# Petition — Unitex Ltd. v. Dan River, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0314%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1980 - **Citation:** 449 U.S. 917 ## Text ; rir 80-293 AUG26 1980 No. MICHAEL RUWAK, JR., CLERK In THE Supreme Court of the United States October Term, 1980 © UNITEX LIMITED, et al., Petitioners, versus DAN RIVER, INC., Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT MICHAEL W. SCHWARTZ 299 Park Avenue New York, New York 10171 (212) 371-9200 Counsel for Petitioners WACHTELL, LIPTON, ROSEN & KATZ Of Counsel August 26, 1980 Petitioners Unitex Limited, Mannip Limited, Cheng Fur She, Cheng Lee Kit-Yiu, Philip Y. S. Cheng, Lee Chen Che, Liu Han Tang, Yang Yuan Loong and Dora Yang respectfully pray that a writ of certiorari issue to review the judgment and opinion of the United States Court of Appeals for the Fourth Circuit entered in this proceeding on May 29, 1980. Questions Presented 1. Whether it is permissible consistently with this Court's recent decisions refusing to imply private rights of action under the securities laws to imply a private right of action in favor of a target company under Section 13(d) of the Securities Ex- change Act of 1934 so as to enable the target company to seek injunctive or other equitable relief against the acquisition of its shares. 2. Whether, even assuming such a Section 13(d) cause of action can properly be implied in the target company’s favor, the opinion of the Court of Appeals in this case is consistent with this Court’s opinion in Rondeau v. Mosinee Paper Corp., 422 U.S. 49 (1975), with respect to the availability of equitable relief to the target company in such a Section 13(d) case. Parties Below In the Court below, the petitioners were defendants-appellees. The other defendants-appellees in that Court were Wardley Lim- ited (named in the Court below as The “Doe” Finance Company of Hong Kong and “XYZ” Company) and The Chartered Bank (named in the Court below as The “Roe” Bank of Hong Kong); the opinion of the Court below directed the District Court on remand to dismiss those two parties from the action. Respondent in this Court was plaintiff-appellant in the Court below. TABLE OF CONTENTS PAGE SE SIMEON RUDI Siic.tin oo 0c wieisis 00 0d cls taeie eed i re anh ee an Sk ka) a erese 0.0.90 Oh ods i OPINIONS AND JUDGMENT BELOW ...............55: 1 BC aida st ses cesses 1 STATUTORY PROVISIONS INVOLVED ...............05: 1 STATEMENT se a a aes ave 2 REASONS FOR GRANTING THE WRIT ...............-.- 7 1. The Court of Appeals for the Fourth Circuit has decided an important question of federal law which has not been, but should be, settled by this Court: the standing of a “target” company to assert an implied right of action under section 13(d) ............ 7 2. The decision below conflicts with the decisions of this Court as to the availability of injunctive relief in the absence of irreparable harm .............. 14 ee hh ae bd bh Aa Netnn np 0.08 .0,0 010-0 0.09 9 16 APPENDIX A—Court of Appeals Decision ............ la APPENDIX B—Transcript of District Court’s Decision... 24a APPENDIX C—Judgment of Court of Appeals.......... 32a APPENDIX D—Statutes Involved ...............0000- 33a TABLE OF AUTHORITIES Cases: Bath Industries, Inc. v. Blot, 427 F. 2d 97 (7th Cir. 1970) 7 Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1975) 14 Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 ae ae aa Oa 6 bea dbs Nae Rae Dee ee 11 iii Burks v. Lasker, 441 U.S. 471 (1979) ............05- 11 Chromalloy American Corp. v. Sun Chemical Corp., 611 io RE EE MS IPE id's. o') o Sikes Winds o Gas Ge 7 Re ee Be a Re ys) Sane 13 GAF Corp. v. Milstein, 453 F.2d 709 (2d Cir. 1971), cert. denied, 406 U.S. 910 (1972) .............. 7 Gateway Industries, Inc. v. Agency Rent A Car, Inc. [Cur- rent] Fed. Sec. L. Rep. (CCH) { 97,540 (N.D. Il PU TG BOO) eo S.ais s Sets CMAs eeceee 7, i263 General Aircraft Corp. v. Lampert, 556 F. 2d 90 (lst Rls EEE Be iis'h seh Wie ie bk Deh kas Oa tee ees 7 Ge Hecht Co. v. Bowles, 321 U.S. 321 (1944) .......... 14 International Brotherhcod of Teamsters v. Daniel, 439 U.S. PORTED. 40 EU Ras HERA Hees oe oa ae ee 11 J. I. Case Co. v. Borak, 377 U.S. 426 (1964)...... 10, 11 Missouri Portland Cement Co. v. H.K. Porter Co., 535 F. ee Ee TOD ok bn. wh de wa a ode nalkiw cia 15 Piper v. Chris-Craft Industries, Inc., 430 U.S. 1 CERFT). 6baerhakaan dn tatie cs ew 8, 9, 10, 13, 15 Rondeau v. Mosinee Paper Corp., 422 U.S. 49 CROVOd 5c theese rcdedace uae ., 3... oe bas Be he Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977) - 11 S-G Securities, Inc. v. Fuqua Investment Co., 466 F. Supp. ERG GER BO ROTO) 6k obs Chk ow tae cee dee 15 Sta-Rite Industries, Inc. v. Nortek, Inc., Civil Action No. 80-C-471 (E.D. Wis. Aug. 1, 1980) ............. 7 Touche Ross & Co. v. Redington, 442 U.S. 560 ER Ae prin gy i 5 pt NN 7, 10, 11, 12 Transamerica Mortgage Advisors, Inc. (TAMA) v. Lewis, GEG Bis SEZIGIO) Sos van adie pie ckhes 7, 10, 11, 12 Wellman v. Dickinson, 475 F. Supp. 783 (S.D.N.Y. 1979) 7 iv Statutes: Investment Advisers Act: Section 206, 15. U.S.C. §60-B-6 0... cece cceects 12 Securities Act of 1933: Gets S25, 35 UGS Fick kei s Costtete 8 Section 12,15 USC. § TM ic ces ccwccecaccoes 8 Section: 15,15: USC. SF7O. evisvscstecvs severe 8 Securities Exchange Act of 1934: Soctinn By. ES TBR STG sok kc cccie se Cee ae 8 Section 13(d), 15 U.S.C. § 78m(d) ...... passim, 33a Section 14(a), 15 U.S.C. § 78n(a) .........46-. 10 Section 14(e), 15 U.S.C. § 78n(e) ..........06- 9 Sects 1G TF WG-8 TG i oiice oc eed ceca ccc 8 Section 17(a), 15 U.S.C. § 78q(a) ...........4.- 12 Section 18(a), 15 U.S.C. § 78r(a).... 1, 8, 12, 15, 36a DE DA, EP TE Wes ct etecaseaus te 8 Section 21(a), (d), 15 U.S.C. § 78u(a), (d)..... 12 Section 27, 15 US. STGOR ow svc secanecsver 3 S. Rep. No. 550, 90th Cong., Ist Sess. 3 (1967)...... 13 £13 Cong. Rec. 24664 (1967) .....cccccccccccoeess 10 PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT Opinions and Judgment Below The opinion of the Court of Appeals, not yet officially re- ported, appears unofficially at [Current] Fed. Sec. L. Rep. (CCH) § 97,515 and is set forth as Appendix A hereto.* The Court of Appeals reversed and remanded with instructions an order and judgment of the United States District Court of Vir- ginia, Honorable D. Dortch Warriner, United States District Judge, dated March 30, 1979. dismissing respondent’s amended complaint for mootness and, therefore, lack of subject matter jurisdiction. The unreported decision of the District Court is set forth as Appendix B hereto. The judgment of the Court of Appeals is set forth as Appendix C hereto. Jurisdiction The judgment of the Court of Appeals was entered on May 29, 1980. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). Statutory Provisions Involved Fhe principal statutory provision involved in this case is Sec- tion 13(d) of the Securities Exchange Act of 1934 (the “Ex- change Act”), 15 U.S.C. § 78m(d). Section 18(a) of the Ex- *After the opinion of the Court of Appeals was filed on May 29, 1980, the defendants-appellees in that Court filed motions to correct and modify the opinion in certain respects. By order filed August 12, 1980, and amended August 18, 1980, the Court of Appeals granted the motions to the extent of modifying its opinion to add a paragraph expressly di- recting the District Court to dismiss from the action defendants-appellees Wardley Limited and The Chartered Bank, and to amend or delete several sentences in its opinion to correct certain errors not relevant to this petition. The opinion set forth in Appendix A hereto has been modi- fied in accordance with the Court of Appeals’ order. ’% i 2 change Act, 15 U.S.C. § 78r(a), is also involved here. The text of both provisions is set forth as Appendix D hereto. Statement of the Case Respondent Dan River, Inc. (“Dan River”) is a Virginia corporation primarily involved in the manufacture of textiles. Petitioner Unitex Limited (“Unitex”), a Hong Kong corpora- tion, is a manufacturer of men’s and women’s apparel, pri- marily for the United States and European markets. Beginning in November 1978, Unitex began purchasing shares of Dan River common stock on the New York Stock Exchange. In late 1978, Unitex organized a wholly-owned subsidiary, petitioner Mannip Limited (“Mannip”), a British Virgin Islands corpora- tion, for the sole purposes of acquiring Dan River stock and holding all Dan River stock then owned or later acquired on behalf of Unitex. Unitex thereafter obtained a definitive line of credit from Wardley Limited (“Wardley”) and The Chartered Bank (“Chartered”), two Hong Kong-based banking corpora- tions, to finance future purchases. On January 29, 1979, Unitex transferred all its Dan River stock to Mannip and all future purchases were made in Man- nip’s name with funds advanced by Unitex. Mannip’s holdings of Dan River stock first exceeded 5 percent of the issued and outstanding shares on January 31, 1979. Consequently, on February 9, 1979, Mannip filed with the Securities and Exchange Commision (the “SEC”) and mailed to Dan River a Schedule 13D, in accordance with Section 13(d) of the Exchange Act which requires such disclosure within ten days after a purchaser ~ acquires more than 5 percent of the outstanding shares of a security registered under Section 12 of the Exchange Act. Man- nip thereafter continued to purchase Dan River common stock on the New \ ork Stock Exchange and filed amended Schedules 13D to report these additional purchases. On February 22, 1979, two weeks after Mannip first filed its Schedule 13D, Dan River commenced this action in the 3 United States District Court for the Eastern District of Virginia. Suing solely under Section 13(d) and asserting an implied pri- vate right of action in its favor under that statute, Dan River alleged five claims charging Unitex, several of its directors and their spouses* (the “individual defendants”), Mannip, Wardley and Chartered with a variety of Section 13(d) violations.** The complaint sought injunctive and other equitable remedies, spe- cifically: (1) a mandatory order requiring all defendants to file full and complete Schedules 13D; (2) an injunction preventing the defendants from mak- ing further purchases of Dan River stock, or voting the shares they owned, until they filed the Schedules 13D and offered rescission to those Dan River shareholders from whom they had purchased shares; and (3) a prospective injunction restraining the defendants from “further” violations of Section 13(d). | The complaint did not seek damages or any other legal rem- edy.*** Contemporaneously with the filing of its complaint, and prior to service of process on any of the defendants, Dan River filed a motion for a temporary restraining order and a preliminary *Petitioners Cheng Fur She, Philip Y. S. Cheng, Lee Chen Che, Liu Han Tang and Yang Yuan Loong are directors of Unitex. Petitioner Cheng Lee Kit-Yiu, the wife of Cheng Fur She and the mother of Philip Y. S. Cheng, is a housewife. Petitioner Dora Yang, the wife of Yang Yuan Loong, is also a housewife. **The first claim, pleaded only against Unitex, Mannip, and several Unitex directors, charged that Mannip’s Schedule 13D omitted or mis- stated various material facts. The second through fifth claims consisted of varying assertions that persons other than Mannip were required to file Schedules 13D as mem- bers of Section 13(d) “groups” or as “beneficial owners” of the Dan River shares held by Mannip. ***Subject matter jurisdiction in the District Court was founded on Section 27 of the Exchange Act, 15 U.S.C. § 78aa. 4 injunction seeking injunctive and rescissional relief substantially identical to that sought in its complaint. Dan River also moved for extensive, expedited discovery, including very substantial document production and an intensive deposition schedule. A hearing on Dan River’s motions was held on February 23, 1979, the day following commencement of the action. Because of the extremely short notice that Dan River had chosen to give, no defendant was able to submit either affidavits or a brief for the hearing. The District Court heard oral testimony from a single Dan River witness; no witness for any defendant tes- tified. At the conclusion of the hearing, the District Court, ren- dering its decision orally, found that Mannip’s Schedule 13D appeared “to be deficient in some several particulars.” Although the District Court expressed doubt as to whether the apparent deficiencies provided a basis for granting equitable relief, it nevertheless entered a temporary restraining order barring the defendants from acquiring any additional Dan River stock until the earlier of March 30, 1979, or twenty-four hours after the filing of an amended Schedule 13D setting forth various facts. On March 1, 1979, in prompt compliance with the District Court’s order, Unitex and Mannip filed an amended Schedule 13D, setting forth in detail all the information called for by the order. That same day, petitioners filed motions to dismiss the complaint for lack of subject matter jurisdiction in that the prompt filing of the amended Schedule 13D rendered moot the only one of Dan River’s Section 13(d) claims which stated a le- gally sufficient claim. Petitioners also argued that Dan River lacked standing to assert an implied right of action under Sec- tion 13(d). On March 2— just 24 hours after the new Schedule 13D was filed—Dan River amended its complaint to challenge the new Schedule 13D. In addition to repeating and realleging the allegations of its original complaint, Dan River added a sixth claim for relief charging Unitex, Mannip and several Unitex directors with violating Section 13(d) in that—‘on information and belief’—the amended Schedule 13D filed just the day be- fore was “materially false and misleading.” The amended com- 5 plaint prayed for the same equitable relief requested in the orig- inal complaint. When Dan River appeared before the District Court on March 2 to ask for a continuation of the restraining order, the Court rejected the request, finding “that the defendants [hud] complied with the substance of the Court’s injunction” in the amended Schedule 13D. Moreover, the District Court expressed concern about the existence of subject matter jurisdiction and directed the parties to submit memoranda addressed thereto.* Although Dan River renewed its application for discovery, the Court or- dered discovery stayed until resolution of the potentially dis- positive jurisdictional issues. On March 30, 1979, after full written submissions and oral argument, the District Court dismissed the amended complaint for lack of subject matter jurisdiction (see Appendix B). The Court held that, even if the amended Schedule 13D were false, as Dan River alleged, Dan River would not be entitled under this Court’s decision in Rondeau v. Mosinee Paper Corp., supra, to the equitable relief it sought: I recognize that [the Amended Schedule 13D] may be false and misleading. If it is false and misleading the pro- tected parties under the Williams Act have an adequate remedy at law. If that is so, and I cannot imagine that it is not so, then there’s no grounds for equitable relief. —Appendix B, p. 27a. The District Court thus concluded that there was no longer any live “case or controversy” before it: *The District Court also directed the parties to address the issue of personal jurisdiction to which all defendants except Unitex and Mannip had objected. No ruling was made on this ground by the District Court in light of its eventual ruling on the issue of subject matter jurisdiction. Similarly, although Unitex, Mannip, the individual defendants and Wardley briefed the issue of Dan River’s standing to assert the Section 13(d) claim, the District Court had no occasion to decide this issue. 6 I do not believe that there is any basis for equitable relief remaining in this case. That is the only relief that was properly sought and under those circumstances I can’t enter a judgment which would affect the actions of any- one. Accordingly, I am going to direct that a docket entry be made dismissing the action for mootness. —Appendix B, p. 31a. Dan River appealed to the United States Court of Appeals for the Fourth Circuit which, on May 29, 1980, reversed the District Court. As a threshold matter, the Court of Appeals rejected the appellees’ contention that Dan River lacked stand- ing to sue under Section 13(d). Although it acknowledged that “Section 13(d) was enacted for the sole benefit of stockholders and not to provide ‘armament’ to management in resisting take- overs or accumulations of the stock of corporations,” the Court of Appeals nonetheless found standing on behalf of Dan River to assert alleged violations of Section 13(d) in an action for equitable relief. The Court of Appeals then considered the District Court’s holding that Dan River’s action for injunctive relief was rendered moot by the filing of the amended Schedule 13D and that Dan River’s shareholders had an adequate remedy at law if, as al- leged, the amended Schedule was false or misleading. Although it recognized the existence of a legal remedy for Dan River’s shareholders (see Appendix A hereto, p. 16a), the Court of Appeals held that: should Dan River establish that there is a reasonable basis for concluding that the Schedule 13D filed by the defend- ants is inaccurate, incomplete, or misleading in its state- ment of any of the matters expressly demanded by section 13(d), the district court may and should grant appropriate injunctive relief. . .. (Emphasis added). —TId., p. 15a. The Court of Appeals undertook its own review of the ade- quacy of the amended Schedule 13D and concluded that: Dan River has raised sufficient questions about the de- fendants’ compliance with the law to require further ex- ploration by the district court and the parties into the de- fendants’ purpose in purchasing large amounts of Dan River stock. —Id., p. 20a. REASONS FOR GRANTING THE WRIT 1. The Court of Appeals for the Fourth Circuit has decided an important question of federal law which has not been, but should be, settled by this Court: the standing of a “target” company to assert an implied right of action under section 13(d). When the incumbent management of a public company at- tempts to discourage purchases of its stock, it frequently resorts to litigation. Among the foremost weapons in management’s arsenal has been an action for injunctive relief under Section 13(d) of the Exchange Act, which has been implied by several Courts of Appeals, including the Court below.* However, this Court has never held that any such cause of *E.g., Chromalloy American Corp. v. Sun Chemical Corp., 611 F. 2d 240 (8th Cir. 1979); General Aircraft Corp. v. Lampert, 556 F.2d 90, 94 n. 5 (1st Cir. 1977); GAF Corp. v. Milstein, 453 F.2d 709, 721-22 (2d Cir. 1971), cert. denied, 406 U.S. 910 (1972); Bath Industries, Inc. v. Blot, 427 F.2d 97 (7ih Cir. 1970). Although a number of district courts have also found Section 13(d) standing for the target company, ¢.g., Wellman v. Dickinson, 475 F. Supp. 783, 817 (S.D.N.Y. 1979), two recent District Court decisions have held that no such standing exists in light of this Court’s decisions in Trans- america Mortgage Advisors, Inc. (TAMA) v. Lewis, 444 US. 11 (1979) and Touche Ross & Co. v. Redington, 442 U.S. 560 (1979). See Gate- way Industries, Inc. v. Agency Rent A Car, Inc., [Current] Fed. Sec. L. Rep. (CCH) {97,540 (N.D. Ill. June 10, 1980); Sta-Rite Industries, Inc. v. Nortek, Inc., Civil Action No. 80-C-471 (E.D. Wis. Aug. 1, 1980). 8 action should be implied from Section 13(d) and there is grave doubt that such an action actually exists in light of several re- cent decisions of this Court restricting the scope of implied pri- vate rights of action under the securities laws. Certiorari should be granted so that this Court can definitively rule whether or not it does. Petitioners submit that it does not. Section 13(d), enacted as part of the Williams Act, requires persons who acquire over five percent of any class of stock reg- istered pursuant to the Exchange Act to file a statement with the SEC and the target corporation indicating, inter alia, the “back- ground and identity” of the purchaser, the source and amount of funds used in making the purchases, the extent of the pur- chaser’s holdings in the target corporation, and the purchaser’s plan with respect to the target’s business or corporate struc- ture. 15 U.S.C. § 78m(d)(1). The purpose of the Act is to in- sure that public shareholders who are confronted by a takeover bid will have adequate information with which to respond. See Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 35 (1977); Rondeau vy. Mosinee Paper Co., supra, 422 U.S. at 58. Unlike other provisions of the federal securities laws,* Sec- tion 13(d) makes no provision for a private right of action for its violation. Thus, target corporations, like Dan River, are constrained to argue for the judicial implication of a private in- junctive remedy. In Rondeau v. Mosinee Paper Co., supra, the sole case de- cided by this Court directly involving Section 13(d), there was no occasion to decide this issue of standing. The target corpora- tion there sought injunctive relief against a purchaser of its stock for failure to file a timely Schedule 13D. Finding no evidence that the corporation or its shareholders had suffered “irreparable harm,” the Court reversed the issuance of a permanent injunc- tion. 422 U.S. at 57. As the Court viewed the case, the “narrow “*See e.g., Sections 11, 12 and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 771, 770, and Sections 9, 16, 18(a) and 20 of the Ex- change Act, 15 U.S.C. §$ 78i, 78p, 78r(a), 78t. 9 issue” before it was whether the record supported the grant of injunctive relief. 422 U.S. at 57. Nevertheless, the Court ex- pressly noted that: Although neither the availability of a private suit under the Williams Act nor [the target corporation’s] standing to bring it has been questioned here, this cause of action is not expressly authorized by the statute or its legislative history. —422 USS. at 62. Moreover, the Court rejected the notion that Congress enacted Section 13(d) in order to provide target management with the means to deter takeover bids: By requiring disclosure of information to the target cor- poration as well as the Securities and Exchange Commis- sion, Congress intended to do no more than give incum- bent management an opportunity to express and explain its position. The Congress expressly disclaimed an inten- tion to provide a weapon for management to discourage takeover bids or prevent large accumulations of stock which would create the potential for such attempts. —Id. at 58. Subsequently, in Piper v. Chris-Craft Industries, Inc., supra, an action brought by a defeated tender offeror against the target company, its investment banker and a successful competitor for control, the Court declined to imply a private damage action under Section 14(e) of the Exchange Act, added by tie same “Williams Act” amendments as added Section 13(d). After an extensive review of the legislative history, the Court concluded that “the sole purpose of the Williams Act was the protection of investors who are confronted with a tender offer,” 430 U.S. at 35, and that creating a damage action in favor of a defeated tender offeror was “unnecessary to ensure the fulfillment of Congress’ purposes in adopting the Williams Act.” Jd. at 41. Although the Court did note that the target corporation’s stand- ing to sue was not at issue in the case, id. at 42 n. 28, the Court’s r% 7% 10 analysis of the legislative history of the Williams Act suggests that the target’s standing is open to serious question.* As the Piper Court concluded: This express policy of neutrality scarcely suggests an in- tent to confer highly important, new rights upon the class of participants whose activities prompted the legislation in the first instance. —430 US. at 30. Notwithstanding the foregoing, the Court of Appeals in this case held that respondent does have standing under Section 13(d), following the lower court decisions in which it has been held or assumed that a target corporation has such standing. The Court of Appeals, like several of these other decisions, re- lied upon the authority of J.J. Case Co. v. Borak, 377 U.S. 426, 432 (1964), in which this Court, citing the broad remedial pur- pose of Section 14(a) of the Exchange Act, concluded that pri- vate enforcement of the proxy rules was a “necessary supple- ment” to their administrative enforcement by the SEC. However, the recent decisions of this Court in Transamerica Mortgage Advisors, Inc. (TAMA) v. Lewis, 444 U.S. 11 (1979) and Touche Ross & Co. v. Redington, 442 U.S. 560 (1979), although not arising under the Williams Act, strongly suggest that the Court of Appeals in this case has adopted an outdated and now discredited mode of analysis of this issue. In Transamer- ica and Touche Ross, this Court substantially recast the law re- ee *Thus, the Piper Court noted that, in enacting the Williams Act, “Con- gress was intent upon establishing a policy of even-handedness in takeover regulation.” Id. at 29. Sensitive to “strong criticisms that the proposed legislation would unduly inhibit tender offers” and cognizant that “en- trenched management, equipped with considerable weapons in battles for control, tended to be successful in fending off possibly beneficial take- over attempts,” id. at 30, Congress sought to “ ‘avoid tipping the scales either in favor of management or in favor of the person making the takeover bids.’” Id. at 31, quoting 113 Cong. Rec. 24664 (1967) (state- ment of Senator H. Williams). 11 specting the implication of private rights of action.* These cases hold that the judicial task in determining whether to imply a private remedy “is limited solely to determining whether Con- gress intended to create the private right of action asserted. . . .” Touche Ross & Co. v. Redington, supra, 442 U.S. at 568 (em- phasis added). Accord, Transamerica Mortgage Advisors, Inc. v. Lewis, supra, 444 U.S. at 15-16, 24. Unless the language of a provision, its place in the statutory schcme or its legislative history convincingly demonstrates that Congress intended to create or alter civil liabilities, no private right of action may be implied.** After Touche Ross and Transamerica, therefore, it is clear that implying a right of action for target companies under Section 13(d) cannot be justified solely on the basis of the reme- *Thus, in Touche Ross, while declining to overturn its previous deci- sion in Borak, this Court clearly limited its precedential authority: We do not now question the actual holding of that case, but we decline to read the opinion so broadly that virtually every provision of the securities Acts gives rise to an implied private cause of action... . . . . To the extent our analysis in today’s decision differs from that of the Court in Borak, it suffices to say that in a series of cases since Borak we have adhered to a stricter standard for the implica- tion of private causes of action, and we follow that stricter standard today... . —442 USS. at 577-78. **Transamerica and Touche Ross are entirely consistent with the serics of cases decided by this Court in recent years narrowing the scope of the federal securities laws, often in the context of private actions under the Exchange Act. See, e.g., Burks v. Lasker, 441 U.S. 471 (1979) (Invest- ment Company Act and Investment Advisers Acts); International Broth- erhood of Teamsters v. Daniel, 439 U.S. 551 (1979); Santa Fe Indus- tries, Inc. v. Green, 430 U.S. 462 (1977); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975). Although these cases have involved, for the most part, issues of statutory construction, they also reflect this Court’s recognition that “(t]he potential for possible abuse of the liberal discovery provisions of the Federal Rules of Civil Procedure may . . . exist in this type of case to a greater extent then they do in other litigation.” Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 741. While the present lawsuit is an action for injunctive relief rather than damages, the in terrorem effect of litigation of this nature upon a program of stock purchases such as was involved here is akin to the effect of liberal discovery rules upon a defendant in a 10b-5 damage suit. i 12 dial purposes of Section 13(d) and the “necessity” of implying a private remedy. Analyzing the language of Section 13(d) in light of Trans- america and Touche Ross, there is nothing to suggest the exis- tence of a private right of action on behalf of target companies. Section 13(d) “does not in terms create or alter any civil liabil- ities,” Transamerica Mortgage Advisors, Inc. (TAMA) v. Lewis, supra, 444 U.S. at 19; it simply requires that certain disclosures be made. Section 13(d) thus no more purports to create liabil- ities enforceable in a private suit than do Section 17(a) of the Exchange Act, 15 U.S.C. § 78q(a), from which the Court in Touche Ross declined to imply a private right of action, or Sec- tion 206 of the Investment Advisers Act, 15 U.S.C. § 80b-6, from which the Transamerica Court likewise refused to imply a private right of action. For a full judicial analysis of the applica- tion of Touche Ross and Transamerica to Section 13(d), see Gateway Industries, Inc. v. Agency Rent A Car, Inc., [Current] Fed. Sec. L. Rep. (CCH) 97,540 (N.D. Ill. June 10, 1980). The place of Section 13(d) in the statutory scheme of en- forcement under the Exchange Act further belies any Congres- sional intent to create a private remedy on behalf of target cor- porations. See Transamerica, supra, 444 U.S. at 19-20; Touche Ross, supra, 442 U.S. at 571-73. Congress has granted the SEC the power to investigate and to sue to enjoin violations of Section 13(d) and to refer evidence of Section 13(d) violations to the Attorney General for the institution of criminal proceedings. See 15 U.S.C. § 78u(a), (d). Moreover, Congress has pro- vided for several express private remedies under other sections of the Exchange Act, including one pursuant to Section 18(a) on behalf of persons who purchase or sell stock in reliance upon false or misleading statements made in documents, like Sched- ules 13D, which are filed with the SEC. 15 U.S.C. § 78r(a); see Appendix D hereto. “There is evidence to support the view that § 18(a) was intended to provide the exclusive remedy for misstatements contained in any reports filed with the Commis- 13 sion. . . .” Touche Ross, supra, 442 U.S. at 573 (emphasis added). Accord, Gateway Industries, Inc. v. Agency Rent A Car, Inc., supra, [Current] Fed. Sec. L. Rep. (CCH) $97,540, at 97,818-20. Finally, the legislative history of Section 13(d) does not sup- port a finding of Congressional intent to confer upon target com- panies a private action for injunctive relief and, indeed, is to precisely the contrary effect. As this Court noted in both Rondeau, supra, 422 U.S. at 58-60, and Piper, supra, 430 U.S. at 26-36, the shareholders of the target company—and not the target itselfi—are the intended beneficiaries of the Williams Act. Indeed, the conduct of target companies in resisting takeover attempts was one of the factors prompting the enactment of the Williams Act. See p. 10 n.*, supra. Since the requirement that the Schedule 13D be sent to the target was “intended to do no more than give incumbent management an opportunity to ex- press and explain its position,” Rondeau, supra, 422 U.S. at 58, the target company is not an intended beneficiary of the Wil- liams Act, let alone “ ‘one of the class for whose especial ben- efit the statute was enacted,’ ” Piper, supra, 430 U.S. at 37, quot- ing Cort v. Ash, 422 U.S. 66, 78 (1975). In light of Congress’ express disclaimer of any intention to provide a weapon for target management to ward off takeover bids and the “ ‘extreme care’ ” it took “ ‘to avoid tipping the balance of regulation either in favor of management or in favor of the person making the takeover bid,’ ” Rondeau, supra, 422 U.S. at 58, quoting S. Rep. No. 550, 90th Cong., Ist Sess. 3 (1967), the implication of a Section 13(d) right of action on behalf of the target company not only does not further, but contravenes Congressional intent. The significance of the question of federal law presented in this case, its recurrent nature in the course of corporate litiga- tion and the apparent inconsistency of the decision of the Court of Appeals with the recent decisions of this Court concerning the implication of private rights of action under the securities laws all justify the issuance of a writ of certiorari to review the decision below. 14 2. The decision below conflicts with the decisions of this Court as to the availability of injunctive relief in the absence of irreparable harm. In Rondeau v. Mosinee Paper Co., supra, this Court reaf- firmed that “the questions of liability and relief are separate in private actions under the securities laws, and that the latter is to be determined according to traditional principles.” 422 U.S. at 64. The Court thus rejected the contention that the “bare fact” that a party violates the Williams Act justifies the entry of an injunction against him. /d. at 60. The basis of any grant of injunctive relief in the federal courts “has always been irreparable harm and inadequacy of legal remedies.” Id. at 57, quoting Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 506-07 (1975). Since injunctive relief is “historically ‘designed to deter, not to punish,’” 422 U.S. at 62, quoting Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944), its issuance rests in the “sound judicial discretion” of the federal District Court, sitting as a court of equity. 422 U.S. at 61. The Fourth Circuit’s decision clearly conflicts with these strictures of this Court’s decision in Rondeau. The District Court in this case had determined as a matter of its equitable discre- tion that Dan River was not entitled to the equitable relief it requested. In its opinion (Appendix B hereto, pp. 24a-31a)— which is not adequately summarized in the Court of Appeals’ decision—the District Court carefully balanced a variety of fac- tors in exercising the equitable discretion recognized in Rondeau (see pp. 24a-25a, 27a-28a), carefully considered this Court’s warnings against discovery abuses in securities laws litigation (see pp. 25a-27a, 29a-30a), and concluded: “I do not believe that there is any basis for equitable relief remaining in this case” (p. 31a). Under Rondeau, this was the District Court’s deci- sion to make. Yet in remanding the case to the District Court for further proceedings, the Fourth Circuit concluded: [S]hould Dan River establish that there is a reasonable basis for concluding that the Schedule 13D filed by the 15 defendants is inaccurate, .. . the district court may and should grant appropriate injunctive relief... . (Emphasis added) —Appendix A, p. 15a. The Fourth Circuit’s conclusion that the District Court on re- mand “should” grant injunctive relief in the event it finds a vio- lation cannot be squared with Rondeau’s holding that the pro- priety of granting injunctive relief is a matter for the District Court's “sound judicial discretion.” Thus, even if Dan River were able to prove a violation of Section 13(d), the District Court’s determination not to issue injunctive relief would be re- viewable only as an “abuse of discretion”—-which the Court of Appeals here did not find. Petitioners submit, moreover, that the Fourth Circuit’s deci- sion was erroneous because there was in fact no abuse of discre- tion by the District Court and, indeed, no basis for the issuance of injunctive relief in this case. As the District Court correctly recognized, if, as Dan River alleges, the amended Schedule 13D is false, any shareholder harmed thereby has an adequate remedy at law for damages.* Rondeau, supra, 422 U.S. at 60 (“[T]hose persons who allegedly sold at an unfairly depressed price have an adequate remedy by way of an action for damages, thus negating the basis for equitable relief”); General Aircraft Corp. v. Lampert, 556 F. 2d 90, 97 (1st Cir. 1977); Missouri Portland Cement Co. v. H.K. Porter Co., 535 F. 2d 388, 399 (8th Cir. 1976); S-G Securities, Inc. v. Fuqua Investment Co., 466 F. Supp. 1114 (D. Mass. 1978). Since Dan River simply could not satisfy this traditional prerequisite of extraordinary relief, the decision of the Court of Appeals conflicts with Rondeau. *See Section 18(a) of the Exchange Act, 15 U.S.C. § 78r(a), dis- cussed at pp. 12-13, supra, which provides an express remedy for false or misleading statements made in SEC filings. Since “the sole purpose of the Williams Act [is] the protection of investors who are confronted with a tender offer,” Piper v. Chris-Craft Industries, Inc., supra, 430 U.S. at 35, the irreparability of the harm to Dan River’s shareholders— not Dan River itself or its incumbent management—is the proper sub- ject of inquiry. 16 CONCLUSION For the foregoing reasons, the petition for a writ of certiorari should be granted. Respectfully submitted, MICHAEL W. SCHWARTZ 299 Park Avenue New York, New York 10171 (212) 371-9200 Counsel for Petitioners WACHTELL, LIPTON, ROSEN & KATZ Of Counsel August 26, 1980 APPENDIX A—Court of Appeals Decision. UNITED STATES COURT OF APPEALS FoR THE FOURTH CIRCUIT No. 79-1267 DAN RIVER, INC. Appellant, versus UNITEX LIMITED; MANNIP LIMITED; CHENG FuR SHE; CHENG Lee Kit-Y1u; Puitip Y. S. CHENG; LEE CHEN CHE; LIu HAN TANG; YANG YUAN LOONG; DorRA YANG; THE “ROE” BANK OF HONG KONG; THE “DOE” FINANCE COMPANY OF Honc Kona; “XYZ” COMPANY, Appellees. Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. D. Dortch Warriner, District Judge. Argued: January 9, 1980. Decided: May 29, 1980 Before RUSSELL, Circuit Judge, FIELD, Senior Circuit Judge, and SPROUSE, Circuit Judge. Max GITTER (ARTHUR L. LIMAN, JACK HAssID, COLLEEN McMAHON, ANDREW J. PECK, PAUL, WEISS, RIFKIND, WHARTON & GARRISON; LEWIS T. BOOKER, GREGORY N. STILLMAN, HUNTON and WILLIAMS on brief) for Appellant; MICHAEL SCHWARTZ, BALDWIN TUTTLE, EDMUND KERR (WACHTELL, LIPTON, ROSEN & KATZ; CHRISTIAN, BARTON, Epps, BRENT & CHAPPELL; KUTAK, Rock & HUIE; WICK- WIRE, PETERSON & GAVIN; CLEARY, GOTTLIEB, STEEN and HAMILTON on brief) for Appellees. la 2a Appendix A—Court of Appeals Decision RUSSELL, CIRCUIT JUDGE: This is an action by the plaintiff Dan River for injunctive relief under the Williams Act’ against the defendants, Unitex Limited, a Hong Kong corporation, its subsidiary Mannip Limited, a British Virgin Islands corporation, Unitex’s control- ling directors and stockholders, and two Hong Kong banks. The district court at first granted the plaintiff a temporary re- straining order pending further clarification of the defendants’ 13D Schedule as required under the Williams Act, but, after the defendants amended their earlier filing, it dismissed the action on jurisdictional grounds. The plaintiff has appealed. We reverse. I The plaintiff is a large textile manufacturing corporation chartered under the laws of Virginia with its headquarters in Danville, Virginia. Its capital stock at times appropriate to this action consisted of 5,595,035 shares of common stock. The defendant Unitex Limited is a corporation engaged in the manu- facture in Hong Kong of textiles which it offers for sale in Europe and the United States. The individual defendants, all residents of Hong Kong, own over two-thirds of the capital stock of Unitex and are its controlling directors. Sometime in the fall of 1978, Unitex, on the recommendation of its retained investment advisor, Lazard Freres & Company, an internationally known investment firm, determined to acquire a substantial equity position in Dan River stock. In order to finance such purchases, it began negotiations with the executive director of the defendant Wardley Limited, a Hong Kong finan- cial institution, for a loan to finance its purchase of Dan River stock. Wardley expressed a willingness to consider such fi- nancing, “provided that Wardley’s could be assured of the fundamental financial soundness of Unitex’s plan.” (Italics 115 U.S.C. §§78m(d)-78m(e). 3a Appendix A—Court of Appeals Decision added) Apparently, Wardley received sufficient assurances of “the fundamental financial soundness of Unitex’s plan” for ac- quiring an equity interest in Dan River, for Wardley advanced Unitex initially what is described as bridge financing in the amount of $2,700,000 for the purpose of initiating the purchase of Dan River stock. By December 1, 1978 Unitex, or individuals affiliated with it in its plan for acquiring a substantial equity position in Dan River stock, had accumulated at least 62,700 Dan River shares. Of these, 47,800 shares were purchased by two of the individual defendants, or members of their immediate families. Between December 1 and December 12, Unitex itself acquired 216,900 shares of Dan River stock by purchase made on the New York Stock Exchange. If these purchases were combined with the earlier purchases, the plaintiff contends, though the defend- ants deny, that Unitex or persons within its controlling group would have owned 279,600 Dan River shares or just over 5 per- cent of Dan River’s outstanding stock. Under the provisions of § 13(d) of the William Act, any person, upon acquiring more than 5 percent of the stock of any corporation, is required to file with the Securities and Exchange Commission within ten days after acquiring such stock ownership, and to mail to the target corporation, a Schedule 13D disclosing (a) the identities and background of the purchasers, (b) their purposes in ac- quiring the stock, (c) the sources of their financing, (d) the extent of their acquisitions, (e) any arrangement or contracts with other persons concerning the stock and (f) any other ma- terial information. This statute was supplemented by more spe- cific regulations issued by the Securities and Exchange Com- mission. 17 C.F.R. § 240.13d-1, et seq. (1978). The parties, however, did not file the required 13D Schedule and, on De- cember 14, the individual defendants sold 47,800 shares in block trades on the Stock Exchange. Of these, forty thousand appear to have been sold back to Unitex but 7,800 shares were disposed of to another party. It is the plaintiff's contention that these sales were made for the purpose of avoiding any possible 7% 4a Appendix A-——Court of Appeals Decision obligation to file a 13D Schedule. The defendants, however, deny the necessity to sell such stock in order to avoid any obliga- tion to file a 13D Schedule and assert that these sales were made because the purchases by the individuals, made allegedly with- out the knowledge of Lazard, violated a Lazard policy that “whenever it is advising a client (here, Unitex) with respect to a program of stock purchases, its client must see to it that no purchases of the stock in question are made by related firms or individuals at the same time.”? Whatever the purpose of the sale of 47,800 shares previously purchased, Unitex discontinued after December 14 any further purchases of Dan River stock until (1) it had established a cor- porate subsidiary, the defendant Mannip Limited, in the British Virgin Islands, whose sole purpose was to acquire all future pur- chases of Dan River stock on Unitex’s behalf and to hold all Dan River stock then owned or later acquired on behalf of Unitex, and (2) untii it had completed its final financing ar- rangements with Wardley and its associated bank, the defend- ant Chartered Bank. Sometime in January, 1979, it, however, had completed both the incorporation of Mannip Limited and finalized its financing arrangements with Wardley and the Char- tered Bank. Under its agreement with the two financial institutions, Unitex was granted a line of credit in the amount of $13,300,000 in order to purchase Dan River stock. However, under the loan agreement, the price at which Unitex purchased stock required approval of the banks. To secure this loan, Unitex pledged its interests in Mannip (that is, it pledged all the Dan River stock acquired by it) and the worth of Unitex itself. In addition, four Unitex directors personally agreed to advance approximately $1,000,000 against the loan and to guarantee individually the remainder of the loan should Unitex default. *Lazard justified this policy. as a “matter both of good financial prac- tice and of practical prudence (i.e., to avoid to the extent possible, involvement in just the kind of litigation which has eventuated here) .” 5a Appendix A—Court of Appeals Decision On January 29, 1979, Unitex resumed purchasing Dan River stock, quickly acquiring sufficient shares to bring Unitex within the filing requirements of § 13(d). At this point it transferred all its Dan River stock to its nominee, the corporate subsidiary Mannip, and all future purchases were made in Mannip’s name but with funds advanced by Unitex. Because its holdings had by the end of January gone over the 5% level, thereby trigger- ing the requirement of a § 13(d) filing, a 13D Schedule was filed with the Securities and Exchange Commission by Mannip on February 9, 1979, and mailed to Dan River on the same date. This 13D Schedule, as filed only by Mannip, fixed Mannip’s ownership of Dan River stock at that time as 333,700 shares, described the relationship between Unitex and Mannip, and included some information about Unitex’s directors and their transactions in Dan River stock. It stated the purpose of the Dan River stock purchases as follows: “While Mannip is not solely a passive investor in the Company, neither Mannip nor Unitex has any present in- tention to seek control of the Company or to propose a merger or similar transaction with the Company. Mannip may seek to acquire a significant equity interest in the Company with a view toward establishing a long term re- lationship with the Company. Mannip is continuing to pur- chase Shares in open market transactions, and, depending on market and other conditions, Mannip may continue in the future to purchase Shares from time to time in open market or private transactions.” Dan River filed on February 22 its action against the de- fendants alleging various omissions and misleading statements in Mannip’s filing and improper failure by other defendants either to join in Mannip’s filing or to make their own filing. It sought declaratory, injunctive, and other equitable relief. In connection with the commencement of its action, Dan River y > 6a Appendix A—Court of Appeals Decision also moved for a preliminary injunction and applied for a tem- porary restraining order pending the hearing on the motion for an injunction. After a hearing on the application for a tem- porary restraining order held on February 23, 1979, the district court ruled that “plaintiff's right to [additional] disclosure [was] clear” and restrained the defendants from making any additional purchases of stock until they had filed “an amended or new Schedule 13D which makes the appropriate disclosures.” The district court proceeded to specify the additional material to be included in the “amended new Schedule 13D”: “a. The identities and backgrounds of PAS, Ltd. and CMS, Ltd.; “b. The extent of the non-pasive position and objec- tives that defendants propose to be able to effect from their holdings of plaintiff's stock; “c. The entities which defendants propose for the es- tablishment of long-term relationships with plaintiff. “d. The identities of the foreign lending institutions and the agent referred to in the exhibits annexed to defendant Mannip Ltd.’s Schedule 13D filed on February 9, 1979; “e. Whether the individual defendants have arranged for financing for the acquisition of plaintiff's shares and, if so, the sources of the funds; and “f. The background information required by Section 13(d) of the Williams Act for each of the individual de- fendants;” The district court also set a hearing on the motion for a pre- liminary injunction and directed the parties to engage in dis- covery on an expedited basis prior to that hearing. Mannip and Unitex filed a new Schedule 13D on March 1, Ta Appendix A—Court of Appeals Decision 1979. This new filing supplied a number of the omissions noted by the court at the earlier hearing on the application for a pre- liminary restraining order and added a new statement of the purpose of the stock accumulations. This new statement of pur- pose was: “The purpose of Mannip’s purchasing Shares is to ac- quire an equity investment in the Company. The Filing persons intend continuously to evaluate Mannip’s position in the Company and the Company’s business and industry. The Filing Persons presently intend for Mannip to make additional purchases of Shares in open-market or private transactions, the extent of which will depend upon such evaluation and upon prevailing market and other condi- tions. Neither Mannip nor Unitex presently intends to seek to acquire control of the Company, to seek representation on the Company’s Board of Directors, to seek joint ven- tures or other business relationships with the Company or to propose a merger or similar transaction with the Com- pany. In addition, depending upon the results of such evalu- ation and upon prevailing market and other conditions, Mannip may dispose of all or a portion of its Shares. Since the Filing Persons could determine to seek to ac- quire control of the Company, seek representation on the Company’s Board of Directors, seek joint ventures or other business relationships with the Company or propose a merger or similar transaction with the Company, Mannip should not be considered solely as a passive investor. How- ever, it should not be assumed that a plan will in fact be formulated to do any of the foregoing. Except as set forth above, there are no present plans or proposals which relate to or would result in a merger, re- organization or liquidation involving the Company, the sale or transfer of a material amount of the Company’s assets, any change in the Company’s Board of Directors 8a Appendix A—Court of Appeals Decision or management or any other material change in the Com- pany’s business or corporate structure.” With the filing of this new or amended Schedule 13D, the de- fendants moved to dismiss the complaint for lack of subject- matter jurisdiction. They predicated such motion on the claim that they had fully complied with the earlier order of the dis- trict court and had met the requirements of § 13(d), thereby rendering plaintiff's action moot. The next day after the defendants made their filing the plain- tiff amended its complaint, charging omissions, inconsistencies, and contradictions in the amended 13D Schedule. It particu- ularly found the purpose clause flawed in these respects: “a) On information and belief, defendants fail to dis- close that they are buying Dan River stock as alter egos for Textile Alliance Limited (“TAL”), a major Hong Kong textile enterprise founded and operated by defend- ants Lee and Yang, two of the Controlling Directors of Unitex. On information and belief, defendants fail to dis- close that one of defendants’ and TAL’s purposes in spon- soring defendants’ acquisition of Dan River is to seek a position of sufficient control or influence in Dan River to enable TAL or defendants to obtain on unduly favorable terms textiles made by Dan River that are in short supply in the world market, thereby misappropriating a valuable commercial asset of Dan River and its stockholders. “b) The statements in Item 4 of Amendment No. 2 con- tradict statements made in Item 4 of Mannip’s Schedule 13(D) filed February 9, 1979 even though defendants state in the Amendment that the original Schedule 13(D) fully and adequately disclosed defendants’ true purposes. “c) Item 4 fails to disclose fully the ‘non-passive’ role defendants intend to play in Dan River, or to identify the 9a Appendix A—Court of Appeals Decision ‘long-term relationship’ that defendants may seek to es- tablish with Dan River although this Court has specifically instructed defendants to make such disclosures. “d) Amendment No. 2 fails to disclose the purposes for which the Controlling Directors are involved in this transaction.” The plaintiff thon moved to continue the restraining order the district court had earlier granted. The district court, however, refused the motion and vacated the restraining order previously allowed. It also reversed its earlier provision for discovery. Sometime later, it heard the motion for a preliminary injunc- tion. At the hearing both parties submitted various affidavits. At the conclusion of the hearing, spread over a period of sev- eral days, the district court denied the motion and granted the motion to dismiss the action on jurisdictional grounds. I In dismissing the action, the district court declared that § 13(d) of the Williams Act “was intended [simply as a dis- closure act] . . . for the benefit of investors and not manage- ment” and was not to be used “as a tool for management to preserve their offices.” It added that “management [had] no rights under the Williams Act,” only a role to act as “the con- duit by which the disclosed information [was to be] transmitted to the [stockholders].” It seemed to assume, though it did not say so explicitly, that, in discharging its role of a “conduit,” the target corporation may require the defendant in an equitable action to file a Schedule 13D which would facially meet the re- quirements of the statute but that, when that had been done, the target corporation—and, for that matter, the district court itself—has no right to question the accuracy, truthfulness, or completeness of such Schedule or to complain that in any ma- terial instance the Schedule was “false or misleading,” but that such right was exclusively the right of a stockholder to be ex- 10a Appendix A—Court of Appeals Decision ercised in an action for damages.’ It had earlier, in dissolving the restraining order previously granted by it, stated that, while a “question of the truth or falsity of the 13D” was “grave,” the court could not “entertain a notion [sic] at this time that [any] material statement in the 13D Schedule [was] false.” It appeared from this statement to hold that, in a 13(d) action by a target corporation, the district court was to accept as “true” the state- ments by the purchasers since they were “under oath”* and that, even if there were reasonable inferences in the record “casting doubt upon the veracity of the affiant” who swore to the Schedule 13D, the falsity or incompleteness or misleading character of the Schedule was not cognizable in an equitable action by the target corporation so long as the Schedule facially met the requirements of the statute. Il The threshold question raised by the defendants addresses the standing of the plaintiff to maintain this action. The district court found, and the defendants press the point on this appeal, that section 13(d) was enacted for the sole benefit of stock- holders and not to provide “armament” to management in re- sisting takeovers or accumulations of the stock of corporations. Since the plaintiff corporation is not thus “within” the particular class intended to be protected by the statute, “it has no stand- ing to maintain an action” under the statute. For this proposi- tion, the defendants rely, as did the district court, on Rondeau v. Mosinee Paper Corp., (1975) 422 U.S. 49, and Piper vy. Chris-Craft Industries, (1977) 430 U.S. 1. Neither case is, in *It is of interest that the district court stated in its oral order of dismissal that it had inquired during argument of defendants’ counsel what juris- diction the court might have in this case if the 13D Schedule were “false and misleading” in some substantial respect but that counsel “didn’t want to answer that question and didn’t answer it.” *The language of the district court was: “I know that there has been a 13D filed which on its face complies with the law and it’s under oath, therefore, I expect it’s true.” lla Appendix A—Court of Appeals Decision our opinion, in point. Piper was an action at law by a disap- pointed tender offeror to recover damages for an alleged viola- tion of § 14(e) of the Securities and Exchange Act of 1934. And, in denying a right of action in favor of the plaintiff, the court carefully cautioned, “[nJor is the target corporation’s standing to sue in issue in this case.” Jd. at 42 n. 28, 47 n. 33. It cannot, therefore, be reasonably argued that Piper is authority against the right of Dan River to maintain this action. In Rondeau, the sole claim raised by the target corporation in the district court was its right to injunctive relief because the defendant had been tardy in filing its Schedule 13D. 422 US. at 57. It was not until the case reached the Supreme Court that the corporation raised the question whether the statements in the Schedule were accurate and truthful and sought to litigate that issue. Because of the failure of the plaintiff to raise the point either in the district or circuit courts, the Supreme Court refused to consider the issue. /d. at 61 n. 11. But, the Supreme Court did emphasize in note 9, p. 59, that the case before it “involve[d] only the availability of injunctive relief to remedy a § 13(d) violation following compliance” and cautioned that it was not a decision on “whether or under what circumstances a corporation could obtain a decree enjoining a shareholder who is currently in violation of §13(d) from acquiring further shares, exercising voting rights, or launching a takeover bid, pending compliance with the reporting requirements.” ‘These two comments, it seems to us, add up to a suggestion that the target corporation has a right to injunctive relief prior to compliance and, as we later indicate, compliance contemplates not simply the formal filing of a Schedule 13D but the filing of an accurate, truthful Schedule 13D, free of any misleading statements. And that certainly has been the construction of the Supreme Court's language by all the Circurt and District Courts which have been confronted with the question of the target corporation’s right to maintain an action when there is a reasonable basis for assailing the accuracy or truthfulness of the essential statements mandated by the statute for inclusion in the 13D Schedule. E.g., GAF Corporation v. Milstein, 453 F.2d 709, 721-22 (2d Cir. 1971), cert. (Footnote continued on following page) 12a Appendix A—Court of Appeals Decision The district court, however, construed Rondeau as requiring the purchaser merely to file a Schedule 13D which facially met the requirements of the statute and as holding that, when there had been such facial compliance, the target corporation there- after lacked any right to contest, and the Court any jurisdiction to consider, the accuracy or truthfulness of the essential matters stated in the Schedule 13D, irrespective of the basis for the cor- poration’s objections. This conclusion is in direct contradiction of the decision reached in GAF Corporation v. Milstein, 453 F. 2d at 721-22, which has long been regarded as the landmark authority on the point. In that case, the court stated the issue: “The more difficult question is whether GAF [the target corporation] has standing under section 13(d) to seek an injunction against allegedly false and misleading filings. The Milsteins in their brief argue that ‘the short answer’ is that false filing does not violate the section that requires the filing—i.e., section 13(d)—but rather the penal provi- sion on false filings, section 32(a), or one of the anti-fraud provisions, for example, section 10(b).” Id. at 720. It is manifest that the position of the defendants in that case was based on the very same circumstances which the district court in this case assigned as a reason for finding want of star 1- ing in favor of the plaintiff and lack of jurisdiction on the part of the court. The court in Milstein, however, in resolving the issue, reached a contrary conclusion to the district court in this case. It said: “With this teaching in mind, we conclude that the obliga- (Footnote continued from previous page) denied, 406 U.S. 910 (1972); Wellman v. Dickinson, 475 F. Supp. 783, 817 (S.D.N.Y. 1979); SEC v. GSC Enterprises, Inc., 469 F. Supp. 907, 913 (N.D. Ill. 1979); W. A. Krueger Co. v. Kirkpatrick, Pettis, Smith, Pollan, Inc., 466 F. Supp. 800, (D. Neb. 1979) Scott v. Multi-Amp Corp., 386 F. Supp. 44, 50 (D.N.J. 1974); Brown, Changes in Offeror Strategy in Response to New Laws and Regulations, 28 Case W. Res. L. Rev. 843, 858 (1978). 13a Appendix A—Court of Appeals Decision tion to file truthful statements is implicit in the obligation to file with the issuer, and a fortiori, the issuer has standing under section 13(d) to seek relief in the event of a false filing.” (Italics in opinion) Jd. at 720. And it proceeded at some length to justify its conclusion to sustain standing in the target corporation to raise, by appro- priate allegations and proof, and jurisdiction in the district court to resolve, the issue of the accuracy and truthfulness of the filing. This oft-cited case, it would appear, should be conclusive on the issue both of standing and of jurisdiction. The district court apparently dismissed it, though, because it preceded in time Rondeau. However, as we have already noticed, there is nothing in Rondeau which touched or weakened the decision in Milstein. And this has been the view of the courts which have been called upon to consider the standing and jurisdictional issues in the context of a claim of lack of a full and fair dis- closure in the 13D Schedule, for, without exception, they have cited and relied on Milstein for their own contrary conclusion. A recent example of such reliance is Securities and Exchange Com’n. v. Savoy Industries, (D.C. Cir. 1978) 587 F. 2d 1149 and 1165, cert. denied, 440 U.S. 913 (1979) where the Court said: “Sections 13 (d)(1) and 13 (d)(3) and the rules pro- mulgated thereunder undoubtedly create the duty to file truthfully and completely. To the extent that the violation of sections 13(d)(1) and 13(d)(3) inheres in the Sched- ule 13D that was filed, it was this duty that was breached. Because section 13(d) was designed, in part, to allow in- vestors an opportunity to know of potential changes in corporate control and to evaluate the situation, and be- cause disclosure that is not accurate subverts this purpose, it is plain that section 13(d) requires the making of a com- pletely truthful statement. GAF Corp. v. Milstein, 453 F. 7% 14a Appendix A—Court of Appeals Decision 2d at 720. ‘The reporting provisions of the Exchange Act are clear and unequivocal, and they are satisfied only by the filing of complete, accurate, and timely reports” (cit- ing cases). (Italics added) Again, in General Aircraft Corp. v. Lampert, (1st Cir. 1977) 556 F. 2d 90, a case the district court professed to follow and which involved the adequacy of a 13D Schedule, the defend- ant challenged “[n]either the availability of a private suit under section 13(d) nor GAC’s standing to bring such suit... .” Id. at 94, n. 5. In noting that conclusion, the court cited both Rondeau and Milstein. Undoubtedly it cited these cases at this point because, whether raised or not, jurisdictional standing is an issue to be considered sua sponte by the court, and, by its citation of these authorities, indicated it had done so, and the relief it later granted supports this conclusion. After discussing the record made in this target corporation’s presentation, the court held on the target corporation’s claim for relief “that the District Court did not err in finding, for purposes of preliminary relief, that appellants’ Schedule 13D was inaccurate and mis- leading in stating that the purchase of shares was for the pur- pose of investment rather than acquisition of control.” Jd. at 95-6. In reaching that conclusion it began by approving as a definition of control within the contemplation of section 13(d) the definition set forth in § 12b-2(f), 17 C.F.R., Regulations of the Exchange Commission.* After finding the Schedule 13D in that case “a false one,” the court next proceeded to consider the remedy available to the corporation. It ended by holding that, when there is a finding that a 13D Schedule is incomplete, inaccurate or false, the corporation has a right to injunctive re- lief “until the Schedule 13D is amended to reflect accurately their [the officers’] intentions.” Jd. at 97. In Chromalloy American Corp. v. Sun Chemical Corp., (8th Cir. 1979) 611 F.2d 240, the court similarly sustained the 617 C.F.R. §240-12b-1. 15a Appendix A—Court of Appeals Decision target corporation’s standing to maintain, and the court’s power to decide, an equitable action halting all purchases of Cromalloy stock by Sun and prohibiting Sun’s use of already acquired stock to influence Chromalloy management until the completeness and truthfulness of a 13D Schedule could be adjudicated. The court found, after an evidentiary hearing, that Sun’s statement of pur- pose in its 13D Schedule was inaccurate in that it “intended [through its acquisitions] to exert considerable influence” over the actions of Chromalloy’s Directors, thereby securing what was for purposes of § 13(d) control of Chromalloy. Jd. at 243. It proceeded, “[p]ursuant to 15 U.S.C. § 78m(d) [to enjoin] further acquisition of Chromalloy stock until Sun’s Schedule 13D was amended to reflect this intention.” Sun appealed this action and Chromalloy in turn appealed the failure of the dis- trict court to grant further disclosure. The circuit court sus- tained the district court in both rulings, thus sustaining the right of the target corporation to secure equitable relief requiring the purchaser to file an accurate, truthful, and complete Schedule 13D in order to make what the court specified as a “full and fair disclosure.” Jd. at 248 n. C16. Under the reasoning of these cases, it follows that Dan River has a right to seek equitable relief enjoining the defendants and should Dan River establish that there is a reasonable basis for concluding that the Schedule 13D filed by the defendants is in- accurate, incomplete, or misleading in its statement of any of the matters expressly demanded by section 13(d), the district court may and should grant appropriate injunctive relief and should require the filing of an amended Schedule 13D comply- ing with the requirement of a truthful and complete statement as contemplated under the statute. The real question that the district court should have addressed, then, was whether the plaintiff's showing of the alleged inaccurate, untruthful, incom- plete, or misleading character of the defendant’s Schedule 13D was sufficient to resist a motion to dismiss or a motion for sum- mary judgment. That was the crucial issue in the case and the issue the district court did not address. Generally, this issue pre- 16a Appendix A—Court of Appeals Decision sents “a question of fact that cannot be resolved on [a] motion to dismiss.” Securities Exchange Com’n. v. GSC Enterprises, (N.D. Ill. 1979) 469 F. Supp. 907, 913. The two matters in the amended 13D Schedule to which Dan River takes particular exception and on which it primarily relies for its claim that the amended Schedule was inaccurate and in- complete are, first, the failure of the defendants to have filed an earlier Schedule 13D when at the close of business on De- cember 12, 1978, as contended by the plaintiff but denied by the defendants, Unitex and the group affiliated with it first acquired more than five percent of Dan River’s stock, and, sec- ond, the statement of purpose of acquisition included by the defendants in their amended Schedule 13D, a statement which Dan River contends was incomplete, inaccurate, and misleading. We need not tarry over Dan River’s first objection. Assuming that the defendants violated section 13(d) when they failed within ten days after December 12, 1978, to file a Schedule 13D, we believe that violation was rendered moot when the defendants later did file their Schedule 13D. As the district court correctly observed, section 13(d) is a disclosure statute intended for the benefit of stockholders. We have already noted that the sole basis of standing in favor of the corporation itself is to enforce the statutory mandate to file a Schedule 13D, which is complete, accurate, truthful, and not misleading. When the defendants in this case filed their original Schedule, even though tardy, the issue became not the earlier failure to disclose, but the truthfulness and accuracy of the Schedule as filed.’ This is not to say that if any stockholder suffered damages as a result of the tardy filing, he would not be entitled to recover.* What we are concerned with here, though, is solely the right of the 7See Missouri Portland Cement Co. v. H. K. Porter Co., (8th Cir. 1976) 535 F.2d 388, 396; Corenco Corporation v. Schiavonas & Sons, Inc., (2d Cir. 1973) 488 F.2d 207, 214-15. ®See, Comment, Private Rights of Action for Damages Under Section 13(d), 32 Stan. L. Rev. 581 (1980). 17a Appendix A—Court of Appeals Decision corporation itself, and, to repeat, that right is limited to equi- table relief, compelling the filing of a full and accurate Sched- ule 13D. Dan River’s main attack is upon the accuracy and complete- ness of both the original Schedule 13D and the amended Sched- ule filed by the defendants. The particular statement on which Dan River centers its attack is the statement of purpose of ac- quisition, as required under the statute. This statement, Dan River charges, is a model of obfuscation, carefully phrased to confuse and conceal. It was this statement, the accuracy, com- pleteness, and misleading character of which the district court found it lacked power to review. This failure to look beyond the face of the filing was, we think, error in light of the record then before the court. The defendants at no point have declared clearly the pur- pose of their acquisition. There was unquestionably some pur- pose on their part quite different from making an “equity in- vestment.” The defendants in effect concede as much by their disclaimer of making the purchases as a “passive investor.” Im- plicit in this disclaimer is the idea that there was some purpose beyond mere investment for investment sake. And this conclu- sion seems compelling when it is noted that the defendant Unitex has pledged all its assets and its major stockholders have pledged their personal credit in order to finance at interest rates two and a half percentage points above the standard prime rate this “equity investment” in another company, located thousands of miles away from its heaquarters in a foreign country, man- aged by officials unknown to the principals in Unitex, and pay- ing dividends which would amount to only a fraction of what the defendants would be paying in interest in order to carry these purchases. This logic becomes even more persuasive when it is noted that, judging by the size of the loan secured to finance these purchases, the defendants are looking to the purchase of approximately twenty percent of the outstanding equity stock in Dan River. Such an accumulation of stock in a publicly held 18a Appendix A—Court of Appeals Decision corporation frequently is regarded as control of a corporation. It is highly unlikely that Unitex would be seeking control of another corporation at considerable cost to it, if its interest were solely for investment. If the defendants’ purpose in making these purchases is ob- viously not for investment purposes, what is their purpose? Their statements in their second Schedule 13D seem calculated to convey the notion that their plans are indefinite and unformed. In this Schedule they say they may seek control of Dan River through their purchases, but presently they do not seek control. Of course, at this point in their purchase program when they have acquired but some eight percent of Dan River’s stock, they could not hope to exercise control. But what is their intention if they successfully acquire the twenty percent of the Dan River stock they actually seek under their supposed plan of acquisi- tion? Will they then seek control or at least seek to influ- ence the decisions and actions of the target corporation? Is the language of the Schedule to be construed as suggesting that they have no plan, whether exercisable at present or not, in connection with the purchases of Dan River stock when they have made their anticipated purchases? That they have no plan is inconceivable. There are significant items in the record which suggest that the purchases are part of a carefully formulated plan and that, in their extensive purchases, they intend to fa- cilitate that plan. Thus, when the defendants sought financing for their purchases from Wardley, their lead banker, they were told that Wardley would consider the proposed financing, but only if it was convinced of the “financial soundness of Unitex’s plan.” Wardley agreed to finance the purchase. Presumably, then, Unitex disclosed to Wardley its purpose and plan in the proposed purchase. What was that “plan”? The defendants do not disclose it in this Schedule 13D. Moreover, when Unitex engaged the services of Lazard it is unlikely that it engaged the services of such an international financial firm with a recognized expertise in corporate mergers and acquisitions, simply to act as a broker merely to purchase stock. Was Lazard to assist in 19a Appendix ~—Court of Appeals Decision the plan disclosed by Unitex to Wardley? We can only conjec- ture. The defendants did disclose in their first Schedule 13D what might have been an indication of their purpose. In this Schedule, they said that: “Mannip may seek to acquire a significant equity interest in the Company with a view toward establishing a long term relationship with the Company.” This is close to a declara- tion of an intention to seek to control the target corporation for what the defendants would undoubtedly claim was for the mutual advantage of both parties.’ But, in its second filing the defendants omitted this significant admission of purpose. Are not the stockholders of the target corporation entitled to know what kind of “long term relationship” with Dan River the de- fendants sought to acquire by their purchases and would it not *Although the present requirements for Item 4 of a Schedule 13D do not use the word “control,” but rather require disclosure of any “plans or proposals which result in or relate to extraordinary corporate trans- actions,” SEC Exchange Act Release Nos. 33-5925, 34-14692, IC-10212, 43 Fed. Reg. 18484, 18493 (1978), the Eighth Circuit assumed, and we think correctly, that “any control purpose is still measurable against the definition of control appearing in Rule 12b-2(f).” Chromalloy American Corp. v. Sun Chemical Corp., 611 F.2d at 245-46, 246 n.12. Moreover, in defining “control” as applicable to a Schedule 13D filing, Chromalloy, Id. at 246-47, directs us to look to Rule 12b-2(f), which provides: “The term ‘control’ (including the terms ‘controlling,’ ‘controlled by’ and ‘under common control with’) means the possession, di- rectly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities; by contract, or otherwise.” 17 C.F.R. § 240.12b-2(f) (1979). Under this definition we believe that section 13(d) requires disclosure of a control purpose whenever “the securities purchaser has a perceptible desire to influence substantially the issuer's operations,” 611 F.2d at 246-47 (citing Gulf & Western Indus- tries, Inc. v. Great Atlantic & Pacific Tea Co., 476 F. 2d 687, 696-97 (2d Cir. 1973)), regardless of proof of a “fixed plan” to acquire control. 611 F. 2d at 247. That is, “Item 4 of Schedule 13 D requires disclosure of a purpose to acquire control, [a word encompassing even ‘the [indi- rect] power to . . . cause the direction of . . . policies,"] even though this intention has not taken shape as a fixed plan.” Id. y,% 20a Appendix A—Court of Appeals Decision be relevant to know why this statement of purpose was omitted from the second schedule? Are not the two Schedules contra- dictory, or at least confusing? We raise these questions, not because we find the answers to them in the record, but merely to suggest that the pleadings and the showing of the parties raise relevant questions that require further inquiry and that “cannot be resolved on [a] motion to dismiss.” Securities Exchange Com’n. v. GSC Enterprises, 469 F. Supp. at 913. In reviewing the record of this case, we em- phasize that we are not holding that the defendants’ Schedule 13D is actually false, incomplete, or misleading. Moreover, that is not our function in this appeal. We simply conclude that Dan River has raised sufficient questions about the defendants’ com- pliance with the law to require further exploration by the district court and the parties into the defendants’ purpose in purchasing large amounts of Dan River stock. Because, as one court has stated, “a false filing may be more detrimental to the informed operation of the securities markets than no filing at all,” GAF Corporation v. Milstein, 453 F. 2d at 720, a court simply cannot turn a blind eye to a potentially inaccurate filing when it pos- sesses the injunctive power to have that filing corrected before irreparable harm occurs to the investing public. It is no answer to plaintiff's cause of action that the defend- ants’ filing is facially sufficient. When a plaintiff raises the num- ber and kind of doubts about a Schedule 13D that Dan River raises here, a court is not to take a mechanical approach by refusing further inquiry into the plaintiff's allegations solely be- cause the filing is facially adequate. See S.E.C. v. Capital Gains Research Bureau, 375 U.S. 180, 195 (1963). Nor is it realistic for a court to rely, as apparently the district court in part did in this case, on the defendants’ verifications of their amended 13D Schedule when one considers that the same Unitex officer also verified the initial Schedule, and that Dan River similarly veri- fied its allegations. Rather, because Dan River offered sufficient information to show the very real possibility that the defendants’ 2la Appendix A—Court of Appeals Decision filings were not totally true or complete, it was justified in seek- ing the additional discovery necessary for the ultimate deter- mination of whether the Schedule filed was accurate. See Sun First Nat. Bank of Orlando v. Miller, 77 F.R.D. 430, 438 (S.D.N.Y. 1978). The record suffices to make the truthfulness and completeness of the defendants’ Schedule a justiciable issue into which the district court should have inquired. The uses of discovery and hearings are the usual judicial devices employed to resolve such justiciable disputes over the correctness of Schedules 13D. See, e.g., Chromalloy American Corp. v. Sun Chemical Corp., 611 F. 2d 240 at 247; General Aircraft Corp. v. Lampert, 556 F. 2d at 96-97; GAF Corporation v. Milstein, 453 F. 2d at 720-21; Susquehanna Corp. v. Pan American Sulphur Co., 423 F. 2d 1075, 1084-1086, (Sth Cir. 1970); Transcon Lines v. A. G. Becker, Inc., 470 F. Supp. 356, 378-79 (S.D.N.Y. 1979); Fi- nancial General Bankshares, Inc. v. Lance, 80 F.R.D. 22, 23, (D.D.C. 1978); Securities and Exchange Com’n. v. Zimmer- man, 407 F. Supp. 623, 630-31, (D.D.C. 1976), aff'd in part, vacated and remanded in part sub. nom. Securities and Exchange Com’n. v. Savoy Industries, 587 F.2d 1149 (D.C. Cir. 1978), cert. denied sub. nom. Zimmerman v. Securities and Exchange Commission, 440 U.S. 913 (1979). The plaintiff has made a sufficient showing to support that right here. This does not mean that the plaintiff may use the discovery processes to harass the defendants or needlessly delay the resolution of this controversy. The district court is, however, perfectly competent to keep the discovery within the range of relevancy and to prevent the use of the court’s processes for delay. In reaching this conclusion we subscribe to the “[a]ccepted judicial philosophy [which] is to refrain from dismissing secu- rities claims where it is possible that plaintiff can establish a jurisdictional basis for its claims upon completion of additional discovery.” Sun First Nat. Bank of Orlando v. Miller, 77 F.R.D. at 435. This predisposition against summary dismissal of secu- 22a Appendix A—Court of Appeals Decision rities claims without discovery comports with a similar judicial sentiment held for all actions arising from complicated factual patterns. E.g., Greenville Publishing Co., Inc. v. Daily Reflector, Inc., 496 F. 2d 391, 398 (4th Cir. 1974) (antitrust); Umden- stock v. American Mtge. & Inv. Co. of Oklahoma City, 495 F. 2d 589, 592 (10th Cir. 1974) (antitrust). A “sparing” use of summary procedures is particularly appropriate in litigation “where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot.” Poller v. Columbia Broadcasting, 368 U.S. 464, 473 (1962) (antitrust); see Robinson v. Penn Central Company, 58 F.R.D. 436, 440-41 (S.D.N.Y. 1973) (securities laws). The key issue in this case is the defendants’ motive and intent in buying Dan River stock. Dan River wants to know this, and the investing public has a right to know it as well. Yet only the defendants can clarify the confusion they have created on this point; the proof is in their hands. If Dan River is not allowed to obtain from the defendants through discovery the facts vital to prosecuting this action, the defendants are effectively freed from the obligation of filing a complete and accurate Schedule 13D for only they can publish their motives and intent—as the law requires them to do. We believe that since the information crucial to this case is concentrated in the hands of the defend- ants, this is precisely the kind of litigation the Supreme Court said is inappropriate for the summary dismissal procedure it received. The defendants have shown no “adequate justification for denying plaintiff the opportunity to question [them] about the accuracy of the Scheduie 13D” they filed, Financial Gen- eral Bankshares, Inc. v. Lance, 80 F.R.D. 22, 22 (D.C. 1978); cf. Robinson v. Penn Central Company, 58 F.R.D. at 440 (ap- propriateness of discovering a defendant’s knowledge prior to dismissal of a 10b-5 action). Accordingly, we reverse the district court’s dismissal of this action and remand the case to the district court for further pro- 23a Appendix A—Court of Appeals Decision ceedings not inconsistent with the foregoing. On remand the parties should be permitted to offer additional proof and to en- gage in any meaningful discovery, within the court’s discretion. The issue on remand, however, should be restricted to the ac- curacy and completeness of the defendants’ statement of pur- pose. On the present record, no cause of action is stated against the appellees Wardley Limited and The Chartered Bank, and on remand the district court is directed to dismiss from this action the appellees Wardley Limited and The Chartered Bank. REMANDED WITH INSTRUCTIONS 24a APPENDIX B—Transcript of District Court’s Decision. EXCERPT FROM PROCEEDINGS IN THE UNITED STATES DIs- TRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA, Hon. D. DorTCcH WARRINER, U.S.D.J., in Crvit ACTION No. 79-0217-R, Marcu 30, 1979. THE COURT: Ladies and gentlemen, I have enjoyed your presentation of the issue and though your briefs were lengthy, rather than brief, I think that the subject matter was not inap- propriately dealt with. I start off with the premise that the Williams Act is an Act which was intended to require disclosure and that that was all that was intended by the Williams Act. It specifically was not intended as a tool for management to preserve their offices. It was intended for the benefit of investors and not management. Management necessarily plays a part in the Williams Act dis- closure because the selfish interests, which are perfectly legiti- mate selfish interests, the selfish interests of management and their actual presence on the firing line puts them in contact with those who are attempting to gain control or invest heavily. Thus management is expected to be and properly is the conduit by which the disclosed information is transmitted to the investors. But, so far as I can see in the language of the Act, and in the legislative history of the Act, and in the Supreme Court's dis- cussion of the Act that is the only role that management plays; that [of] a conduit. Insofar as the Act is concerned and—of course, management has an absolute right to do whatever it can to try to hang onto its job, and I would certainly not do anything to denigrate from that right or from the propriety of the exercise of that right. But, under the Williams Act there is no provision there that is intended for the benefit of management. To a certain extent, management has no rights under the Williams Act and yet it is clear that management has a role under the Williams Act and management in this case has exercised that role to see to it that 25a Appendix B—Transcript of District Court’s Decision disclosure is made so that they are in a position to carry out their role, that is, transmitting the information required by the Williams Act to its stockholders. My view in this regard is supported—not supported—it is based upon Rondeau, 422 US at Page 58, where it says, “The Congress expressly disclaimed an intention to provide a weapon for management to discourage takeover bids or prevent large accumulations of stock which would create the potential for such attempts. That’s the initial premise that I have. I look also to what rights do the shareholders have? If one takes a closeup view and says management has no rights, only a role, is one myopically forgetting the fact that that role is an extremely important role for the protection of the shareholders? The First Circuit in 1977 in General Aircraft Corporation © v. Lampert, I think, answers that question when it says at Page— it’s 556 F. 2d, 90, at Page 97 it says in effect that “any share- holder has an adequate remedy at law for damages and it is the shareholder, not management, that the Williams Act was intended to protect.” I don’t think that’s disputed. I think, Rondeau makes that clear. It’s also pointed out by the Ninth Circuit in Klaus v. Hi-Shear Corporation, 528 F. 2d, 225, at Pages 231 and 232. Now with that framework in mind, let’s bear in mind that any suit based upon the Williams Act is a suit that seeks and only can seek, because of the confines of the Act, the purpose of the Act, the limits of the Act, that suit only can seek disclosure. The end of the suit would be disclosure. It would be the Alpha and the Omega, too. You start seeking disclosure, you end ob- taining disclosure. There are no other rights under the Williams Act than that there be disclosure. Another word for disclosure is discovery. If the contentions made by the plaintiff in this case are correct, then one way or 7% 26a Appendix B—Transcript of District Court’s Decision another a plaintiff which files a Williams Act complaint will win. There would never be any question about the case from the very beginning. If they are entitled to discovery in order to determine whether or not the facts are present which entitles them to dis- covery then the means is the end, and they win merely by ex- ercising the means. Now there’s nothing evil in a plaintiff winning, nor is there anything evil in the defendant winning. Whoever is entitled to prevail in a law suit ought to win, but I do not believe that the rules of discovery, nor the rules of the entitlement to discovery prior to dismissal, are properly being interpreted when the result is that by the impact of those rules plaintiff inevitably and in every case prevails on the very essence, the very gravamen of the case. Discovery. Disclosure. If plaintiff is correct, no matter how facially adequate a Form 13-D may be, if plaintiff management can in good faith ques- tion by affidavit or otherwise that that facially adequate 13-D is not completely accurate or not absolutely complete then merely by that act, merely by filing such an affidavit, according to plaintiff's contentions, plaintiff then has not only crossed the threshold, they have gone all the way through the hall and out the back door because they are entitled then to disclosure. They’re entitled not only to learn, according to plaintiff's con- tention, not only to learn that which Congress says they were entitled to learn, but everything else that discovery in modern practice has led us to expect. We have all seen it in litigation, hogsheads full of documents, wheelbarrow loads of depositions. The expenditure of time and money and effort that sometimes actually dwarfs the subject matter of the suit. Congress never intended that. Congress after careful consideration enacted legislation which said exactly what you are entitled to know and the form itself with all of its ap- pendages is bulky enough. That which Congress said you are entitled to know is quite a bit, but they never said that a plaintiff 27a Appendix B—Transcript of District Court's Decision was entitled to know all of those things that one learns through modern discovery. If plaintiff is entitled to prevail in this case in the face of a facially adequate 13-D then I know of no limits upon 13-D plaintiff complaints. I have probably had the same experience that all other lawyers have. If you read over a document prepared by someone else you can find something wrong with it—in good faith find some- thing wrong with it. If you read over an affidavit, no matter how adequate an effort may have been made to make it complete and accurate, questions can arise and according to plaintiff that’s all it takes. They’re then entitled to wide ranging discovery without any particular limit. Now if that’s what Congress had intended, I think that the law would read thusly. “Whenever a person or a group of persons acquires more than five per cent of a stock of a publicly traded corporation they shall disclose that fact and they shall thereupon be subjected to discovery under the Federal Rules of Discovery,” because in essence that’s all we have here. That’s all the excuse we have here, I should say. Now I asked Mr. Schwartz a question. Suppose his 13-D is false and misleading, and Mr. Schwartz didn’t want to answer that question and didn’t answer it, but I have to answer it. I have to indulge that supposition. I recognize that it may be false and misleading. If it is false and misleading the protected parties under the Williams Act have an adequate remedy at law. If that is so, and I cannot imagine that it is not so, then there’s no grounds for equitable relief. I have compared the verified com- plaint that plaintiff has filed, the amended complaint, and I have prepared the telltale signs set forth on Pages 9 and 10 of plain- tiff’s brief filed on the 8th of March, with the amended 13-D, and I am satisfied that facially the 13-D meets the letter and the spirit of the Williams Act. I’m also satisfied that any falsity 28a Appendix B—Transcript of District Court's Decision or misleading portion of the 13-D will reveal itself in due time if it exists and that if it exists, when it reveals itself it will subject the defendants to severe and proper damages, recision, and pos- sibly other punishments and that that’s what the law intends. Plaintiff in its brief stated that facts are the ultimate issue in this case and as I have stated I agree with that. A right to know facts is the ultimate issue and the facts that the plaintiff has a right to know are the facts that Congress said should be disclosed under the Williams Act. If plaintiff is entitled to substantial ad- ditional facts—that is to say, if plaintiff is entitled to win because it has posited in a verified form suspicions, then 13-D cases will be won or lost on the willingness of a plaintiff to say under oath, “I honestly question the accuracy and completeness of that 13-D” and as I have said, I can’t imagine an affidavit or a 13-D when subjected to careful scrutiny by a learned and able coun- sel which couldn’t be questioned in some way, honestly ques- tioned, in good faith questioned. When plaintiff came into this Court initially and pointed to deficiencies in the 13-D and this Court examined the 13-D and saw that on its face those deficiencies existed the Court gave plaintiff the remedy that the Court thought it was entitled to and that is because the 13-D on its face appeared deficient. The 13-D on its face no longer appears deficient. The deficiencies, if any exists, are deficiencies that are made to seem, made to exist by recourse to inference, rumor, street talk, strained logic; and I cannot on the basis of such render an Act of Congress moot and that is what is being suggested here. That I require the disclosure of far more than Congress requires the disclo- sure of. In other words, when defendants’ conduct on its face fails to comply with the law the Court should issue an injunction and that’s what this Court did. When on its face the defendant has complied with the law, then all of the relief which plaintiff is 29a Appendix B—tTranscript of District Court's Decision entitled to has been granted. Further recourse is granted by law to those who are protected by the Act, the shareholders. Now several cases have been cited to the Court. Of particular interest to the Court was the Kaye case. I do not read the Kaye case as being either directly on point or dispositive. The prayer for relief in this case is, as it had to be, for disclosure, for dis- covery, for the information that Williams Act directs shall be filed. The prayer for relief in Kaye case was that the defendant Equimark relinquish control of FSC. It didn’t seek any informa- tion. It was not a case seeking information, discovery, disclosure. It was a case seeking an injunction that the defendant release control. The defendant Equimark during the pendency of the suit sold its stock to two other persons and thereupon filed a motion to dismiss on the ground of mootness. The district court dismissed on the grounds of mootness and was reversed by the Second Circuit. The Second Circuit said that the plaintiff was entitled to have discovery as to whether or not the transfer of stock was a sham. If it were a sham then Equimark still had control and could be affected by an injunction which said re- linquish control. Now that’s not what we have here. This case is not about control of Dan River, Inc. It’s not about any act. It is about information and that information has been given. It having been given then any continuation of the case is to use the Williams Act as “a weapon for management to dis- courage takeover bids or prevent large accumulation of stock.” Now gentlemen, I think that in a good lawyerlike manner that is what is being attempted here. I was concerned about the Quern case, but Quern case is not like this case. In Quern case the de- fendant was engaged in an ongoing program and the question was: Having renounced his former ways and having adopted a new program which complied with the law, should the case be dismissed as moot? The Court said, no, because that program could be changed a d an illegal procedure could be re-initiated by the defendant. But, there is no way that the 13-D which was 30a Appendix B—Transcript of District Court's Decision filed in this case can be changed and that’s what we’re talking about. _ The Williams Act says you're entitled to a 13-D. That 13-D has been filed. It is on record. The rights that shareholders have because that 13-D may be false or misleading have accrued and each share of stock that’s being traded today on the stock mar- ket is a share of stock that carries with it, possibly, the right to damages and recision because of the possibility that that 13-D is false and misleading and nothing can change that. It’s on rec- ord. It is, I suppose, in indelible ink. If I were to hold this case on the docket for the purpose of developing the question of whether or not the 13-D is false and misleading, I would be holding the case on the docket for the purpose of rendering an advisory opinion; an opinion to be used by shareholders, the beneficiaries of the Williams Act, in their subsequent cases for damages. What management, the plaintiff here, has a right to do is transmit this information to the share- holders. I think, management also has a right in the course of its business operation to learn, not through the processes of the Draconian processes of discovery, but through the business world—to learn that the 13-D was false and misleading and then “sic” the stockholders on the defendants. And if it is false and misleading I hope that they get every penny that’s coming to them. I have heretofore ruled that the initial 13-D was inadequate on its face. I now rule that the amended 13-D is adequate on its face and complies with the law and that the countervailing af- fidavits, evidence, and arguments of plaintiff, even if true, are insufficient in a case such as this where discovery is the end all and be all. I cannot pretend a justiciable issue exists when under the Williams Act none exists. Plaintiff argued in brief but not before the Court the fact that the recision issue still exists and pointed to Financial General. 3la Appendix B—Transcript of District Court’s Decision The Court in Financial General did not order recision. The Court in Financial General ordered that if the investors, the takeover people, intended to continue their activities, that they had to offer recision to stockholders who had purchased stock without knowledge of the fact that a takeover was impending. That's a far cry from ordering recision. Under that order the defend- ants didn’t have to do anything. They were limited in what they could do insofar as the takeover is concerned, but not otherwise. I read Blue Chip Stamps v. Manor Drug Stores, 421 US 723, at Pages 740 through 742, as a rather clear indication from the Supreme Court that securities laws governing disclosure should not be used as a basis for a law suit aimed primarily at discovery. I believe that defendants’ 13-D discloses all the information that plaintiff is entitled to under the Williams Act and that if that information is false then—and I quote from Rondeau at Page 58—“those persons who allegedly sold at an unfairly depressed price because of the false and misleading 13-D have an ade- quate remedy by way of an action for damages thus negating the basis for equitable relief.” I do not believe that there is any basis for equitable relief remaining in this case. That is the only relief that was properly sought and under those circumstances I can’t enter a judgment which would affect the actions of anyone. Accordingly, I am going to direct that a docket entry be made dismissing the action for mootness. Is there anything further, gentlemen? (No response. ) (END OF EXCERPT OF REPORT OF PROCEEDINGS.) APPENDIX C—Judgment of Court of Appeals UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 79-1267 DAN RIVER, INC., Appellant, versus UNITEX LIMITED; MANNIP LIMITED; CHENG FuR SHE; CHENG LEE KIT-YIu; PHILIP Y. S. CHENG; LEE CHEN CHE; Liu HAN TANG; YANG YUAN LOONG; DoRA YANG; THE “ROE” BANK OF HONG KONG; THE “DoE” FINANCE COMPANY OF HONG KONG; “XYZ” COMPANY, Appellees. Appeal from the United States District Court for the Eastern District of Virginia. This cause came on to be heard on the record from the United States District Court for the Eastern District of Virginia, and was argued by counsel. On consideration whereof, It is now here ordered and ad- judged by this Court that the judgment of the said District Court appealed from, in this cause, be, and the same is hereby, re- versed. The case is remanded to the U.S. District Court for the Eastern District of Virginia, at Richmond, for further proceed- ings not inconsistent with the opinion of this Court filed herewith. FILED May 29 1980 U.S. Court of Appeal Fourth Circuit A True Copy, Teste: William K. Slate, II, Clerk 32a 33a APPENDIX D—Statutes involved. TEXT OF SECTION 13(d) (d)(1) Any person who, after acquiring directly or indi- rectly the beneficial ownership of any equity security of a class which is registered pursuant to section 12 of this title, or any equity security of an insurance company which would have been required to be so registered except for the exemption contained in section 12(g)(2)(G) of this title, or any equity security is- sued by a closed-end investment company registered under the Investment Company Act of 1940, is directly or indirectly the beneficial owner of more than 5 per centum of such class shall, within ten days after such acquisition, send to the issuer of the security at its principal executive office, by registered or certified mail, send to each exchange where the security is traded, and file with the Commission, a statement containing such of the following information, and such additional information, as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of in- vestors— (A) The background, and identity, residence, and cit- izenship of, and the nature of such beneficial ownership by, such person and all other persons by whom or on whose behalf the purchases have been or are to be effected; (B) the source and amount of the funds or other con- sideration used or to be used in making the purchases, and if any part of the purchase price is represented or is to be represented by funds or other consideration borrowed or otherwise obtained for the purpose of acquiring, holding, or trading such security, a description of the transaction and the name of the parties thereto, except that where a source of funds is a loan made in the ordinary course of business by a bank, as defined in section 3(a)(6) of this title, if the person filing such statement so requests, the name of the bank shall not be made available to the public; 34a Appendix D—Statutes involved (C) if the purpose of the purchases or prospective pur- chases is to acquire control of the business of the issuer of the securities, any plans or proposals which such persons may have to liquidate such issuer, to sell its assets to or merge it with any other persons, or to make any other major change in its business or corporate structure; (D) the number of shares of such security which are beneficially owned, and the number of shares concerning which there is a right to acquire, directly or indirectly, by (i) such person, and (ii) by each associate of such person, giving the background, identity, residence, and citizenship of each such associate; and (E) information as to any contracts, arrangements, or understandings with any person with respect to any secu- rities of the issuer, including but not limited to transfer of any of the securities, joint ventures, loan or option arrange- ments, puts or calls, guaranties of loans, guaranties against loss or guaranties of profits, division of losses or profits, or the giving or withholding of proxies, naming the persons with whom such contracts, arrangements, or understandings have been entered into, and giving the details thereof. (2) If any material change occurs in the facts set forth in the statements to the issuer and the exchange, and in the state- ment filed with the Commission, an amendment shall be trans- mitted to the issuer and the exchange and shall be filed with the Commission, in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. (3) When two or more persons act as a partnership, limited partnership, syndicate, or other group for the purpose of ac- quiring, holding, or disposing of securities of an issuer, such syn- dicate or group shall be deemed a “person” for the purposes of this subsection. 35a Appendix D—Statutes involved (4) In determining, for purposes of this subsection, any per- centage of a class of any security, such class shall be deemed to consist of the amount of the outstanding securities of such class, exclusive of any securities of such class held by or for the ac- count of the issuer or a subsidiary of the issuer. (5) The Commission, by rule or regulation or by order, may permit any person to file in lieu of the statement required by paragraph (1) of this subsection or the rules and regulations thereunder, a notice stating the name of such person, the num- ber of shares of any equity securities subject to paragraph (1) which are owned by him, the date of their acquisition and such other information as the Commission may specify, if it appears to the Commission that such securities were acquired by such person in the ordinary course of his busiiess and were not ac- quired for the purpose of and do not have the effect of changing or influencing the control of the issuer nor in connection with or as a participant in any transaction having such purpose or effect. (6) The provisions of this subsection shall not apply to— (A) any acquisition or offer to acquire securities made or proposed to be made by means of a registration state- ment under the Securities Act of 1933; (B) any acquisition of the beneficial ownership of a security which, together with all other acquisitions by the same person of securities of the same class during the pre- ceding twelve months; does not exceed 2 per centum of that class; (C) any acquisition of an equity security by the issuer of such security; (D) any acquisition or proposed acquisition of a secu- rity which the Commission, by rules or regulations or by order, shall exempt from the provisions of this subsection F% 36a Appendix D—Statutes involved as not entered into for the purpose of, and not having the effect of, changing or influencing the control of the issuer or otherwise as not comprehended within the purposes of this subsection. TEXT OF SECTION 18 Sec. 18. (a) Any person who shall make or cause to be made any statement in any application, report, or document filed pur- suant to this title or any rule or regulation thereunder or any undertaking contained in a registration statement as provided in subsection (d) of section 15 of this title, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or mis- leading. A person seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorney’s fees, against either party litigant. (b) Every person who becomes liable to make payment under this section may recover contribution as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment. (c) No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0314%3A1. Public record. Not legal advice.