1976) (BLACKMUN, J., dissenting);
United
States v. Public Utilities Comm'n, 345 U.
S. 295,
345 U. S. 319
(1953) (Jackson, J., concurring);
Scripps-Howard Radio v.
FCC, 316 U. S. 4,
316 U. S. 11
(1942). In this case, both sides press legislative history on the
Court not so much to explain the meaning of the language of a
statute as to explain the absence of any express provision for a
private cause of action for damages. As Mr. Justice Frankfurter
reminded us: "We must be wary against interpolating our notions of
policy in the interstices of legislative provisions."
Ibid. With that caveat, we turn to the legislative history
of the Williams Act.
In introducing the legislation on the Senate floor, the sponsor,
Senator Williams, stated:
"This legislation will close a significant gap in
investor
protection under the Federal securities laws by requiring the
disclosure of pertinent information
to stockholders when
persons seek to obtain control of a corporation by a cash tender
offer or through open market or privately negotiated purchases of
securities."
113 Cong.Rec. 854 (1967). (Emphasis supplied.) The same theme of
investor protection was emphasized eight months later by Senator
Williams on the day the measure was passed by the Senate:
"[The federal securities laws] provide protection for millions
of American investors by requiring full disclosure
Page 430 U. S. 27
of information in connection with the public offering and
trading of securities. These laws have worked well in providing the
public with adequate information on which to base intelligent
investment decisions."
"
* * * *"
"There are, however, some areas still remaining where full
disclosure is
necessary for investor protection, but not
required by present law. One such area is the purchase by direct
acquisition or by tender offers of substantial blocks of the
securities of publicly held companies."
"S. 510 . . . provides for investor protection in these
areas."
Id. at 24664. (Emphasis supplied.) Indeed, the bill, as
finally enacted by Congress, was styled as a disclosure provision:
"A bill to provide for full disclosure of corporate equity
ownership of securities under the Securities Exchange Act of 1934."
See generally 1 A. Bromberg,
supra, § 6.3(121),
at 116.2.
Confirming the view that the legislation was designed to fill "a
rather large gap in the securities statutes," Manuel Cohen, then
Chairman of the SEC, testified before the Senate Subcommittee on
Securities:
"[T]he general approach . . . of this bill is to provide the
investor, the person who is required to make a decision, an
opportunity to examine and to assess the relevant facts. . . ."
Senate Hearings 15. In response to the suggestion that the
legislation would tend to aid entrenched management in warding off
potentially beneficial takeover bids, Chairman Cohen testified:
"But
the principal point is that we are not concerned with
assisting or hurting either side. We are concerned with the
investor who today is just a pawn in a form of industrial warfare.
. . . The investor is lost somewhere
Page 430 U. S. 28
in the shuffle.
This is our concern, and our only
concern."
Id. at 178. (Emphasis supplied.)
The legislative history thus shows that Congress was intent upon
regulating takeover bidders, theretofore operating covertly, in
order to protect the shareholders of target companies. That tender
offerors were not the intended beneficiaries of the bill was
graphically illustrated by the statements of Senator Kuchel,
cosponsor of the legislation, in support of requiring takeover
bidders, whom he described as "corporate raiders" and "takeover
pirates," to disclose their activities.
"Today there are those individuals in our financial community
who seek to reduce our proudest businesses into nothing but
corporate shells. They seize control of the corporation with
unknown sources, sell or trade away the best assets, and later
split up the remains among themselves. The tragedy of such
collusion is that the corporation can be financially raped without
management
or shareholders having any knowledge of the
acquisitions. . . . The corporate raider may thus act under a cloak
of secrecy while obtaining the shares needed to put him on the road
to a successful capture of the company."
113 Cong.Rec. 857-858 (1967). (Emphasis supplied.)
At different stages of the legislative debate, Senator Kuchel
called the Senate's attention to specific takeover attempts
directed against two companies. During the floor debate on the day
S. 510 was passed, Senator Kuchel described one takeover
contest:
"If this attempt had succeeded, [the company] would have found
itself under the control of a combination including significant
foreign interests, without prior notice to the company, without an
opportunity for examination into the circumstances surrounding the
tender
Page 430 U. S. 29
offer, and without any regard
for the rights of its
stockholders."
Id. at 24665. (Emphasis supplied.)
Moreover, the Senate Subcommittee heard the testimony of
Professor Hayes, speaking on behalf of himself and his co-author of
a comprehensive study on takeover attempts, [
Footnote 18] who stated:
"The two major protagonists -- the bidder and the defending
management do not need any additional protection, in our opinion.
They have the resources and the arsenal of moves and countermoves
which can adequately protect their interests. Rather, the investor
-- who is the subject of these entreaties of both major
protagonists --
is the one who needs a more effective
champion. . . ."
Senate Hearings 57. (Emphasis supplied.)
In the face of this legislative history, the Court of Appeals
understandably did not rely upon the legislative materials to
support an implied cause of action for damages in favor of
Chris-Craft. In this Court, however, Chris-Craft and the SEC
contend that Congress clearly intended to protect tender offerors
as part of a "pervasive scheme of federal regulation of tender
offers." In support of their reading of the legislative history,
they emphasize, first, that, in enacting the legislation, Congress
was intent upon establishing a policy of evenhandedness in takeover
regulation. Congress was particularly anxious, Chris-Craft argues,
"
to avoid tipping the balance of regulation. . . .'"
Congress was indeed committed to a policy of neutrality in
contests for control, but its policy of evenhandedness does not go
either to the purpose of the legislation or to whether a private
cause of action is implicit in the statute. Neutrality is, rather,
but one characteristic of legislation directed toward a different
purpose -- the protection of investors. Indeed, the statements
concerning the need for Congress to
Page 430 U. S. 30
maintain a neutral posture in takeover attempts are contained in
the section of the Senate Report entitled, "Protection of
Investors." Taken in their totality, these statements confirm that
what Congress had in mind was the protection of shareholders, the
"pawn[s] in a form of industrial warfare." The Senate Report
expressed the purpose as "plac[ing] investors on an equal footing
with the takeover bidder," Senate Report 4, without favoring either
the tender offeror or existing management. This express policy of
neutrality scarcely suggests an intent to confer highly important,
new rights upon the class of participants whose activities prompted
the legislation in the first instance.
Moreover, closer analysis shows that Congress' "equal footing"
observations were in response to strong criticisms that the
proposed legislation would unduly inhibit tender offers. [
Footnote 19] As originally
introduced, the disclosure proposals embodied in S. 2731 were
avowedly pro-management in the target company's efforts to defeat
takeover bids.
See generally Note, The Williams
Amendments: An Evaluation of the Early Returns, 23 Vand.L.Rev. 700
(1970). Subsequent committee hearings, however, indicated, first,
that takeover bids could often serve a useful function, and,
second, that entrenched management, equipped with considerable
weapons in battles for control, tended to be successful in fending
off possibly beneficial takeover attempts. Several witnesses
specifically called the efficacy of the proposed legislation into
question, since, in their view, the "scales are pretty unbalanced
at the moment, and unbalanced very much in favor of management."
Senate Hearings 117.
The sponsors of this legislation were plainly sensitive to the
suggestion that the measure would favor one side or the other in
control contests; however, they made it clear that
Page 430 U. S. 31
the legislation was designed solely to get needed information to
the investor, the constant focal point of the committee hearings.
Senator Williams articulated this singleness of purpose, even while
advocating neutrality:
"We have taken extreme care to avoid tipping the scales either
in favor of management or in favor of the person making the
takeover bids.
S. 610 is designed solely to require full and
fair disclosure for the benefit of investors."
113 Cong.Rec. 24664 (1967). (Emphasis supplied.)
Accordingly, the congressional policy of "evenhandedness" is
nonprobative of the quite disparate proposition that the Williams
Act was intended to confer rights for money damages upon an injured
takeover bidder.
Besides the policy of evenhandedness, Chris-Craft emphasizes
that the matter of implied private causes of action was raised in
written submissions to the Senate Subcommittee. Specifically,
Chris-Craft points to the written statements of Professors Israels
and Painter, who made reference to
J. I. Case Co. v.
Borak, 377 U. S. 426
(1964). Chris-Craft contends, therefore, that Congress was aware
that private actions were implicit in § 14(e).
But this conclusion places more weight on the passing reference
to
Borak than can reasonably be carried. Even accepting
the value of written statements received without comment by the
committee and without cross-examination, [
Footnote 20] the statements do not refer to implied
private actions by
Page 430 U. S. 32
offeror-bidders. For example, Professor Israels'
statement on this subject reads:
"[A] private litigant could seek similar relief before or after
the significant fact
such as the acceptance of his tender of
securities."
Senate Hearings 67. (Emphasis supplied.) Similarly, Professor
Painter, in his written submission, referred to "injured
investors."
Id. at 140. Neither Israels nor Painter
discussed, or even alluded to, remedies potentially available to
takeover bidders.
More important, these statements referred to a case in which the
remedy was afforded to shareholders -- the direct and
intended beneficiaries of the legislation. In
Borak, the Court emphasized that § 14(a), the proxy
provision, was adopted expressly for "the protection of investors,"
377 U.S. at
377 U. S. 432,
the very class of persons there seeking relief. [
Footnote 21] The
Page 430 U. S. 33
Court found no difficulty in identifying the legislative
objective and concluding that remedies should be available if
necessary "to make effective the congressional purpose."
Id. at
377 U. S. 433.
Borak did not involve, and the statements in the
legislative history relied upon by Chris-Craft do not implicate,
the interests of parties such as offeror-bidders who are outside
the scope of the concerns articulated in the evolution of this
legislation. [
Footnote
22]
Chris-Craft and the SEC also rely upon statements in the
legislative history which, they suggest, demonstrate that Congress,
in adopting the Williams Act, was concerned with parties other than
shareholders. First, they place particular emphasis upon a
statement by Chairman Cohen in his Senate testimony that
"shareholders are not the only persons concerned." From this
statement, they argue that tender offerors were likewise within the
sphere of congressional concern. In that colloquy, however,
Chairman Cohen was plainly referring to persons in need of
disclosure:
"As soon as there is a takeover bid, everybody in the market
gets excited. There are people who consider themselves professional
or amateur arbitragers, and they begin to play the games that
possibility permits."
Senate Hearings 178. Thus, Chairman Cohen was referring to other
actors in the marketplace, including arbitragers, who would benefit
from disclosure. He was not referring to the needs of those
required by the proposed legislation to make disclosure, the tender
offerors themselves.
Page 430 U. S. 34
Finally, Chris-Craft emphasizes what it perceives as the
Commission's express concern with the plight of takeover bidders
faced with "unfair tactics by entrenched management." The SEC
Chairman did indeed speak in the Subcommittee Hearings of the need
to "regulate improper practices by management and others opposing a
tender offer. . . ." Senate Hearings 184. But, in so doing, he was
not pleading the cause of takeover bidders; on the contrary, he
testified that imposing disclosure duties upon management would
"make it much easier for
stockholders to evaluate the
offer on its merits."
Ibid. (Emphasis supplied.)
In short, by extending the statute's coverage to solicitations
in opposition to tender offers, Congress was seeking to broaden the
scope of protection afforded to shareholders confronted with
competing claims. Senator Williams, for example, was fully aware
that in a contest for control, full disclosure by all contestants
was needed to protect shareholders:
"In the rather common situation where existing management or
third parties contest a tender offer, shareholders may be exposed
to a bewildering variety of conflicting appeals and arguments
designed to persuade them either to accept or to reject the tender
offer. The experience of the SEC with proxy fights offers ample
evidence that this type of situation can best be controlled, and
shareholders most adequately informed, if both sides to
the argument are subject to the full and fair disclosure rules of
the Federal securities laws."
113 Cong.Rec. 855-856 (1967). (Emphasis supplied.) Furthermore,
in the very passages on which Chris-Craft relies as evidencing SEC
concern for tender offerors, Chairman Cohen criticized any analysis
which focused upon the legislation's impact on management or the
takeover bidder:
"Moreover, this type of analysis lays almost exclusive stress on
the respective interests of the offeror and the
Page 430 U. S. 35
existing management,
rather than upon the protection of the
stockholders . . . , who are left to be treated as pawns in an
elaborate game between the offerors and the management or perhaps
other competing interests."
Senate Hearings 184. (Emphasis supplied.)
The legislative history thus shows that the sole purpose of the
Williams Act was the protection of investors who are confronted
with a tender offer. As we stated in
Rondeau v. Mosinee Paper
Corp., 422 U.S. at
422 U. S.
58:
"The purpose of the Williams Act is to insure that public
shareholders who are confronted by a cash tender offer for their
stock will not be required to respond without adequate information.
. . ."
We find no hint in the legislative history, on which respondent
so heavily relies, that Congress contemplated a private cause of
action for damages by one of several contending offerors against a
successful bidder or by a losing contender against the target
corporation.
The dissent suggests, however, that Chris-Craft is suing under §
14(e) for injuries sustained in its status as a Piper shareholder,
as well as in its capacity as a defeated tender offeror.
Post at
430 U. S. 56-59.
In contrast to that suggestion, Chris-Craft's position in this
Court on the issue of standing is based on the narrow ground that
the Williams Act was designed to protect not only target company
shareholders, but rival contestants for control as well. Brief for
Respondent 36-40, 43, 46 48, 50-54. It is clear, therefore, that
Chris-Craft has not asserted standing under § 14(e) as a Piper
shareholder. The reason is not hard to divine. As a tender offeror
actively engaged in competing for Piper stock, Chris-Craft was not
in the posture of a target shareholder confronted with the decision
of whether to tender or retain its stock. Consequently, Chris-Craft
could scarcely have alleged a need for the disclosures mandated by
the Williams Act. In short, the fact that Chris-Craft necessarily
acquired Piper stock as a means of taking over Piper adds nothing
to its § 14(e) standing
Page 430 U. S. 36
arguments. [
Footnote 23]
This probably explains why the Court of Appeals at no time
intimated that it rested Chris-Craft's standing on its status as a
Piper stockholder. Its opinion in this respect could hardly be
clearer:
"This is a case of first impression with respect to
the
right of a tender offeror to claim damages for statutory
violations by his adversary. And our holding is premised on the
belief that the harm done the defeated contestant is not that it
had to pay more for the stock,
but that it got less stock than
it needed for control."
480 F.2d at 362. (Emphasis supplied.)
Moreover, the items of damages cited in dissent,
post
at
430 U. S. 57-58,
n. 6, as attributable to Chris-Craft in its status as a Piper
shareholder are, upon analysis, actually related,
under these
circumstances, to Chris-Craft's status as a contestant for
control of a corporation. First, the alleged "loss of the control
premium," which Chris-Craft presumably otherwise would have
enjoyed,. relates, on its face, not to Chris-Craft as a Piper
shareholder
per se, but to its status as a shareholder who
failed to gain control. Second, the alleged loss of value as to a
"locked-in," "exceptionally large block" of Piper stock likewise
relates, under these circumstances, to a particular kind of Piper
shareholder, namely one whose efforts to secure control necessarily
resulted in the acquisition of major stockholdings in the company.
In this regard, the Court of Appeals
Page 430 U. S. 37
plausibly assumed that, in order to dispose of its Piper
holdings, Chris-Craft would have to file a registration statement
with the SEC, since Chris-Craft would presumably be engaged in a
distribution of Piper stock. 516 F.2d at 188-189. In contrast, no
ordinary Piper shareholder would have had to comply with the 1933
Act's registration requirements in order to sell his stock, since
the typical shareholder is not "an issuer, underwriter, or dealer."
15 U.S.C. § 77d(1).
Consequently, the elements of damages mentioned in dissent are
peculiar to Chris-Craft not as a "target shareholder" of Piper, but
as a defeated tender offeror "injured" by its adversaries' alleged
violations of the securities laws. [
Footnote 24]
B
Our conclusion as to the legislative history is confirmed by the
analysis in
Cort v. Ash, 422 U. S. 66
(1975). There, the Court identified four factors as "relevant" in
determining whether a private remedy is implicit in a statute not
expressly providing one. The first is whether the plaintiff is
"
one of the class for whose especial benefit the
statute was enacted. . . .'" Id. at 422 U. S. 78.
(Emphasis in original.) As previously indicated, examination of the
statute and its genesis shows that Chris-Craft is not an intended
beneficiary of the Williams Act, and surely is not one "for whose
especial benefit the statute was enacted." Ibid.
To the contrary, Chris-Craft is a member of the class whose
activities Congress intended to regulate for the protection and
benefit of an entirely distinct class, shareholder-offerees. As a
party whose previously unregulated conduct was purposefully brought
under federal control by the statute, Chris-Craft can scarcely lay
claim to the status of "beneficiary" whom Congress considered in
need of protection.
Page 430 U. S. 38
Second, in
Cort v. Ash, we inquired whether there was
"any indication of legislative intent, explicit or implicit, either
to create such a remedy or to deny one."
Ibid. Although
the historical materials are barren of any express intent to deny a
damages remedy to tender offerors as a class, there is, as we have
noted, no indication that Congress intended to create a damages
remedy in favor of the loser in a contest for control. Fairly read,
we think the legislative documents evince the narrow intent to curb
the unregulated activities of tender offerors. The expression of
this purpose, which pervades the legislative history, negates the
claim that tender offerors were intended to have additional weapons
in the form of an implied cause of action for damages, particularly
if a private damages action confers no advantage on the expressly
protected class of shareholder-offerees, a matter we discuss later.
Infra at
430 U. S. 39.
Chris-Craft argues, however, that Congress intended standing
under § 14(e) to encompass tender offerors, since the statute,
unlike § 10(b), does not contain the limiting language, "in
connection with the purchase or sale" of securities. Instead, in §
14(e), Congress broadly proscribed fraudulent activities "in
connection with any tender offer . . . or any solicitation . . . in
opposition to or in favor of any such offer. . . ."
The omission of the purchaser-seller requirement does not mean,
however, that Chris-Craft has standing to sue for damages under §
14(e) in its capacity as a takeover bidder. It may well be that
Congress desired to protect, among others, shareholder-offerees who
decided not to tender their stock due to fraudulent
misrepresentations by persons opposed to a takeover attempt.
See generally 1 A. Bromberg, Securities Law: Fraud § 6.3
(1021), p. 122.17 (1969).
See also Senate Report 2; House
Report 3. These shareholders, who might not enjoy the protection of
§ 10(b) under
Blue Chip Stamps v. Manor Drug Stores,
421 U. S. 723
(1975), could perhaps
Page 430 U. S. 39
state a claim under § 14(e), even though they did not tender
their securities. [
Footnote
25] But increased protection, if any, conferred upon the class
of shareholder-offerees by the elimination of the purchaser-seller
restriction can scarcely be interpreted as giving protection to the
entirely separate and unrelated class of persons whose conduct the
statute is designed to regulate.
Third,
Cort v. Ash tells us that we must ascertain
whether it is "consistent with the underlying purposes of the
legislative scheme to imply such a remedy for the plaintiff." 422
U.S. at
422 U. S. 78. We
conclude that it is not. As a disclosure mechanism aimed especially
at protecting shareholders of target corporations, the Williams Act
cannot consistently be interpreted as conferring a monetary remedy
upon regulated parties, particularly where the award would not
redound to the direct benefit of the protected class. Although it
is correct to say that the $36 million damages award indirectly
benefits those Piper shareholders who became Chris-Craft
shareholders when they accepted Chris-Craft's exchange offer, it is
equally true that the damages award injures those Piper
shareholders who exchanged their shares for Bangor Punta's stock
and who, as Bangor Punta shareholders, would necessarily bear a
large part of the burden of any judgment against Bangor Punta. The
class sought to be protected by the Williams Act are the
shareholders of the
target corporation; hence it can
hardly be said that their interests as a class are served by a
judgment in favor of Chris-Craft and against Bangor Punta.
Moreover, the damages are awarded to the very party whose
activities Congress intended to curb; Chris-Craft did not sue in
the capacity of an injured Piper shareholder, but as a defeated
tender offeror.
Nor can we agree that an ever-present threat of damages against
a successful contestant in a battle for control will provide
significant additional protection for shareholders
Page 430 U. S. 40
in general. The deterrent value, if any, of such awards can
never be ascertained with precision. More likely, however, is the
prospect that shareholders may be prejudiced because some tender
offers may never be made if there is a possibility of massive
damages claims for what courts subsequently hold to be an
actionable violation of § 14(e). [
Footnote 26] Even a contestant who "wins the battle" for
control may well wind up exposed to a costly "war" in a later and
successful defense of its victory. Or, at worst -- on Chris-Craft's
damages theory -- the victorious tender offeror or the target
corporation might be subject to a large substantive judgment, plus
high costs of litigation.
In short, we conclude that shareholder protection, if enhanced
at all by damages awards such as Chris-Craft contends for, can more
directly be achieved with other, less drastic means more closely
tailored to the precise congressional goal underlying the Williams
Act.
Fourth, under the
Cort v. Ash analysis, we must decide
whether "the cause of action [is] one traditionally relegated to
state law. . . ." 422 U.S. at
422 U. S. 78.
Despite the pervasiveness of federal securities regulation, the
Court of Appeals concluded in these cases that Chris-Craft's
complaint would give rise to a cause of action under common law
principles of interference
Page 430 U. S. 41
with a prospective commercial advantage. Although Congress is,
of course, free to create a remedial scheme in favor of contestants
in tender offers, we conclude, as we did in
Cort v. Ash,
that
"it is entirely appropriate in this instance to relegate [the
offeror-bidder] and others in [that] situation to whatever remedy
is created by state law,"
id. at
422 U. S. 84, at
least to the extent that the offeror seeks damages for having been
wrongfully denied a "fair opportunity" to compete for control of
another corporation.
C
What we have said thus far suggests that, unlike
J. I. Case
Co. v. Borak, supra, judicially creating a damages action in
favor of Chris-Craft is unnecessary to ensure the fulfillment of
Congress' purposes in adopting the Williams Act. Even though the
SEC operates in this context under the same practical restraints
recognized by the Court in
Borak, institutional
limitations alone do not lead to the conclusion that any party
interested in a tender offer should have a cause of action for
damages against a competing bidder. [
Footnote 27] First,
Page 430 U. S. 42
as Judge Friendly observed in
Electronic Specialty Co. v.
International Controls Corp., 409 F.2d 937, 947 (CA2 1969), in
corporate control contests, the stage of preliminary injunctive
relief, rather than post-contest lawsuits, "is the time when relief
can best be given." Furthermore, awarding damages to parties other
than the protected class of shareholders has only a remote, if any,
bearing upon implementing the congressional policy of protecting
shareholders who must decide whether to tender or retain their
stock. [
Footnote 28] Indeed,
as we suggested earlier, a damages award of this nature may well be
inconsistent with the interests of many members of the protected
class, and of only indirect value to shareholders who accepted the
exchange offer of the defeated takeover contestant.
We therefore conclude that Chris-Craft, as a defeated tender
offeror, has no implied cause of action for damages under §
14(e).
V
In addition to its holding under § 14(e), the Court of Appeals
held that Bangor was liable for damages under Rule 10b-6 because of
its off-exchange cash purchases of Piper stock in May, 1969.
Although the Court of Appeals imposed joint and several liability
upon all defendants with respect to the injury occasioned by
Bangor's achieving control of Piper, our holding, in
430 U.
S. supra, that no cause of action for damages
lies under § 14(e) in favor of Chris-Craft,
Page 430 U. S. 43
necessarily removes all petitioners except Bangor Punta from any
potential liability in these cases. The issue that remains is
whether Chris-Craft has a cause of action for damages against
Bangor alone by virtue of the latter's alleged Rule 10b-6
violations. We hold that it does not.
Rule 10b-6 [
Footnote 29]
is an antimanipulative provision designed to protect the
orderliness of the securities market during distributions of stock.
The Rule, in essence ,prohibits issuers whose stock is in the
process of distribution from market tampering by purchasing either
the stock or rights to purchase the stock until the distribution
has been completed. The purpose of the Rule is to prevent
stimulative trading by an issuer in its own securities in order to
create an unnatural and unwarranted appearance of market activity.
See generally E. Aranow & H. Einhorn, Tender Offers
for Corporate Control 131 (1973). Here, the Court of Appeals held,
and its holding is unchallenged, that the cash purchases of Piper
stock during the pendency of Bangor's exchange offer constituted
purchases of "right[s] to purchase" Bangor stock within the meaning
of Rule 10b-6. [
Footnote
30]
Without questioning the finding of Rule 10b-6 violations, Bangor
strenuously argues that Chris-Craft fails the standing test applied
in
Blue Chip Stamps v. Manor Drug Stores, 421 U.
S. 723 (1975). [
Footnote 31] The concern of Rule 10b-6 in these
circumstances, Bangor suggests, is to foreclose manipulative
trading which would affect the price of Bangor Punta stock, since
Bangor Punta securities were being distributed
Page 430 U. S. 44
in the exchange offer. Because Chris-Craft neither purchased nor
sold Bangor securities, it is foreclosed, under Bangor's analysis,
from suing under Rule 10b-6.
If we accepted Bangor's analysis, Rule 10b-6 would provide no
remedy for an entire class of persons who actually purchased or
sold securities, namely, those investors who either bought or sold
Piper stock, which, in turn, represented "rights" to purchase
Bangor stock then in distribution. This class of securities would,
under the SEC's theory, be potentially affected by Bangor's
off-exchange purchases, since acquisitions of rights to acquire
stock during a distribution have, under the SEC's view of Rule 10b,
at least the potential for artificially raising the price of those
rights. Thus, Bangor's theory would foreclose, among others, any
investors who purchased Piper stock after the unlawful
acquisitions; this would be true even though the price paid for the
stock might be shown to reflect the stimulative effects of Bangor's
off-market, block purchases. In this respect, this case is readily
distinguishable from
Blue Chip, where the complainants
made no purchases of stock at all; unlike that situation, here,
Chris-Craft was a purchaser of Piper common stock, the very class
of securities with respect to which Bangor was held to have
committed Rule 10b-6 violations.
We conclude, however, that these cases do not call for a
definitive resolution of the law of standing under Rule 10b-6, as
Bangor would have us do. Nor do we find it appropriate to do so
under the unusual circumstances presented here. First, the Court of
Appeals, although sensitive to the
Birnbaum issue, did not
have the benefit of our decision in
Blue Chip in resolving
the standing issue. Second, in this Court, both Chris-Craft and the
United States, in its
amicus brief on certiorari, contend
that § 14(e)'s broad prohibition of "manipulative acts or
practices" in tender offers embraces acts proscribed under the more
specific mandate of Rule 10b-6. Brief for Respondent 56; Brief for
United States as
Page 430 U. S. 45
Amicus Curiae 16-17. Thus, to this extent, the issue of
Rule 10b-6 standing has not been fully explored by the parties
because of their initial misconception as to Chris-Craft's standing
to sue for damages under § 14(e).
Although we reserve judgment on the broader standing issues
arising under Rule 10b-6, we hold that, in the context of these
cases, Chris-Craft is without standing to sue for damages on
account of Bangor's alleged Rule 10b-6 violations. Our holding is
based upon one critical factor: as the parties themselves have
framed the issues for resolution in this litigation, Chris-Craft is
clearly outside the express concern of Rule 10b-6. At no time has
Chris-Craft complained of or even suggested that the price which it
paid for Piper shares was influenced by Bangor's Rule 10b-6
violations. Indeed, Chris-Craft does not assert standing as a Piper
shareholder; on the contrary, it claims damages because, in its
view of the case, it lost the opportunity to gain control of Piper
by virtue of Bangor's Rule 10b-6 violations. Assuming the
correctness of this theory, the fact remains that Rule 10b-6 is not
directed at or concerned with contests for corporate control. This
technical rule is focused narrowly upon a precise goal --
maintaining an orderly market for the distribution of securities
free from artificial or manipulative influences. Thus, as the
issues have been framed, Chris-Craft did not come to the courts in
the posture of a hoodwinked investor victimized by market
manipulation; its complaint, as we noted, is that it lost a chance
to gain control of a corporation, a claim beyond the bounds of the
specific concern of Rule 10b-6.
Our conclusion in this respect is buttressed by the close
relationship of Rule 10b-6 with § 9 of the 1934 Act, 15 U.S.C. §
78i. Section 9, among other things, prohibits transactions by
issuers in their own securities, if forbidden by SEC regulations,
even though the transactions are designed to stabilize the market
for the issuer's stock. § 78i(a)(6). The SEC suggests in its
amicus brief that Rule
Page 430 U. S. 46
10b-6 was promulgated pursuant to the Commission's authority
under § 9(a)(6), [
Footnote
32] as well as under § 10(b) of the 1934 Act. It contends that,
in view of this bifurcated statutory origin, Chris-Craft need only
be a purchaser of Piper stock to have standing under Rule 10b-6,
since § 9 requires only that an aggrieved party have purchased or
sold "any security" affected by the violation. 15 U.S.C. § 78i(e).
Under this view, Chris-Craft's failure to purchase Bangor Punta
stock is irrelevant, since its purchases of Piper shares satisfied
the "any security" requirement of § 9.
Unlike § 10(b), however, § 9 provides an express cause of action
for persons injured by unlawful market activities. 15 U.S.C. §
78i(e). Yet that cause of action is framed specifically in favor of
"any person who shall purchase or sell any security
at a price
which was affected by such act or transaction. . . ."
Ibid. (Emphasis supplied.) Congress therefore focused in §
9 upon the amount actually paid by an investor for stock that had
been the subject of manipulative activity. This is not, as we have
seen, the gravamen of Chris-Craft's complaint. It seeks no recovery
for an improper premium exacted for Piper stock; rather, it desires
compensation for its lost opportunity to control Piper. We
therefore conclude that, on its claimed basis for relief,
Chris-Craft cannot avail itself of Rule 10b-6.
Page 430 U. S. 47
VI
Our resolution of these issues makes it unnecessary to address
the other questions raised by the parties in their petitions for
certiorari. Since we have concluded that Chris-Craft cannot avail
itself of § 14(e) or Rule 10b-6 in its suit for damages, it is
unnecessary to consider the Court of Appeals' holdings with respect
to
scienter, causation, the calculation of damages, the
imposition of joint and several liability, the liability of
underwriters in § 14(e) damages actions, and the award of
prejudgment interest.
Apart from awarding damages, however, the Court of Appeals also
ordered the District Court to enjoin Bangor Punta from voting the
illegally acquired Piper shares for a period of five years. In
compliance with that directive, Judge Pollack on remand entered an
injunction to remain in effect for a period of five years from
November 12, 1974, the date on which judgment was entered. 384 F.
Supp. at 528-529. On appeal, the Court of Appeals affirmed that
portion of the District Court's order.
We hold that, under the circumstances presented here, this
injunction should not have been granted. As we previously
indicated, Chris-Craft prior to the trial on liability expressly
waived any claim to injunctive relief. The case was tried in the
District Court, without a jury, exclusively as a suit for damages.
See 337 F. Supp. at 1136 n. 8, 1137, 1141-1142, n. 18,
1146.
Accord, 480 F.2d at 355, 379. Under these
circumstances, our holding that Chris-Craft does not have a cause
of action for damages under § 14(e) or Rule 10b-6 renders that
injunction inappropriate, premised as it was upon the impermissible
award of damages. [
Footnote
33] The inappropriateness
Page 430 U. S. 48
of the injunction is particularly acute in this litigation,
where the order was entered almost four years after the contest for
control had ended and where no regard was given to the interests of
the protected class of shareholder-offerees, many of whom would be
at least indirectly disadvantaged by the award. [
Footnote 34]
Accordingly, the judgment of the Court of Appeals is
Reversed.
* Together with No. 75-354,
First Boston Corp. v.
Chris-Craft Industries, Inc., and No. 75-355,
Bangor Punta
Corp. et al. v. Chris-Craft Industries, Inc., also on
certiorari to the same court.
[
Footnote 1]
The cash tender offer indicated that Chris-Craft reserved the
right to purchase shares in excess of the 300,000 specified
amount.
[
Footnote 2]
Rule 10b-6 provides in pertinent part:
"(a) It shall constitute a 'manipulative or deceptive device or
contrivance' as used in section 10(b) of the act for any
person,"
"(1) Who is an underwriter or prospective underwriter in a
particular distribution of securities, or"
"(2) Who is the issuer or other person on whose behalf such a
distribution is being made, or"
"(3) Who is a broker, dealer, or other person who has agreed to
participate or is participating in such a distribution, directly or
indirectly, by the use of any means or instrumentality of
interstate commerce, or of the mails, or of any facility of any
national securities exchange, either alone or with one or more
other persons, to bid for or purchase for any account in which he
has a beneficial interest, any security which is the subject of
such distribution, or any security of the same class and series, or
any right to purchase any such security, or to attempt to induce
any person to purchase any such security or right, until after he
has completed his participation in such distribution."
[
Footnote 3]
Less than three weeks later, the SEC brought an action in
Federal District Court charging that the Bangor press release
violated "gun-jumping" provisions, 15 U.S.C. § 77e(c), and Rule
135, 17 CFR § 230.135 (1975), by stating a specific dollar
valuation for unregistered securities. Without admitting any of the
allegations, Bangor and Piper consented to a permanent injunction
against similar releases before the effective date of Bangor's
registration statement.
[
Footnote 4]
SEC Release No. 8595, May 5, 1969, CCH Fed.Sec.L.Rep. 77,706, p.
83,617.
[
Footnote 5]
Shortly after the contest for control was completed, Bangor
entered into an agreement to sell the BAR for $5 million, thereby
resulting in a $13.8 million book loss.
[
Footnote 6]
Since the respective distributions of securities pursuant to the
exchange offers had been completed at this point, the legality of
these market purchases was unchallenged.
[
Footnote 7]
The reason for Chris-Craft's withdrawal from the contest is a
matter in dispute. According to one view, espoused by Judge
Mansfield at one stage in the ensuing litigation, Chris-Craft
had
"'shot its bolt' in the financial sense by early February, 1969.
. . . It was in no position to purchase for cash any appreciable
amount of Piper shares over and above the 304,606 tendered in
response to its initial cash offer."
480 F.2d 341, 402 (CA2 1973).
[
Footnote 8]
Chris-Craft's earlier purchases, which were challenged by the
SEC on the basis of Rule 106, were open-market purchases. Mr.
Siegel promptly stopped the purchases at the SEC's behest.
Supra at
430 U. S. 6.
[
Footnote 9]
Rule 10b-6 is set out in part at
n 2,
supra. The Rule, among other things,
prohibits an issuer or underwriter from purchasing any security
which is the subject of a distribution. Eleven separate exemptions
are created, however, including "unsolicited privately negotiated
purchases [of stock] . . . effected neither on a securities
exchange nor from or through a broker or dealer. . . ." 17 CFR §
240.10b-6(a)(3)(ii) (1975).
[
Footnote 10]
Two other judges wrote separately. Judge Moore expressed doubts
as to the majority's legal conclusions concerning Bangor's alleged
violations. He stated that he would not pass on any issue other
than the propriety of the denial of injunctive relief. Judge
Anderson, while concurring, expressed separate views concerning the
materiality of the $80 valuation estimate in the May 8 press
release.
[
Footnote 11]
Judge Pollack avoided the § 14(e) issue by ruling against
Chris-Craft on the merits of its antifraud claims under Rule 10b-5,
with respect to which Chris-Craft's standing was assumed. 337 F.
Supp. at 1134.
[
Footnote 12]
Judge Pollack "assumed" that Chris-Craft had standing under Rule
10b-5, but the Court of Appeals expressly avoided passing on that
issue, since it determined that Chris-Craft had standing under §
14(e).
[
Footnote 13]
Electronic Specialty Co. v. International Controls
Corp., 409 F.2d 937 (1969) (suit by a target corporation
against a tender offeror for injunctive relief);
Butler
Aviation Int'l, Inc. v. Comprehensive Designers, Inc., 425
F.2d 842 (1970) (suit for a preliminary injunction by a target
corporation against a tender offeror);
Crane Co. v.
Westinghouse Air Brake Co., 419 F.2d 787 (1969) (action for an
injunction under § 10(b) by a tender offeror against the target
corporation);
Iroquois Industries, Inc. v. Syracuse China
Corp., 417 F.2d 963 (1969),
cert. denied, 399 U.S.
909 (1970) (action under § 10(b) by a tender offeror against the
target corporation).
[
Footnote 14]
The District Court had looked to whether Chris-Craft would have
succeeded in securing control even if Bangor had abided by the
securities laws. In its analysis of causation, the Court of Appeals
expressly agreed that Chris-Craft "failed to show with reasonable
certainty that it would have obtained a controlling position in
Piper had it not been for the violations . . ." of Bangor and First
Boston. 480 F.2d at 373. Nonetheless, causation was found.
See
generally Note,
Chris-Craft: The Uncertain Evolution
of Section 14(e), 76 Colum.L.Rev. 634, 650-658 (1976).
[
Footnote 15]
Following the Court of Appeals' decision, petitions for review
were filed in this Court by First Boston, Bangor Punta, and the
Piper defendants. Certiorari was denied. 414 U.S. 910 (1973).
[
Footnote 16]
The proliferation of cash tender offers as devices for securing
corporate control is analyzed in detail in Hayes & Taussig,
Tactics of Cash Takeover Bids, 45 Harv.Bus.Rev. 135
(Mar.-Apr.1967).
See also E. Aranow & H. Einhorn,
Tender Offers for Corporate Control 2-10 (1973).
[
Footnote 17]
The SEC had proposed that the
pro rata requirement be
applied throughout the duration of the offer. Hearings on S. 510
before the Subcommittee on Securities of the Senate Committee on
Banking and Currency, 90th Cong., 1st Sess., 200 (1967)
(hereinafter Senate Hearings).
See generally Cohen, A Note
on Takeover Bids and Corporate Purchases of Stock, 22 Bus.Law. 149,
153-154 (1966).
See also 6 L. Loss, Securities Regulation
3662 (Supp. 1969). This open-ended proposal came under substantial
criticism in the legislative hearings, and Congress finally enacted
a 10-day limitation on the
pro rata acceptance
requirement. The 10-day period was identical to the practice
followed by the New York Stock Exchange. Senate Hearings 76.
[
Footnote 18]
Hayes & Taussig, Tactics of Cash Takeover Bids,
supra, n 16.
[
Footnote 19]
Requiring the tender offeror to reveal detailed information at
the outset of the quest for control would, under the critics'
analysis, fortify management's position in rebuffing contestants'
efforts.
[
Footnote 20]
Only last Term, we indicated that similar materials in the
legislative history of the 1934 Act were of limited value.
"Remarks of this kind made in the course of legislative debate
or hearings other than by persons responsible for the preparation
or the drafting of a bill are entitled to little weight."
Ernst & Ernst v. Hochfelder, 425 U.
S. 185,
425 U. S. 204
n. 24 (1976).
See generally 2A C. Sands, Sutherland on
Statutes and Statutory Construction § 48.06, p. 203 (4th
ed.1973).
[
Footnote 21]
The dissent emphasizes that
Borak involved a derivative
suit brought on behalf of the corporation, in addition to the
shareholder's direct cause of action. Since corporations were not
the primary beneficiaries of § 14(a) -- the proxy provision
involved in
Borak -- the dissent concludes that
Borak itself fails to meet the "especial class"
requirement articulated by our subsequent decision in
Cort v.
Ash. Post at
430 U. S. 66-67. But this is a misreading of
Borak; there, the Court observed that deceptive proxy
solicitations violative of § 14(a) injure the corporation in the
following sense:
"The damage suffered results not from the deceit practiced on
[the individual shareholder] alone, but rather from the deceit
practiced on the stockholders as a group."
377 U.S. at
377 U. S.
432.
The
Borak Court was thus focusing on all stockholders
-- the owners of the corporation -- as the beneficiaries of §
14(a). Stockholders as a class therefore plainly constituted the
"especial class" for which the proxy provisions were enacted. This
reading of
Borak comports with the statement of the
question presented in that case:
"We consider only the question of whether § 27 of the Act
authorizes a federal cause of action for rescission or damages
to a corporate stockholder with respect to a consummated
merger. . . ."
377 U.S. at
377 U. S. 428.
(Emphasis supplied.)
[
Footnote 22]
In this connection, Chris-Craft emphasizes Congress' intent to
treat tender offers in the same way as proxy solicitation, since
both are devices for seeking corporate control. This argument,
however, does not support the proposition that Chris-Craft should
have a cause of action for damages, since this Court had not then
held, nor has it since, that defeated insurgents in a proxy fight,
suing in a capacity other than that of a shareholder, have a cause
of action for damages. There is no occasion to resolve that
question in this case.
[
Footnote 23]
The dissent's approach fails to focus upon the precise goals
served by the Williams Act, an indispensable inquiry under
Borak. Both Chris-Craft and Bangor Punta were, to be sure,
Piper shareholders once each had embarked upon an attempt to gain
control of the target company. But neither offeror-bidder stood in
the shoes of the Act's intended beneficiaries.
"[T]his bill is [designed] to provide the investor,
the
person who is required to make a decision, an opportunity to
examine and to assess the relevant facts. . . ."
Senate Hearings 15. (Emphasis supplied.) In short, the dissent
overlooks the fact that in no meaningful sense was either
Chris-Craft or Bangor Punta, as a tender offeror, a "target
shareholder" of Piper.
[
Footnote 24]
In light of our holding there is, of course, no occasion to pass
on the Court of Appeals' underlying determination that petitioners
actually violated the securities laws in their efforts to defeat
Chris-Craft's bid.
See also infra at
430 U. S. 43 n.
30.
[
Footnote 25]
These cases, of course, do not present that issue, and we
express no view on it.
[
Footnote 26]
The liability of the Piper family petitioners is instructive in
this regard. Several able federal judges, including District Judges
Tenney and Pollack and Chief Judge Lumbard of the Second Circuit,
have expressly concluded that the Piper defendants did not violate
the securities laws in their efforts to defeat Chris-Craft's bid.
Judge Mansfield, while of the view that the Pipers had violated §
14(e), was convinced that their violations had not caused injury to
Chris-Craft. The legal uncertainties that inevitably pervade this
area of the law call into question whether "deterrence" of § 14(e)
violations is a meaningful goal, except possibly with respect to
the most flagrant sort of violations which no reasonable person
could consider lawful. Such cases of flagrant misconduct, however,
are not apt to occur with frequency, and, to the extent that the
violations are obvious and serious, injunctive relief at an earlier
stage of the contest is apt to be the most efficacious form of
remedy.
[
Footnote 27]
The dissent suggests that the SEC's "intimate involvement in the
passage of the Act, entitle[s] its views to respect."
Post
at
430 U. S. 64. We
note, first, that the present position of the SEC is not consistent
with the testimony of the SEC Chairman in the legislative evolution
of § 14(e). Even if the agency spoke with a consistent voice,
however, its presumed "expertise" in the securities law field is of
limited value when the narrow legal issue is one peculiarly
reserved for judicial resolution, namely whether a cause of action
should be implied by judicial interpretation in favor of a
particular class of litigants. Indeed, in our prior cases relating
to implied causes of action, the Court has understandably not
invoked the "administrative deference" rule, even when the SEC
supported the result reached in the particular case.
J. 1. Case
Co. v. Borak, 377 U. S. 426
(1964);
Superintendent of Ins. v. Bankers Life & Cas.
Co., 404 U. S. 6 (1971).
That rule is more appropriately applicable in instances where,
unlike here, an agency has rendered binding, consistent, official
interpretations of its statute over a long period of time.
E.g., United States v. National Assn. of Securities
Dealers, 422 U. S. 694,
422 U. S. 719,
(1975);
Udall v. Tallman, 380 U. S.
1,
380 U. S. 16-17
(1965).
[
Footnote 28]
Our holding is a limited one. Whether shareholder-offerees, the
class protected by § 14(e), have an implied cause of action under §
14(e) is not before us, and we intimate no view on the matter. Nor
is the target corporation's standing to sue in issue in this case.
We hold only that a tender offeror, suing in its capacity as a
takeover bidder, does not have standing to sue for damages under §
14(e).
Our precise holding disposes of many observations made in
dissent. Thus, the argument with respect to the "exclusion" from
standing for "persons most interested in effective enforcement,"
post, at
430 U. S. 62, is
simply unwarranted in light of today's narrow holding.
[
Footnote 29]
Rule 10b-6 is set forth in part in
n 2,
supra.
[
Footnote 30]
We therefore have no occasion to consider whether the cash
purchases by Bangor actually violated Rule 10b-6, and we express no
view on that question. The issue is of secondary importance, since
Rule 10b-13 now expressly covers this type of transaction.
[
Footnote 31]
In
Blue Chip, we applied the
Birnbaum rule,
Birnbaum v. Newport Steel Corp., 193 F.2d 461 (CA2),
cert. denied, 343 U.S. 956 (1952), which limited standing
under Rule 10b-5 to purchasers or sellers of securities.
[
Footnote 32]
Section 9(a)(6) provides:
"(a) It shall be unlawful for any person, directly or
indirectly, by the use of the mails or any means or instrumentality
of interstate commerce, or of any facility of any national
securities exchange, or for any member of a national securities
exchange --"
"
* * * *"
"(6) To effect either alone or with one or more other persons
any series of transactions for the purchase and/or sale of any
security registered on a national securities exchange for the
purpose of pegging, fixing, or stabilizing the price of such
security in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors."
[
Footnote 33]
We intimate no view upon whether as a general proposition a suit
in equity for injunctive relief, as distinguished from an action
for damages, would lie in favor of a tender offeror under either §
14(e) or Rule 106.
[
Footnote 34]
The fact that the parties did not separately enumerate the
injunction issue in their petitions for certiorari does not
preclude review. The Court has in the exercise of its discretion
traditionally examined matters of importance not specifically
assigned as error by the parties.
E.g., Carpenters v. United
States, 330 U. S. 395,
330 U. S. 412
(1947);
Sibbach v. Wilson & Co., 312 U. S.
1,
312 U. S. 16
(1941);
Mahler v. Eby, 264 U. S. 32,
264 U. S. 45
(1924).
Cf. this Court's Rule 40(d)(2);
Oregon ex rel.
State Board v. Corvallis Sand & Gravel Co., 429 U.
S. 363 (1977);
Mapp v. Ohio, 367 U.
S. 643 (1961). Exercise of this discretion is called for
under these unusual circumstances, since a sweeping equitable
remedy was ordered by the Court of Appeals to supplement an
improper award of damages.
MR. JUSTICE BLACKMUN, concurring in the judgment.
I concur in the judgment. For the reasons set out in MR. JUSTICE
STEVENS' dissenting opinion,
post, p.
430 U. S. 53, I
am willing to begin with the premise that respondent Chris-Craft
had "standing" in the sense that it possessed an implied right to
sue under § 14(e) of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78n(e). Unlike the dissenters, however, I do not conclude, from
this, that the Court of Appeals' judgment as to liability is to be
affirmed. Since I am of the opinion that respondent failed to prove
that petitioners' violations of the securities laws caused its
injury, I agree with the Court that the judgment below should be
reversed. [
Footnote 2/1]
I
For the sake of clarity, it is useful to review briefly the acts
that constituted violations of the securities laws and to identify
the violators.
Three violations of § 14(e) were isolated by the District Court
and the Court of Appeals. The first occurred when W. T. Piper, Jr.,
wrote the letter of January 27 to the Piper shareholders, and
therein described the Chris-Craft offer as "inadequate, and not in
the best interests of Piper's shareholders." Petitioner First
Boston reviewed that letter. Chris-Craft alleged that the
description of its offer was a misstatement of material fact. In
addition, the letter omitted to reveal First Boston's opinion that
the price Chris-Craft was offering for Piper shares was fair, and
it failed to disclose the pending negotiations with Grumman
Aircraft Corporation.
The second § 14(e) violation occurred with the Piper press
release and letter to its shareholders on January 29. The sins in
this instance were those of omission: although the release and
letter discussed the agreement with Grumman, they were silent about
Grumman's option to return the shares to Piper at cost plus
interest, and about Piper's obligation to keep the sale proceeds in
a separate fund free from liens.
Finally, the courts determined that petitioners Bangor Punta and
First Boston omitted to state a material fact relating to the value
of the Bangor & Aroostock Railroad (BAR) in the financial
statements filed in connection with Bangor's exchange offer.
Specifically, the papers did not reveal that Bangor had been
offered only $5 million for the sale of BAR, in the face of the
facts that BAR was carried on Bangor's books at $18.4 million, and
that no other offer appeared to be forthcoming.
In addition to these § 14(e) violations, the courts found that
Bangor had not complied with Securities and Exchange Commission
Rule 10b-6, 17 CFR § 240.10b-6 (1976). This
Page 430 U. S. 50
occurred when Bangor, in May, 1969, made its three privately
negotiated large purchases of Piper stock, while awaiting the
effective date of its exchange offer.
This summary reveals that, on the accepted premises, the Pipers
were guilty both of misstatements of material facts and of
omissions; that Bangor violated § 14(e) by omitting to state
material facts; that Bangor violated Rule 10b-6 by its purchases of
the large blocks of Piper stock; and that First Boston, like
Bangor, omitted to reveal material facts, both in connection with
the Piper letters and with regard to the BAR negotiations.
II
Standards for proving causation in a securities law case were
established in
Mills v. Electric Auto-Lite Co.,
396 U. S. 375
(1970), and in
Affiliated Ute Citizens v. United States,
406 U. S. 128
(1972). It must be shown that the misstatement or omission is
"material." That term most recently has been defined by this Court
to mean that "the omitted fact would have assumed actual
significance in the deliberations of the reasonable shareholder."
TSC Industries, Inc. v. Northway, Inc., 426 U.
S. 438,
426 U. S. 449
(1976). Assuming that materiality is established,
Mills
held that causation would be proved if the misleading proxy
solicitation at issue there was an "essential link in the
accomplishment of the transaction." 396 U.S. at
396 U. S.
385.
Because cases involving omissions create difficult problems of
proof of reliance, and hence causation, the Court elaborated on the
Mills test in
Affiliated Ute Citizens: .
"Under the circumstances of this case, involving primarily a
failure to disclose, positive proof of reliance is not a
prerequisite to recovery. All that is necessary is that the facts
withheld be material in the sense that a reasonable investor might
have considered them important in the making of this decision. . .
. This obligation to disclose and this withholding of a
material
Page 430 U. S. 51
fact establish the requisite element of causation in fact."
406 U.S. at
406 U. S.
153-154.
Affiliated Ute Citizens, of course,
did not abolish the requirement of causation in failure-to-disclose
cases. It simply provided the causal link between the omission of
material information and the shareholder's act of purchasing or
selling stock.
In the case of a suit by a tender offeror to recover damages
suffered as a result of securities law violations by its
competitors, causation is a far more complex issue. It is not
enough for the offeror to prove that the competitor's violations
caused the shareholders of the target corporation to act in a
certain way. In addition, the offeror must show that the
shareholders' reactions to the misstatements or omissions caused
the injury for which it demands remuneration. Even though the
Mills-Affiliated Ute Citizens presumption satisfies the
requirements for proof of the first element of causation, the
absence of any evidence that the violations might have altered the
outcome of the contest for control would leave me unable to hold
that the securities law violations caused the disappointed
contestant's ultimate injury -- its failure to acquire control of
the target corporation.
III
Applying these principles to the present litigation, I cannot
say that respondent proved that the actions of any of the
petitioners caused its injury. The Pipers were guilty of
misstatements in the letters and press releases that they issued
and of omissions in those materials. With regard to both their
misstatements and omissions, the most that can be presumed is that
more of the Piper shareholders would have tendered to Chris-Craft
in January, when the violations occurred. To go further, and to
assume that Chris-Craft would have acquired enough more shares to
succeed in its contest for control, is simply contrary to the
facts. The Chris-Craft offer was completely successful, insofar as
it invited tender for
Page 430 U. S. 52
300,000 shares and 304,606 shares were eventually tendered.
Furthermore, the evidence was strong that Chris-Craft's financial
resources had been strained to the limit. Bangor Punta had not even
entered the contest for control as of January. It is just as likely
that Chris-Craft would have been left with a substantial block of
Piper shares and that the Piper family would have retained control
of the company, given only the facts that existed at the time the
Piper violations were committed. Under the circumstances,
Chris-Craft failed to prove that the Piper actions caused the
injury of which Chris-Craft complains.
Neither did Chris-Craft prove that any action of Bangor Punta or
First Boston caused its injury. The reasons for rejecting the proof
of causation as to the Pipers, with regard to the January
violations, apply with equal force to First Boston's role in those
letters and press releases. Slightly different considerations are
relevant to the BAR negotiations. Because the information about the
proposed sale was omitted from Bangor's registration materials,
Bangor's financial position may have looked somewhat better than it
actually was. But even if one presumes that the shareholders who
tendered to Bangor would not have done so if they had known the
truth, there is still no way of knowing what course the contest
would have taken from that point onward. If the shareholders had a
negative opinion of Chris-Craft's management, they might have
elected to retain their shares and continue their own incumbent
management. Or a third contestant might have appeared. Or Bangor
might have secured cash to use for its acquisition program. These
uncertainties demonstrate that, even taking advantage of the
Mills-Affiliated Ute Citizens presumption, a finding of
causation of Chris-Craft's injury was far from logically compelled.
It follows that neither Bangor nor First Boston may be held liable
on account of the nondisclosure of the BAR negotiations.
Finally, Bangor's purchases of the large blocks of Piper stock
must be considered. As to this, I find conclusive the
Page 430 U. S. 53
fact, noted by he Court,
ante at
430 U. S. 45,
that
"[a]t no time has Chris-Craft complained of or even suggested
that the price which it paid for Piper shares was influenced by
Bangor's Rule 10b-6 violations. [
Footnote 2/2]"
If the price of the shares was uninfluenced, and sufficient
shares were still held by the public to make control a real
possibility for Chris-Craft, there was a failure to prove
causation.
Cf. Rondeau v. Mosinee Paper Corp.,
422 U. S. 49,
422 U. S. 64
(1975).
For these reasons, I concur in the judgment of the Court.
[
Footnote 2/3]
[
Footnote 2/1]
Like the dissenters, I also accept the premise that the
petitioning defendants violated § 14(e) and Rule 10b-6.
[
Footnote 2/2]
The Rule 10b-6 violations do not raise the question of
disclosure or nondisclosure of material fact, since that Rule deals
with market manipulation. Thus, on this feature, the
Mills-Affiliated Ute Citizens presumptions do not even
enter the case.
[
Footnote 2/3]
The dissenters note that Chris-Craft's recovery included
elements of damages that were not dependent on proof that it
actually would have acquired control of Piper. Since I view the
ultimate injury to be the frustration of Chris-Craft's efforts to
obtain control of Piper,
cf. opinion of the Court,
ante at
430 U. S. 24, I
think that the recovery should not have included elements unrelated
to the failure to achieve control. Furthermore, even if the injury
was merely the diminished opportunity for success, I would still
find the proof of causation inadequate. Because Chris-Craft's
January offer was a complete success, and its financial resources
were practically exhausted, the presumption that more Piper
shareholders would have tendered but for the violations committed
by the Pipers and First Boston was rebutted. Similarly, the
uncertainties surrounding the probable effect of the BAR omissions
on the shareholders' decisions make it impossible to presume that
Chris-Craft's chances of success were lessened by that violation.
Finally, the fact that the price of Piper shares was uninfluenced
by the alleged Rule 10b-6 violation negates the possibility of
injury on a "diminished opportunity" theory just as surely as on a
"failure to succeed" theory. I would therefore find a failure to
prove causation under either view of Chris-Craft's injury.
MR. JUSTICE STEVENS, with whom MR. JUSTICE BRENNAN joins,
dissenting.
The Williams Act was passed for the protection of investors. The
threshold question in this case is whether the
Page 430 U. S. 54
holder of a large block of stock who is seeking to retain or to
acquire control of a corporation is one of the investors the
statute was intended to protect.
The critical issue can be framed by concentrating on the
exchange offers in July, 1969. The conclusion that Bangor Punta's
offer violated § 14(e) is established by prior proceedings and is
not now open for review. [
Footnote
3/1] When that violation occurred, Chris-Craft owned 556,206
shares of Piper stock, and was attempting to acquire sufficient
additional shares to constitute control. As a result of Bangor
Punta's violations, Chris-Craft claims that it was injured in two
ways: the value of its investment in Piper stock was impaired,
[
Footnote 3/2] and it lost the
opportunity to purchase enough additional shares to control Piper.
[
Footnote 3/3] The Court holds that
Chris-Craft has no "standing" to recover damages for either injury
no matter
Page 430 U. S. 55
how flagrant Bangor-Punta's violation may have been, no matter
how direct the causal connection between that violation and
Chris-Craft's injury, and no matter how serious the injury. I
disagree with this holding.
No one seriously questions the premise that Congress implicitly
created a private right of action when it enacted § 14(e) in 1968.
[
Footnote 3/4] Also beyond serious
question is the proposition that the members of the class which
Congress was especially interested in protecting may invoke that
private remedy, and, further, that the shareholders of a target
corporation are members of that class. The Court nevertheless holds
that Chris-Craft may not recover because the protected class does
not include tender offerors even though they may also be
shareholders; and, at least implicitly, that, to the extent
Chris-Craft was injured in its status as a shareholder, its injury
is not of a kind that the statute was intended to avoid. I am
persuaded that both holdings are erroneous. I first consider
Chris-Craft's status as a shareholder, and then its rights as a
tender offeror. Finally, I explain why my analysis is consistent
with
Cort v. Ash, 422 U. S. 66.
Page 430 U. S. 56
I
Shareholders of a target corporation may be injured by a
fraudulent tender offer in two quite different ways. They may
exchange their shares for an inadequate consideration in reliance
on the misrepresentation. Or they may retain their shares and be
harmed by the fact that other shareholders were induced to
surrender control to unworthy newcomers. The legislative history of
§ 14(e) persuades me that Congress intended to protect the
shareholders from both of these potential harms. [
Footnote 3/5] Since Chris-Craft claims to
Page 430 U. S. 57
have suffered the latter type of harm, [
Footnote 3/6] it has asserted a cause of action created
by the statute.
Section 14(e) was patterned after § 14 (a), which regulates
Page 430 U. S. 58
proxy contests. [
Footnote 3/7]
It is clear that a shareholder may recover in a suit under § 14(a)
even though he was not himself deceived by the misrepresentation.
[
Footnote 3/8] I do not understand
why § 14(e) should receive any narrower construction. [
Footnote 3/9] At the very
Page 430 U. S. 59
least, the Court should allow all shareholders injured by a
violation of § 14(e) to assert a damages claim against the
wrongdoer. Neither the extraordinary size of Chris-Craft's
investment in Piper stock nor the fact that the stock had been
owned for only a few months should deprive Chris-Craft of the right
to assert a remedy available to the other members of the
shareholder class which § 14(e) was plainly designed to
protect.
II
Even if we disregard Chris-Craft's stock ownership in Piper and
focus only on its status as a tender offeror, it remains clear to
me that its legal rights were invaded by the defendants' violation
of § 14(e). This conclusion is compelled by (a) a fair evaluation
of the legislative purpose in the light of the rationale of
J.
I. Case Co. v. Borak, 377 U. S. 426; and
(b) respect for the opinions of the Securities and Exchange
Commission and the numerous federal judges who have recognized that
§ 14(e) is little more than a restatement of Rule 10b-5 unless it
has broadened the class of potential litigants who may challenge
defective cash tender offers to include rival contestants for
control, as well as shareholders.
A
In
Borak, a unanimous Court held that the 1934 Act had
implicitly authorized a shareholder to bring an action for
rescission or damages for a violation of § 14(a). Such a remedy was
regarded as essential for the protection of investors [
Footnote 3/10] because practical
considerations made it impossible
Page 430 U. S. 60
for the SEC to enforce the proxy statement requirements
completely and effectively. [
Footnote
3/11] This practical concern applies with even greater force to
tender offers which are processed on a highly expedited schedule.
[
Footnote 3/12]
Page 430 U. S. 61
In both proxy and tender offer contests, the remedy which will
most effectively deter violations of the statute is unquestionably
the private damages action. [
Footnote
3/13] Under these circumstances, as the Court stressed in
Borak, supra, "it is the duty of the courts to be alert to
provide such remedies as are necessary to make effective the
congressional purpose." 377 U.S. at
377 U. S.
433.
If a private remedy must be implied to ensure full compliance
with the statute, the remedy must be available to the litigants who
are most vitally interested in effective enforcement. This is the
essence of the
Borak holding which was given emphasis by
its quotation from
Deckert v. Independence Corp.,
311 U. S. 282,
311 U. S.
288:
"'The power
to enforce implies the power to make
effective the right of recovery afforded by the Act. And the power
to make the right of recovery effective implies the power to
utilize any of the procedures or actions normally available to the
litigant according to the
Page 430 U. S. 62
exigencies of the particular case.'"
377 U.S. at
377 U. S.
433-434 (emphasis in original).
The potential litigants who have the most to gain from
enforcement of the statute -- and the most to lose if its
provisions can be ignored with impunity -- are plainly the rival
contestants. Surely the contestants are in a much better position
-- and have a much greater incentive -- than a mere shareholder to
detect and to challenge conduct prohibited by the Williams Act.
Once one recognizes that Congress intended to rely heavily on
private litigation as a method of implementing the statute, it
seems equally clear that Congress would not exclude the persons
most interested in effective enforcement from the class authorized
to enforce the new law. Nor does it seem logical to assume that
such authority would only reach actions brought for the benefit of
the shareholders. It is fundamental in our adversary system that
the selfish interest of the litigant provides the best guarantee
that a claim will be effectively asserted. [
Footnote 3/14] I see no reason to deny incumbent
management the right to recover for its own losses as well as for
such injuries as the shareholders may have suffered. After all,
those insiders are often the specific target of the conduct that
the statute was enacted to regulate. [
Footnote 3/15]
Page 430 U. S. 63
If management is included within the protected class, an outside
tender offeror has an equally strong argument for inclusion. For
the legislative history also indicates that Congress was concerned
about misconduct by insiders, as well as outsiders. And just as
management will most effectively challenge violations by the
invader, so it is equally clear that a company committed to an
attempt to acquire control of a target company will be the most
zealous guardian of the shareholders' interests in having
management comply with the law. I find ample evidence of
congressional interest in fair competition between outsiders and
insiders in making and opposing tender offers to shareholders of
the target company. That evidence persuades me that both contenders
are included within the class of persons protected by § 14(e).
[
Footnote 3/16]
Page 430 U. S. 64
B
The lower courts, along with the SEC, have consistently taken a
broad view of standing under § 14(e).
In the appeal on liability in this case, the SEC's
amicus memorandum in the Second Circuit argued that,
"if a rival company in a contest for corporate control has no
standing to sue for violations of the securities laws, enforcement
of recent Congressional legislation to assure fairness in such
struggles will be hampered. . . ."
Memorandum of SEC as
Amicus Curiae in No. 72-1064
(CA2), p. 12. In its brief before this Court, the SEC continues to
insist that
"[e]ven more necessary [than in
Borak] are such private
rights of action to supplement Commission actions to effectuate the
Congressional purposes in enacting the Williams Act,"
Brief for SEC as
Amicus Curiae 12. It devotes a full 55
pages of its brief to arguing that providing a private remedy in
this case is necessary to insure enforcement of the Act and is
consistent with the congressional intent. The SEC's expertise in
the securities field, and its intimate involvement in the passage
of the Act, entitle its views to respect.
The Courts of Appeals have also taken an expansive view of
standing under § 14(e). Shortly after § 14(e) was passed, for
example, Judge Friendly pointed out that the section's only
possible addition to existing case law was its possible impact on
standing, and indicated that both nontendering shareholders and the
corporation have standing,
Electronic Specialty Co. v.
International Controls Corp., 409 F.2d 937, 940-941, 946 (CA2
1969).
Accord, Smallwood v. Pearl Brewing Co., 489 F.2d
579, 596 (CA5 1974). In another Second Circuit case, the court
commented that § 14(e)
"should serve to resolve any doubts about standing in the tender
offer cases, even where an offeror is not . . . in the position of
a forced seller."
Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787,
798-799 (1969). In the present case, while the Court of Appeals
judges disagreed sharply on
Page 430 U. S. 65
several issues, there was agreement on standing. Judge
Mansfield, in his separate opinion, explained:
"The federal securities laws are silent on the subject of a
private party's standing to sue. Indeed, neither § 14(e) nor §
10(b) or Rule 10b-5 state that purchasers, sellers, or exchangers
of securities have the right to sue. However, their implied
standing to sue has long since been judicially established. . . . I
would recognize CCI's standing solely on the ground that vigorous
enforcement of the anti-fraud provisions through private litigation
. . . calls for similar implication of a private right of action in
favor of a defeated contestant against the successful bidder for
control for damages caused by the latter's violation of that
section, . . . especially in view of our willingness to permit the
target corporation to seek relief against the offeror under §
14(e)."
480 F.2d 341, 396 (CA2 1973). (Citations omitted.)
The First Circuit, relying heavily on these decisions, has also
extended standing to obtain damages to tender offerors,
H. K.
Porter Co. v. Nicholson File Co., 482 F.2d 421, 424-425
(1973), and the Fifth Circuit has cited them with apparent
approval.
Smallwood v. Pearl Brewing Co., supra at 596,
and n. 20. [
Footnote 3/17]
Page 430 U. S. 66
III
Petitioners view
Cort v. Ash, 422 U. S.
66, as foreclosing standing in this case because tender
offerors do not belong to the "especial class" Congress intended to
benefit. I am convinced, however, that the controlling authority is
not
Cort, but
J. I. Case Co. v. Borak, supra. In
Borak, the Court held that a derivative suit on behalf of
the corporation could be brought under § 14(a),
see 377
U.S. at
377 U. S. 431,
although it seems clear that the primary beneficiaries of that
section were individual stockholders, rather than corporations.
Thus,
Borak itself does not meet the majority's "especial
class" test. [
Footnote 3/18] But
Cort carefully distinguished
Borak on grounds
that apply equally to this case. In this case, as in
Borak, there is "at least a statutory basis for inferring
that a civil cause of action of some sort lay in favor of someone,"
Cort, 422 U.S. at
422 U. S. 79;
see id. at
422 U. S. 79 n.
11; there is a "pervasive legislative scheme governing the
relationship between the plaintiff class and the defendant class in
a particular regard,"
id. at
422 U. S. 82;
the private remedy is necessary to effectuate the congressional
goal,
id. at
422 U. S. 84;
and that goal will, accordingly, be hindered if the plaintiff is
relegated to an inadequate state remedy,
id. at
422 U. S. 85.
Thus, in the kind of situation presented by
Page 430 U. S. 67
Borak and this case,
Cort does not require
that the plaintiff belong to the "especial class" as one of four
relevant factors to be considered; nowhere does it say that this
factor is essential. And in discussing this factor, the Court
suggested the existence of a "pervasive legislative scheme" as an
alternative to an "articulated federal right in the plaintiff,"
id. at
422 U. S. 82. I
conclude that
Cort does not bar Chris-Craft's action, and
that
Borak remains a viable precedent. As shown in
430 U. S.
supra, Borak compels a holding that Chris-Craft has
standing.
The "especial class" argument, besides being based on a
misreading of
Cort and
Borak, is also based on
the mistaken belief that congressional desire to protect
shareholders is in some way inconsistent with providing tender
offerors with a right to damages.
It is true that Congress was deeply concerned about the
individual stockholder faced with a tender offer. Congress did not,
however, view this shareholder's interest as being distinct from
the interests of others affected by his decision. As noted in the
discussion of Chris-Craft's standing as a shareholder, Congress
also intended to protect those who would remain shareholders after
the successful tender offer,
supra at
430 U. S. 56-57,
n. 5;
see also supra at
430 U. S. 62-63,
n. 15. Like these shareholders, the participants in the tender
contest were seen as having an interest in the integrity of the
process. Senator Williams, in explaining the purposes of the bill,
stated:
"I have taken extreme care with this legislation to balance the
scales equally
to protect the legitimate interests of the
corporation, management, and shareholders without unduly
impeding cash takeover bids. Every effort has been made to avoid
tipping the balance of regulatory burden in favor of management or
in favor of the offeror. The purpose of this bill is to require
full and fair disclosure for the benefit of stockholders,
while
at the same time providing the offeror and management
Page 430 U. S. 68
equal opportunity to fairly present their case.
[
Footnote 3/19] Experience . . .
has amply demonstrated that the disclosure requirements of the
Federal securities acts are an aid to legitimate business
transactions, not a hindrance."
113 Cong.Rec. 854-855 (1967) (emphasis added).
"[This bill will put all on] an equal footing with respect to
the availability of significant facts about a tender offer. . . .
All will be able to deal in the securities markets knowing that all
of the pertinent facts are available."
Id. at 856.
Indeed, protection of tender offerors is not only consistent
with protection of shareholders. It is also indispensable to
protecting shareholders. Individual shareholders often lack the
capacity to litigate these cases effectively. Few indeed could
afford to pursue the course Chris-Craft has taken of hiring counsel
with experience in complex litigation of this kind to litigate
through a preliminary injunction, discovery, trial on liability,
another trial on damages, three appeals to the Second Circuit,
including an en banc, and three petitions to this Court. Thus, the
most realistic deterrent to fraud on shareholders is a damages suit
brought by the opposition in the tender contest. Moreover,
disallowing such suits creates an incentive to violate the Act in
retaliation for violations by the other side. When no effective
judicial remedy is available, self-help is more attractive. Finally
a damages remedy for the tender offeror is necessary for the
protection of one particular class of shareholders: those
shareholders of target corporations who accept an exchange offer,
and thereby become shareholders of the tender offeror. In the
instant case, 112,089 Piper shares were tendered to Chris-Craft as
part of an exchange offer effective July 24. The tendering
shareholders took the risk that Chris-Craft might lose in a fair
tender contest.
Page 430 U. S. 69
But they did not assume the risk that Bangor Punta would
illegally deprive Chris-Craft of its opportunity to gain control.
These shareholders are certainly within the especial class § 14(e)
was intended to protect. Only by making Chris-Craft whole can the
expectations of these shareholders be vindicated. [
Footnote 3/20]
Petitioners' answer to all this is that an award of damages to
Chris-Craft would harm the former Piper shareholders who exchanged
their stock for Bangor Punta stock. This answer is unsatisfactory
for three reasons. First, I am unpersuaded that the federal courts
are incapable of structuring the remedy to avoid this problem.
See H. K. Porter Co. v. Nicholson File Co., 482 F.2d 421,
42 (CA1 1973). Second, in many cases, the problem will not arise,
either because the size of the judgment will be small in relation
to the defendants' assets or because most or all of the tendering
shareholders will have sold their stock by the time of the
Judgment. Third, the argument provides no basis for distinguishing
between private plaintiffs. Any monetary recovery against Bangor
Punta by any plaintiff potentially decreases the value of Bangor
Punta's stock. [
Footnote
3/21]
Page 430 U. S. 70
In sum, in my judgment, the disposition of the standing issue by
the Court of Appeals for the Second Circuit was consistent with
this Court's prior decisions, as well as the unanimous view of
other Circuits. The fact that error may have been committed in this
litigation in the consideration of the liability and damages issues
-- or might be committed in other cases -- should not be permitted
to color the analysis of the threshold standing issue. On that
issue -- unless the basic policy of construing securities
legislation liberally to protect investors, which motivated this
Court's decisions in this area of the law for decades, is to be
repudiated -- a fair evaluation of the statute requires
affirmance.
Since the Court does not address the other questions presented
by the certiorari petitions, neither shall I. I must, however,
register my additional dissent from the Court's action in
volunteering to decide -- and in deciding incorrectly -- a question
not raised by the parties. The Court's reversal of the injunction
entered by the District Court pursuant to the direction of the
Court of Appeals is, as far as I can determine, totally
unprecedented.
I frankly do not understand the reasoning which leads the Court
to conclude that the injunction was "premised" upon the damages
award.
Ante at
430 U. S. 47. The
injunction was an independent remedy premised on the violations of
law found by the lower courts. Setting aside the damages recovery
provides an
additional reason for permitting the
injunction to remain in effect; surely that action does not
logically support the conclusion that there should be no remedy
whatsoever for violations which the Court assumes,
arguendo, were properly proved.
My reading of the relevant portions of the record do not
persuade me that Chris-Craft made a binding election to waive any
right to equitable relief, [
Footnote
3/22] particularly since it
Page 430 U. S. 71
must be kept in mind that all parties had assumed that a damages
remedy was available. [
Footnote
3/23] If there has been any relevant waiver, it is by the
petitioners who did not challenge
Page 430 U. S. 72
the injunction in this Court. [
Footnote 3/24] In reaching out to decide this unargued
question, the Court takes a liberal view of the "plain error"
doctrine which I consider unacceptable.
Accordingly, without explaining my views about the issues not
decided by the Court, [
Footnote
3/25] I respectfully dissent from its judgment.
[
Footnote 3/1]
This is the third chapter in the history of this monumental
litigation. There have been three trials, three appeals, and three
groups of certiorari petitions. Only the questions presented by the
certiorari petitions granted on April 5, 1976, 425 U.S. 910, are
before us. For the purpose of analyzing the standing issue, we must
accept the premise that the petitioning defendants are guilty of
violating § 14(e) and Rule 10b-6.
[
Footnote 3/2]
In � 64 of its second amended complaint, Chris-Craft alleged:
"The foregoing acts and courses of conduct by the defendants . . .
sharply decreased the value of Chris-Craft's holdings in Piper. . .
." App. F-26. In its opinion on liability, the Court of Appeals
noted: "The specific injury sustained [by Chris-Craft] was a
reduction in the value of [its] Piper holdings. . . ."
Id.
at A-60.
[
Footnote 3/3]
Chris-Craft also alleged that, "but for the unlawful acts of the
defendants described herein, Chris-Craft would have achieved
control of Piper," or at least would have paid less for stock it
did acquire. Second amended complaint � 65, App. F-26. In view of
these separate allegations it is a little difficult to understand
the suggestion,
ante at
430 U. S. 35-37,
that Chris-Craft is not suing for injuries sustained in its status
as a Piper shareholder. The fact that the Court of Appeals
correctly regarded Chris-Craft's status as a tender offeror as an
adequate basis for relief does not imply rejection of its claim as
a shareholder, particularly since the damages awarded by the Court
of Appeals included compensation for the impaired value of its
Piper holdings.
[
Footnote 3/4]
Although originally one might have argued that the private
remedies created by the Securities Acts are limited to those
expressly described in the legislation itself, history has
foreclosed any such argument today. The statutes originally enacted
in 1933 and 1934 have been amended so often with full congressional
awareness of the judicial interpretation of Rule 10b-5 as
implicitly creating a private remedy that we must now assume that
Congress intended to create rights for the specific beneficiaries
of the legislation as well as duties to be policed by the SEC. This
case therefore does not present the same kind of issue discussed in
Cort v. Ash, 422 U. S. 66,
namely, whether the statute created an implied private remedy.
Rather, the question presented here is who may invoke that remedy.
Nevertheless, it is noteworthy that none of the factors identified
in the Cort opinion militates against implying a private cause of
action in favor of Chris-Craft. Indeed, it is beyond dispute that
here, as in
J. I. Case Co. v. Borak, 377 U.
S. 426,
377 U. S.
431-433, the asserted private remedy would
unquestionably aid the "primary goal" of the statute.
See Cort,
supra at
422 U. S.
85.
[
Footnote 3/5]
In its discussion of the need for the legislation, the House
Committee Report stated:
"The public shareholder must, therefore, with severely limited
information, decide what course of action he should take. He has
many alternatives. He can tender all of his shares immediately and
hope they are all purchased. However, if the offer is for less than
all the outstanding shares, perhaps only a part of them will be
taken. In these instances, he will remain a shareholder in the
company, under a new management which he has helped to install
without knowing whether it will be good or bad for the
company."
"The shareholder, as another alternative, may wait to see if a
better offer develops, but if he tenders late, he runs the risk
that none of his shares will be taken. He may also sell his shares
in the market or hold them and hope for the best. Without knowledge
of who the bidder is and what he plans to do, the shareholder
cannot reach an informed decision. He is forced to take a chance.
For no matter what he does, he does it without adequate information
to enable him to decide rationally what is the best possible course
of action. This is precisely the kind of dilemma which our Federal
securities laws are designed to prevent."
"The competence and integrity of a company's management, and of
the persons who seek management positions, are of vital importance
to stockholders. Secrecy in this area is inconsistent with the
expectations of the people who invest in the securities of publicly
held corporations and impairs public confidence in securities as a
medium of investment. H.R.Rep. No. 1711, 90th Cong., 2d Sess., 2-3
(1968) (hereinafter House Report)."
"It was urged during the hearings that takeover bids should not
be discouraged because they serve a useful purpose in providing a
check on entrenched but inefficient management. It was also
recognized that these bids are made for many other reasons, and do
not always reflect a desire to improve the management of the
company. The bill avoids tipping the balance of regulation either
in favor of management or in favor of the person making the
takeover bid. It is designed to require full and fair disclosure
for the benefit of investors, while, at the same time, providing
the offeror and management equal opportunity to fairly present
their case."
Id. at 4.
[
Footnote 3/6]
Chris-Craft's recovery included damages for the impaired value
of its holdings, measured by the loss of the control premium its
stock would have commanded but for the defendants' violations, and
by the additional loss of value resulting from its position as a
locked-in holder of an exceptionally large block. These elements of
damages relate only to the stock actually owned by Chris-Craft, and
therefore are distinguishable from damages suffered in its capacity
as a tender offeror which are measurable by the loss of the
opportunity to exercise control. It is not correct to characterize
these items of damages as related only to Chris-Craft's status as a
tender offeror.
See ante at
430 U. S. 36-37.
On the contrary, any owner of an equally large block would lose the
control premium that block could previously have commanded on the
market, and would suffer a further loss if the company had passed
into hostile hands. For instance, members of the Piper family could
have claimed damages of this kind if they had remained shareholders
in Piper and Chris-Craft had illegally gained control.
The Court suggests that Chris-Craft should be denied standing
because the damages it seeks are "actually related
under these
circumstances to Chris-Craft's status as a contestant for
control . . ."
Ante at
430 U. S. 36
(emphasis in original). The italicized phrase may be intended to
imply that a shareholder who was not also a tender offeror cold
recover these items of damages. If so, the Court fails to explain
why a tender offeror should be denied like relief. The
congressional goal of neutrality with respect to tender offers
would be impaired if persons holding large control blocks were
granted greater rights than tender offerors who challenge their
control.
On the other hand, the Court may mean that a shareholder's
damages recovery may not include elements attributable to the size
of its holdings. (The remainder of this paragraph of the opinion
lends itself to this interpretation by distinguishing between
"typical," or "ordinary," shareholders and owners of large blocks.)
This restriction on the damages recovery would be unsound. There is
no reason to think that Congress would have intended anything less
than a "make whole" remedy for shareholders. If I am correct that
the purpose of the Williams Act was to protect the interests of
shareholders, and others, in the integrity of the process of
determining corporate control,
see 430 U.S.
1fn3/5|>n. 5,
supra, and
infra at
430 U. S. 67-68,
this kind of damages recovery could provide some measure of the
value to the large shareholder of these interests.
[
Footnote 3/7]
Both the Senate and the House Committee Reports refer to the
cash tender offer as similar to a proxy contest.
[
Footnote 3/8]
In
Mills v. Electric Auto-Lite Co., 396 U.
S. 375, minority shareholders brought suit to set aside
a merger on the ground that a proxy solicitation had been
misleading. The suit was brought before the merger; obviously the
plaintiffs were then aware of the misrepresentation, and, in fact,
they voted against the merger, 403 F.2d 429, 435 (CA7 1968), which
was consummated despite their votes. This Court held that the
minority shareholders were entitled to some relief, and, while not
specifying that relief, noted that "[m]onetary relief will, of
course, also be a possibility." 396 U.S. at
396 U. S. 388.
If the defect in the proxy solicitation related to a term of the
merger, an accounting could be ordered so that the shareholders
would "receive the value that was represented as coming to them";
otherwise, monetary relief would be available "if the merger
resulted in a reduction of the earnings or earnings potential of
their holdings."
Id. at
396 U. S.
388-389. This holding in
Mills was consistent
with the earlier statement in
J. I. Case Co. v. Borak,
377 U. S. 426:
"The injury which a stockholder suffers from corporate action
pursuant to a deceptive proxy solicitation ordinarily flows from
the damage done the corporation, rather than from the damage
inflicted directly upon the stockholder. The damage suffered
results not from the deceit practiced on him alone, but rather from
the deceit practiced on the stockholders as a group."
Id. at
377 U. S.
432.
[
Footnote 3/9]
The tender offer is just one species of solicitation that either
an incumbent or an outside group may use in a contest for control
of a corporation. Power to direct the destiny of the corporation
may be obtained by acquiring proxies for a majority of the shares,
by acquiring the shares themselves, or more typically by a
combination of proxies and actual purchases. Section 14 broadly
prohibits fraudulent solicitations not merely to protect the
individual shareholder from casting a misguided vote or from making
an ill-advised sale, but, more importantly, to protect the
corporate entity as a whole from the consequences of a vital
decision procured by fraud.
[
Footnote 3/10]
It is noteworthy that, in the
Borak opinion, the Court
consistently used the word "investors," rather than the word
"shareholders," to describe the protected class.
[
Footnote 3/11]
"The injury which a stockholder suffers from corporate action
pursuant to a deceptive proxy solicitation ordinarily flows from
the damage done the corporation, rather than from the damage
inflicted directly upon the stockholder. The damage suffered
results not from the deceit practiced on him alone, but rather from
the deceit practiced on the stockholders as a group. To hold that
derivative actions are not within the sweep of the section would
therefore be tantamount to a denial of private relief. Private
enforcement of the proxy rules provides a necessary supplement to
Commission action. As in antitrust treble damage litigation, the
possibility of civil damages or injunctive relief serves as a most
effective weapon in the enforcement of the proxy requirements. The
Commission advises that it examines over 2,000 proxy statements
annually, and each of them must necessarily be expedited. Time doe
not permit an independent examination of the facts set out in the
proxy material, and this results in the Commission's acceptance of
the representations contained therein at their face value, unless
contrary to other material on file with it. Indeed, on the
allegations of respondent's complaint, the proxy material failed to
disclose alleged unlawful market manipulation of the stock of [the
American Tractor Corp.], and this unlawful manipulation would not
have been apparent to the Commission until after the merger."
"We therefore believe that, under the circumstances here, it is
the duty of the courts to be alert to provide such remedies as are
necessary to make effective the congressional purpose."
377 U.S. at
377 U. S.
432-433.
[
Footnote 3/12]
"As initially introduced, the bill would have required the
disclosure statement to be filed with the Securities and Exchange
Commission 5 days before the tender offer was made to allow the
staff of the Securities and Exchange Commission an opportunity to
review the material for compliance with the applicable
requirements. At the hearings, it was urged that this prior review
was not necessary, and in some cases might delay the offer when
time was of the essence. In view of the authority and
responsibility of the Securities and Exchange Commission to take
appropriate action in the event that inadequate or misleading
information is disseminated to the public to solicit acceptance of
a tender offer, the bill as approved by the committee requires only
that the statement be on file with the Securities and Exchange
Commission at the time the tender offer is first made to the
public."
S.Rep. No. 550, 90th Cong., 1st Sess., 4 (1967) (hereinafter
Senate Report).
[
Footnote 3/13]
In the passage from
Borak set out in
430 U.S.
1fn3/11|>n. 11, the Court described the possibility of civil
damages or injunctive relief as "a most effective weapon" in the
enforcement of the Securities Exchange Act. The efficacy of
enforcement of the antitrust laws and the Civil Rights Acts by
"private attorneys general" rest on precisely this premise.
For example, we have stated that cases rejecting the
in pari
delicto defense,
"were premised on a recognition that the purposes of the
antitrust laws are best served by insuring that the private action
will be an ever-present threat to deter anyone contemplating
business behavior in violation of the antitrust laws. The plaintiff
who reaps the reward of treble damages may be no less morally
reprehensible than the defendant, but the law encourages his suit
to further the overriding public policy in favor of competition. A
more fastidious regard for the relative moral worth of the parties
would only result in seriously undermining the usefulness of the
private action as a bulwark of antitrust enforcement."
Perma Mufflers v. International Parts Corp.,
392 U. S. 134,
392 U. S.
139.
[
Footnote 3/14]
This is the basis of the standing requirement in its
constitutional aspect.
See Baker v. Carr, 369 U.
S. 186,
369 U. S. 204.
As one of the draftsmen of the 1934 Act put it, "there is no
policeman so effective as the one whose pocketbook is affected by
the degree to which he enforces the law." Stock Exchange Practices,
Hearings on S.Res. 84 (72d Cong.) and S.Res. 56 and S.Res. 97 (73d
Cong.) before the Senate Committee on Banking and Currency, 73d
Cong., 2d Sess., pt. 15, National Securities Exchange Act of 1934,
p. 6518 (1934).
[
Footnote 3/15]
Consider the following testimony by Senator Kuchel, who
described himself as a coauthor of the legislation:
"The competence and integrity of management and controlling
persons are of vital importance to stockholders. And yet, the
prospective purchasers on a cash tender offer need not, and often
do not, reveal their intentions, their commitments, or even their
identities to the corporate shareholders. Not only is the
shareholder prevented from making an informed investment decision,
but both he and the corporation may easily become the unknowing
victims of the so-called corporate raider."
"Today, there are those individuals in our financial community
who seek to reduce our proudest businesses into nothing but
corporate shells. They seize control of the corporation with
unknown sources, sell or trade away the best assets, and later
split up the remains among themselves."
"The tragedy of such collusion is that the corporation can be
financially raped without the management or the shareholders having
any knowledge of the acquisitions. Using the cash tender offer as a
vehicle, the purchases can be made in so-called street names or,
even more commonly, by Swiss banks for an undisclosed account
number. The corporate raider may thus act under a cloak of secrecy
in obtaining the shares needed to put him on the road to a
successful capture and liquidation of the company."
Hearings on S. 510 before the Subcommittee on Securities of the
Senate Committee on Banking and Currency, 90th Cong., 1st Sess.,
443 (1967).
[
Footnote 3/16]
The use of terms such as "corporate raider" and "take-over
pirate" in the argument of this case was misleading, because they
implied that the Williams Act was not intended to be neutral as
between rival contestants for control. One thing that is abundantly
clear from both the language of the statute and its legislative
history is that the Act was
not intended to tip the scales
in favor of management.
[
Footnote 3/17]
We have been referred to two cases as restricting standing under
§ 14(e):
Klaus v. Hi-Shear Corp., 528 F.2d 225, 232 (CA9
1975);
Sargent v. Genesco, Inc., 492 F.2d 750 (CA5 1974).
In both cases, however, there was no harmful misrepresentation to
the protected shareholders. Hence, as the
Sargent court
noted, the issue was not "whether these plaintiffs were appropriate
plaintiffs to enforce the duties created by [§] 14(e)," but rather,
whether those duties were violated.
Id. at 770 n. 28. In
Klaus, it was the tender offeror who was misled. 528 F.2d
at 232.
The commentators have supported the expansive view of standing
under § 14(e).
See, e.g., Bromberg, The Securities Law of
Tender Offers, 15 N.Y.L.F. 459, 554 (1969); Hamilton, Some
Reflections on Cash Tender Offer Legislation, 15 N.Y.L.F. 269,
291-292 (1969); Note,
Chris-Craft and Loss of Opportunity
to Control: The Lost Opportunity, 43 Ford.L.Rev. 820, 821 (1975);
Comment, Remedies for Defrauded Tender Offerors Under Section 14(e)
of the Securities Exchange Act of 1934, 62 Geo.L.J. 1693, 1695-1696
(1974); Note, Cash Tender Offers, 83 Harv.L.Rev. 377, 398-399
(1969); Comment, Tender Offers: The Liberalization of Standing
Requirements Under Section 14(e), 7 U.San Fran.L.Rev. 561
(1973).
[
Footnote 3/18]
The Court reads
Borak as though it merely sustained
class relief on behalf of all shareholders.
Ante at
430 U. S. 32-33,
and n. 21. The
Borak opinion itself, however, is explicit
in its holding that "a right of action exists as to both derivative
and direct causes." 377 U.S. at
377 U. S. 431.
Even under the Court's interpretation of
Borak as
protecting all shareholders, I do not understand today's holding
that only some Piper shareholders are protected --
e.g.,
"ordinary" shareholders, as opposed to holders of large blocks.
[
Footnote 3/19]
This language is also found in both the House and Senate
Reports. House Report 4; Senate Report 3.
[
Footnote 3/20]
Because the injury to these shareholders "ordinarily flows from
the damage done the corporation, rather than from the damage
inflicted directly upon the stockholder,"
Borak, 377 U.S.
at
377 U. S. 432,
it would be only a slight extension of
Borak to allow
these shareholders to bring a derivative action on behalf of
Chris-Craft.
Cf. id. at
377 U. S.
432-433. I would also allow Chris-Craft to bring the
action.
[
Footnote 3/21]
Petitioners' argument would thus bar a suit by a person who had
tendered a large number of shares to Bangor Punta, since a recovery
on his behalf could injure other former Piper shareholders. It
would also bar one of the remaining public shareholders in Piper
from suing, either in his own behalf or on behalf of Piper, for
Bangor Punta's illegal acquisition of control. Likewise, it would
bar suit by a Piper shareholder who exchanged his stock for
Chris-Craft stock, in the reasonable and legally protected
expectation that Chris-Craft would have a fair opportunity to
acquire control of Piper. Petitioners' argument simply cuts too
far.
[
Footnote 3/22]
The only material in the record which I have been able to locate
and which is relevant to this issue is the following colloquy from
a pretrial conference on September 25, 1970:
"MR. LIMAN: That has nothing to do with us, your Honor. I am
speaking of Chris-Craft. I think that the argument was made that
they shouldn't have to pay this woman in part because we were
seeking to enjoin them here [the record does not contain the
complete transcript, and it is unclear what this refers to], but in
the light of the way in which they have managed this company for a
year, I'm not seeking injunctive relief here. It wouldn't do me any
good here to get back Piper. I am seeking damages. As to that, I
don't think I have anything to do with this case now. You can pay
that woman as far as I am concerned."
"MR. RYAN: Do I understand that to be an irrevocable position,
Mr. Liman?"
"MR. LIMAN: You can understand that I am seeking damages
here."
App. in No. 72-1064 (CA2), p. 1105A. Two pages later, the
following exchange took place:
"THE COURT: I thought that you wanted them to rescind 112,000
shares, the 112,000 share transaction."
"MR. LIMAN: I want money now, your Honor."
"THE COURT: I know you say that now. But the papers, up to this
point, and in the Court of Appeals talked about having Bangor Punta
give back the 112,000 shares or tender or rescind."
"MR. LIMAN: Not these shares that were involved here. The shares
they got in the exchange offer, yes, your Honor. And at that time,
Piper was worth getting. But we lost that injunction to keep them
from exercising control over Piper, and they have consolidated
their position, and I just don't think, with all the powers that
this Court has, you could give effective injunctive relief that
would put me in the position that I should have been in in August
of 1969. That's why money is the only thing that is left. . .
."
Id. at 1106A-1107A. The position taken by Chris-Craft's
counsel in the Court of Appeals was as follows:
"It is very difficult to conceive of how we can be put in a
position to ever compete with Bangor Punta for control again,
particularly since they owned the swing blocks. If we were directed
to sell them as the seller, they could afford to buy them at any
price, since they were buying their own stock."
"So there were such practical difficulties in attempting to work
out an equitable decree after two years in a frozen out minority
position that a relief in which they were told paid for the shares
now, 'You have done everything else to them,' seemed to be the most
appropriate."
"However, if for any reason we are told that money damages are
not appropriate in this case, then we need equitable relief of some
sort that will restore us to what we had lost the opportunity to
do, which was, namely, control of Piper."
Tr. of Oral Arg. in No. 72-1064 (CA2), p. 9. Somewhat later in
argument, counsel repeated:
"I think that there is equitable relief that could be fashioned.
Bangor Punta could be enjoined from voting the controlled shares.
That would have the effect of putting Chris-Craft in a controlling
position, and they, of course, object very much to that."
Id. at 16.
[
Footnote 3/23]
In its memorandum in opposition to Chris-Craft's motion for a
preliminary injunction, Bangor Punta made this statement, pp.
24-25:
"Even assuming Chris-Craft can prove the allegations in its
moving papers at a full trial after Bangor Punta has had the
opportunity of properly preparing itself for trial, a money
judgment will fully compensate Chris-Craft for any damages it
allegedly suffered because the Public holders of the 107,574 shares
elected to go with Bangor Punta."
[
Footnote 3/24]
Indeed, counsel for Bangor Punta expressly stated at oral
argument that a tender offeror's standing to seek injunctive relief
under § 14(e) was unchallenged. Tr. of Oral Arg. 12.
[
Footnote 3/25]
On the issue of causation, I would simply note that
Chris-Craft's recovery includes elements of damages which were not
dependent on proof that it would have acquired actual control but
for petitioners' violations. And I should also note that I would
not affirm the Court of Appeals' calculation of the total damages
award.