Opposition — Lewis v. McGraw

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_ Supreme Court. U.S.

No. 79-2054

“> FILED

OSF 11 1960

IN THE

Supreme Court of the Hniteh MBER JR, CLERK

OCTOBER TERM, 1980

HARRY LEWIS, ALFRED B. REISS, CAROLA GRUEN, as

Executrix of the estate of her late husband, Theodore

Gruen, IRA BARMAK and COLONIAL SECURITIES CORPO-

RATION,

Petitioners,

HAROLD W. MCGRAW, JR., JOHN L. MCGRAW, DANIEL F.

CROWLEY, PETER O. LAWSON-JOHNSTON, KAY K.

MAZUY, WILLIAM J. MCGILL, GORDON W. MCKINLEY,

ALAN J. PIFER, LOUIS PUTZE, HAROLD S. TUTHILL,

JAMES E. WEBB, VERNON R. ALDEN, GEORGE R.

WEBSTER and MCGRAW-HILL, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

MEMORANDUM IN RESPONSE TO

PETITION FOR A WRIT OF CERTIORARI

HERBERT M. WACHTELL

WACHTELL, LIPTON, ROSEN

& KATZ

299 Park Avenue

New York, New York 10171

Tel. No.: (212) 371-9200

Attorneys for Respondents

DOUGLAS S, LIEBHAFSKY

Of Counsel

TABLE OF CONTENTS

Preliasinary Sieg is dacs iewe eke vaRe ic ceeds

Questions PGRGRNE cs ciweae dn 0s 600s beticccscecee.

Seatomnent GE Ge Ge co ees bi wdc ben ccccces

Cc.

The Amexco takeover proposals...............

The state and federal court actions............

Plaintiffs’ preliminary injunction motion in the

es ON ee

Respondents’ motion in the District Court .....

Petitioners’ appeal to the Second Circuit.......

DISCUSSION:

POINT I—

The Second Circuit’s decision is clearly correct

and is in full accord with the decisions of this

oO Pe ee ee

1. This Court’s Chris-Craft decision ..........

2. Tie Bac GF GOP BURGE cnc ccc ccc tcc nee.

3. “Bae COU a stab bac cccccese

4. This Court’s Blue Chip decision ...........

5. The Applied Digital decision...............

POINT IIi—

Petitioners’ complaint was required to be dis-

missed under the principles of Santa Fe Indus-

Oe eee

wa —_—

PAGE

POINT IlI—

There is a serious question whether Section 14(e)

provides a shareholder of a target company with

any implied cause of action for damages. .... 23

SUMMARY ...ccccccscccccvccccccevvnsccccccccnes 25

iii

TABLE OF AUTHORITIES

CASES: PAGE

Affiliated Ute Citizens v. United States, 406 U.S. 128

PATE ates Cbd ialc Wa Che 66 Eb Oe Baa Rh ck dhka ein 13-15

Altman vy. Knight, 431 F. Supp. 309 (S.D.N.Y.

EE he EE dg cra dle wg Ws a tednd amie WAGE as 13n, 22

Applied Digital Data Systems Inc. v. Milgo Electronic

Corp., 425 F. Supp. 1145 (S.D.N.Y. 1977) ........ 17-20

Berne Street Enterprises, Inc. v. American Export

Isbrandtsen Co., [1969-1970 Transfer Binder] CCH

Fed. Sec. L. Rep. $92,711 (S.D.N.Y. 1970)....... 20

Biesenbach v. Guenther, 588 F.2d 400 (3d Cir. 1978). 21

Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d

Cir.), cert. denied, 343 U.S. 956 (1952) ........... 17

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723

PPR Cui Mata e chekcdia's «peek Swed oh Gab omns 6 iccet 16-17

Bucher v. Shumway, [1979-80 Transfer Binder] CCH

Fed. Sec. L. Rep. { 97,142 (S.D.N.Y. 1979) aff’d on

the opinion below, 622 F.2d 572 (2d Cir.), cert.

denied, 49 U.S.L.W. 3247 (Oct. 6, 1980).......... 21

Cannon v. University of Chicago, 441 U.S. 677 (1979) 23

Chris-Craft Industries, Inc. v. Piper Aircraft Corp.,

480 F.2d 341 (2d Cir.), cert. denied, 414 U.S. 910

ON antes. bias i nC ORME De new ea wads 12-13, 15

Electronic Specialty Co. v. International Controls

Corp., 409 F.2d 937 (2d Cir. 1969)............ l6n, 18n

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).... 3n

Fuchs v. Swanton Corp., 482 F. Supp. 83 (S.D.N.Y.

SNMNE S WAS Ghia sa's WR bk GA are KAO 04K boa bad code ck 20

Goldberg v. Meridor, 567 F.2d 209 (2d Cir. 1977), cert.

denied, 434 U.S. 1069 (1978)....... 0.0.0... cee ee 22

Greenstein v. Paul, 400 F.2d 580 (2d Cir. 1968) ..... 17

Hundahl v. United Benefit Life Insurance Co., 465 F.

Supp. 1349 (N.D. Tex. 1979).....-----eeeeees 13n, 21-22

In re Sunshine Mining Co. Securities Litigation, [1979-

80 Transfer Binder] CCH Fed. Sec. L. Rep. 4 97,217

(S.D.N.Y. 1979)... cece cece eee e reece eeeeeeeeees 21

Iroquois Industries, Inc. v. Syracuse China Corp., 417

F.2d 963 (2d Cir. 1969), cert. denied, 399 U.S. 909

CIDTED ce cicccccosscvcccccvevcccescccccessooncs 17, 20

J.I. Case Co. v. Borak, 377 U.S. 426 (1964) .......- 23

Jones v. National Distillers & Chemical Corp., 484 F.

Supp. 679 (S.D.N.Y. 1979)....--+eeeeeeeeeeeeeees 22

Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir.), cert.

denied, 398 U.S. 950 (1970).......0eeeeeeeeeeeees 20

Maldonado v. Flynn, 597 F.2d 789 (2d Cir. 1979).... 13n

Marshel vo™RFW Fabric Corp., 441 F. Supp. 299

(S.D.N.Y. 1977). ..... ee eee cece eee eeeeeeeeeeees 21

Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970) . 14-15

Mutual Shares Corp. v. Genesco, Inc., 384 F.2d 540 (2d

Cir. 1967) ....ccccccccccccccccccccccccccccccccss 17,20

Piper v. Chris-Craft Industries, Inc., 430 U.S. 1

CIGTPD oo cncevd gs cccicasecencescece 11-12, 15-16, 18n, 23

Prudent Real Estate Trust v. Johncamp Realty, Inc.,

§99 F.2d 1140 (2d Cir. 1979).....--eeeeeeeeeeeees 13n

Rediker v. Geon Industries, Inc., 464 F. Supp. 73

(S.D.N.Y. 1978)......eeeeeee cece eee eereeeececces 13n

Rondeau v. Mosinee Paper Corp., 422 U.S. 49

(2197S) . cc ccvcccccccccccccscccvcccccseccccccscees 11

Ruckle v. Roto American Corp., 339 F.2d 24 (2d Cir.

BOGOR cca ccc cesccccectescesccccnccancsesenccese 20

Santa Fe Industries, Inc. v. Green, 430 U.S. 462

CATT)... oc cvevescviccccccencscveecvecvecencsenses passim

PAGE

Seaboard World Airlines, Inc. v. Tiger International,

Rec. GOD F.2G. 35S Gd Cit. IGT). coc ccvccecens 13n, 16n

Stull v. Bayard, 561 F.2d 429 (2d Cir. 1977), cert.

Ganted,, G4 U.S. TESS CASTE) ccunsccescvcvcvecccss 23

Sunshine Mining Co. Securities Litigation, In re, [1979-

80 Transfer Binder] CCH Fed. Sec. L. Rep. 4 97,217

8 8k A. errr rer reer Terr re rears 21

Touche Ross & Co. v. Redington, 422 U.S. 560

nk cha tes Sada OWA Raed oaks kesnewee ben 23-24

Transamerica Mortgage Advisors, Inc. (TAMA) v.

Lewis, 444 U.S. 11 (1979)... ccecccccccvvvvevvens 23-24

TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438

ST eC ee eee Ce CR TT TTC ROTTOET 13n

Tully v. Mott Supermarkets, Inc., 540 F.2d 187 (3d Cir.

RRS On a ee een eg rere 20

Weiss v. Marshall Field & Co., Nos. 80-1375, 80-1389

(7th Cir., appeals docketed March 21 and 24, 1980) 16n

STATUTES AND RULES:

Investment Advisers Act of 1940, Section 206........ 23-24

Securities Exchange Act of 1934

ND RS ccd dec ata keaeas ene wows Ween ees 23

Se ree Pe er Ferre 23

cviakn as eeedesbkabces bues Bwee's passim

A ee et yee rer errs Tee a, ay &

I boa ce asa sees akinske sein ee enen 3, 16-17, 16n

19-21, 23-24

CONGRESSIONAL MATERIALS:

H.R. Rep. No. 1711, 90th Cong., 2d Sess. (1968)

reprinted in [1968] U.S. Code Cong. & Ad. News

Sh it eh 6 bb wate hehe t aces basenien denne. 12n

No, 79-2054

IN THE

Supreme Court of the United States

OCTOBER TERM, 1980

—-_

HARRY LEWIS, ALFRED B. REISS, CAROLA GRUEN, as

Executrix of the estate of her late husband, Theodore

Gruen, IRA BARMAK and COLONIAL SECURITIES CORPO-

RATION,

Petitioners,

HAROLD W. MCGRAW, JR., JOHN L. MCGRAW, DANIEL F.

CROWLEY, PETER O. LAWSON-JOHNSTON, KAY K.

MAzuY, WILLIAM J. MCGILL, GORDON W. MCKINLEY,

ALAN J. PIFER, LOUIS PUTZE, HAROLD S. TUTHILL,

JAMES E. WEBB, VERNON R. ALDEN, GEORGE R.

WEBSTER and MCGRAW-HILL, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

MEMORANDUM IN RESPONSE TO

PETITION FOR A WRIT OF CERTIORARI

Preliminary Statement

Petitioners seek certiorari to review the judgment of the

United States Court of Appeals for the Second Circuit which

affirmed an Order and Judgment of the United States District

Court for the Southern District of New York, Honorable

Constance Baker Motley, District Judge, dismissing consoli-

dated actions for lack of subject matter jurisdiction and for

failure to state a federal claim. The actions, brought against

respondent McGraw-Hill, Inc. (‘‘McGraw-Hill’’) and _ its

directors, the individual respondents, sought damages on

behalf of an asserted class of McGraw-Hill shareholders by

virtue of respondents’ rejection of a proposed tender offer by

American Express Company (‘‘Amexco’’) for all of the stock

of McGraw-Hill. The proposed tender offer was abandoned

by Amexco without ever having commenced. The action was

purported to be based upon Section 14(e) of the Securities

Exchange Act of 1934 with pendent claims that respondents

allegedly breached common-law fiduciary duties to the class in

rejecting the Amexco proposals.

Respondents choose to take no position as to whether this

Court should grant certiorari in this matter.* Respondents did

not originally submit a response to the certiorari petition. By

letter dated September 11, 1980, the Clerk of this Court

notified respondents’ counsel that the Court had directed that

a request be made of respondents to file a response. In

compliance with that request, respondents respectfully submit

the present memorandum which will endeavor to set forth

factors which this Court may deem germane to its determina-

tion as to whether or not to grant certiorari.

* There are presently pending in the New York State Supreme Court, New

York County, four consolidated class actions—three brought by the same

plaintiffs as commenced the actions below—which essentially duplicate the

claims asserted against respondents in the District Court. Plaintiffs in the

state-court action are represented by the same lead counsel as appears for

plaintiffs in the federal courts. By stipulation among the parties, all

proceedings in the state-court actions have essentially been stayed pending

final determination by the federal courts of respondents’ dismissal motion.

Thus, a grant of certiorari by this Court would effectively operate to

continue the present stay of the New York state-court actions.

QUESTIONS PRESENTED

Respondents submit that the ‘‘question presented’’ by

petitioners should be restated as follows:

1. Did the Court of Appeals correctly hold that

shareholders of a target company could not maintain

a cause of action for damages under the Williams

Act, Section 14(e), where it is conceded that no

tender offer was ever made, that the shareholders

were never confronted with an investment decision as

to whether or not to tender their shares, and that the

shareholders never relied upon the ‘‘deceptions’’

alleged?* See Point I infra.

Were certiorari to be granted herein, respondents (in

supporting the judgment under review) would tender the

following additional questions for resolution by the Court:

2. Can this Court’s holding in Santa Fe Industries, Inc.

v. Green, 430 U.S. 462, 477 (1977), that the fraud

provisions of the Securities Exchange Act (there

Section 10(b) and Rule 10b-5) do not reach cases ‘‘in

which the essence of the complaint is that share-

holders were treated unfairly by a fiduciary’? be

circumvented by inclusion in a federal court com-

plaint of ‘‘bootstrap’”’ allegations of ‘‘fraud’’ consist-

ing in essence of nothing more than a claim that

defendants failed to disclose their supposed breach of

fiduciary duties? See Point II infra.

3. Does Section 14(e) give rise to any implied private

cause of action for damages? See Point III infra.

* Petitioners’ ‘‘question presented’’ (Petition, p. 2) imputes ‘‘manipula-

tive’’ practices to respondents as well. Petitioners’ complaint (quoted in

Lewis v. McGraw, 619 F.2d 192, 194 (2d Cir. 1980)), however, alleges no

conduct which could conceivably qualify as ‘‘manipulative’’ within this

Court’s decisions. See Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 476-

77 (1977); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199 & n.21 (1976).

STATEMENT OF THE CASE

Respondents believe that a brief review of the nature of the

case and the prior proceedings—both state and federal—would

be helpful to this Court in placing in context the issues raised

by the certiorari petition.

A. The Amexco takeover proposals.

The actions below arose out of two takeover proposals for

McGraw-Hill made by Amexco in early 1979. The first

consisted of a proposed ‘‘hostile’’ takeover by Amexco, which

announced its intention on January 16, 1979 to make a tender

offer to McGraw-Hill shareholders at a price of $34 per share.

This proposed tender offer was unanimously determined by

the McGraw-Hill Board of Directors to be grossly inadequate

in price, to raise serious legal questions, and to be contrary to

the best interests of McGraw-Hill and its shareholders.*

The Amexco proposed tender offer accordingly came under

litigation challenge by McGraw-Hill both in the United States

District Court for the Southern District of New York and in

the New York State Supreme Court. In addition, the proposed

acquisition of McGraw-Hill—a major American publishing,

journalism, broadcasting and financial information com-

pany—by an international financial and banking institution

such as Amexco was met with widespread opposition in the

press and from authors, editors and customers upon whom

McGraw-Hill was dependent for its business existence. The

proposed transaction also came under scrutiny from concerned

governmental agencies, including the Federal Trade Commis-

sion.

On January 29, 1979, Amexco withdrew its $34 proposal for

McGraw-Hill, only minutes before deposition testimony of

key Amexco executives was to commence. In its place,

* By virtue of a state-court preliminary injunction motion made and then

withdrawn by plaintiff shareholders, see pp. 6-8 infra, a detailed evidentiary

showing was made of record by respondents of the facts that transpired in

this matter.

Amexco announced a new plan—a ‘‘friendly’’ proposed

tender offer for McGraw-Hill at $40 per share conditioned,

however, upon the McGraw-Hill Board of Directors’ either

recommending the proposal or interposing no opposition

whatsoever ‘‘by propaganda, lobbying, litigation or

otherwise.”’

The revised Amexco proposal received careful consideration

from the Board of Directors of McGraw-Hill, which

unanimously determined that it was financially inadequate,

legally dubious and uncertain of consummation.

Subsequent to this rejection of its ‘friendly’? proposal,

Amexco announced that it would leave its proposal **open’’

until March 1, 1979, the stated premise being that McGraw-

Hill might change its mind. The proposal then was permitted

to expire on March 1.

B. The state and federal court actions.

The directors’ determinations were challenged in a series of

purported class actions by the present petitioners and others.

The initial action was brought by petitioner Lewis in New

York State Supreme Court and was followed two weeks later

by an action in the District Court by the same petitioner,

alleging not only state-law claims but a Section 14(e) claim as

well. The Lewis actions were then followed by successive

actions in state court and in the District Court below by the

other petitioners.

All of the complaints, state and federal, sought to hold the

director-respondents liable in damages charging that they had

violated their state-law fiduciary duties by rejecting the

Amexco proposals, by actively opposing them, and by not

negotiating to sell McGraw-Hill to Amexco. The federal-court

complaints also alleged that the directors had violated Section

14(e) of the Securities Exchange Act by virtue of allegedly

‘‘fraudulent’’ misstatements. Certain of the state-court

complaints contain rather similar claims of common-law

fraud.

C. Plaintiffs’ preliminary injunction motion in the state

court.

On February 9, 1979, while the second, ‘‘friendly’’ Amexco

proposal was still open, a motion for a ‘‘preliminary

mandatory injunction’’ on behalf of the class of McGraw-Hill

shareholders was brought on in state court by order to show

cause, seeking in substance to compel the defendant directors

to accept the Amexco ‘‘friendly’’ $40 per share proposed

transaction.

Defendants filed full answering papers—a comprehensive

affidavit, documentary exhibits and a memorandum of law—

demonstrating beyond doubt that the motion (and, indeed, the

underlying action as well) was without either legal or factual

merit. Thus, on the motion, defendants showed that the

McGraw-Hill Board consisted overwhelmingly of distin-

guished, independent, ‘‘outside’’ directors in no way beholden

to McGraw-Hill’s management. It was further set forth that

the Board had acted only after receiving expert advice from an

independent investment banking firm and two outside law

firms. And defendants made a detailed evidentiary showing

that, after exhaustive consideration, the directors had

unanimously determined in their reasonable business judgment

that to consent to the Amexco proposal would be contrary to

the best interests of McGraw-Hill and its stockholders for a

number of reasons, the principal ones being:

— The Board had received independent investment

banking advice from the firm of Morgan Stanley &

Co., Inc., that, because the future prospects of

McGraw-Hill as an independent entity were extremely

bright and it was likely to experience excellent growth

and market acceptance in the 1980s, it was not the

appropriate time to sell or merge McGraw-Hill;

— The Board had received Morgan Stanley’s considered

opinion that the $40 price at which Amexco was

making its proposal was an inadequate one for a

sale of the enterprise even were it desired that

McGraw-Hill be sold at that time, and that a higher

price could be obtained from others;

— The Board had received independent legal advice

from two outside law firms that, in light of the serious

questions of illegality raised by an Amexco/

McGraw-Hill combination, any Amexco_ tender

offer for McGraw-Hill—even if not opposed by

McGraw-Hill—was virtually certain of being long

delayed by governmental agencies with strong likeli-

hood of ultimate withdrawal or prohibition; and

— The Board had concluded that, given the nature of

McGraw-Hill’s business, there was a grave risk that

McGraw-Hill would be seriously damaged during the

interim period of uncertainty as to the future of the

company and that if, as anticipated, the Amexco offer

ultimately failed of consummation, the shareholders

would not only not receive the $40 price, but would be

left owning ‘‘damaged goods.’’

In sum, it was shown in opposition to the state-court

injunction motion that the Board had concluded that to accept

the Amexco proposal was to place McGraw-Hill’s business at

risk of serious damage during what promised to be a lengthy

and likely futile quest to obtain an inadequate price.*

The state-court motion initially came on to be heard before

a Justice of the Supreme Court on February 22, 1979. In the

face of the overwhelming evidentiary showing submitted by

* The accuracy of the Board’s conclusion that the $40 price being

proposed in early 1979 by Amexco for a takeover of McGraw-Hill was

inadequate has been borne out by subsequent events. As set forth by

petitioners, prior to the initial Amexco proposal, McGraw-Hill shares had

been trading at approximately $25 per share. As this brief is being written in

October 1980, McGraw-Hill shares were trading at $39-7/8 in ordinary

market transactions upon the New York Stock Exchange, Wall Street

Journal, Oct. 7, 1980, at 52, col. 5, and were it deemed appropriate to sell

the enterprise as a whole, a markedly higher takeover price would be readily

obtainable.

defendants in their answering papers, plaintiffs chose to

withdraw the motion rather than permit it to be heard by the

state court.

D. Respondents’ motion in the District Court.

Respondents moved the District Court to dismiss peti-

tioners’ Consolidated Amended Complaint. The basis of the

motion was that the complaint failed to state a claim

cognizable under Section 14(e) and that, federal jurisdiction

being absent, the pendent state-law claims were likewise

required to be dismissed.

In support of their motion below, respondents set forth for

the District Court that:

1. The essence of petitioners’ complaint was nothing

more than a claim of supposed breach by respondents

of their state-law fiduciary duties as directors, which

claim was not cognizable by a federal court under

Santa Fe Industries, Inc. v. Green, 430 U.S. 462

(1977), notwithstanding petitioners’ ‘‘bootstrap’’ alle-

gations of ‘‘deception’’ designed to circumvent the

holding of Santa Fe;

2. Petitioners had not, and could not, allege that they

(or anyone else) had relied upon any ‘‘misrepresenta-

tions’? to their detriment: petitioners’ ‘‘deception’’

allegations thus floated weightless in a vacuum

neither relied upon nor causal of any ‘‘damages’’;

and

3. The proposed Amexco tender offer having been

withdrawn by Amexco before it ever commenced,

petitioners necessarily were unable to satisfy Section

14(e)’s requirement that the conduct for which they

sought damages had occurred ‘‘in connection with’’ a

tender offer.

By Memorandum Opinion and Order filed November 30,

1979, Judge Motley of the Southern District of New York

granted respondents’ motion to dismiss. Lewis v. McGraw,

[1979-80 Transfer Binder] CCH Fed. Sec. L. Rep. 4 97,195

(S.D.N.Y. 1979). In her opinion, Judge Motley expressly

rejected respondents’ ‘‘Santa Fe’’ and ‘‘in connection with’’

positions. Jd. at 96,567-69. Judge Motley nevertheless agreed

with respondents that petitioners’ complaint was fatally

defective in failing to allege reliance and causation as required

under Section 14(e). Jd. at 96,570. Judge Motley held:

While plaintiffs do allege deception on the part of

defendants, plaintiffs do not allege that anyone was

deceived or that anyone acted in reliance upon the alleged

deception to their detriment... .

. . . Plaintiffs allege neither reliance on the part of

stockholders nor reliance on the part of AMEXCO—in

fact, any suggestion that AMEXCO withdrew its

proposed tender offer in reliance upon the alleged

McGraw-Hill misrepresentations and omissions would be

absurd. Even assuming that misrepresentations or omis-

sions thwarted the proposed AMEXCO tender offer,

such an allegation would not give rise to a Section 14(e)

violation.

Id. (emphasis in original).

E. Petitioners’ appeal to the Second Circuit.

Petitioners took appeal to the Second Circuit from the

District Court’s dismissal of the action. Respondents in the

Second Circuit relied upon all of the grounds for dismissal

previously urged before the District Court. Respondents also

‘‘noted in passing’ to the Second Circuit that recent decisions

of this Court strongly suggest that no damage action of any

kind is necessarily implicit in Section 14(e), The appeal came

on before then Chief Judge Kaufman, Circuit Judge Meskill

and District Judge Brieant, sitting by designation.

The Second Circuit on April 3, 1980, unanimously affirmed

the District Court’s determination. Lewis v. McGraw, 619

F.2d 192 (2d Cir. 1980) (per curiam). The Court of Appeals

agreed with the District Court that—in light of the conceded

fact that no tender offer ever took place and no McGraw-Hill

shareholder was ever in a position to offer his shares to

Amexco—‘‘the target’s shareholders simply could not have

relied upon McGraw-Hill’s statements, whether true or false,

since they were never given an opportunity to tender their

shares’, and that ‘‘no reliance was possible under any

imaginable set of facts.’’ Jd. at 195. The Court of Appeals’

opinion also appears to accept respondents’ argument that, in

the context of an after-the-fact suit for money damages where

no tender offer has ever taken place, petitioners cannot satisfy

the ‘‘in connection with any tender offer’? requirement of

Section 14(e). See id. and 15n.* infra. The Second Circuit

indicated, however, that in its view the ‘‘in connection with’’

requirement could be satisfied in cases posing hypothetical

factual circumstances not presented by the case at bar: (a)

actions seeking pre-tender offer injunctive relief; and (b)

actions seeking money damages on account of pre-tender offer

fraudulent conduct where the offer ultimately does become

effective and the fraudulent conduct can be found to have

impacted the subsequent decision-making by shareholders. /d.

DISCUSSION

POINT I

The Second Circuit’s decision is clearly correct and is in full

accord with the decisions of this Court.

Petitioners urge that certiorari should be granted herein

because this Court ‘‘has not yet decided at what stage of a

tender offer the protection of the Williams Act begins.”’

(Petition, p. 7.) Respondents agree that this precise issue has

never been determined by this Court.

Nevertheless, it is submitted that the decision of the Court

of Appeals is in full accord with prior precedents of this Court

interpreting the various provisions of the securities laws and is

likewise in full conformity with holdings of other Courts of

Appeals as well as District Courts.

Indeed, the Second Circuit could not have reached any

other conclusion in this matter without contravening any

number of this Court’s prior rulings as well as authoritative

precedents of the lower federal courts:

1. This Court’s Chris-Craft decision.

In Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 35

(1977), after carefully reviewing the language and history of

the Williams Act, this Court held:

[T]he 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.

49, 58 (1975)]: ‘‘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... .”’

(Emphasis supplied.)

The legislative history of Section 14(e) is precisely to the same

effect: the statute protects shareholders, but only those

shareholders who must decide whether or not to tender.* In

Chris-Craft, on the facts there presented, this Court held that

Chris-Craft—although a shareholder of a company subject to

an actual tender offer—had no ‘‘implied’’ Section 14(e)

damage claim because it was confronted with no tender offer

investment decision. As this Court explained:

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 his 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 arguments.

Id. at 35-36 (emphasis sup-

plied; footnote omitted).

Since it is a given in the case at bar that the proposed Amexco

tender offer for McGraw-Hill never in fact eventuated, the

present petitioners were no more faced with a tender offer

investment decision than was Chris-Craft; under this Court’s

reading of Section 14(e), then, it is submitted that petitioners

can no more have a Section 14(e) damage claim than did

Chris-Craft.

2. The lack of any reliance.

As the Second Circuit correctly pointed out—and petitioners

have never disputed—‘‘one ele:nent of a cause of action under

§ 14(e) is a showing ‘that there was misrepresentation upon

* The legislative history is replete with statements emphasizing that the

fundamental aim of the statute is to assist shareholders confronted with a

tender offer in making ‘‘a decision whether to accept or reject the tender

offer’’ or ‘‘the investment decision—whether to retain the security or sell

it.’ See, e.g., S. Rep. No. 550, 90th Cong., Ist Sess. 2-3 (1967); H.R. Rep.

No. 1711, 90th Cong., 2d Sess. 2-3 (1968), reprinted in [1968] U.S. Code

Cong. & Ad. News 2811, 2812-13.

which the target corporation shareholders relied.’ ’’ 619 F.2d

at 195 (quoting Chris-Craft Industries, Inc. v. Piper Aircraft

Corp., 480 F.2d 341 (2d Cir.), cert. denied, 414 U.S. 910

(1973); footnote omitted). And the Second Circuit was further

indisputably correct in its common-sense conclusion that: ‘‘In

the instant case, the target’s shareholders simply could not

have relied upon McGraw-Hill’s statements, whether true or

false, since they were never given an opportunity to tender

their shares’’; ‘‘no reliance was possible under any imaginable

set of facts.’’ Jd. Petitioners below, however, citing Affiliated

Ute Citizens v. United States, 406 U.S. 128 (1972), contended

that they were excused from pleading reliance because that

element is ‘‘presumed”’ once the omission of a ‘‘material’’ fact

is shown. This argument was quite correctly rejected by both

the District Court and the Court of Appeals in that the Ute

presumption is not remotely applicable to the case at bar. For

the express premise of Ufe is that investors were forced to

make investment decisions without disclosure of ‘‘material

facts that reasonably could have been expected to influence

their decisions to sell.’’ Jd. at 153. As this Court in Ute

formulated the presumption:

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 impor-

tant in the making of this decision [to sell the UDC

stock].

Id. at 153-54 (emphasis supplied).”

* Indeed, petitioners’ bland assumption of ‘‘materiality”’ is itself highly

questionable under the precedents. Thus, this Court’s definition of

materiality in the proxy context in TSC Industries, Inc. v. Northway, Inc.,

426 U.S. 438, 449 (1976) that an “‘omitted fact is material if there is a

substantial likelihood that a reasonable shareholder would consider it

important in deciding how to vote,”’ presupposes the occurrence of a

“vote.’? See also Maldonado v. Flynn, 597 F.2d 789, 795-96 (2d Cir. 1979)

(false statement cannot be ‘‘material’’ under proxy laws unless shareholders

are in fact being called upon to cast a vote). The test of ‘‘materiality’’ for

In other words, under the Ute rationale, where an investor

was in fact engaged in ‘‘the making of [an investment]

decision’’, he may under certain circumstances be ‘‘presumed’’

to have relied upon material nondisclosure. But manifestly

that rationale has no applicability whatsoever in a case

such as that at bar where neither petitioners nor any other

McGraw-Hill shareholders were ever called upon to make an

investment decision with respect to the proposed Amexco

tender offer which never took place. As the Second Circuit

accurately reasoned:

These cases [of the Supreme Court], however, in

presuming reliance, did not abolish it as an element of

the cause of action. Rather, they held that in cases in

which reliance is possible, and even likely, but is unduly

burdensome to prove, the resulting doubt would be

resolved in favor of the class the statute was designed to

Section 14(e)’s tender offer provisions parallels that under Section 14(a)’s

proxy provisions. See, e.g., Seaboard World Airlines, Inc. v. Tiger

International, Inc., 600 F.2d 355, 360-61 (2d Cir. 1979). The Second Circuit

there ruled that under Section 14(e) itself ‘‘a misstatement or omission is

* **material if there is a substantial likelihood that a reasonable shareholder

would consider it important in deciding’ ’ whether to accept the tender

offer’’, thereby recognizing that ‘‘materiality’? can only exist when a

shareholder is in fact being called upon to make an investment decision

whether to tender. 600 F.2d at 361 (quoting the TSC definition of

materiality as excerpted in Prudent Real Estate Trust v. Johncamp Realty,

Inc., 599 F.2d 1140, 1146 (2d Cir. 1979); footnote omitted).

Similarly, if the issue is phrased in terms of ‘‘causation’’, it could not be

contended that it was the alleged ‘‘deception’’ that ‘‘caused’’ Amexco to

abandon its proposal. As the District Court correctly set forth:

[A]ny suggestion that AMEXCO withdrew its proposed tender

offer in reliance upon the alleged McGraw-Hill representations and

omissions would be absurd.

(Emphasis in original.)

The District Court’s conclusion that petitioners could not rationally establish

legal causation is in full accord with the views of other courts that have had

occasion to focus on the question in like circumstances. See, e.g., Rediker v.

Geon Industries, Inc., 464 F. Supp. 73, 82 (S.D.N.Y. 1978); Altman v.

Knight, 431 F. Supp. 309, 314 (S.D.N.Y. 1977); Hundahl v. United Benefit

Life Insurance Co., 465 F. Supp. 1349, 1369-70 (N.D. Tex. 1979).

protect. [Mills v. Electric Auto-Lite Co., 396 U.S. 375,

385 (1970).] We therefore presume reliance only ‘‘where

it is logical’? to do so. [Chris-Craft Industries, Inc. v.

Piper Aircraft Corp., 480 F.2d 341, 375 (2d Cir.), cert.

denied, 414 U.S. 910 (1973).] Here, where no reliance

was possible under any imaginable set of facts, such a

presumption would be illogical in the extreme.

619 F.2d at 195.

3. ‘In connection with.’’

In seeking to ascertain the proper bounds of any ‘‘implied’’

damage remedy under Section 14(e), the starting point must be

the plain language of Section 14(e) itself. Piper v. Chris-Craft

Industries, Inc., 430 U.S. 1, 24 (1977). Section 14(e) by its

terms is limited to conduct ‘

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.

15 U.S.C. § 78n(e)

(emphasis supplied).

This congressional language clearly presupposes the existence

of an actual, effective ‘‘tender offer’’. Nothing in the statute’s

terms purports to extend its reach to proposed tender offers,

like Amexco’s, which in ultimate fact are never made. And the

Second Circuit—in the after-the-fact damage context of the

present action—quite correctly declined to read any such

extension into the statute.* In this connection, it may be noted

* The Second Circuit in its per curiam opinion did not explicitly hold that

petitioners’ complaint was subject to dismissal for failure to satisfy the ‘‘in

connection with’’ requirement of Section 14(e). Nonetheless, such holding

would appear to be a clear implication from the opinion. Thus: (1) the

opinion distinguishes the case at bar from other hypothetical factual

situations in which the Second Circuit states the ‘‘in connection with a

tender offer’? requirement could be met (619 F.2d at 195); and (2) the

Second Circuit concludes its opinion with the statement ‘‘since American

Express never made its proposed offer to the shareholders of McGraw-Hill,

plaintiffs cannot state a cause of action for alleged misstatements under the

Williams Act.’’ Jd. at 195-96.

again that in Chris-Craft, 430 U.S. at 35, this Court set forth

that: ‘‘{[T]he sole purpose of the Williams Act was the

protection of investors who are confronted with a tender

offer.’’ (Emphasis supplied.) As noted,* this reading of

Section 14(e) is in full accord with its legislative history. Thus,

under the plain language of Section 14(e) as well as its

legislative history and authoritative construction by this Court,

no tender offer ever having taken place, defendants’ supposed

misconduct could not be ‘‘in connection with’? a ‘‘tender

offer’’.* *

4. This Court’s Blue Chip decision.

Section 14(e)’s ‘‘in connection with any tender offer’’ clause

has a well-known predecessor and close cognate in Rule

10b-5’s clause requiring that the conduct proscribed by that

Rule be ‘‘in connection with the purchase or sale of any

security.”’* * * It is now quite settled that Rule 10b-5’s ‘‘in

connection with’’ requirement is to be strictly enforced in

damage actions brought under that Rule: the plaintiff in such

* See 12n.* supra.

* * It should be noted that in a footnote in a subsequent amicus brief in

the Seventh Circuit, Brief of the Securities and Exchange Commission, 20

n.25, Weiss v. Marshall Field & Co., Nos. 80-1375, 80-1389 (7th Cir.,

appeals docketed March 21 and 24, 1980), the Securities and Exchange

Commission has expressed the view that the Second Circuit’s opinion in the

present case should be narrowly read to rest upon issues of absence of

‘*reliance’’ and ‘‘causation’’ only. With respect to the ‘‘in connection with’’

issue, the SEC’s amicus brief states:

In any event, if the Lewis decision is read as holding that Section

14(e) does not extend to deception in connection with tender offer

proposals where shareholders are not given an opportunity to

tender to the bidder, the Commission submits that the decision is in

error.

Id. at 21 n.25.

*** Except for the different wording of their ‘‘in connection with’’

clauses, Section 14(e) and Rule 10b-5 are, of course, substantially identical.

Compare 15 U.S.C. § 78n(e) with 17 C.F.R. § 240.10b-5. See Seaboard

World Airlines, Inc. v. Tiger international, Inc., 600 F.2d 355, 358 n.3 (2d

Cir. 1979); Electronic Specialty Co. v. International Controls Corp., 409

F.2d 937, 940-41 (2d Cir. 1969).

an action must show that he is a purchaser or seller of a

security; it simply will not suffice for a Rule 10b-5 plaintiff to

show that a defendant caused him not to purchase, or not to

sell, a security. That is, of course, the teaching of this Court’s

decision in Blue Chip Stamps v. Manor Drug Stores, 421 U.S.

723 (1975), where it was held that fraudulent misrepresenta-

tions which succeeded in preventing a ‘‘purchase’’ of a

security from ever taking place did not thereby give rise to any

violation of Rule 10b-5. Jd. at 752-55. See also, e.g., Iroquois

Industries, Inc. v. Syracuse China Corp., 417 F.2d 963, 966-69

(2d Cir. 1969), cert. denied, 399 U.S. 909 (1970); Greenstein v.

Paul, 400 F.2d 580, 581 (2d Cir. 1968); Mutual Shares Corp.

v. Genesco, Inc., 384 F.2d 540, 544 & n.14 (2d Cir. 1967);

Birnbaum v. Newport Steel Corp., 193 F.2d 461, 462-63

(2d Cir.), cert. denied, 343 U.S. 956 (1952). Thus, existing

Rule 10b-5 ‘‘in connection with’’ doctrine, if analogically

applied here, independently compelled dismissal of petitioners’

Section 14(e) claim: if ‘‘fraud’’ which prevents a purchase of

securities from taking place is not ‘‘in connection with’’ the

purchase of a security, then ‘‘fraud’’ which prevents a tender

offer from taking place is not ‘‘in connection with’’ a tender

offer.

5. The Applied Digital decision.

In their certiorari petition, petitioners appear to contend

that the Second Circuit’s decision is in conflict with a decision

of Judge Weinfeld of the Southern District of New York in

Applied Digital Data Systems Inc. v. Milgo Electronic Corp.,

425 F. Supp. 1145 (S.D.N.Y. 1977), allowing Section 14(e) to

be invoked, upon an injunction motion, where a proposed

tender offer, albeit imminent, had not yet taken place. See

Petition, pp. 7-8. There is no conflict: indeed, the opinion of

the Second Circuit expressly notes that Court’s agreement with

Judge Weinfeld’s view in Applied Digital. 619 F.2d at 195.

The Applied Digital case is simply inapposite to the present

petitioners’ after-the-fact action for damages. The injunction-

damages distinction, repeatedly enunciated by the courts in

this area of the law, is here determinative. *

In Applied Digital, Judge Weinfeld granted the motion of a

prospective tender offeror for a Section 14(e) preliminary

injunction to restrain a target corporation from issuing a

substantial block of stock to a friendly party in an a'leged

bad-faith effort to thwart the proposed tender offer. While the

tender offer had not yet technically commenced, the movant

demonstrated to Judge Weinfeld’s satisfaction: (1) that the

commencement of the tender offer in fact was ‘‘imminent’’;

(2) that substantial evidence supported the movant’s conten-

tion that the target company’s plan to issue the stock in

question actually was a bad-faith maneuver designed to

interfere with the proposed tender offer; and (3) that the

‘‘balance of hardships’’ tipped decidedly in the movant’s

favor. Id. at 1154, 1158-59, 1161-62.

The Applied Digital decision is undoubtedly correct: a

request for a preliminary injunction necessarily addresses the

future. Accordingly, a judge faced with a ‘‘good faith’’

proposal to make an ‘‘imminent’’ tender offer, id. at 1154,

can only assume (absent any contrary indications, of which

there were none in Applied Digital’) that the proposed tender

offer in due course will become an actual tender offer.

Further, it is obvious that pre-tender offer conduct directed at

a proposed offer may, when the offer attains actuality, affect

the investment decision which then will confront the

* In Chris-Craft, this Court expressly recognized the importance of the

injunction-damages distinction in this area. Although refusing to imply an

after-the-fact damage action under Section 14(e) in favor of a defeated

tender offeror, this Court approvingly cited the Circuit’s decision in

Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937, 947

(2d Cir. 1969), which permitted a target corporation and a non-tendering

shareholder-offeree to seek an injunction under Section 14(e) and expressly

quoted Judge Friendly’s observation there that ‘‘in corporate control

contests the stage of preliminary injunctive relief, rather than post-contest

lawsuits, ‘is the time when relief can best be given.’ ’’ 430 U.S. at 42

(emphasis supplied). Thus, the distinction between injunctive and compensa-

tory relief is critical to the scope of Section 14(e).

shareholder-offerees—the very investment decision the integ-

rity of which the Williams Act is concerned to protect. As

Judge Weinfeld observed in Applied Digital:

Although the shareholders might not in the pre-offer

period be faced with a present decision whether to

exchange their stock in the target corporation, statements

and actions of the target corporation and the offeror

during this period clearly have the capacity to affect any

future decision and should thus fall within the purview of

the statute.

425 F. Supp. at 1154

(emphasis supplied).

The principles which underlie Applied Digital, however,

have nothing to do with the case that was before the Second

Circuit. This case invokes the past, not the future: the

Amexco/McGraw-Hill affair is history and we are privileged

to know that no tender offer ever occurred. And, precisely

because no tender offer occurred, the investment decision

which is the focus of the Williams Act and which concerned

Judge Weinfeld in Applied Digital never confronted peti-

tioners or any other McGraw-Hill shareholders.

Judge Weinfeld’s reasoning with respect to the ‘‘in

connection with’’ requirement of Section 14(e) is instructive:

There is no apparent reason why any given action may

not be taken ‘‘in connection with’’ a development

reasonably certain to take place in the future... .

Indeed, Rule 10b-5, . . . after which section 14(e) was

closely patterned, requires that a complained of action

take place ‘‘in connection with the purchase or sale of a

security,’’ yet it repeatedly has been held to create a cause

of action to enjoin purchases or sales of securities that

have been proposed but not yet effected.

425 F. Supp. at 1153 (emphasis

supplied; footnotes omitted).

And the line of cases relied upon in Applied Digital makes

clear that it is only where judicial intervention is sought

in order to prevent a threatened future fraud that the

‘tin connection with’’ requirement of Rule 10b-5 may properly

be ‘‘relaxed”’ (i.e., a plaintiff need not complain of an actual

purchase or sale of securities). See Mutual Shares Corp. v.

Genesco, Inc., 384 F.2d 540, 546-47 & n.25 (2d Cir. 1967);

Ruckle v. Roto American Corp., 339 F.2d 24 (2d Cir. 1964).

Accord, e.g., Tully v. Mott Supermarkets, Inc., 540 F.2d 187,

194-95 (3d Cir. 1976); Kahan v. Rosenstiel, 424 F.2d 161, 173

(3d Cir.), cert. denied, 398 U.S. 950 (1970); Jroquois

Industries, Inc.:v. Syracuse China Corp., 417 F.2d 963, 968

(2d Cir. 1969), cert. denied, 399 U.S. 909 (1970); Fuchs v.

Swanton Corp., 482 F. Supp. 83, 89-90 (S.D.N.Y. 1979);

Berne Street Enterprises, Inc. v. American Export Isbrandtsen

Co., [1969-1970 Transfer Binder] CCH Fed. Sec. L. Rep.

4 92,711, at 99,134 (S.D.N.Y. 1970) (Mansfield, J.). No such

relaxation is permissible in an after-the-fact suit for damages

where it is conceded that no tender offer ever took place.

POINT II

Petitioners’ complaint was required to be dismissed under

the principles of Santa Fe Industries, Inc. v. Green.

In Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977),

this Court held that Section 10(b) of the Securities Exchange

Act does not reach cases ‘‘in which the essence of the

complaint is that shareholders were treated unfairly by a

fiduciary’, id. at 477, and that a Rule 10b-5 claim is stated

‘only if the conduct alleged can be fairly viewed as

‘manipulative or deceptive’ within the meaning of the

statute.’ Jd. at 473-74. It would appear clear that the

principles of Santa Fe are fully applicable to actions brought

under Section 14(e). See, e.g., Bucher v. Shumway, [1979-80

Transfer Binder] CCH Fed. Sec. L. Rep. 497,142, at 96,299

(S.D.N.Y. 1979), aff’d on the opinion below, 622 F.2d 572 (2d

Cir.), cert. denied, 49 U.S.L.W. 3247 (Oct. 6, 1980); In re

Sunshine Mining Co. Securities Litigation, [1979-80 Transfer

Binder] CCH Fed. Sec. L. Rep. 497,217, at 96,635-36

(S.D.N.Y. 1979); Marshel v. AFW Fabric Corp., 441 F. Supp.

299, 300 (S.D.N.Y. 1977).

Since Santa Fe, the lower courts have repeatedly been faced

with actions which have sought to circumvent this Court’s

holding and foist jurisdiction upon the federal courts by

insertion of allegations of ‘‘deception’’ or ‘‘omission’’ in

complaints which fundamentally have as their gravamen

claims of breach of fiduciary duty by defendants. Generally,

such attempts have been rejected by the lower courts which

have ruled that, whatever other allegations are pleaded,

whenever the ‘‘essence’’ or ‘‘central thrust’? of a purported

federal securities law complaint is fiduciary breach, or where

the complaint ‘‘amounts to no more than”’ or ‘‘boils down

to’’ such a claim, Santa Fe requires dismissal. See, e.g.,

Biesenbach v. Guenther, 588 F.2d 400, 402 (3d Cir. 1978);

Hundahl v. United Benefit Life Insurance Co., 465 F. Supp.

1349, 1362 (N.D. Tex. 1979); Bucher v. Shumway, [1979-80

Transfer Binder] CCH Fed. Sec. L. Rep. 4 97,142, at 96,299-

303 (S.D.N.Y. 1979), aff’d on the opinion below, 622 F.2d

572 (2d Cir.), cert. denied, 49 U.S.L.W. 3247 (Oct. 6, 1980);

In re Sunshine Mining Co. Securities Litigation, [1979-80

Transfer Binder] CCH Fed. Sec. L. Rep. 4 97,217, at 96,635-

36 (S.D.N.Y. 1979); Altman v. Knight, 431 F. Supp. 309, 311,

313-14 (S.D.N.Y. 1977). >’

The issue, however, has not been free of difficulty and

certain cases have tended to give a very narrow reading to this

Court’s Santa Fe holding. See, e.g., dissenting opinion of

Meskill, C.J., in Goldberg v. Meridor, 567 F.2d 209, 225 (2d

Cir. 1977), cert. denied, 434 U.S. 1069 (1978); Jones v.

National Distillers & Chemical Corp., 484 F. Supp. 679, 685

(S.D.N.Y. 1979); cf. Hundahl v. United Benefit Life

Insurance Co., 465 F. Supp. 1349, 1365 (N.D. Tex. 1979).

In the case at bar, respondents contended in the District

Court that petitioners’ complaint in substance presented a

garden-variety claim for breach of fiduciary duty by directors

and that petitioners’ allegations of ‘‘deception’’ were of a

‘*bootstrap’’ nature amounting upon close analysis to nothing

more than claims that respondents had failed to ‘‘disclose’’

that their rejection of the Amexco proposals was the product

of a breach of fiduciary duty. Judge Motley in the District

Court, however, citing to one of her own prior precedents and

believing cases relied upon by respondents to be distinguish-

able, rejected this challenge to the complaint and ruled that

the complaint alleged ‘‘misstatements and omissions action-

able under Section 14(e).’’ 497,195 at 96,569. The District

Court, of course, nonetheless dismissed the complaint on

alternative grounds.

Petitioners in the Second Circuit renewed their challenge to

the complaint on Santa Fe grounds. The Second Circuit, in

upholding dismissal of the complaint for failure to satisfy the

Section 14(e) requirements of ‘‘reliance’’ and ‘‘in connection

with’’, did not comment upon the Santa Fe issue.

Were this Court to accept this case for review, respondents

(in supporting the judgment under review) would ask this

Court to make clear that its holding in Santa Fe cannot be

subverted by mere ‘‘bootstrap’’ allegations of ‘‘deception’’

and to rule that petitioners’ complaint was subject to dismissal

on this ground as well.

POINT III

There is a serious question whether Section 14(e) provides a

shareholder of a target company with any implied cause of

action for damages.

In Piper v. Chris-Craft Industries, Inc., 430 U.S. 1 (1977),

this Court specifically held that a competing tender offeror has

no implied daraage action under Section 14(e). The opinion

expressly left undecided whether either ‘‘shareholder-offerees”’

or target corporations have such an implied action. 430 U.S.

at 38-39 & n.25, 42 n.28. Cf. Stull v. Bayard, 561 F.2d 429,

432 (2d Cir. 1977), cert. denied, 434 U.S. 1035 (1978)

(assumed but did not decide that target shareholders had a

right to sue under Section 14(e)). Subsequent decisions of this

Court, however, strongly suggest that no damage action of

any kind is necessarily implicit in Section 14(e).

In Touche Ross & Co. v. Redington, 442 U.S. 560 (1979),

reversing a Second Circuit finding of an implied cause of

action for damages under Section 17(a) of the Securities

Exchange Act, this Court acknowledged that it had aban-

doned the permissive analysis for implication of private causes

of action that it had employed in J.J. Case Co. v. Borak, 377

U.S. 426 (1964) to imply a cause of action under Section 14(a).

442 U.S. at 578; see also Cannon v. University of Chicago,

441 U.S. 677, 735-36 & n.6 (1979) (Powell, J., dissenting,

describes Borak as ‘‘unprecedented and incomprehensible’’

[footnote omitted]). This Court in Redington further ex-

plained that in recognizing an implicit damage action under

Section 10(b), it ‘‘simply explicitly acquiesced in the 25-year-

old acceptance by the lower federal courts of an implied action

under’”’ that section. Jd, at 577 n.19. No such ‘“‘history of

longstdniagetenrer=tOurt interpretation’’,” id,, exists with

respect to Section 14(e), whichwas not enacted until 1968.

The Court reaffirmed and perhaps stiffened its resistance

to implied damage actions under the securities laws in

Transamerica Mortgage Advisors, Inc. (TAMA) v. Lewis,

444 U.S. 11 (1979). TAMA refused to imply a cause of action

for damages under Section 206 of the Investment Advisers Act

of 1940 (an antifraud statute closely resembling Section 14(e)

and Rule 10b-5) notwithstanding that the plaintiff concededly

belonged to the class protected by the statute. Jd. at 18-19.

It would thus appear that there is a serious question whether

Section 14(e) should be read to imply any damage action in

favor of a target company shareholder. Respondents did not

advance this argument to the District Court in support of

dismissal. The Redington and TAMA cases were decided by

this Court prior to briefing of the appeal in the Second

Circuit. In their brief to the Second Circuit, respondents

‘‘noted in passing that, in light of recent specific Supreme

Court holdings in securities laws cases and the trend of

securities law cases in that Court, it is by no means clear that

any state of facts will give rise to an ‘implied’ damage remedy

under Section 14(e).’’ The Second Circuit, in affirming the

dismissal of the complaint upon alternative grounds, did not

directly comment upon the issue but in dictum indicated that

in certain circumstances it believed an implied action for

damages under Section 14(e) could lie in favor of an aggrieved

shareholder.

Were this Court to accept this case for review, respondents

would ask this Court to clarify whether Section 14(e) is to be

read to give rise to any implied cause of action for damages.

SUMMARY

Respondents submit that this case was correctly decided by

the Second Circuit. Should this Court determine to grant

certiorari, respondents submit that the ultimate result would

be affirmance of the dismissal of petitioners’ complaint.

Respondents choose to take no position as to whether this

Court should grant certiorari in order to express its views on

the various questions of statutory interpretation presented by

this action.

Dated: New York, New York

October 10, 1980

Respectfully submitted,