Opinion ID: 389315
Heading Depth: 1
Heading Rank: 3

Heading: the federal securities law claims

Text: 40 The plaintiffs allege violations of two broad antifraud provisions of the Securities Exchange Act of 1934. First, they claim the defendants violated § 14(e) of the Williams Act, 15 U.S.C. § 78n(e) (1976), which prohibits deception in connection with any tender offer, and second, they claim the defendants breached SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 (1980), which similarly prohibits deceptive statements or conduct, in connection with the purchase or sale of any security. The two provisions are coextensive in their antifraud prohibitions, and differ only in their in connection with language. They are therefore construed in pari materia by courts. Golub v. PPD Corp., 576 F.2d 759, 764 (8th Cir. 1978); Gulf & Western Industries, Inc. v. Great A & P Tea Co., 476 F.2d 687, 696 (2d Cir. 1973); Altman v. Knight, 431 F.Supp. 309 (S.D.N.Y.1977). Both provisions are manifestations of the philosophy of full disclosure embodied in the Securities Exchange Act of 1934. Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977). However, because the in connection with any tender offer language of the Williams Act provision presents special concerns not present in analysis under Rule 10b-5, we address these claims separately. 1 41
42 Section 14(e) of the Williams Act is a broad antifraud provision modeled after SEC Rule 10b-5, and is designed to insure that shareholders confronted with a tender offer have adequate and accurate information on which to base the decision whether or not to tender their shares. 2 Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 35, 97 S.Ct. 926, 946, 51 L.Ed.2d 124 (1977); Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58 (1975); Lewis v. McGraw, 619 F.2d 192 (2d Cir.), cert. denied, -- U.S. --, 101 S.Ct. 354, 66 L.Ed.2d 214 (1980); see S.Rep.No.550, 90th Cong., 1st Sess. 3 (1967); H.R.Rep.No.1711, 90th Cong., 2d Sess. 3 (1968), reprinted in (1968) U.S.Code Cong. & Ad.News 2811, 2813. 43 Upon the announcement of a tender offer proposal a target company shareholder is presented with three options: he may retain his shares; he may tender them to the tender offeror if the offer becomes effective; or he may dispose of them in the securities market for his shares, which generally rises on the announcement of a tender offer. The plaintiffs have alleged that the defendants violated § 14(e) both by depriving them of their opportunity to tender their shares to CHH, the tender offeror, and by deceiving them as to the attractiveness of disposing of their shares in the rising market. 44
45 By denying the plaintiffs the opportunity to tender their shares to CHH, the plaintiffs claim the defendants deprived them of the difference between $42.00, the amount of the CHH offer, and $19.76, the amount at which Field's shares traded in the market after withdrawal of the CHH proposal. Total damages under this theory would exceed $200,000,000.00. 46 Because § 14(e) is intended to protect shareholders from making a tender offer decision on inaccurate or inadequate information, among the elements of § 14(e) plaintiff must establish is that there was a misrepresentation upon which the target corporation shareholders relied  Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341, 373 (2d Cir.), cert. denied, 414 U.S. 910, 94 S.Ct. 231, 38 L.Ed.2d 148 (1973). Because the CHH tender offer was withdrawn before the plaintiffs had the opportunity to decide whether or not to tender their shares, it was impossible for the plaintiffs to rely on any alleged deception in making the decision to tender or not. Because the plaintiffs were never presented with that critical decision and therefore never relied on the defendants' alleged misrepresentations, they fail to establish a vital element of a § 14(e) claim as regards the CHH $42.00 offer. 47 In the recent case of Lewis v. McGraw, 619 F.2d 192 (2d Cir.), cert. denied, -- U.S. --, 101 S.Ct. 354, 66 L.Ed.2d 214 (1980), the Second Circuit similarly held that when a proposed tender offer fails to become effective, shareholders of the target company cannot state a cause of action for alleged misstatements under § 14(e) because of the absence of this crucial element of reliance. Id. at 195-96. 48 It is difficult indeed to imagine a case more directly to the point here than the Lewis decision. In that case the American Express Company proposed a friendly business combination with McGraw-Hill. McGraw-Hill's directors rejected the offer in a public letter as reckless, illegal, and improper. American Express then filed a proposed tender offer with the SEC, revealing its intention to make a second offer for the McGraw-Hill stock. The offer would not become effective unless McGraw-Hill agreed not to oppose it. McGraw-Hill's directors rejected the second offer, however, which therefore expired before becoming effective. McGraw-Hill shareholders sued for damages under § 14(e) of the Williams Act. In affirming the district court's dismissal for failure to state a cause of action, the court noted that (i)n the instant case, the target's shareholders simply could not have relied upon McGraw-Hill's statements, whether true or false, since they were never given an opportunity to tender their shares. Id. at 195. The plaintiffs here seek to distinguish Lewis on its unique facts. The two cases, however, are the same in all material aspects: both involve shareholders' allegations that incumbent management and directors prevented the plaintiffs from accepting a tender offer by issuing false and misleading statements or by breaching the fiduciary duties owed to the shareholders. In both cases the requisite element of reliance is absent. 49 The plaintiffs seek to establish that reliance is presumed from materiality in a case involving primarily a failure to disclose, relying on a line of cases culminating in Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1972). As the court pointed out, however, in Lewis, neither Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970), nor Affiliated Ute abolished the reliance requirement, but (r)ather held that in cases in which reliance is possible, and even likely, but is unduly burdensome to prove, the resulting doubt would be resolved in favor of the class the statute was designed to protect. Lewis at 195; cf. Titan Group, Inc. v. Faggen, 513 F.2d 234, 238-39 (2d Cir.), cert. denied, 423 U.S. 840, 96 S.Ct. 70, 46 L.Ed.2d 59 (1975) (reliance element in 10b-5 suit not eliminated by Ute.) 50 The Mills-Ute presumption is essentially a rule of judicial economy and convenience, designed to avoid the impracticality of requiring that each plaintiff shareholder testify concerning the reliance element. Auto-Lite, 396 U.S. at 385, 90 S.Ct. at 622; see Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341, 375 (2d Cir.), cert. denied, 414 U.S. 910, 94 S.Ct. 231, 38 L.Ed.2d 148 (1973) (These impracticalities are avoided by establishing a presumption of reliance where it is logical to presume that such reliance in fact existed ); Kohn v. American Metal Climax, Inc., 458 F.2d 255, 290 (3d Cir.), cert. denied, 409 U.S. 874, 93 S.Ct. 120, 34 L.Ed.2d 126 (1972) (Adams, J., concurring in part, dissenting in part) (10b-5 action). However, when the logical basis on which the presumption rests is absent, it would be highly inappropriate to apply the Mills-Ute presumption. (W)here no reliance (is) possible under any imaginable set of facts, such a presumption would be illogical in the extreme. Lewis at 195. 51 The plaintiffs here pose two additional arguments to application of the Lewis holding; first, that it allows a target company management to profit by their own wrong if they are successful in driving off a tender offeror with misrepresentations or omissions otherwise violative of the Act, and second, that unless the pre-effective period is covered by the Act, violative statements could be made with impunity and later affect any future decision shareholders make after the offer becomes effective. 52 The claim that the defendants are allowed to profit by their own wrong is irrelevant to this case. Such an argument would require proof of a causal link between the defendants' wrongful acts or omissions and the withdrawal of the tender offer. Here there is uncontroverted evidence that it was Field's recent acquisitions and plans for expansion that caused the withdrawal of the CHH tender offer. The decision to make acquisitions is one governed by the state law of directors' fiduciary duty. Altman v. Knight, 431 F.Supp. 309 (S.D.N.Y.1977). Therefore even if such conduct were a breach of the defendant directors' fiduciary duty, the plaintiffs would be relegated to their remedy at state law. See Section 10(b) and Rule 10b-5 Claims, infra. This argument, therefore, cannot create a federal securities law claim when the alleged wrong the defendant committed is barred from federal scrutiny by the rule of Santa Fe Industries, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977); see Lewis at 195. 3 53 The plaintiffs' second argument, that statements made in the pre-effective period might have repercussions after the offer becomes effective, see Applied Digital Data Systems, Inc. v. Milgo Electronic Corp., 425 F.Supp. 1145, 1154 (S.D.N.Y.1977), is plainly inapt in the situation we address, where by hypothesis that future offer never materializes. 54 In sum, we find the reasoning of Lewis persuasive, if not compelling, and therefore affirm the district court's grant of the defendants' motion for directed verdict on the § 14(e) claims as to the lost tender offer opportunity. 55
56 The plaintiffs also contend that defendants' misrepresentations or omissions of material fact caused the plaintiffs not to dispose of their shares in the market, which was rising on the news of CHH's takeover attempt. Because we hold that a damages remedy for investors who determine not to sell in the marketplace when no tender offer ever takes place was not intended to be covered by § 14(e) of the statute, we are not swayed by the surface appeal of this argument. 57 The Supreme Court teaches that the starting point in ascertaining Congressional intent is always the language of the statute itself. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756, 95 S.Ct. 1917, 1935, 44 L.Ed.2d 539 (1975) (Powell, J.) (concurring opinion). Section 14(e) is applicable by its terms to conduct in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request or invitation. 15 U.S.C. § 78n(e) (1976) (emphasis added). The language is not unambiguous, but it does seem to contemplate the existence of an effective offer capable of acceptance by the shareholders. The legislative history of the Act is replete with indications that Congress intended to protect an investor faced with the pressures generated by the exigencies of the tender offer context, and that the sole purpose of § 14(e) is protection of the investor faced with the decision to tender or retain his shares: In the rather common situation where existing management or third parties contest a tender offer, shareholders may be exposed to a bewildering variety of conflicting appeals and arguments designed to persuade them either to accept or to reject the tender offer. 113 Cong.Rec. 855-56 (1967) (remarks of Senator Williams). See Hearings on S.510 Before the Subcomm. on Securities of the Senate Comm. on Banking and Currency, 90th Cong., 1st Sess. 33 (1967) (statement of Manuel F. Cohen, Chairman, SEC) ((T)he bill is designed first, to provide those who receive a tender offer with information adequate to an informed decision whether or not to accept ); id. at 203, 205 (bill's purpose is to assure that public shareholders will be given information adequate for an informed decision when a tender offer is made for the shares of their company; disclosure needed so shareholder can make an intelligent decision whether or not to tender his shares). 58 Courts seeking to construe the provisions of the Williams Act have also noted that its protections are required by the peculiar nature of a tender offer, which forces a shareholder to decide whether to dispose of his shares at some premium over the market, or retain them with knowledge that the offeror may alter the management of the target company to its detriment. See Piper v. Chris-Craft Industries, Inc., 430 U.S. at 35, 97 S.Ct. at 946; Bucher v. Shumway, 452 F.Supp. 1288, 1294 (S.D.N.Y.1978). 59 In another context, courts seeking to determine whether unconventional means of acquisition of controlling blocks of shares constitute a tender offer within the meaning of the Williams Act (which leaves the term undefined) have determined that the distinguishing characteristic of the activity the Williams Act seeks to regulate is the exertion of pressure on the shareholders to make a hasty, ill-considered decision to sell their shares. See, e. g., Wellman v. Dickinson, 475 F.Supp. 783 (S.D.N.Y.1979) (intensive private solicitation plus premium plus strict time constraints on acceptance created tender offer); S-G Securities, Inc. v. Fuqua Investment Co., 466 F.Supp. 1114 (D.Mass.1978) (widespread publicity campaign plus massive open market purchases created tender offer pressures). Here there was no deadline by which shareholders were forced to tender, and by hypothesis when we are discussing market transactions, no premium over the market. Therefore Field's shareholders were simply not subjected to the proscribed pressures the Williams Act was designed to alleviate. See Kennecott Copper Corp. v. Curtiss-Wright Corp., 584 F.2d 1195, 1207 (2d Cir. 1978) (solicitations to sell on national exchange where shareholders were offered no premium over the market and given no deadline by which to make their decision created no pressure on sellers other than the normal pressure of the marketplace, although the purchaser sought to obtain and exercise control of the company). 60 As we noted only last year in O'Brien v. Continental Illinois National Bank & Trust Co., 593 F.2d 54, 62-63 (7th Cir. 1979), the Supreme Court has continually limited the federal remedy in private federal securities actions. It has continued to decline the opportunity to enlarge that jurisdiction, most recently by denying certiorari in the cases of Lewis v. McGraw, supra, and Bucher v. Shumway, (1979-80 Transfer Binder) Fed.Sec.L.Rep. (CCH) P 97,142 (S.D.N.Y.1979), aff'd, 622 F.2d 572 (2d Cir.), cert. denied, -- U.S. --, 101 S.Ct. 120, 66 L.Ed.2d 48 (1980). In light of this trend to avoid unduly expansive interpretations of the securities laws, and our finding that § 14(e) was not intended to remedy the conduct complained of here, we hold that § 14(e) of the Williams Act does not give a damages remedy for alleged misrepresentations or omissions of material fact when the proposed tender offer never becomes effective. 61 The brief filed by the SEC as amicus curiae contends that failure to afford investors a damages remedy under § 14(e) in situations where a tender offer proposal is withdrawn before it becomes effective might lead to abuses. It poses the hypothetical situation where a person announces a proposed tender offer that he never intends to make in order to dispose of securities of the subject company at artificially inflated prices  We note that such conduct would fall within the ambit of the prohibitions of Rule 10b-5, see infra. Cf. Zweig v. Hearst Corp., 594 F.2d 1261 (9th Cir. 1979) (financial columnist purchased stock knowing he would recommend it in his column and sell on the resulting rise; failure to disclose this scheme violated 10b-5). 62 The SEC also suggests that without such a remedy, persons could announce tender offers, again without intending to make them, to put pressure on management to consider merger proposals. Although the present case does not present such a situation, we believe that preliminary injunctive relief would be the appropriate remedy for such conduct. In Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937 (2d Cir. 1969) (Friendly, J.), the plaintiff, a target of a tender offer mounted by the defendant, sought preliminary injunctive relief under § 14(e), claiming that the defendant had misrepresented its intentions concerning a potential tender offer. The district court denied preliminary relief, but after a trial on the merits found for the plaintiffs. The Second Circuit reversed, finding no misrepresentation by the offeror. In reaching that result, however, it noted: 63 We agree with plaintiffs to the extent of believing that the application for a preliminary injunction is the time when relief can best be given (W)e think that in administering § 14(d) and (e) if a violation has been sufficiently proved on an application for a temporary injunction, the opportunity for doing equity is considerably better then than it will be later on. 64 Id. at 947, quoted with approval in Piper v. Chris-Craft Industries, 430 U.S. 1, 42, 97 S.Ct. 926, 949, 66 L.Ed.2d 214 (1977) (defeated tender offeror does not have damages remedy under § 14(e)). The rule urged by the SEC would only serve to intensify the pressure such spurious offers would exert on incumbent management, by confronting them with the spectre of shareholder damage suits which could result from the withdrawal of even a sham tender offer. 65
66 The plaintiffs have also alleged and sought to prove that the defendants violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1976), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 (1980), promulgated to implement that statute. Rule 10b-5 provides: 67 It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, 68 (a) To employ any device, scheme, or artifice to defraud, 69 (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or 70 (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 71 The gravamen of the plaintiffs' 10b-5 claim is that Field's directors acted pursuant to a long-standing undisclosed policy of independence and resistance to all takeover attempts, designed to perpetuate the defendant directors' control of the corporation. The plaintiffs assert that the defendants' failure to disclose this policy was an omission of a material fact which made other statements and conduct of the defendants misleading. They also claim that the policy motivated the defendant directors to make other misrepresentations or omissions of material facts in relation to Field's prospects and plans. 72 As the Supreme Court noted in Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 477-78, 97 S.Ct. 1292, 1302-03, 51 L.Ed.2d 480 (1977), the rule is a manifestation of the philosophy of full disclosure, embodied in the Securities Exchange Act of 1934; it therefore requires proof of the element of deception, and does not provide a remedy for the breach of fiduciary duty a director owes his corporation and its shareholders under state law. See In re Sunshine Mining Securities Litigation, (1979-80 Transfer Binder) Fed.Sec.L.Rep. (CCH) P 97,217 at 96,635 (S.D.N.Y.1979) (An interpretation of 10b-5 which would include instances of corporate mismanagement where shareholders were treated unfairly by a fiduciary, however, would be wholly inconsistent with the Congressional intent.). 73 In the wake of Santa Fe, courts have consistently held that since a shareholder cannot recover under 10b-5 for a breach of fiduciary duty, neither can he bootstrap such a claim into a federal securities action by alleging that the disclosure philosophy of the statute obligates defendants to reveal either the culpability of their activities, or their impure motives for entering the allegedly improper transaction. See, e. g., Bucher v. Shumway, (1979-80 Transfer Binder) Fed.Sec.L.Rep. (CCH) P 97,142 at 96,300 (S.D.N.Y.1979), aff'd, 622 F.2d 572 (2d Cir.), cert. denied, -- U.S. --, 101 S.Ct. 120, 66 L.Ed.2d 48 (1980) (The securities laws, while their central insistence is upon disclosure, were never intended to attempt any such measures of psychoanalysis or preported (sic) self-analysis.). 74
75 The plaintiffs allege that the defendants, motivated by a desire to perpetuate their own control over Field's, adopted a policy of resisting all offers to acquire Marshall Field & Company, regardless of the potential benefits such offers might bring to the shareholders of the company. 76 Even assuming that the plaintiffs were able to establish the existence of such a policy, neither the policy nor a failure to disclose its existence can give rise to a federal securities law cause of action absent the element of manipulation 4 or deception required by Rule 10b-5. Santa Fe Industries, supra; Bucher, supra; In re Sunshine Mining, supra. 77 The critical issue in determining whether conduct meets the requirement of deception, the Court announced in Santa Fe Industries, is whether the conduct complained of includes the omission or misrepresentation of a material fact, or whether it merely states a claim for a breach of a state law duty. A board of directors' decision to oppose or welcome a takeover attempt involves the exercise of directorial judgment inherent in their role in corporate governance. Treadway Cos. v. Care Corp., 638 F.2d 357, 381 (2d Cir. 1980); see Northwest Industries, Inc. v. B. F. Goodrich Co., 301 F.Supp. 706, 712 (N.D.Ill.1969) ((M)anagement has the responsibility to oppose offers which, in its best judgment, are detrimental to the company or its stockholders.). 78 Thus in Bucher v. Shumway, (1979-80 Transfer Binder) Fed.Sec.L.Rep. (CCH) P 97,142 (S.D.N.Y. 1979), aff'd, 622 F.2d 572, cert. denied, -- U.S. --, 101 S.Ct. 120, 66 L.Ed.2d 48 (1980), the plaintiff shareholders charged that the defendants, directors of their company, had rejected a favorable tender offer proposal without fairly considering it, and had instead sought to entrench themselves in control of the corporation by supporting a friendly tender offer at an unfair price. The court dismissed the shareholders' claims stating, (T)he bare allegation does not state a cause of action under the securities laws It is essentially an allegation that (the directors) breached fiduciary duties owed to plaintiffs and then failed to disclose these alleged breaches. Id. at 96,303. 79 Similarly in Sunshine Mining, supra, the plaintiffs claimed that incumbent management, motivated solely by the selfish interest to retain control and in complete disregard of their fiduciary obligation to the shareholders, withheld support from a lucrative tender offer opportunity. The court held that since the plaintiffs' claim that approval of the offer was withheld by management for purely selfish reasons amounted to no more than a claim that Sunshine management acted unfairly and in breach of its fiduciary duties, the plaintiffs failed to state a cause of action under the federal securities laws. Id. at 96,635-36. 80 The plaintiffs' allegations that Field's directors rebuffed all acquisition attempts without regard to merit and failed to disclose the existence of an alleged policy so to act, are similarly insufficient to create a federal cause of action. Like the claims above, they simply state a claim for a breach of the fiduciary duty directors owe shareholders under state corporate law. This is precisely the type of claim the Supreme Court intended to bar from the federal forum when it announced the rule in Santa Fe Industries. It is therefore entirely appropriate in this instance to relegate (plaintiffs) to whatever remedy is created by state law, Santa Fe, 430 U.S. at 478, 97 S.Ct. at 1303, to the extent their claims are based on the existence of or failure to disclose any putative policy of independence. 81
82 The plaintiffs here, however, do not seek to recover solely on the basis of the existence of or failure to disclose a secret policy of independence. They also allege that pursuant to that policy the defendants issued a stream of deceptive or misleading statements, and engaged in conduct which acted as a deception. These allegations cluster around four factual occurrences: (a) CHH's $36.00 offer of December 12, 1977; (b) Field's filing of the antitrust suit against CHH on December 12, 1977; (c) the acquisitions Field's made and announced between December 12, 1977 and February 22, 1978; and (d) the use of earnings figures for the nine months ending in September, 1977 in communications to Field's shareholders. 83 In analyzing these claims, we keep in mind the post-Santa Fe rule that if 84 the central thrust of a claim or series of claims arises from acts of corporate mismanagement, the claims are not cognizable under federal law. To hold otherwise would be to eviscerate the obvious purpose of the Santa Fe decision, and to permit evasion of that decision by artful legal draftsmanship. 85 Hundahl v. United Benefit Life Insurance Co., 465 F.Supp. 1349, 1365-66 (N.D.Tex.1979); Altman v. Knight, 431 F.Supp. 309 (S.D.N.Y.1977) (claim that directors made a wasteful defensive acquisition and falsely stated a legitimate business purpose, barred by Santa Fe). But cf. Royal Industries, Inc. v. Monogram Industries, Inc., (1976-77 Transfer Binder) Fed.Sec.L.Rep. (CCH) P 95,863 (C.D.Cal.1976) (defensive acquisition breached 10b-5; pre-Santa Fe case). 86 Furthermore, in order to prevail, the alleged misrepresentation or omission must be of a material fact. A material fact is one substantially likely to have assumed actual significance in the deliberations of the reasonable shareholder. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). 87
88 The plaintiffs allege one omission of material fact and two misrepresentations in relation to Field's response to the CHH letter of December 12, proposing a merger of the two companies at $36.00 per share. The plaintiffs assert that the defendants' press release of December 12, 1977, omitted a material fact when it failed to disclose that the $36.00 offer was merely the basis for negotiations. That the offer, however, was only a basis for negotiations was clearly indicated in CHH's press release announcing the $36.00 proposal. (The) plaintiffs cannot complain merely because (Field's) did not re-emphasize facts that might have been helpful to (CHH) in its tender offer 'although such facts would have been known to the ordinary investor through papers of general circulation.'  Berman v. Gerber Products Co., 454 F.Supp. 1310, 1327 (W.D.Mich.1978), quoting Gulf & Western Industries, Inc. v. Great A & P Tea Co., 356 F.Supp. 1066, 1071 (S.D.N.Y.), aff'd 476 F.2d 687 (2d Cir. 1973). We therefore hold that this omission fails to meet the standard of materiality set forth in TSC Industries, supra. 89 The plaintiffs also contend that although the Field's press release of December 14, 1977, called the $36.00 proposal inadequate, no one had ever analyzed the offer as inadequate, and that the defendants therefore misrepresented the attractiveness of the $36.00 offer. In light of the evidence that Field's investment bankers clearly indicated at the board meeting their belief (subsequently vindicated by the $42.00 offer) that a higher price could be obtained, and the board's knowledge of Carter's statement that a $60.00 offer might be forthcoming from a foreign company at any time, it was reasonable for the board to find that the $36.00 price was inadequate. We therefore hold that no reasonable juror could find Field's statements as to the adequacy of the $36.00 offer deceptive. 90 Finally the plaintiffs contend that in the December 20, 1977, press release, Field's misrepresented the nature of the consideration it had given the CHH proposal of December 12, when it stated that the board had rejected the offer only after careful consideration. The plaintiffs first point to the board minutes of October 13, 1977, which reflect the board's decision that any merger with CHH should not be considered. It is disingenuous of the plaintiffs to point to this statement, which reflects the board's reaction to preliminary informal contacts (one of which was made to the ninety-three year old father of one of the board members) made only days after the unexpected death of Burnham, Field's Chairman and Chief Executive Officer. Particularly in light of the uncontroverted evidence that on December 13, prior to the issuance of this press release, the Field's board met for several hours solely to consider the CHH approach, and to receive the analysis and advice of counsel, management, and investment bankers to aid that consideration, no reasonable juror could find that Field's management did not sufficiently carefully consider the CHH December 12, 1977 proposal. See Northwest Industries, Inc. v. B. F. Goodrich Co., 301 F.Supp. 706, 709 (N.D.Ill.1969) (board consideration of multimillion dollar defensive acquisition during first hour of luncheon meeting sufficient to render its decision conclusive). Furthermore, even if the defendants did reject the proposal without the careful consideration the evidence unquestionably establishes they did, this decision would be insulated from federal securities law scrutiny by the rule of Santa Fe Industries. 91
92 The plaintiffs contend that the defendants made four omissions of material fact in public statements about the antitrust suit it filed against CHH on December 12, 1977. First, the plaintiffs cite three omissions in the Field's press release of December 12, 1977, which announced the filing of the suit; failure to disclose that Field's antitrust counsel was not present at the meeting when the defendants decided to file the suit; failure to mention CHH's offer to attempt to cure perceived antitrust violations; and failure to mention Field's motive in filing the suit, which the plaintiffs allege was to further the secret policy of independence. Second, the plaintiffs contend that Field's press release of December 22, 1978, again omitted to disclose CHH's willingness to cure any perceived antitrust problems. In light of our finding that the decision to bring the antitrust action falls, again, within the scope of directors' acts insulated from our scrutiny by the doctrine of Santa Fe Industries v. Green, supra, we pass over the materiality of these omissions, which is called into question by the opinion of Field's experienced antitrust counsel that such curative attempts would be futile. As appellants concede in their brief to this court, the 'antitrust issue' is relevant to plaintiffs' case only to the extent that the initiation of antitrust litigation (was) an additional circumstance from which defendants' improper intent could be inferred. As we discussed above in the matter of the alleged policy of independence, the decision to resist a takeover is within the scope of directors' state law fiduciary duties, and there is no federal securities law duty to disclose one's motives in undertaking such resistance. In re Sunshine Mining, supra, at 96,635-36; Berman v. Gerber Products Co., 454 F.Supp. at 1318, 1323; Altman v. Knight, 431 F.Supp. at 314. See Chemetron Corp. v. Crane Co., 1977-2 Trade Cas. P 61,717 (N.D.Ill.1977). Therefore even assuming the antitrust suit was filed with the impure intent to preserve the directors' position at the expense of the shareholders' best interests, no federal securities claim can lie for failure to disclose that intent. 93
94 The plaintiffs also allege that Field's issued a series of misrepresentative or misleading statements in regard to the acquisitions Field's undertook in the months following the CHH approach. Of course, after Santa Fe, the decision to make acquisitions is shielded from federal scrutiny, as is inquiry into what motivated the acquisitions. 95 Specifically, the plaintiffs claim that in press releases of January 5, and February 8, 1978, the defendants announced that the acquisitions were taking place in accordance with their longstanding programs and expansion plans. The plaintiffs claim that the failure to disclose that such plans were historically undertaken only in response to perceived takeover threats made Field's announcements misleading. Once again, the plaintiffs have done no more than attempt to dress up a claim for breach of fiduciary duty by alleging a failure to disclose a motive to act contrary to shareholders' interests. Furthermore, there is no evidence upon which a reasonable jury could base a finding that Field's misrepresented its acquisition plans. There was substantial uncontroverted evidence, including testimony of the plaintiff's own expert witness, that Field's had prior intent to expand into the Pacific Northwest and Texas areas, and that such expansion was natural and logical. 96 The plaintiffs also complain of the failure to disclose in the January 20, 1978, press release announcing the acquisition of the Liberty House stores that the defendants considered two of the five Liberty House stores to be dogs. This claim is no more than an attempt to probe the business judgment of the directors, and cannot create a federal claim. Cf. Goldberger v. Baker, 442 F.Supp. 659, 664 (S.D.N.Y.1977) (Even under the most narrow reading of Green, an allegation of deception must allege more than a mere failure to disclose the 'unfairness' of a transaction.). 97 The plaintiffs also claim that the defendants' press release announcing Field's plans to enter the Galleria in Houston, Texas, and to expand through the south, starting in Dallas, omitted material facts when it failed to disclose the presence of CHH Neiman-Marcus stores in the Galleria and in Dallas. Under the standard of materiality set out in TSC Industries, supra, and as interpreted in Berman and Gulf & Western v. A. & P., supra, it is difficult to perceive how the omission of this information, which was readily available to anyone looking at CHH's annual report, or indeed to anyone at all familiar with the department store business, could be deceptive. In addition, the plaintiffs could never establish the requisite element of causation, for it was not the failure to disclose Neiman-Marcus' presence which caused the withdrawal of the offer, but rather Field's actual entry into the Galleria which caused the withdrawal of the offer. Altman v. Knight, 431 F.Supp. at 314. 98
99 The plaintiffs also claim they were deceived by the rosy projections for future growth expressed by Field's management. Specifically they allege misrepresentations in press releases of December 14 and 15, 1977, which recounted how confident about the future of the company management was, and that momentum within the company was excellent. The plaintiffs allege that these misrepresentations culminated in a public letter dated December 20, 1977. 5 The plaintiffs claim that this letter, which cited a thirteen percent increase in consolidated net income before ventures and taxes, was fatally misleading in that it failed to disclose that the defendants' five-year plan, a projective document generated for internal management use only, showed at that time an anticipated decline of seven percent in consolidated net income for the year. 100 While it is true that there is no duty upon management or directors to disclose financial projections, see, e. g., Freeman v. Decio, 584 F.2d 186, 199-200 (7th Cir. 1978), it is also axiomatic that once a company undertakes partial disclosure of such information there is a duty to make the full disclosure of known facts necessary to avoid making such statements misleading. Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.), cert. denied, 434 U.S. 875, 98 S.Ct. 224, 225, 54 L.Ed.2d 155 (1977) (release of nine months earnings figures showing $1.16 earnings per share were made misleading by the failure to release existing accounting reports which defendants knew would require year-end write-offs resulting in a $0.15 loss per share); see Marx v. Computer Sciences Corp., 507 F.2d 485, 489-92 (9th Cir. 1974). 101 However, projections, estimates, and other information must be reasonably certain before management may release them to the public. Thus in the recent case of Vaughn v. Teledyne, Inc., 628 F.2d 1214, 1221 (9th Cir. 1980), the Ninth Circuit rejected a claim that defendants had a duty to disclose internal projections during the course of a tender offer for its own shares. The court held (i)t is just good general business practice to make such projections for internal corporate use. There is no evidence, however, that the estimates were made with such reasonable certainty even to allow them to be disclosed to the public. Id.; see Berman v. Gerber Products, Inc., 454 F.Supp. at 1328; cf. First Virginia Bankshares v. Benson, 559 F.2d 1307, 1318 (5th Cir. 1977), cert. denied, 435 U.S. 952, 98 S.Ct. 1580, 55 L.Ed.2d 802 (1979) (a lender's duty to disclose known irregularities in his debtor's accounts resemble a recital of raw fact more than they resemble a prediction of future stock prices). 102 The earnings projections the plaintiffs allege should have been disclosed were contained in a five-year plan which had been hastily updated only the very day of the board meeting to consider the CHH first proposal. It was one of a series of five-year plans which were continually updated and used internally by Field's management to explore planning and development. That the projections it contained were highly tentative seems the compelling inference from the evidence that Field's projections varied from those of its own investment bankers, were considered merely valid to use for the present purpose, of evaluating the Carter Hawley offer, and that they ended up varying substantially from Field's performance as revealed by the actual year-end earnings which finally came in a full twenty-five percent down from the prior year. We therefore find that because the projections of the five-year plan were tentative estimates prepared for the enlightenment of management with no expectation that they be made public, there was no duty to reveal them. Indeed, in light of the degree by which they failed to project the extent of the decline in earnings, release of the seven percent estimate might have subjected the defendants to securities law liability. Cf. SEC v. Texas Gulf Sulphur, 312 F.Supp. 77, 83-84 (S.D.N.Y.1970), aff'd in part, rev'd in part, 446 F.2d 1301 (2d Cir.), cert. denied, 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558 (1971) (optimistic press release misleading because not optimistic enough). 103 We therefore affirm the ruling of the district court that the plaintiffs failed to present sufficient evidence to support a reasonable jury finding of the element of deception required by Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.