Piper v. Chris-Craft Industries, Inc.

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. 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. 1

*49 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 & Aroostook 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 *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, 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 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 *51 fact establish the requisite element of causation in fact.” 406 U. S., at 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 *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 *53 fact, noted by the Court, ante, at 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.” 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, 64 (1975).

For these reasons, I concur in the judgment of the Court. 3

Like the dissenters, I also accept the premise that the petitioning defendants violated § 14 (e) and Rule 10b-6.

The Rule 10b-6 violations do not raise the question of disclosure or nondisclosure of material facts, since that Rule deals with market manipulation. Thus, on this feature, the Mills-Affiliated Ute Citizens presumptions do not even enter the case.

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 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.