Opinion ID: 109604
Heading Depth: 2
Heading Rank: 5

Heading: District Court Decision on Liability December 10, 1971

Text: On remand from the Court of Appeals, Chris-Craft's private action also came before Judge Pollack. Although its second amended complaint, which added a claim based on the BAR omission, sought both damages and injunctive relief, Chris-Craft at a pretrial hearing expressly abandoned its prayer for equitable relief; the case was thereafter treated solely as an action for damages. 337 F. Supp. 1128, 1136 n. 8. Following trial before the District Court without a jury, Judge Pollack in December 1971 dismissed Chris-Craft's complaint against all defendants. In an exhaustive opinion, he concluded that Chris-Craft had standing to seek damages for Bangor's Rule 10b-6 violations, 337 F. Supp., at 1133, but found it unnecessary to decide whether § 14 (e) could be invoked by one competitor for corporate control against another. 337 F. Supp., at 1134. [11] On the merits, the District Court held that the Piper communications characterizing Chris-Craft's cash tender offer as inadequate were not misleading. The court concluded that the more rational view was that the statements referred to factors other than price, such as Piper's views as to the quality of Chris-Craft's management. Id., at 1135. The court also rejected Chris-Craft's contention that it had been injured by the omission in the Grumman press release concerning the put or option provision in the agreement. The District Court concluded that Piper's complete description of the provision in a listing application with the New York Stock Exchange, coupled with Chris-Craft's major acquisitions of Piper stock after learning of the put, undermined Chris-Craft's claim that it was misled or otherwise injured by the announcement of the Grumman transaction. Ibid. With respect to the May 8 press release, which the Court of Appeals had held violative of the gun-jumping rules, the District Court held that the release, although technically a violation, was not false or misleading. Moreover, Chris-Craft had failed to show that it was injured or disadvantaged by the release in its efforts to acquire Piper stock. Id., at 1137. As to the claim of a misleading valuation of the BAR, Judge Pollack held that Chris-Craft failed to show either scienter or causation as required in a damages action under the 1934 Act's antifraud provisions. Scienter was not established, the court concluded, since the BAR omission was mere negligent omission or misstatement of fact. Id., at 1140. As to causation, the District Court specifically distinguished this Court's decision in Mills v. Electric Auto-Lite Co., 396 U. S. 375 (1970), which established a presumption of causation in a § 14 (a) suit by minority shareholders challenging misleading proxy materials. The omission in the proxy statement in that case, the District Court reasoned, directly affected the shareholders on whose behalf the suit was brought: It was in that particular context that the Supreme Court deemed sufficient a set of facts under which shareholders could be misled. This does not aid Chris-Craft as it is seeking to recover because of the effect which a misstatement allegedly had on third parties. 337 F. Supp., at 1139. (Emphasis in original.) (Footnote omitted.) Given the differences between the instant case and Mills, the District Court went on to hold that proof of actual causation was required: There is no proof that a single exchanging Piper shareholder would have refrained from the exchange and taken an offer for his shares from Chris-Craft instead of that from Bangor Punta. In a damage suit, as distinct from one for equitable relief, such proof is essential to sustain a 10b-5 claim. Ibid. (Emphasis in original.) On Chris-Craft's Rule 10b-6 claim, Judge Pollack held that, although the block purchases did not fall within any exemption to the Rule, Chris-Craft had no right to recovery: Even granting that the block purchases resulted arithmetically in Bangor Punta's achievement of control, there is no basis for concluding that, absent Bangor Punta's acquisition of these blocks, Chris-Craft would have achieved its goal of control. Id., at 1142. Based on its findings with respect to Piper and Bangor Punta, the District Court also held in favor of First Boston; the court specifically exonerated the firm of having committed, or engaged in any course of conduct which operated as a fraud or deceit upon Chris-Craft or the public shareholders of Piper. Id., at 1145.