Source: https://law.justia.com/cases/federal/appellate-courts/F2/535/761/23745/
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Matched Legal Cases: ['§ 78', '§ 240', '§ 78', '§ 240', 'art, 416', '§ 878', '§ 240', '§ 78', '§ 2716', '§ 240', '§ 885']

Fed. Sec. L. Rep. P 95,512marvyn Gould, Executor of the Estate of J. Donald Rogasner,et al., Appellants in No. 75-1338. v. American-hawaiian Steamship Company et al., Cross-appellants, 535 F.2d 761 (3d Cir. 1976) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Third Circuit › 1976 › Fed. Sec. L. Rep. P 95,512marvyn Gould, Executor of the Estate of J. Donald Rogasner,et al., Appella...
Fed. Sec. L. Rep. P 95,512marvyn Gould, Executor of the Estate of J. Donald Rogasner,et al., Appellants in No. 75-1338. v. American-hawaiian Steamship Company et al., Cross-appellants, 535 F.2d 761 (3d Cir. 1976)
US Court of Appeals for the Third Circuit - 535 F.2d 761 (3d Cir. 1976) Argued Oct. 3, 1975. Decided April 8, 1976
This is a consolidated class action for damages brought in the United States District Court for the District of Delaware. Originally, two actions were instituted, one by J. Donald Rogasner1 (Civil Action No. 3707) and the other by I. David Pincus (Civil Action No. 3722), both of them on behalf of the plaintiffs and all others similarly situated. In the Rogasner action, Mary S. McCord and Charles T. McCord, Jr. subsequently intervened as plaintiffs. On February 27, 1970, the district court ordered that the Rogasner case be maintained as a class action. On July 20, 1970, the two actions were consolidated by the district court for all purposes. The actions were brought, and the consolidated action proceeded, against American-Hawaiian Steamship Company (herein American-Hawaiian), National Bulk Carriers, Inc. (herein National Bulk), Litton Industries, Inc. (herein Litton) and Monroe International Corporation Retirement Plan Trust (herein Monroe), McLean Industries, Inc. (herein McLean Industries) and R. J. Reynolds Tobacco Company (herein Reynolds), and Malcolm P. McLean, Clara L. McLean, Joseph T. Casey, Disque D. Deane, Edward A. Hirs, Hal A. Kroeger, Daniel K. Ludwig, James K. McLean, James T. Murff and Beverly R. Wilson, Jr., all of the individual defendants being directors of McLean Industries. The actions were based upon the alleged violation of sections 10(b) and 14(a) of the Securities Exchange Act of 1934, 15 U.S.C.A. §§ 78j(b) and 78n(a) and Rules 10b-5 and 14a-9 promulgated by the Securities and Exchange Commission thereunder, respectively, 17 C.F.R. §§ 240.10b-5 and 240.14a-9, as well as alleged breaches of fiduciary duties, primarily in connection with the solicitation of proxies by McLean Industries for shareholders' approval of its merger into Reynolds, a merger which was consummated on May 13, 1969 or shortly thereafter. The district court fully discussed the facts of the case and the legal questions involved in a series of opinions filed, respectively, on November 10, 1970, 319 F. Supp. 795; September 17, 1971, 331 F. Supp. 981; June 20, 1972, 55 F.R.D. 475; December 6, 1972, 351 F. Supp. 853; August 17, 1973, 362 F. Supp. 771; June 28, 1974; and December 19, 1974, 387 F. Supp. 163. We need merely to summarize, therefore, in this opinion the facts relevant to the determination of the issues presented on appeal.
American-Hawaiian 1,000,000 9.4% National Bulk 250,000 2.4% Litton 965,000 9.1% Monroe 85,000 0.8% Hal A. Kroeger 4,000 Malcolm P. McLean 3,609,473 33.9% Clara L. McLean 150,000 1.4% Disque D. Deane 500 Edward A. Hirs 113,203 1.1% James K. McLean 539,920 5.0% James T. Murff 40,550 0.4% Beverly R. Wilson, Jr. 6,000 --------- ----- 6,763,646 63.5%
First Cumulative Common Preferred Preferred ------------------- ---------------- ---------------- Voting in favor of merger 8,332,239 90,877 3,130 Voting against merger 185,230 3,712 94 Not voting 2,114,5313 52,336 1,341 3. The holders of 223,136 shares of common stock demanded appraisal of their shares.
While, as we have seen, the complaint alleged violations of sections 10(b) and 14(a) of the Securities Exchange Act of 1934, (herein the Act), 15 U.S.C.A. §§ 78j(b) and 78n(a), and Rules 10b-5 and 14a-9 of the Regulations promulgated by the Securities and Exchange Commission under the Act, (herein the Regulations), 17 C.F.R. §§ 240.10b-5 and 240.14a-9, as well as breaches of fiduciary duties, the judgment now before us on appeal involves an adjudication of the plaintiffs' claim for damages under section 14(a) of the Act4 and Rule 14a-9 of the Regulations only,5 which the district court regarded as the broadest of the claims. The court held that the plaintiffs had not sufficiently established their claims based on breach of fiduciary duties under federal law. The plaintiffs had claimed that Casey had a federal fiduciary duty to obtain for the plaintiffs the same cash payments in the merger as some of the defendants had received. The court pointed out, however, that while federal fiduciary obligations were created by the Act, these were only in the area regulated by the Act and that the claim to equal treatment was not in that area. 362 F. Supp. at 775. The plaintiffs do not question that ruling here. The court agreed that section 14(a) of the Act imposed on Casey a federal fiduciary duty not to approve a materially false or misleading proxy statement. The court correctly held, however, that since this claim was merely duplicative of the plaintiffs' contention that Casey had directly violated section 14(a) by approving such a defective statement, it need not be separately considered. We accordingly restrict our consideration to the plaintiffs' claim for damages under section 14(a) of the Act and Rule 14a-9(a) of the Regulations based upon the defective proxy materials circulated to them.
The plaintiffs' first motion for summary judgment was denied. Following the later submission of certain of the defendants' answers to interrogatories, the district court granted the plaintiffs' renewed motion for summary judgment against Reynolds, as successor to McLean Industries, for being the issuer of a materially defective proxy statement, and against Malcolm McLean, Casey, Ludwig and Kroeger for knowingly approving as directors a false proxy statement, all of whom having thus violated section 14(a) of the Act and Rule 14a-9(a) of the Regulations were held liable for the damages suffered by the plaintiffs as a result of the violations. The court denied summary judgment against the six "non-involved" directors who, the court found, were not shown to have been aware of the falsity of the statement. The court also denied summary judgment against the corporate defendants other than Reynolds, holding that there remained unresolved questions of agency and authority upon which their responsibility under section 14(a) of the Act was necessarily predicated. 331 F. Supp. 981 (1971).
Defendants Casey, Kroeger and Ludwig moved to vacate and reopen the summary judgment of liability as to them. In an opinion filed December 6, 1972, 351 F. Supp. 853, the district court stated that negligence is the appropriate standard of culpability to establish an individual's liability for damages for a violation of section 14(a) of the Act, and Rule 14a-9(a) of the Regulations, which standard, the court decided, was applicable to the four defendants summarily found liable as well as to the remaining defendants whose liability had not then been determined. Thereafter on April 30, 1973, the district court approved a settlement of all the claims of the plaintiffs against all the defendants except Litton, Monroe and Casey. The amount paid in settlement was $4,000,000. By agreement of the parties the case proceeded to trial by the court without a jury as to the defendants, Litton, Monroe and Casey, who are the cross-appellants here. Litton and Monroe were held liable for violations of section 14(a) of the Act and Rule 14a-9(a) of the Regulations, through the acts of Casey, who was held to be their agent in matters relevant to the merger. Casey had already been held liable individually by summary judgment, as we have seen. The court concluded
In Mills v. Electric Auto-Lite Co., 396 U.S. 375, 384, 90 S. Ct. 616, 621, 24 L. Ed. 2d 593, 602 (1970), the Supreme Court said:
On its face the first sentence of this statement would appear to lay down a broad standard for determining materiality, the mere possibility that a false or misleading statement might be considered by a reasonable shareholder as important to his voting decision. It seems clear, however, as Judge Friendly convincingly pointed out in Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1301-1302 (2d Cir. 1973), that this statement was not intended to establish a definition of materiality, that not being the issue before the court. Moreover, the court cited with apparent approval two opinions of the Court of Appeals for the Second Circuit, List v. Fashion Park, Inc., 340 F.2d 457, 462, cert. denied, 382 U.S. 811, 86 S. Ct. 23, 15 L. Ed. 2d 60 (1965), and General Time Corp. v. Talley Industries, Inc., 403 F.2d 159, 162 (1968), cert. denied, 393 U.S. 1026, 89 S. Ct. 637, 21 L. Ed. 2d 570 (1969), which set a somewhat narrower standard for determining materiality. In the Gerstle case, Judge Friendly said (p. 1302):
"We think that, in a context such as this, the 'might have been' standard mentioned by Mr. Justice Harlan sets somewhat too low a threshold; the very fact that negligence suffices to invoke liability argues for a realistic standard of materiality. Justice Harlan's next sentence in Mills, that the defect must 'have a significant propensity to affect the voting process,' 396 U.S. at 384, 90 S. Ct. at 621, (24 L. Ed. 2d at 602) (emphasis in original), comes closer to the right flavor. While the difference between 'might' and 'would' may seem gossamer, the former is too suggestive of mere possibility, however unlikely. When account is taken of the heavy damages that may be imposed, a standard tending toward probability rather than toward mere possibility is more appropriate."
The view thus taken by the Court of Appeals for the Second Circuit has been approved and followed in the Fifth Circuit, Smallwood v. Pearl Brewing Co., 489 F.2d 579, 603-604, cert. denied, 419 U.S. 873, 95 S. Ct. 134, 42 L. Ed. 2d 113 (1974) and we are constrained to follow it in this case.9 See Rochez Brothers, Inc. v. Rhoades, 491 F.2d 402, 408 (3d Cir. 1974). We, accordingly, hold that the basic test of materiality in a section 14(a) setting is whether it is probable that a reasonable shareholder would attach importance to the fact falsified, misstated or omitted in determining how to cast his vote on the question involved. Or, as Judge Friendly put it in the General Time case, p. 162, whether "taking a properly realistic view, there is a substantial likelihood that the misstatement or omission may have led a stockholder to grant a proxy to the solicitor or to withhold one from the other side, whereas in the absence of this he would have taken a contrary course."
The issue of materiality, resting as it does upon what is believed would be the reaction of a "reasonable shareholder", is a mixed question of law and fact and the subsidiary fact issues cannot ordinarily be decided by summary judgment. But if the facts falsified, misrepresented or withheld are so obviously important to the shareholder's decision that reasonable minds cannot differ on the question of materiality and the underlying facts and the inferences to be drawn from those facts are free from controversy, the question becomes one of law which may appropriately be decided by summary judgment. Johns Hopkins University v. Hutton, 422 F.2d 1124, 1129 (4th Cir. 1970), cert. denied, 416 U.S. 916, 94 S. Ct. 1622, 40 L. Ed. 2d 118 (1974). Here the district court decided four of the six issues of materiality by summary judgment upholding materiality in all four instances. One of the remaining issues was decided after trial not to be a material defect and the other appears not to have been pressed at trial and was not decided by the court. We turn then to consider the action of the court on these issues in the light of the applicable rules as we have stated them.
We find this contention unpersuasive. While there was evidence of need for additional capital for expansion of the business the district court made no such finding either on summary judgment or after trial. It is most significant, moreover, that the proxy statement and covering letter did not stress McLean Industries' need in this regard in any forceful way. The shareholders were not told that the merger was critical to the future success of the business and the preservation of their investment. And, finally, the argument misses the whole thrust of this case. The plaintiffs do not contend that the deficiencies in the proxy materials influenced them with respect to their voting for or against the merger, but rather that, even though they might have favored the merger, they were misled as to the potential effectiveness of their voting power for bargaining purposes and thereby were deprived of the opportunity to use the possibility of their voting in the negative as a negotiating lever in seeking a modification of the merger agreement which would be more favorable to themselves. In this regard the false statement that the five favored shareholders had agreed to vote for the merger was highly material since if true it indicated that very nearly two-thirds of the shares were committed to the merger. From this fact the plaintiffs could fairly assume that they had practically no potential power to block the merger by their votes. In this context we do not regard Laurenzano v. Einbender, 448 F.2d 1 (2d Cir. 1971) cited in support of the argument as apposite. Moreover, that case and others like it are clearly distinguishable on their facts.
The defendant-appellants argue, on the other hand, that the facts which were stated in various parts of the documents did constitute an adequate disclosure of the conflicting interests of the three directors in question. While we find ourselves in general accord with Judge Mansfield's statement in Richland v. Crandall, 262 F. Supp. 538, 554 (S.D.N.Y. 1967), that "corporations are not required to address their stockholders as if they were children in kindergarten", we also bear in mind Judge Friendly's admonition in Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1297 (2d Cir. 1973), who, after quoting Judge Mansfield's statement, said that "it is not sufficient that overtones might have been picked up by the sensitive antennae of investment analysts". In the present case many of the statements upon which the defendant-appellants rely are scattered through and rather buried in the lengthy proxy statement. There is nowhere a statement giving emphasis to the conflicts of interest similar to that given to the board's approval of the merger agreement.11 We conclude that the district court did not err in holding on summary judgment that the proxy materials were materially deficient in this respect.
Contrary to the contention of the plaintiffs, the proxy statement made no reference to any estimated or probable value for the Reynolds securities. Pointing out that valuation predictions are generally not permitted and are frequently considered to be themselves examples of misleading statements12 the district court held that inclusion of an admonition that shares of stock as yet unissued might not be worth $50 would not be necessary and could not have been material to a reasonable shareholder. 362 F. Supp. 771, 776 (1973). With this conclusion we agree.
All of the courts which have discussed the question, so far as the reported decisions indicate, have favored applying the rule of negligence as the criterion for determining liability under section 14(a). Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1300-1301 (2d Cir. 1973); Berman v. Thomson, 403 F. Supp. 695, 699 (N.D. Ill. 1975); Norte & Co. v. Huffines, 304 F. Supp. 1096, 1109-1110 (S.D.N.Y. 1968), aff'd in pertinent part, 416 F.2d 1189 (2d Cir. 1969), cert. denied, Muscat v. Norte & Co., 397 U.S. 989, 90 S. Ct. 1121, 25 L. Ed. 2d 396 (1970); Richland v. Crandall, 262 F. Supp. 538, 553 (S.D.N.Y. 1967). The language of section 14(a) and Rule 14a-9(a) contains no suggestion of a scienter requirement, merely establishing a quality standard for proxy material. The importance of the proxy provisions to informed voting by shareholders has been stressed by the Supreme Court,15 which has emphasized the broad remedial purpose of the section, implying the need to impose a high standard of care on the individuals involved. And, unlike sections 10(b) and 18 of the Act, which encompass activity in numerous and diverse areas of securities markets and corporate management, section 14(a) is specially limited to materials used in soliciting proxies. Given all of these factors the imposition of a standard of due diligence as opposed to actual knowledge or gross negligence is quite appropriate. We are confirmed in this view by the very recent case of Ernst & Ernst v. Hochfelder, --- U.S. ----, fn. 28, 96 S. Ct. 1375, 47 L. Ed. 2d 668 (1976), in which the Supreme Court pointed out that the "operative language and purpose" of each particular section of the Acts of 1933 and 1934 are important considerations in determining the standard of liability for violations of the section in question. We, therefore, conclude that the district court did not err in applying the standard of due diligence to determine Casey's liability in this case.
Casey points out that he received no part of the premium received by the favored defendants in the merger and he contends that it was error to hold him liable to the plaintiffs for their share of the premium which Litton and Monroe received. This is, however, not an action for an accounting for premium received but rather a suit to recover the damages suffered by the plaintiffs as the result of the defendants' wrongful acts. The fact that the plaintiffs' damages may be measured by a proportion of the premium received by the favored defendants does not make the judgment recovered any the less an award to compensate the plaintiffs for the loss which they suffered from the wrongful conduct of Casey and any other defendants who may be found liable. Casey and the other McLean Industries directors owed a duty to the plaintiffs under section 14(a) of the Act fully and fairly to disclose the material facts in the proxy materials they issued to them. This duty they negligently failed to perform. Where two or more persons fail to perform a common duty each is liable for the entire harm resulting from the breach. Restatement of Torts § 878 (1939). As joint tortfeasors they are jointly and severally liable for the plaintiffs' entire damage which they have inflicted. Bigelow v. Old Dominion Copper Mining & Smelting Co., 225 U.S. 111, 132, 32 S. Ct. 641, 644, 56 L. Ed. 1009, 1023 (1912); Prosser, Law of Torts, 314-315 (4th ed. 1971), and this is true even though one of the tortfeasors held liable has received no benefit from his wrongdoing. Myzel v. Fields, 386 F.2d 718, 750 (8th Cir. 1967), cert. denied, 390 U.S. 951, 88 S. Ct. 1043, 19 L. Ed. 2d 1143 (1968). It follows that Casey is liable in damages, both severally and jointly with any other defendants held liable, for the loss suffered by the plaintiffs.
The plaintiffs alternatively contend that Litton and Monroe are liable for Casey's section 14(a) violation as "controlling persons" under section 20(a) of the Act or as his aiders and abettors. Congress has not defined "control" as it is used in section 20(a). The Securities and Exchange Commission has defined it broadly as "the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person . . . " 17 C.F.R. § 240.12b-2(f). The courts have gone so far as to define "control" as "influence short of actual direction." Myzel v. Fields, 386 F.2d 718, 738 (8th Cir. 1967), cert. denied, 390 U.S. 951, 88 S. Ct. 1043, 19 L. Ed. 2d 1143 (1968); quoted with approval in Richardson v. MacArthur, 451 F.2d 35, 41-42 (10th Cir. 1971).
The determination by the district court, which we have upheld, that Casey negligently failed to perform his duty under section 14(a) establishes the wrongful act. The required knowledge of the act has been defined as a " general awareness (on the part of the aider and abettor) that his role was part of an overall activity that is improper . . . " SEC v. Coffey,493 F.2d 1304, 1316 (6th Cir. 1974), cert. denied, 420 U.S. 908, 95 S. Ct. 826, 42 L. Ed. 2d 837 (1975). This court in its opinion in Landy v. FDIC, 486 F.2d 139, 162 (1973), cert. denied, 416 U.S. 960, 94 S. Ct. 1979, 40 L. Ed. 2d 312 (1974), suggests that allegations of knowledge that fall short of stating facts indicating actual knowledge are insufficient. The requirement of knowledge may be less strict where the alleged aider and abettor derives benefits from the wrongdoing but even in this situation the proof offered must establish conscious involvement in impropriety or constructive notice of intended impropriety. Northway, Inc. v. TSC Industries, Inc., 512 F.2d 324, 339 (7th Cir. 1975).
The third element of proof necessary to establish the liability of an aider and abettor, that is, knowingly and substantially participating or assisting in the wrongful act, involves more than mere inaction unless the plaintiffs can show that the inaction was consciously intended to assist in the perpetration of the wrongful act. Rochez II, supra, p. 889; Hochfelder v. Midwest Stock Exchange, 503 F.2d 364, 374 (7th Cir.), cert. denied, 419 U.S. 875, 95 S. Ct. 137, 42 L. Ed. 2d 114 (1974).
Section 28(a) of the Act, 15 U.S.C.A. § 78bb, provides that "no person permitted to maintain a suit for damages under the provisions of this title shall recover . . . a total amount in excess of his actual damages on account of the act complained of." This limitation applies to suits brought to recover damages for the violation of section 14(a) of the Act, since they are provided for by implication by that section.20 But while the Act speaks in terms of "actual" damages the dichotomy is between actual and punitive damages21 and recovery is not limited to out of pocket loss, a diminution in the value of one's investment, but may include loss of a possible profit or benefit, an addition to the value of one's investment,22 unless the loss is wholly speculative.23 In J. I. Case Co. v. Borak, 377 U.S. 426, 435, 84 S. Ct. 1555, 1561, 12 L. Ed. 2d 423, 429 (1964), the Supreme Court made it clear that in a civil suit, such as the one before us, which is brought to redress a violation of section 14(a) of the Act the "federal courts have the power to grant all necessary remedial relief . . . " The defendants urge that the subsequent decision of the Court in Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S. Ct. 616, 24 L. Ed. 2d 593 (1970), limited the ruling in the Borak case. We do not agree. As Judge Friendly pointed out in Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1304 (2d Cir. 1973), the Mills decision should be read "as commanding the lower courts to do their best to achieve fair compensation for injured plaintiffs without being too draconian on defendants, at least in a situation where the inadequacy of a proxy statement may lie more in a failure of articulation than in an outright desire to deceive."
We cannot hold erroneous the district court's finding that the logicalestimate of the loss which the plaintiffs suffered as the result of the circulation to them of the deficient proxy materials was a pro rata share of the premium received by the favored defendants in the merger. But we do not agree with the method which the court adopted to compute the share of the premium to be used to compensate for that loss. We bear in mind that the district court expressly found that the defendants were liable only for negligence, 351 F. Supp. at 868-869, and that the deficiencies in the proxy statement and letter, while clearly material, were more peripheral than central. Under the circumstances, we think that fairness requires that the plaintiffs' loss, and hence the damages to be awarded, should be measured by the amount of premium which the plaintiffs would have received if the total amount of premium received by all the favored shareholders, not merely Litton and Monroe, had been allotted to all the issued and outstanding common shares pro rata. On such a basis the damages to be awarded to the plaintiffs would be at the rate of $1.7878 per share.29
Where the record at a hearing on motion for summary judgment discloses issues of fact, a trial is required. See, e. g., Adickes v. Kress & Co., 398 U.S. 144, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970); Smith v. Pittsburgh Gage and Supply Co., 464 F.2d 870, 874 (3d Cir. 1972); 10 Wright & Miller, Federal Practice & Procedure: Civil § 2716 (1973). Where a judgment of over one million dollars is involved, surely this principle should not be overlooked.
For the contrary view that materiality exists if a reasonable shareholder might consider the misstatement or omission important to his voting decision see Northway Inc. v. TSC Industries, Inc., 512 F.2d 324, 329-332 (7th Cir. 1975), cert. granted, 423 U.S. 820, 96 S. Ct. 33, 46 L. Ed. 2d 37 (1975), rev'd, (1976). --- U.S. ----, 96 S. Ct. 2126, 48 L. Ed. 2d ---
See Mills v. Electric Auto-Lite Co., 403 F.2d 429, 435 (7th Cir. 1968), vacated on other grounds and remanded, 396 U.S. 375, 90 S. Ct. 616, 24 L. Ed. 2d 593 (1970); Beatty v. Bright, 318 F. Supp. 169, 174-175 (S.D. Iowa 1970)
Swanson v. American Consumer Industries, Inc., 415 F.2d 1326, 1330 (7th Cir. 1969); Mills v. Electric Auto-Lite Co., 403 F.2d 429, 433 (7th Cir. 1968); vacated on other grounds and remanded, 396 U.S. 375, 90 S. Ct. 616, 24 L. Ed. 2d 593 (1970); Beatty v. Bright, 318 F. Supp. 169, 174 (S.D. Iowa 1970)
See Kohn v. American Metal Climax, Inc., 458 F.2d 255, 265 (3d Cir.); cert. denied, 409 U.S. 874, 93 S. Ct. 120, 34 L. Ed. 2d 126 (1972); In re Brown Company Securities Litigation, 355 F. Supp. 574, 584 (S.D.N.Y. 1973); Union Pacific R.R. v. Chicago & North Western Ry., 226 F. Supp. 400, 408-409 (N.D. Ill. 1964); 17 C.F.R. § 240.14a-9, note (a)
Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341, 364 (2d Cir.), cert. denied, Bangor Punta Corp. v. Chris-Craft Industries, Inc., 414 U.S. 910, 94 S. Ct. 231, 38 L. Ed. 2d 148 (1973); Guth v. Loft, Inc., 23 Del.Ch. 255, 5 A.2d 503 (Sup.Ct. 1939)
See Ernst & Ernst v. Hochfelder, --- U.S. ----, 96 S. Ct. 1375, 47 L. Ed. 2d 668 (1976), in which the Supreme Court held that in an action for damages brought under section 10(b), scienter in the sense of an intent to deceive was the appropriate standard of liability; see also Judge Adams, concurring in Kohn v. American Metal Climax, Inc., 458 F.2d 255, 280, 290 (3d Cir.), cert. denied, 409 U.S. 874, 93 S. Ct. 120, 34 L. Ed. 2d 126 (1972)
J. I. Case Co. v. Borak, 377 U.S. 426, 431-432, 84 S. Ct. 1555, 1559, 12 L. Ed. 2d 423, 427-28 (1964); Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381-383, 90 S. Ct. 616, 620, 621, 24 L. Ed. 2d 593, 600, 601 (1970)
Zweig v. Hearst Corp., 521 F.2d 1129, 1132 (9th Cir. 1975), cert. denied, --- U.S. ----, 96 S. Ct. 469, 46 L. Ed. 2d 399 (1975), and Gordon v. Burr, 366 F. Supp. 156, 168 (S.D.N.Y. 1973), modified on other grounds, 506 F.2d 1080 (2d Cir. 1974), are in accordance with our Rochez II holding
J. I. Case Co. v. Borak, 377 U.S. 426, 432, 84 S. Ct. 1555, 1559-60, 12 L. Ed. 2d 423, 427 (1964)
deHaas v. Empire Petroleum Co., 435 F.2d 1223, 1229-1232 (10th Cir. 1970); Green v. Wolf Corp., 406 F.2d 291, 302-303 (2d Cir. 1968), cert. denied, Troster Singer & Co. v. Green, 395 U.S. 977, 89 S. Ct. 2131, 23 L. Ed. 2d 766 (1969); Myzel v. Fields, 386 F.2d 718, 748 (8th Cir. 1967), cert. denied, 390 U.S. 951, 88 S. Ct. 1043, 19 L. Ed. 2d 1143 (1968)
See Affiliated Ute Citizens v. United States, 406 U.S. 128, 155, 92 S. Ct. 1456, 1473, 31 L. Ed. 2d 741, 762 (1972); Thomas v. Duralite Co., Inc., 524 F.2d 577, 586 (3d Cir. 1975); Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1306 (2d Cir. 1973); Myzel v. Fields, 386 F.2d 718, 748-749 (8th Cir. 1967), cert. denied, 390 U.S. 951, 88 S. Ct. 1043, 19 L. Ed. 2d 1143 (1968); Janigan v. Taylor, 344 F.2d 781, 786 (1st Cir.), cert. denied, 382 U.S. 879, 86 S. Ct. 163, 15 L. Ed. 2d 120 (1965); Abrahamson v. Fleschner, 392 F. Supp. 740, 746 (S.D.N.Y. 1975)
Rochez Brothers, Inc. v. Rhoades (Rochez III), 527 F.2d 891, 895 (3d Cir. 1975); Wolf v. Frank, 477 F.2d 467, 478 (5th Cir.), cert. denied, 414 U.S. 975, 94 S. Ct. 287, 38 L. Ed. 2d 218 (1973); Abrahamson v. Fleschner, 392 F. Supp. 740, 746 (S.D.N.Y. 1975); Schaefer v. First National Bank of Lincolnwood, 326 F. Supp. 1186, 1193 (N.D. Ill. 1970), appeal dismissed, 465 F.2d 234 (7th Cir. 1972)
Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 562, 51 S. Ct. 248, 250, 75 L. Ed. 544, 548 (1931)
6 Wayne L.Rev. 225, 246 (1960). See also 37 Saskatchewan L.Rev. 193 (1972-1973) and 18 Rutgers L. Rev. 875 (1964) in which the American majority rule and the English rule are compared
See J. I. Case Co. v. Borak, 377 U.S. 426, 433, 84 S. Ct. 1555, 1560, 12 L. Ed. 2d 423, 428 (1964)
Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264-265, 66 S. Ct. 574, 579-80, 90 L. Ed. 652, 660 (1946); Simon v. New Haven Board & Carton Co., Inc., 516 F.2d 303, 306 (2d Cir. 1975); Moses v. Burgin, 445 F.2d 369, 385 (1st Cir.) cert. denied, 404 U.S. 994, 92 S. Ct. 532, 30 L. Ed. 2d 547 (1971)
See Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 348, 91 S. Ct. 795, 811, 28 L. Ed. 2d 77, 97 (1971); Snowden v. D.C. Transit System, Inc., 147 U.S.App.D.C. 204, 454 F.2d 1047 (1971); Schaefer v. First National Bank of Lincolnwood, 326 F. Supp. 1186, 1192-1193 (N.D. Ill. 1970), appeal dismissed, 465 F.2d 234 (7th Cir. 1972); Restatement of Torts § 885(3) (1939); Prosser, Law of Torts 304-305 (4th ed. 1971)
See Blau v. Lehman, 368 U.S. 403, 414, 82 S. Ct. 451, 457, 7 L. Ed. 2d 403, 411 (1962); Thomas v. Duralite Co., Inc., 524 F.2d 577, 589 (3d Cir. 1975); Wolf v. Frank, 477 F.2d 467, 479 (5th Cir.), cert. denied, 414 U.S. 975, 94 S. Ct. 287, 38 L. Ed. 2d 218 (1973)
I note that the district court appears to have adopted and applied the more liberal test of materiality explicitly rejected by the majority at pages ---- - ----. Gould v. American-Hawaiian Steamship Co., 319 F. Supp. 795, 802 (D. Del. 1970); see General Time Corp. v. Talley Industries, 403 F.2d 159, 162 (2d Cir. 1968)