Opinion ID: 407618
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Heading: Remedies Under the Williams Act

Text: 5 APC asserts that the proper remedy for defects in a tender offer is to require full disclosure. 5 We agree that curative disclosure is the standard and, in general, the preferred remedy. In Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S.Ct. 2069, 2075, 45 L.Ed.2d 12 (1975), the Supreme Court explained: The purpose of the Williams Act is to insure that public shareholders who are confronted by a cash tender offer for their stock will not be required to respond without adequate information regarding the qualifications and intentions of the offering party. 6 Injunctions normally play a supporting role: a court enjoins the tender offer until it can decide whether the Act requires further disclosures, and until all required disclosures are made. See, e.g., Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 255 (2d Cir. 1973). 6 But no court has ever declared disclosure to be the exclusive remedy under the Williams Act. To the contrary courts have suggested that an unconditional permanent injunction against proceeding with a tender offer might be appropriate in at least two situations. 7 One deserves only brief mention here because it is clearly inapposite. In order to punish and thus deter intentional violations of the Act, a court might enjoin an offer when the offeror willfully attempted to withhold information from the target company's shareholders. Ronson Corp. v. Liquifin Aktiengesellschaft, 370 F.Supp. 597, 610-11 n.36 (D.N.J.), aff'd, 497 F.2d 394 (3d Cir.), cert. denied, 419 U.S. 870, 95 S.Ct. 129, 42 L.Ed.2d 108 (1974). See Corenco Corp. v. Schiavone & Sons, Inc., 488 F.2d 207, 214 (2d Cir. 1973). The district court did not find that APC engaged in such misconduct. 7 The other situation concerns the prohibition in § 14(e) against any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer. There are instances when violations of this antifraud provision are unrelated to the information supplied to the shareholders. In Mobil Corp. v. Marathon Oil Co., 669 F.2d 366 (6th Cir. 1981), for example, the target corporation, attempting to thwart a take-over bid, attracted a more desirable tender offeror by giving this white knight options to purchase its most valuable oil field and its common stock. The court held that by creating an artificial price ceiling for competing tender offerors, these lock-up options were manipulative acts which violated the Williams Act and could not be cured by disclosure. Id. at 374-77. See also Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 476, 97 S.Ct. 1292, 1302, 51 L.Ed.2d 480 (1977) (manipulation refers to practices intended to mislead investors by artificially affecting market activity). But the alleged misconduct here, unlike in Mobil, did not artificially affect market activity. 8 Nevertheless, PacTrust maintains that the attempt by APC to proceed with the tender offer in the face of the bylaw is a fraudulent, deceptive, or manipulative act which cannot be cured by disclosure. PacTrust reasons that the making of a tender offer that cannot be completed lawfully violates the antifraud provision of § 14(e). PacTrust cites no direct support for this construction of the Williams Act. 9 Its analysis more resembles that in Gulf & Western Industries, Inc. v. Great Atlantic & Pacific Tea Co., 476 F.2d 687, 693-95 (2d Cir. 1973). The court there upheld a preliminary injunction against proceeding with a tender offer, in part because there was a substantial probability that the offer would result in an antitrust violation. The court did not discuss the issue in terms of the Williams Act. Rather, the issue was whether the Clayton Act required enjoining the offer. See also Elco Corp. v. Microdot Inc., 360 F.Supp. 741 (D.Del.1973). The parallel issue in the present controversy is whether the bylaw requires an injunction. PacTrust avoids framing its argument in those terms, however, because the state court has already refused to enjoin the possible violation of the bylaw. See supra at 1085 & n.3. In order to evade the obstacle of issue preclusion, PacTrust makes a novel Williams Act argument. 10 The only decision which gives any semblance of support to PacTrust's analysis is Riggs National Bank of Washington, D. C. v. Allbritton, 516 F.Supp. 164 (D.D.C.1981). The target corporation there, a national banking association, alleged that the tender offerors had not complied fully with the requirement of 12 U.S.C. § 1817(j)(1) that they notify the Comptroller of Currency of their intent to acquire control of an insured bank. In issuing a preliminary injunction, the court stated: 11 This is not simply a question of whether the Offer contains an untrue or misleading statement relative to the approval of the Comptroller of the Currency of his tender offer. If it were, a curative remedy could be fashioned. The Court is most concerned with the more significant issue of whether the defendant has actually complied with the Change in Bank Control Act as asserted in the Offering Circular, and has been authorized to proceed with the acquisition. Curative statements by defendant Allbritton cannot remedy this violation of the Williams Act under the circumstances of this Offer. 12 Id. at 182. If the injunction was appropriate, as to which we need not rule, we think that the court might better have framed its conclusion in terms of the Change in Bank Control Act instead of the Williams Act. 13 At any rate, we believe that full disclosure here would adequately protect the PacTrust shareholders as required by the Williams Act. The tender offer proposed by APC does not create a no-win predicament for the shareholders, where they can gain nothing by accepting or rejecting an offer that cannot be completed. 14 Most importantly, it is far from certain that APC cannot complete the proposed offer lawfully. The trustees of PacTrust passed the bylaw in order to protect the special tax status of the trust and, consequently, the financial interests of the shareholders. This is far more flexible than the statutory obstacle in Riggs. If PacTrust loses its tax status even without APC taking over, a likelihood according to a former Commissioner of Internal Revenue who testified at trial, the sole reason for the bylaw would disappear and, we assume, the trustees would rescind the bylaw. It is also possible that the shareholders will find the tender offer to be in their financial interest, call a special shareholders meeting, and vote to rescind the bylaw. Finally, no state appellate court has adjudged the bylaw to be valid. The state trial judge confessed his limited knowledge of securities law and conceded the substantial possibility of reversal on appeal. 15 Even if APC would subsequently have to divest itself of stock held in violation of the bylaw, the shareholders who accepted its tender offer would not necessarily forfeit the premium paid them. PacTrust has made no showing that state law would require rescission of purchases made pursuant to the offer. The more probable remedy is that APC would somehow have to dispose of the stock and suffer the loss itself. If APC discloses fully how the bylaw could affect the offer and those who accept it, the shareholders would have sufficient information to decide whether the potential benefits of accepting the offer outweigh the risks. We can find no insurmountable barrier to curative disclosure here.