# Petition for Writ of Certiorari — Trans World Airlines, Inc. v. Kronfeld > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_1297%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1988 - **Citation:** 485 U.S. 1007 ## Text Sypreme our, 83, FILED 87-1284 ftp 2 ae —- .- 3 «-™ RnR ak 2° ¢ . cca > IN THE Supreme Court of the United States OCTOBER TERM, 1987 -_ TRANS WORLD AIRLINES, INC.; TRANSWORLD CORPORATION, Petitioners, JOEL KRONFELD, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT Of Counsel: ROBERT J. SISK* One Wall Street New York, New York 10005 (212) 709-7000 Attorney for Petitioner Transworld Corporation NORMAN C. KLEINBERG VILIA B. HAYES HUGHES HUBBARD & REED Of Counsel: DENNIS J. BLOCK* 767 Fifth Avenue New York, New York 10153 (212) 310-8000 Attorney for Petitioner Trans World Airlines, Inc. IRWIN H. WARREN DUSHICA D. BABICH WEIL, GOTSHAL & MANGES * Counsel of Record QUESTIONS PRESENTED 1. Whether an issuer can be held liable under the federal securities laws for failing to disclose the existence of an unfinished study of numerous corporate options or the uncer- tain possibility that one such option might be the subject of future corporate action, prior to any consideration of, or action upon, either the study or any of the proposed options by the issuer’s decisionmakers? 2. Whether an especially strict standard applies to motions for summary judgment involving the issue of materiality in federal securities actions, thereby effectively eliminating the use of summary judgment in such actions? PARTIES TO THE PROCEEDING The parties to this proceeding are: 1. Petitioner Trans World Airlines.* 2. Petitioner Transworld Corporation.** 3. Respondent Joel Kronfeld, on behalf of a class ot chasers of cumulative convertible preferred stock of Tran World Airlines. are or mav be considered parent companies, subsidi aries or affiliates of TWA: AERO Limited Partnership; Mandrake Partners Limited Partnership; O’Riole Corp.; ACF Industries Incor justries Plan, Inc.:; Icahn Capital Corporation, Hold Corporation: Carl C. leahn; Excalibur Partners (Gen Partnership): GNU Corp.: Unicorn Associates Corporation; and I ng the liquid I sworld Corporation on December 1986. TW Services, Inc. succeeded to the bulk of the businesses ynducted by Transworld Corporation. An indirect subsidia TW Services, Inc. is the general partner in Winchell’s Donut Houses TABLE OF CONTENTS po es eg 8 6g | 3. Es an gana bccedasesateccnucescucss CET TER ETT TEE CTL ET Teer e rT Ee Te STATUTES AND RULES INVOLVED............... oy ie ey) ee: es a Kaa sag h 4 4 65.6s pao 0 neo ood am wes REASONS FOR GRANTING THE WRIT I. The Odyssey Proposal and Goldman Sachs Assign- as oe ok ac gab 6 e:0 a6 wid adde ena a EE a The Goldman Sachs September 6th Report to a oa ew ote ak ole ug ould wide THE SECOND CIRCUIT’S “POSSIBILITY” STANDARD OF MATERIALITY FOR JUDG- ING THE DISCLOSURE OF CONTINGENT EVENTS IS INCONSISTENT WITH NORTHWAY AND CANNOT FEASIBLY BE MEE PEMINS ovo anc ane caccevcancenseses . THE SECOND CIRCUIT HAS CREATED A NEW AND IMPROPERLY STRINGENT STANDARD FOR SUMMARY JUDGMENT IN SECURITIES CASES INVOLVING THE ISSUE OF MATERIALITY WHICH IS INCONSIS- ty ty TENT WITH THIS COURT’S PRECEDENTS, AND WHICH EFFECTIVELY ELIMINATES THE USE OF SUMMARY JUDGMENT IN SE- gg Bae. a ee rire ree re A. There Was No Concrete Evidence To Support the Claim that the Omitted Information was sc 5 dee annua Cee kacses at B. The Alleged Omissions Were Not Necessary to Make The Statements Made in the Prospectus 8 PA Prrryrrrrrrer rise CG LOE ce ccc sds lachecsdansandaces a etweaes Pg i A AP OPES eer eT Pee ee eee PAG TABLE OF AUTHORITIES Cases: Anderson vy. Liberty Lobby, Inc., 477 U.S. 242, 06S. Ct. coe Cha ores cccpease reset Arber v. Essex Wire Corp., 490 F.2d 414 (6th Cir.), cert. denied, 419 U.S. 830 (1974) ....... Bose Corp. v. Consumers Union of United States, fie, GER U3 tev Ge Cas 80s eee keewaens Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. BSG CURNON ski sks Cen aes Rhe sa ceer tees 3, Electronic Specialty Co. v. Int’! Controls Corp., SOP F.26 DST C20 Ce BSP in cc des Hossa tent Feit v. Leasco Data Processing Equip. Corp., 332 y. eee, SOG GERI is BP eco wens whecs eee Flamm v. Eberstadt, 814 F.2d 1169. (7th Cir.), cert. denied, 56 U.S.L.W. 3246 (October 6, 1987)... 3n, Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281 CO 4A) Ft ees + 600 dda ee Greenapple v. Detroit Edison Co., 468 F. Supp. 702 (S.D.N.Y. 1979), aff’d, 618 F.2d 198 (2d Ci CUE. voc) 0203s 5d kas padeeesee esse Harnett v. Rvan Homes, Inc., 496 F.2d 832 (3d ae SG Fa sie a SR eh a ee Hassig v. Pearson, 565 F.2d 644 (10th Cir. 1977). In Re Union Carbide Class Action Secs., 648 F. ees Tee Cee eo ss SU onc va bkceen sone Matsushita Elec. Indus. Co. v. Zenith Radio Corp. 479 8S. See Cee nbd isha taeaeee ue Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970) PAG! vi PAGE Missouri Portland Cement Co. v. Cargill, Inc., 498 F.2d 851 (2d Cir.), cert. denied, 419 U.S. GES CID POR akc sc nwidetsekdustsnss eee 3n, 16n Parsons v. Hornblower & Weeks-Hemphill, Noyes, 447 F. Supp. 482 (M.D.N.C. 1977), aff'd, $71 F.2d 203 (4th Cir. 1978)............ = 19n Reiss v. Pan Am. World Airways, Inc., 711 F.2d Te fo | reer ree 3n, 16, 17 Rodman v. Grant Found., 608 F.2d 64 (2d Cir. POTED 0 6.6660canddcgeseceacedeciaeeee 16n SEC v. Mize, 615 F.2d 1046 (Sth Cir.), cert. Geta, GS CBs Fae (IPD hcncccduvedaseoes 2n-3n, 16 SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968) (in banc), cert. denied, 394 U.S. 976 (ESGRD occk.ccccaneestsntdicngneee 9,10, 14 & n, 17 Sonesta Int’! Hotels Corp. v. Wellington Assocs., 463 F.28 B67 GG CO FOTO vi. 60nscnccuesksens l4n, 15-16 Staffin v. Greenberg, 672 F.2d 1196 (3d Cir. 1982) 3n, 16-17 Starkman v. Marathon Oil Co., 772 F.2d 231 (6th Cir. 1985), cert. denied, 475 U.S. 1015 (1986)... 19n Susquehanna Corp. v. Pan Am. Sulphur Co., 423 ae 8675S Goan CR TRF xacciwicccacenscess 16 TSC Indus., Inc. v. Northway, 426 U.S. 438 4. Pr rrrrrTrrrrrrrrrrrrr rr rrr errr passim Statutory Provisions: 55 Ua. B Fee Cee < 0-0 060.0 0806808000082 19 1S U.S.C. § 78Gb) (1982)... 2... 6. eee eee 19 Rules: o7 C.ER. § SOR TGRS CIS) vis cacdaavcasers 19 IN THI Supreme Court of the United States OCTOBER TERM, 1987 ——a- TRANS WORLD AIRLINES, IN¢ TRANSWORLD CORPORATION, Petitioners, JOEL KRONFELD, Respondent st PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT Iransworld Corporation (“TWC”) and Trans World Air- lines, Inc. (“TWA”) respectfully petition for a writ of certiorari to review the judgment of the United States Court of Appeals tor the Second Circuit, entered in this case on November 2, 1987, which reversed the decision of the United States District Court for the Southern District of New York (Weinfeld, J.) granting summary judgment to defendants OPINIONS BELOW The majority and dissenting opinions of the court of appeals are reported at 832 F.2d 726 (2d Cir. 1987). Upon the denial of the petition for rehearing, the majority issued an order amend- ing the opinion which is unreported. The opinion of the district court gramting summary judgment dismissing the complaint ts reported at 631 F. Supp. 1259 (S.D.N.Y. 1986). These opinions are reprinted in the Appendix to this Petition. » ~ ’ , : ‘ \ elerence a are pare C ppend tv JURISDICTION The judgment of the court of appeals reversing the judgment of the district court was entered on November 2, 1987. A timely petition for rehearing and a suggestion for rehearing in banc were denied on December 28, 1987 and December 30, 1987, respectively. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). STATUTES AND RULES INVOLVED The statutes and rules involved in this proceeding are Section 11 of the Securities Act of 1933, 1S U.S.C. § 77k (1982), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1982), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (1987). These statutes and the rule are reprinted in relevant part in the Appendix. STATEMENT OF THE CASE In this case, a divided panel of the Sec@nd Circuit rejected the holding of the district court that the federal securities laws do not require disclosure of “mere contingencies long in advance of the first consideration of the question by those responsible for decisien.” (45a.) Instead, the panel ruled that issuers Of securities can be held liable in damages if they do not disclose in a prospectus possible future corporate action and the existence of unfinished studies which include such action among other possible corporate options, even though they neither have been considered, nor acted upon, by any corpo- rate decisionmaker. This radical change in the law cannot be reconciled with TSC Industries, Inc. v. Northway, 426 U.S. 438 (1976), is at odds with numerous appellate holdings that have concluded that “possibilities” need not be disclosed,” and 2. E.2., SEC v. Mize, 615 F.2d 1046, 1085 (Sth Cir.) (disclosure must occur “[wjhere the occurrence of a proposed course of action has is inconsistent with recent cases holding preliminary merger negotiations immaterial as a matter of law.” In addition to imposing a novel standard for corporate disclosure, the majority also concluded that an especially strict standard applies to motions for summary judgment on the issue Of materiality under the securities laws which conflicts with the Court’s recent decisions in Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548 (1986); and Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). if upheld, the decision below (a) would impose an extraordi- nary burden of premature disclosure on issuers and would bury investors under an avalanche of information about mere cor- porate possibilities, and (b) would effectively eliminate the use of summary judgment on the issue of materiality in litigations involving the federal securities laws. The Parties Petitioner TWA has, for many years, operated one of the nation’s largest airlines. On July 29, 1983, TWA made a public offering of cumuiative convertible preferred stock (the “Offer- ing’). The prospectus and the registration statement issued in connection with the Offering are the subject of this action. reached a stage of probability rather than mere possibility”), cert denied, 449 U.S. 9O1 (1980) (emphasis added); Missouri Portland Cement Co. v. Cargill, Inc., 498 F.2d 851, 872 (2d Cir.) (tender offeror had no duty to disclose a plan to expand target's business, although it had commissioned such a plan from an outside consultant, since there was no evidence that any such plan in fact had been developed or adopted), cert. denied, 419 U.S. 883 (1974) E.g., Flamm yv. Eberstadt, 814 F.2d 1169, 1178 (7th Cir.), cert denied, 56 U.S.L.W. 3246 (October 6. 1987): Reiss v. Pan Am. YUorld jirways, Inc., 711 F.2d 11, 14 (2d Cir. 1983): Staffin v. Greenberg, 672 | 2d 1196. 1204 ()7 (Ad Cir 198?) 4 At the time of the Offering, petitioner TWC owned approxi- mately 80% of TWA’s common stock and had four other wholly-owned subsidiaries. Two months later, on September 28, 1983, TWC’s Board of Directors announced that it had asked management to develop a plan for the possible separa- tion or spinoff of TWA. A plan to spin off TWC’s TWA stock to TWC’s stockholders was subsequently presented to and approved by TWC’s Board of Directors and shareholders and took effect on February 1, 1984. Respondent Joel Kronfeld, who purchased 200 shares of TWA cumulative convertible preferred stock in the Offering, represents a class of persons who purchased such stock be- tween July 29, 1983, the date the stock was issued, and September 27, 1983, the day before TWC made its announce- ment concerning a spinoff of TWA. The Odyssey Proposal and Goldman Sachs Assignment In April 1983, several months before the Offering, TWC’s Board had recommended against, and its shareholders had rejected, a stockholder proposal by Odyssey Partners (the “Odyssey Proposal”) to completely restructure TWC by selling Or spinning off its five subsidiaries. (36a-38a.) TWC had retained Goldman, Sachs & Co. (“Goldman Sachs”) to assist in responding to the Odyssey Proposal. TWC also asked Gold- man Sachs to conduct an independent study of TWC’s existing diversification strategy, as well as the other financial and structural alternatives available to the company, and to report its findings to the Board before August 31. (37a.)* Goldman Sachs’ presentation to TWC’s Board was originally scheduled for July 27. (A45, 38a.)° However, Goldman Sachs had made little progress by the end of June, and the presentation was 4. TWC’s retention of Goldman Sachs and Goldman Sachs’ assign- ment was widely publicized in connection with the Odyssey proxy battle and was reported again after the stockholder vote. (6a-7a.) References to “A * are to pages of the Joint Appendix filed in the court of appeals. The record has not been certified to the Court at this time, but will be done upon the Court's request. rescheduled for September 6 (38a), since the Board did not meet in August. (A45.) The Goldman Sachs Study. At the time of the Offering on July. 29, Goldman Sachs had not completed its study,and had reached no conclusions. Frank Salizzoni, TWC’s chief financial officer and a director of both TWC and TWA, was in charge of monitoring Goldman Sachs’ progress. He had reached the personal view that a separation of TWA might be desirable.° (41a.) But, TWC’s Board had not yet even considered any of the numerous options in the still- uncompleted Goldman Sachs study, much less decided on a separation of TWA, or any other change in TWC’s structure. (44a.) Indeed, unlike Salizzoni, TWC’s president and Chair- _.man, had not made any decision that a separation of TWA, or any other change, was desirable. (A39, A44.) The Prospectus The prospectus issued by TWA in connection with the Offering painted a grim picture of TWA’s financial condition and prospects, setting forth the large losses it had experienced in the past and the reasons why these losses were expected to continue. (A109.) Purchasers were advised that TWA could not predict whether it would have sufficient cash in the future to pay dividends or redeem the convertible preferred stock, and that TWC had no obligation to make such payments or to make funds available to TWA. (A109.) Immediately before describing the existing financial relationships between TWA and TWC, the prospectus alerted investors that the financial support provided by TWC in the past might not continue: 6. Handwritten notes written by a junior associate at Goldman Sachs - during a meeting on July 7, 1983 with Salizzoni and members of his staff state: “goal-build liquidity in airline & cut cord w/TWC so they can walk away.” These words were preceded by the contradictory statement: “TILL DEATH DO US PART.” (41a.) Although plainttt deposed all the meeting attendees, no one, including the author of the notes, recalled anyone ever making such statements. (A229.) There may in the future be other arrangements between TWA and [TWC] (or other of its subsidiaries). It is intended that the terms of these arrangements will be determined on an arms-length basis. There can be no assurance, however, that these terms will be favorable to TWA or that [TWC] will continue to provide TWA with the same level of support for TWA’s financing and other needs as it has in the past. ((38a-39a) (footnote omitted).) In addition, the section titled “CONTROL BY [TWC]” disclosed that TWC had reduced its holdings of TWA stock to approximately 80 percent only a few months earlier (A132), and had obtained consents from TWA’s lenders to reduce further its holdings to 60 percent. It also specifically informed investors that TWC might in the future reduce its holdings still further, assuming the consents required from lenders and stockholders were obtained. (8a-9a.) The Goldman Sachs September 6th Report to TWC’s Board When Goldman Sachs made its presentation to TWC’s Board on September 6, it discussed advantages and disadvan- tages of seven structural and financial alternatives available to TWC, including maintaining the existing structure and corpo- rate strategy, and Goldman Sachs made no recommendation _ Goldman Sachs presented the following seven alternatives: (1) Liquidation; (2) Sale of TWC; (3) Partial liquidation, through the sale of TWA or other subsidi- aries, (4) Additional sales of TWA shares to the public; (5) Sale of 20 percent of a “hospitality company,” composed of non-airline subsidiaries; i. Separation of TWC and TWA by a spinoff of the airline or a rights offering to TWA shareholders; and 4 _— Continuation of the holding company structure and maximizing operating returns under the existing diversification strateg\ (9a.) to the Board. (39a.) Immediately following the Goldman Sachs presentation, there was extensive discussion among TWC’s directors of the alternative of separating the airline, with various directors voicing opposition, surprise and concern. (44a.) No decision on the merits of any alternative was reached at that time. Rather, the Board referred consideration of the Goldman Sachs report to its Finance Committee which met on two occasions over the next three weeks. (39a.) On September 27, the Finance Committee recommended that the Board develop a detailed program for a possible spinoff. This pro- posal was adopted by the Board on October 26, approved by the shareholders on December 28, and became effective on February 1, 1984. (39a.) Prior Proceedings Kronfeld’s complaint alleged that the prospectus misled investors to purchase their stock in the belief that TWC would continue to support TWA financially (A9), by omitting to disclose that: (1) TWC was considering a plan to “spinoff” TWA (A9); (2) Goldman Sachs was studying structural and financial alternatives available to TWC (A14); and (3) “Gold- man Sachs was preparing to recommend to [TWC] the spinoff of TWA.” (A15.)° Following completion of discovery, the district court granted summary judgment, holding that defendants could not be held liable for failing to disclose additional information, beyond that contained in the July 29 prospectus, regarding the rela- tionship between TWC and TWA or the activities of Goldman Sachs. (43a.) In his opinion, Judge Weinfeld emphasized that: 8. In responding to petitioners’ summary judgment motion in the district court, respondent abandoned his claims with respect to the second and third claimed omissions, resting exclusively on the first: that TWC—the corporation—was considering “a plan” to spin off TWA. (A9.) On appeal, respondent again changed gears, claiming that “{wlhat should have been disclosed, however, were: (a) that defen- dants’ chief financial officer and Goldman Sachs were studying the possibility of spinning off TWA; and (b) that a proposal in this regard would be presented to the Board in September.” (Brief of plaintiff- appellant on appeal to the Second Circuit, dated June 24, 1986, at 32.) The Prospectus contained a number of statements advising investors that the existing relationship be- tween TWC and TWA was “subject to significant change” (43a); As of July 29, 1983, TWC’s Board of Directors had not considered, much less approved, a separation of TWA (44a); No plan or proposal to change the relationship be- tween TWC and TWA had been presented to TWC’s Board as of the date of the offering (44a); TWC’s retention of Goldman Sachs to investigate alternative structures for TWC “had been extensively publicized by TWC” (45a); and Goldman Sachs’ study “was directed toward the iden- tification and analysis of options for consideration by TWC’s Board”, and had not even been completed as of July 29. ((44a) (emphasis in original).) Although he observed that events occurring after July 29 are “not determinative of the question of which matters defen- dants had a duty to disclose on July 29” (44a), Judge Weinfeld also noted: — On September 6, 1983, when Goldman Saehs ulti- mately presented the results of its study to TWC’s Board, it outlined seven options for Board consider- ation and “put forward no recommendation as to any option” (39a, 44a); The reaction of TWC’s Board to the initial presenta- tion in September of the idea of separating TWA “included . . . substantial expressions of ‘surprise, concern and opposition’ ” (44a); and After the Goldman Sachs presentation, TWC’s Board referred the matter to its Finance Committee for further consideration; it was not until three weeks later that the Committee recommended that the Board authorize development of a program to spinoff TWA. (39a, 44a.) Judge Weinfeld concluded that the federal securities laws do not require disclosure of “mere contingencies long in advance of the first consideration of the question by those responsible for decision.” (45Sa.) In an opinion written by Judge Mahoney, a divided panel of the court of appeals reversed on the ground that the district court had applied the wrong legal standard. The Court did not find that there was any evidence in the record that, as of July 29, the study had been completed or presented to the Board, or that the Board had reached even a tentative (much less a final) decision on the spinoff or any other option in the study. Nevertheless, purporting to apply the balancing test set forth in SEC vy. Texas Gulf Sulphur Co., 401 F.2d 833, 849 (2d Cir. 1968) (in banc), cert. denied, 394 U.S. 976 (1969) because the alleged omissions concerned a prospective event, the court of appeals held in its original opinion that a jury question was presented because the possibility of a TWA spinoff was “more than wholly remote.” (24a.) When defendants moved for rehearing, arguing that the “wholly remote” standard of mate- riality conflicted with Northway, the court amended its opin- ion to recharacterize the spinoff as “a substantial possibility.” ((33a) (emphasis added).) The court did not suggest, however, that there was any basis whatsoever for believing on July 29 that a spinoff was probable or even a substantial likelihood. In addition, the majority held that a particularly “strict standard” applies to motions for summary judgment on the issue of materiality, and, therefore, this case should be submitted to a jury. (23a.) Judge Miner dissented, recognizing that the proper standard of materiality for prospective events must be based on proba- bility, not possibility. (30a.) Because there was no way the undisputed evidence in the record could be viewed to permit a finding that a spinoff was probable, or more probable than the various other options under consideration, he concluded there 10 was no genuine issue of fact and summary judgment should have been granted. (30a-3la.) Furthermore, Judge Miner re- viewed the disclosures made in the prospectus, finding: The information provided was full and complete, poten- tial investors were cautioned adequately as to the prob- lems facing the company, and there was no false representation of any kind. A jury should not be afforded the opportunity to speculate otherwise. (29a.) REASONS FOR GRANTING THE WRIT This petition should be granted because of the Significant impact of the decision below on the disclosure obligations of all issuers of securities, on investors’ abilities to make intelli- gent investment decisions, and on the application of summary judgment to securities litigation: First, because this Court has not addressed specifically the proper standard of materiality for contingent events, the ma- jority purported to apply the “probability/magnitude” balanc- ing test set forth in 7Jexas Gulf Sulphur, 401 F.2d at 849. Its holding that a “substantial possibility” of future corporate action not disclosed in a prospectus presents a jury question cannot be squared with Northway or Texas Gulf Sulphur, and the numerous holdings that have rejected the argument that “possibilities” need to be disclosed. See discussion infra pp. 15-16. In addition, because its holding is inconsistent with the numerous cases holding preliminary merger negotiations immaterial as a matter of law, the majority established two standards of materiality governing corporate disclosure of contingent events to distinguish this and other non-merger cases from merger case precedent: a “constructive immaterial- ity” standard for mergers (21a) and a “substantial possibility” of occurrence standard for other, future events. (33a.) There is no principled basis for treating these contingencies differently. Indeed, the decision below would result in the anomalous rule of law that a corporation must disclose a possible future course 1] of action which has not yet even been considered by the Board of Directors, but need not disclose a probable future merger - which the Board has already considered and authorized man- agement to attempt to negotiate. Issuers are continually engaged in studying possible future corporate action—often very significant action—and properly so. The majority’s decision creates a disclosure standard that would be incredibly burdensome, if not impossible, for issuers to meet. Issuers would need to disclose every unfinished study of “possible” future action and every alternative that is being studied, even if it has not yet been finalized, or presented for consideration or approved by the Board, or even if there is no Board or management consensus that it should be adopted.” Moreover, issuers nationwide would face the risk of substan- tial liability whenever they failed to predict an event that later occurred, for it would be difficult indeed for an issuer to argue to a jury that there was not at least a “substantial possibility” that an event would occur, when it, in fact, did occur. Disclo- sure of “possibilities” would also severely impair a company’s ability to compete and would chill creative and constructive identification, development and study of corporate alternatives to the detriment of the company and its stockholders. The direct result of the Second Circuit’s “possibility” stand- ard would be to bury shareholders under endless carefully- phrased and essentially meaningless disclosures about “possible” future events. Material facts, which the securities laws require for the investors’ and markets’ information and informed decision-making, would be lost or their importance diminished by the welter of possibilities, studies and proposals 9. Because the court of appeals’ holding is not narrowly limited, Studies regarding oth.r significant future events affecting a corpora- tion, such as new products, efforts to discover sources of raw materi als, and new marketing or financing plans would also have to be disclosed. Moreover, the court’s “possibility” disclosure obligation would not appear to be confined to issuers involved in public offer- ings, but would apply to all instances of corporate disclosure. 12 which would have to be publicized under the disclosure stand- ard adopted by the Second Circuit. This Court should settle the important question of the standard of materiality applicable to contingent events in a way that preserves the balance that Northway established between too much and too little disclosure: the “possibility” standard adopted by court of appeals must be rejected in favor of a uniform standard that requires corporate disclosure of contin- gencies only if their occurrence appears “probable.” Mere studies of future options and alternatives should not have to be disclosed unless and until they have been presented to and have been the subject of some affirmative action by the corporate decision-maker. Finally, the court of appeals’ decision would sound the death knell for summary judgment in securities actions and repre- sents an invitation to disappointed investors further to inun- date the courts with such litigation. If all a shareholder must do to get to a jury is to show that an officer or outside advisor of a corporation has considered or been asked to study a “possible” course of action which was not disclosed at the time of a public offering, then the courthouse doors will be opened even wider than they presently are to shareholder suits. The decision below removes from the arsenal of the trial court the most effective weapon against baseless shareholder actions and undercuts this Court’s efforts to revive summary judgment as a meaningful alternative to the full-scale trial of every case as enunciated in Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548 (1986); and Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). A 13 I. THE SECOND CIRCUIT'S “POSSIBILITY” STAN- DARD OF MATERIALITY FOR JUDGING THE DISCLOSURE OF CONTINGENT EVENTS IS IN- CONSISTENT WITH NORTHWAY AND CANNOT FEASIBLY BE MET BY ISSUERS. : In TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), this Court stressed that the standard of materiality under the federal securities laws must maintain “the proper balance between the need to insure adequate disclosure and the need to avoid the adverse consequences of setting too low a threshold for civil liability.” Jd. at 449 n.10. See also Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 384 (1970). As the Northway Court cautioned: Some information is of such dubious significance that insistence on its disclosure may accomplish more harm than good. The potential liability for a Rule 14a-9 viola- tion can be great indeed, and if the standard of material- ity is unnecessarily low, not only may the corporation and its management be subjected to liability for insignificant Omissions Or misstatements, but also management’s fear of exposing itself to substantial liability may cause it simply to bury the shareholders in an avalanche of trivial information—a result that is hardly conducive to in- formed decisionmaking. 426 U.S. at 448-49. Accordingly, this Court rejected the definition of a material fact that the Seventh Circuit had adopted in Northway—“a fact which a_ reasonable shareholder might consider important”—as “ ‘too suggestive of mere possibility, however unlikely.” Jd. at 449 (quoting Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1302 (2d Cir. 1973)). It adopted instead a standard based on probability, holding that “an omitted fact is material if there is a substantial likelihood that a reasonable Shareholder wou/d consider it important.” 426 U.S. at 449. (emphasis added). “Put another way, there must be a substan- tial likelihood that disclosure of the omitted fact wou/d have been viewed by the reasonable investor as having significantly 14 altered the ‘total mix’ of information made available.” /d. (emphasis added). Here the Second Circuit created a standard of materiality with all of the vices of the “might” formulation which Northway rejected.'” Because this Court has not addressed specifically the proper standard of materiality for contingent events, the court of appeals looked to the “probability/magnitude” balancing test set forth in Texas Gulf Sulphur, 401 F.2d at 849.'' Although the Texas Gulf Sulphur standard clearly speaks in terms of “probability” and the Texas Gulf Sulphur court specifically stated that “educated guesses” and “predictions” need not be disclosed, /d. at 848, the majority below reversed the district court and held that a jury could properly find that the mere possibility of a spinoff (and/or the fact that Goldman Sachs 10. In essence, the Second Circuit's “possibility” standard represents the application to contingent events of the rejected “might” formulation. Indeed, in its original opinion, the Second Circuit explicitly relied on the “might” formulation, concluding its discussion of the appropriate legal standard to be applied in this case by quoting the following language from Sonesta Int’! Hotels Corp. v. Wellington Assocs., 483 F.2d 247, 253 (2d Cir. 1973): “*The test of materiality is not whether a possible consequence of the offer was contingent or hypothetical . . . but whether it was a factor that might be considered of some importance by a [target] stockholder in making his decision.” ” ((17a) (emphasis added).) Following petitioners’ petition for rehearing, the Second Circuit amended its opinion to delete this language; however, the majority did not alter the analysis that flowed from its original language and citation, (32a.) 11. In connection with an insider trading claim, the court in Jexas Gulf Sulphur stated that “material facts include. . . facts which affect the probable future of the company” and that an assessment of the materiality of facts relating to prospective events requires “a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity.” 401 F.2d at 849 (emphasis added). 15 was studying that and other possible alternatives for TWC) was material information that should have been disclosed.’ As construed by the court below, the “probability magnitude” test would require issuers to disclose every alterna- tive under study, at any level of the company or by any outside consultant, and every other possible event that would be of significance to the company if it were to occur. To say that this standard only requires disclosure of “substantial” possibilities is, aS a practical matter, no limitation at all. Possibilities, as opposed to probabilities, are by definition not likely to occur. To attempt to distinguish between future courses of action that are only somewhat unlikely (and thus perhaps “substantial” possibilities) and those possibilities that are very unlikely, would be fruitless, if not metaphysical. The court below demonstrated just how ephemeral the distinction would be, first assessing the “possibility” of a spinoff here—not its “probability” —as “not wholly remote” and then, without any further review or explication of the facts, terming it as “sub- stantial.” But under the standard the court adopted, an issuer’s exposure to potential ruinous civil liability would turn on precisely that distinction. As Judge Miner recognized in his dissent, the proper stand- ard of materiality for contingent events must be based on “probability,” not “possibility.” (30a.) Most decisions in the corporate disclosure context are in accord that the mere possi- bility of future corporate action is not material and need not be disclosed. See, e.g., Sonesta Int'l Hotels Corp. v. Wellington Assocs., 483 F.2d 247, 251 (2d Cir. 1973) (a contingent event may be material “provided there appears to be a reasonable The court of appeals implicitly acknowledged that there was no basis for beheving a spinoff was probable—or more probable than any of the other alternatives—when the prospectus was issued. Initially, the court merely stated that a spinoff was “more than a wholly remote possibility.” (24a.) By amendment on motion for rehearing, the court characterized it as a “substantial possibility.” (33a.) 16 likelihood of its future occurrence”) (emphasis added); SEC v. Mize, 615 F.2d 1046, 1055 (Sth Cir.) (disclosure must occur “Iwjhere the occurrence of a proposed course of action has reached a stage of probability rather than mere possibility”), cert. denied, 449 U.S. 901 (1980) (emphasis added); Arber v. Essex Wire Corp., 490 F.2d 414, 421 (6th Cir.) (“mere specula- tion [as to future corporate activity], however, does not pro- vide any basis for Section 10(b) liability”), cert. denied, 419 U.S. 830 (1974); Susquehanna Corp. v. Pan Am. Sulphur Company, 423 F.2d 1075, 1085-86 (Sth Cir. 1970) (“predictions of future behavior” are not material); Hassig v. Pearson, 565 F.2d 644, 649 (10th Cir. 1977) (possibilities regarding a poten- tial sale of shares are not material).'* The court below also erroneously decided that recent cases holding preliminary merger negotiations immaterial as a matter of law have no relevance here. (21a-22a.) See, e.g., Flamm vy. Eberstadt, 814 F.2d 1169, 1178 (7th Cir.), cert. denied, 56 U.S.L.W. 3246 (October 6, 1987); Reiss v. Pan Am. World Airways, Inc., 711 F.2d 11, 14 (2d Cir. 1983); Staffin vy. 13. Similarly, courts have uniformly held that studies of such possibili- ties and the views of individual officers are, as a matter of law, not material. Rodman v. Grant Found., 608 F.2d 64, 72 (2d Cir. 1979) (a director's speculative concern as to a future event is not a material fact); Missouri Portland Cement Co. v. Cargill, Inc. , 498 F.2d 851, 872 (2d Cir.) (tender offeror had no duty to disclose a plan to expand target's business, although it had commissioned such a plan from an Outside consultant, since there was no evidence that any such plan in fact had been developed or adopted), cert. denied, 419 U.S. 883 (1974); Electronic Specialty Co. v. Int'l Controls Corp., 409 F.2d 937, 951 (2d Cir. 1969) (president's personal desires do not constitute a material corporate plan); Harnett v. Rvan Homes, Inc., 496 F.2d 832, 838 (3d Cir. 1974) (CEO's personal views are not material because thes “must complete a circuitous course before becoming, if ever, actuality” and because if a corporation were required to disclose the musings of its Officers, few transactions would avoid charges of securities law violations); Feit v. Leasco Data Processing Equip. Corp. , 332 F. Supp. $44, 568 (E.D.N.Y. 1971) (no duty to disclose in a prospectus methods of reorganization being “seriously investigated” by legal staff, which kept president apprised of progress, because plans had not “crystal- lized.”). 17 Greenberg, 672 F.2d 1196, 1204-07 (3d Cir. 1982). In the majority’s view, a standard of “constructive immateriality” applies to preliminary merger negotiations prior to an agree- ment in principle on price and structure. (20a, 21a.) The court held that this is a unique “policy exception ... to the Northway and Texas Gulf Sulphur formulations of material- ity” (22a), justified only for mergers, and inapplicable here, for two reasons: (i) “application of a different rule [to mergers] could scuttle corporate deals, costing shareholders desirable merger premiums” (21a), and (ii) mergers involve “negotia- tions with outside parties”. (22a.) Neither reason provides a principled basis for recognizing a different standard of materiality for preliminary consideration of a merger (even if the concept of merger already is supported by the Boards of both companies in principle) than for prelimi- nary consideration of other possible corporate action (which, here, had not even been presented to the Board). The first rests on the assumption that shareholders benefit from mergers and, therefore, would prefer to be kept in the dark if disclosure would defeat the deal. See, e.g., Flamm, 814 F.2d at 1176-77. But this Court long ago rejected the notion that judicial appraisal of the merits of corporate action is a proper basis for resolving disclosure questions under the federal securities laws. See Mills v. Elec. Auto-Lite Co., 396 U.S. at 38). As for the second reason, the fact that merger negotiations involve third parties is relevant only because it demonstrates that the outcome of such discussions is unpredictable. Because the negotiations “may fail as well as succeed, or may succeed on terms which vary greatly from those under consideration at the suggested time of disclosure,” such negotiations do not “definitely affect a company’s financial prospects” and prema- ture disclosure could be “more misleading than secrecy so far as investment decisions are concerned.” Reiss v. Pan Am. World Airways, Inc., 711 F.2d at 14. These considerations apply with equal force here, where the issue involved disclosure of one prospective alternative among many that were the subject of an unfinished study by an outside consultant and as 18a Supp. 492, 499 (S.D.N.Y. 1983), for the propositions that the “content of contingent speculations” and “the views held by individual directors”'* need not be disclosed. 631 F. Supp. at 1264 and n.17. We do not regard these decisions as controlling here. Reiss is representative of a current trend in the courts to hold preliminary merger negotiations immaterial as a matter of law for purposes of Section 10(b)/Rule 10b-5 liability. These cases, and our view of their inapplicability to the facts of this case, are discussed hereinafter. The citation of Electronic Specialty refers to an alleged state- ment by a corporation’s president, in response to a financial reporter’s question, that the corporation’s “preference” was to Sell its holdings in a potential target at a time when he had personally decided that it would be advisable to reactivate a tender offer for the target, but had not yet presented that conclusion to his board of directors, for whose authority (in Judge Friendly’s words) he “manifested punctilious regard.” 409 F.2d at 951. Electronic Specialty would be persuasive authority were plaintiff’s case here based solely upon Mr. Salizzoni’s view of the TWA-TWC relationship as of June, 1983, but that is clearly not the case. Flum Partners states that “the failure to disclose future business plans is also not action- able” at 557 F. Supp. 499. To the extent that this state- 14s The reference here is to Frank L. Salizzoni, who during 1983 served as senior vice president-finance of TWC, was a member of the TWC and TWA boards of directors and executive committees and the TWA finance committee, was chairman of the TWC finance committee, and acted as the primary TWC liason with Goldman Sachs concerning its study of TWC’s structure and finances. He testified on deposition that in June, 1983, he had come to the conclusion that “TWA and [TWC] both could be better off if somehow we could separate the airline successfully in some manner.” 5832 19a ment is invoked as a general rule of law, rather than a disposition of the particular issues presented in that case, we deem it overbroad in view of Texas Gulf Sulphur and the cognate decisions cited hereinabove. 3. The Preliminary Merger Discussion Cases. We turn next to Reiss and related cases that deal with the question of Section 10b/Rule 10b-5 liability with respect to preliminary merger discussions. The district court considered this a “related context,” and deemed Reiss highly persuasive, if not controlling, here. 631 F. Supp. at 1264-65. A recent line of cases has rejected arguments that preliminary merger negotiations should be disclosed to the investing public. For example, in Staffin v. Green- berg, 672 F.2d 1196 (3d Cir. 1982), the Third Circuit rejected claims that preliminary merger negotiations should have been disclosed to tender offerees and mem- bers of a broader class of open market sellers. It found preliminary merger discussions immaterial as a matter of law, finding merit in the opinions of other courts and commentators in the related area of takeover bids that disclosure of such discussions may do more harm than secrecy. Jd. at 1206." It held that a disclosure obligation 15 The Court concluded: Those persons who would buy stock on the basis of the occur- rence of preliminary merger discussions preceding a merger which never occurs, are left “holding the bag” on a stock whose value was inflated purely by an inchoate hope. If the announcement is withheld until an agreement in principle on a merger is reached, the greatest good for the greatest number results. If the merger occurs, all of the company’s shareholders usually benefit; if no merger agreement is reached, the stock performs as it would have in any event. Staffin, 672 F.2d at 1207 (footnote omitted). 5833 20a arises Once an agreement in principle is reached. 7d. at 1207. In Reiss v. Pan American World Airways, Inc., 711 F.2d 11 (2d Cir. 1983), this court resolved a Section 10(b)/ Rule 10b-5 action brought by holders of Pan Am convert- ible debentures who, pursuant to a call, sold their debentures rather than convert them into capital stock. Plaintiffs claimed that had they been aware that Pan Am was attempting to negotiate a merger with National Air- lines, Inc., they would have converted their debentures. On appeal from a grant of summary judgment in Pan Am’s favor, this Court affirmed, approving the rationale of Staffin. We noted that merger negotiations “are inher- ently fluid and the eventual outcome is shrouded in uncertainty. Disclosure may in fact be more misleading than secrecy so far as investment decisions are concerned. . . . [Merger negotiations involve] complex bargaining between two (and often more) parties which may fail as well as succeed, or may succeed on terms which vary greatly from those under consideration at the suggested time of disclosure.” Reiss, 711 F.2d at 14. Recently, in Flamm v. Eberstadt, 814 F. 2d 1169 (7th Cir. 1987), the Seventh Circuit followed Staffin and Reiss and held that a target company’s search for a white knight was immaterial as a matter of law prior to agree- ment on the deal” price and structure. '® 16 A related question which has produced a conflict among the circuits concerns whether a company, while negotiating a merger, may legally deny knowledge of new corporate developments. For example, in Greenfield v. Heublein, Inc. , 742 F.2d 751 (3d Cir. 1984), cert. denied, 10S S. Ct. 1189-90 (1985), the Third Circuit held that a company engaged in preliminary merger discussions could deny knowledge of new corporate developments which might account for an unusual upsurge in public trading in its stock in response to a query from the 5834 2la We do not question the wisdom of the rule of “con- structive immateriality,” as one commentator terms it, as it has been applied in the preliminary merger context. See generally Note, Rule 10b-5 and the Duty to Disclose Merger Negotiations in Corporate Statements, 96 Yale L.J. 547 (1987) [hereinafter “Note, Duty to Disclose”}. Indeed, the application of a different rule there could scuttle corporate deals, costing shareholders desirable merger premiums, either because acquiring corporations generally insist on negotiating mergers in confidence and may terminate a deal that is disclosed prematurely, or because early disclosure may drive the target corpora- tion’s stock price so high as to make merger consumma- New York Stock Exchange without running afoul of the federal securities laws. Arguably, Greenfield’s result is limited to its facts and does not supply a rule for all cases in this area. The Court found that although the insiders of Heublein, Inc. “clearly knew” what might have accounted for the increase in trading, since there was no indica- tion that privileged information respecting its preliminary merger discussions had leaked to the public or that insiders were trading in Heublein stock, the company’s statement that it “was aware of no reason that would explain the activity in its stock . . .” was not false or misleading. Jd. at 758-59; but see id. at 763 (Higginbotham, J., dissenting). In Levinson v. Basic Inc., 786 F.2d 741 (6th Cir. 1986), cert. granted, 107 S. Ct. 1284 (1987), the Sixth Circuit reversed a grant of summary judgment in favor of a company which denied the existence of merger discussions in response to requests for “no corpo- rate development” statements from the New York Stock Exchange, when in fact such discussions were taking place. See genera/ly Note, Rule 10b-5 and the Duty to Disclose Merger Negotiations in Corporate Statements, 96 Yale L.J. 547 (1987). In the Supreme Court of the United States, the United States filed an amicus curiae brief in support of the petition for certiorari recently granted in Levinson in which it advocated application of the balancing test of Texas Gulf Sulphur. See Brief for the United States as Amicus Curiae in Support of Petition for Writ of Certiorari at 8-9, 15, Basic Inc. v. Levinson, No. 86-279, cert. granted, 107 S. Ct. 1284 (1987). 5835 22a tion economically unfeasible. See Note, Duty to Disclose at 554-55; see also Flamm, 814 F. 2d at 1176-78. 4. The Instant Case Similar concerns are not implicated here. Section 11 of the 1933 Act “was designed to assure compliance with the disclosure provisions of the Act by imposing a stringent standard of liability on the parties who play a direct role in a registered offering.” Herman & MacLean y. Huddleston, 459 U.S. 375, 381-82 (1983) (footnotes omit- ted). The defendants at bar were in control of the timing of the TWA issue and of the response to the Odyssey proposal to a far greater degree than were the corporate defendants in the preliminary merger cases of the events unfolding there as a result of negotiations with outside parties. Here, we see no reason to carve out the policy exception recognized by cases such as Staffin, Reiss and Flamm to the Northway and Texas Gulf Sulphur formu- lations of materiality. Texas Gulf Sulphur recognizes that contingencies inex- tricably bound up with a company’s fortunes need not be certainties to qualify as material. Were defendants’ argu- ments to carry the day, corporate actors would be granted the power to render facts—objectively material facts under the standard of Northway—immaterial as a matter of law by steering them clear of the board room. The Third Circuit seems to have recognized as much, even in the merger context, noting in Staffin that circumstances may arise where failure to disclose merger negotiations short of agreement in principle may nonetheless be ac- tionable where the “functional equivalent” of agreement obtains. Staffin, 672 F.2d at 1207. As an example, the Staffin Court cited Thomas v. Duralite Co., 524 F.2d 577 5836 23a (3d Cir. 1975), a Section 10(b)/Rule 10b-5 case in which an insider was found liable on a record indicating that he deliberately postponed merger negotiations which had already yielded the “likelihood of acquisition” in order to purchase a large shareholder’s stock at a favorable price. Id. at 585. We conclude that the governing rule here is provided by Northway and Texas Gulf Sulphur, rather than the Staffin/Reiss/Flamm line of authority. We further con- clude that, judged by the strict standard applicable to the granting of motions for summary judgment, especially concerning questions of materiality, defendants’ motion should not have been granted in this case. As we have stated earlier, the TWA prospectus dis- cussed in some detail the relationship between TWA and TWC, so the question presented is whether that discus- sion omitted to state material facts necessary to make the Statements therein not misleading; not whether, consid- ered in the abstract, there was an obligation to disclose those facts at that time.'’ Plaintiff contends, in essence, that there should have been some reference to the ongoing Goldman Sachs study of TWC’s structure and finances, and to the possibility of a termination of TWA’s status as a TWC subsidiary. It is not our role at this juncture, of course, to decide whether plaintiff is correct. Rather, we are to determine whether plaintiff raised a genuine issue of material fact concerning the matter. Fed. R. Civ. P. 56(c). In making this determination, we take into account the Jexas Gulf Sulphur test calling for a balancing of the likelihood of an 17 Substantially the same standard is stated in Section 11 of the 1933 Act and Rule 10b-S. 5837 24a event’s Occurrence with its anticipated magnitude if it occurs “in light of the totality of the company activity,” Texas Gulf Sulphur, 401 F.2d at 849, and decline to rule that no disclosure could be material, as a matter of law, until any proposal for the termination of TWA’s status as a IWC subsidiary was presented to TWC’s board of directors. As to the magnitude of the event, we agree with the district court that: It is not disputed that the nature of the relationship between TWC and TWA, in which TWC guaranteed much of the credit upon which TWA did business and financed its substantial requirements for operat- ing capital, was critical to the decisions faced by knowledgeable investors in evaluating TWA’s value as an investment, particularly in view of the fact that TWA had suffered substantial losses in the period before July 29, 1983. 631 F. Supp. at 1263. Furthermore, when TWC an- nounced on September 28, 1983 that it was “considering the possible separation of TWA,” the price of TWA’s common stock went into an immediate and sharp decline. The likelihood of the event’s occurrence cuts much less sharply in favor of plaintiff, but there was certainly, at a minimum, more than a wholly remote possibility of its occurrence. Especially given the fact that the TWC-TWA relationship was given considerable attention in the TWA prospectus, we cannot say, in ruling on a motion for summary judgment, that the evidence is “so one-sided that one party must prevail as a matter of law” and does not “present[{ ] a sufficient disagreement to require sub- 5838 25a mission to a jury.” Anderson v. Liberty Lobby, Inc., iS. ‘ , 106 S. Ct. 2505, 2512 (1986). For example, the discussion in the TWA prospectus of various arrangements and relationships between TWA and TWC stated that there might in the future be “other arrangements . . . [to] be determined on an arms-length basis,” adding that “[t]here can be no assurance, however, that these terms will be favorable to TWA or that [TWC] will continue to provide TWA with the same level of support for TWA’s financing and other needs as it has in the past.” A jury might conclude that this language, while - anticipating revisions of the multitude of relationships existing between TWA and TWC, did not give any fair indication that TWA’s status as a TWC subsidiary might be terminated. There was no mention in the TWA prospectus of the ongoing Goldman Sachs study. The district court noted that Goldman Sachs’ activities in investigating alternative structures for TWC “had been extensively publicized by TWC in connection with the proxy solicitation by Odys- sey Partners.” 631 F. Supp. at 1265. All of TWC’s activity in that regard pre-dated the annual meeting of TWC which occurred on April 27, 1983, however, and on June 23, 1983, TWC issued a press release in which its chair- man stated that “[TWC] now has set targets that by 1987 its presently unprofitable airline subsidiary, TWC, should become a source of $100 million in pre-tax profits. . .” There are serious-limitations on a corporation’s ability to charge its stockholders with knowledge of information omitted from a document such as a proxy statement or prospectus on the basis that the information is public know!edge and otherwise available to them. See Spielman v. General Host Corp., 538 F.2d 39, 40-41 (2d Cir. 1976) 5839 26a (per curiam); Fisher v. Plessy Co. Ltd., 559 F. Supp. 442, 445-48 (S.D.N.Y. 1983). At a minimum, in any event, an issue is presented whether purchasers of TWA’s cumula- tive convertible preferred stock could properly be charged with knowledge on July 29, 1983 and thereafter that Goldman Sachs was then engaged in a study on behalf of TWC one of the live options of which was a termination of TWA’s status as a TWC subsidiary. That it was then live is evidenced by Ms. Casati’s notes taken at the July 7 meeting of Goldman Sachs representatives with TWC officials, despite her inability upon deposition to recollect what was said or meant. Plaintiff also points out that, although defendants contend that it would have been inappropriate to discuss in the July prospectus any of the options under consider- ation by Goldman Sachs prior to their consideration by the TWC board of directors, one of those options, additional sales of TWA stock, was in fact so discussed. The prospectus stated that consents had been obtained from TWC’s lenders to allow creation of up to a forty percent public holding of TWA’s common stock, and that TWA and TWC might make future sales which would increase the public holding beyond forty percent, assum- ing any required consents of lenders and stockholders were obtained.'* Additional sales of TWA stock was one of the options under consideration by Goldman Sachs. There is other evidence of record that bears upon the ultimate issue of a material omission. For example, al- though the Odyssey proposal called for a “disaggrega- tion” of TWC’s five subsidiaries, there is evidence 18 We recognize the pertinence in the July prospectus of a possible Occurrence which could dilute the common stock into which the preferred stock offered by that prospectus was convertible. 5840 27a indicating that Odyssey privately informed Mr. Salizzoni that it would be satisfied if only TWA were separated from the holding company. The record also indicates that some significant shareholders supported the Odyssey pro- posal, but felt it best to let management work things out without the pressure of a shareholder resolution. Alliance Capital Management Corporation, for example voted over 750,000 shares owned by its pension and endowment fund clients against the Odyssey proposal, but contempo- raneously indicated in a letter dated April 27, 1983 to L. Edwin Smart, TWC’s chairman, that it saw “much merit to the Odyssey plan.”'? Nor would a jury be required to accept at face value the testimony of defendants’ wit- nesses that the Goldman Sachs study was not presented to TWC’s board of directors in July, 1983, as originally planned and prior to the TWA public offering, solely because the study was not then ready to be presented. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157-58 (1970). The foregoing does not constitute an exhaustive recital of the evidentiary points plaintiff might make at trial, and of course, given the issue presented to us, does not touch upon the ripostes available to defendants. Enough 19 The letter continued, in pertinent part, as follows: Further, we thought the Odyssey proposal put management under too much pressure for fast action on divesting or selling assets. Finally, we saw no virtue at all to the Corporation selling assets; we would only favor partial or total spinoff of subsidiaries to stock- holders. * * * The minority divestiture of Trans World Airlines, Inc. is a step in the right direction, and we are shareholders. We hope this is a first move towards spinning off to shareholders more of TWA and other subsidiaries which have “stand alone” capability. 5841 28a has been said, however, to make it clear that, under the standards provided by Northway and Texas Gulf Sul- phur, plaintiff tendered genuine issues of material fact as to whether there were material omissions in TWA’s July 29, 1983 prospectus. Accordingly, summary judgment should not have been rendered in favor of defendants. CONCLUSION In the interests of caution, we wish to stress that our discussion of certain factual issues and evidence herein, for the limited purpose of demonstrating the existence of genuine issues of marerial fact precluding summary judg- ment, intimates no view whatever concerning the merits and ultimate outcome of this litigation. The judgment of the district court is reversed and the case remanded for further proceedings not inconsistent with this opinion. + MINER, Circuit Judge, dissenting: Since I cannot agree that there is any triable issue of fact as to whether TWA’s July 29, 1983 prospectus con- tained any untrue material fact or omitted to state any material fact, I respectfully dissent. Although the spin-off of TWA always was a possibility, it was only one of a number of options available to TWC management for dealing with its problems in regard to TWA at the time the prospectus was issued. It seems clear that no decision of any kind was made until Goldman Sachs placed seven alternative choices before the TWC Board of Directors on September 6, 1983. The Goldman 5842 29a Sachs report was referred to the Board’s Finance Com- mittee for-consideration, and, on September 27, 1983, the Committee recommended one of the seven options— development of a program to separate TWA from TWC. The directors did not adopt a formal plan of separation until October 23, 1983, almost three months after the issuance of the prospectus upon which plaintiff predicates his claim. The prospectus gave specific notice to prospective shareholders of TWA that TWC might not provide the same financial support to TWA as it had provided in the past. The shaky financial condition of TWA was apparent from the financial information furnished to those inter- ested in purchasing shares at the public offering, and the prospectus gave further notice that TWC might “sell or otherwise dispose of” its shares of TWA. The information provided was full and complete, potential investors were cautioned adequately as to the problems facing the com- pany, and there was no false representation of any kind. A jury should not be afforded the opportunity to specu- late otherwise. I cannot agree that the statement in the prospectus giving notice of the possibility of withdrawal of financial support by TWC “did not give any fair indication that TWA’s status as a TWC subsidiary might be terminated.” The withdrawal of financial support could be seen to lead to a total collapse of TWA, let alone termination of its status as a subsidiary. Moreover, another provision in the prospectus warning that TWC might sell its shares clearly indicated the possibility of spin-off. The risky nature of an investment in TWA should have been apparent to all those who took the time to examine the prospectus. Nor do I agree that there is an issue whether stock purchasers 5843 30a can be charged with knowledge that Goldman Sachs was undertaking a study involving the “live” option of separa- tion. It seems to me that there was no need to notify prospective purchasers of the study at all, because the study was in progress and had produced no options, “live” or otherwise, at the time of the public offering. The mere fact that the Odyssey proxy battle centered on a proposal for “disaggregation” of TWC’s subsidiaries does not create a triable issue as to whether divestiture of TWA should have been included in the prospectus. The Odyssey proposal was defeated, partially on the strength of the pending Goldman Sachs review of all available “structural and financial” alternatives. Although Mr. Salizzoni, a senior vice-president and director of TWC, had concluded in June 1983 that separation was desirable, there is no indication that his opinion was imparted to any other board member or that any other board member held the same view. In point of fact, Odyssey’s defeat in the proxy contest represented a corporate rejection of the separation proposal. With regard to the Casati notes, | fail to see how the idle scribblings of a minor functionary of Goldman Sachs during a meeting with TWC represent- atives could possibly be indicative of material facts re- quired to be revealed in a prospectus. Resolution of the question of materiality requires an assessment of the “probability that the event will occur.” SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 849 (2d Cir. 1968) (in banc), cert. denied, 394 U.S. 976 (1969). There simply is no way in which the evidence can be viewed so as to permit a finding that spin-off was any more probable at the time the prospectus was issued than any of the six other options eventually considered. That being so, and there being no genuine factual issue of any 5844 | 31a kind remaining in the case, summary judgment must be granted to the defendants. Anderson vy. Liberty Lobby, Inc., 477 U.S. 242, 406 5. Ct. 2505, Zi, 91 L.Ed.2d 202, 213 (1986). Where summary judgment is appropriate, it should be granted without hesitation. See Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 11-12 (2d Cir. 1986), cert. denied, 107 S. Ct. 1570, 94 L.Ed.2d 762 (1987). See generally New York State Bar Assoc. Comm. on Fed. Courts, Summary Judgment in the Second Cir- cuit (Mar. 23, 1987) (unpublished manuscript). I respect- fully suggest that it is appropriate here. 32a Order Amending the Opinion and Denying the Petition for Rehearing UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT At a stated term of the United States Court of Appeals, in and for the Second Circuit, held at the United States Court- house, in the City of New York, on the 28th day of December, one thousand nine hundred and eighty-seven. — + 86-7330 JOEL KRONFELD, Plaintiff-Appellant, oa