Court Opinion

ID: 8966061
Source: CourtListenerOpinion
Date Created: 2022-11-27 10:04:50.511594+00
Date Added: 2024-06-11T17:10:19.245352
License: Public Domain

COWEN, Circuit Judge,
concurring in part and dissenting in part:
I.
I agree with the majority that we should reverse the district court’s refusal to grant preliminary injunctive relief on the basis that Polaroid has demonstrated it is entitled to this relief under the theory that the Disney interests have violated section 14(e) of the Williams Act, 15 U.S.C. § 78n(e). I therefore concur with that portion of the majority’s opinion which discusses section 14(e) and concludes that Polaroid is entitled to injunctive relief under this claim.1
I write separately, however, because I believe that Polaroid has also demonstrated that it is entitled to relief on the basis that the Disney interests have violated the All-Holders Rule, 17 C.F.R. § 240.14d-10(a). I disagree with the majority’s conclusion that Polaroid, as a target company, lacks standing to assert this violation. I believe that the majority’s conclusion conflicts with other decisions of this Court holding that target corporations do have standing to assert violations of the Williams Act (and the regulations promulgated thereunder). Since I also find that Polaroid has otherwise met the requirements for preliminary injunctive relief, I dissent from that part of the majority’s decision which concludes that Polaroid is not entitled to this relief as a remedy for Shamrock’s probable violation of the All-Holders Rule.2
II.
The All-Holders Rule, 17 C.F.R. § 240.14D-10(a), states that a bidder’s tender offer must be open to “all security holders of the class of securities subject to the tender offer.” Since the ESOP plan holds 9.7 million shares of common stock, and the Shamrock tender offer is an offer to purchase all of Polaroid’s common stock except that controlled by the ESOP plan, the Shamrock offer plainly violates both the letter and the spirit of the All-Holders Rule.3
As the majority opinion makes clear, see Majority at 994-96, the All-Holders Rule was promulgated by the SEC to en*1008force and further the purposes of section 14(e) of the Williams Act, which proscribes “fraudulent or manipulative acts ... in connection with any tender offer.” 15 U.S. C. § 78n(e). The majority concludes that while the rule “is not an attempt to proscribe manipulative practices so much as an attempt to ensure that all holders of a class of securities subject to a tender offer receive fair and equal treatment,” it “is a valid exercise of SEC rulemaking authority.” Majority at 995. In holding that the regulation is valid, the majority implicitly acknowledges that the All-Holder Rule has the force of law and that it is “related to disclosure.”4
I depart from the majority when it concludes that a target corporation does not have standing to assert a violation of the All-Holders Rule. Admittedly, the majority’s exhaustive analysis of constitutional, associational, and jus tertii standing does offer some persuasive reasons supporting its finding that a target corporation does not have standing to assert a violation of the All-Holders Rule. We do not, however, address this issue in the abstract. Continuity and consistency in the law are legitimate and important concerns.
The majority opinion holds that a target company like Polaroid has standing to sue to enjoin a tender offer when it violates section 14(e) of the Williams Act’s prohibition against material misrepresentations. Majority at 1003. In reaching the conclusion that a target company has standing to assert a section 14(e) violation, it relies on two previous decisions of this Court, City Capital Associates Limited Partnership v. Interco Inc., 860 F.2d 60 (3d Cir.1988) and Ronson Corp. v. Liquifin Aktiengesellschaft, 483 F.2d 846 (3d Cir.1973), and Judge Friendly’s opinion in Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937, 946-47 (2d Cir.1969). Thus, the majority acknowledges and holds that there is a substantial body of precedent to support the finding that a target corporation has standing to assert a violation of section 14(e).
The All-Holders Rule, as noted above, was promulgated by the SEC pursuant to its delegated authority to further and enforce section 14(e). It has the force of law, and is also, as noted above, “related to disclosure.” See note 4 supra. To hold, as the majority does, that a target corporation has standing to assert a violation of section 14(e), but does not have standing to assert a violation of a valid regulation promulgated to further and enforce section 14(e) departs from our precedent, and undermines the goal of continuity and consistency in the law.
Such a departure is particularly unwarranted where no strong policy reason underlies the new distinction. I acknowledge that the potential exists for a conflict of interest between a corporation’s managers and its shareholders in the context of an effort to enjoin a hostile tender offer. The potential for a conflict of interest, however, is no greater in the case of a corporation which seeks to enjoin a tender offer as violating the All-Holders Rule than it is in the case of a corporation which utilizes a provision of the Williams Act. Since the majority points to no principled reason to distinguish between the two, and I can think of none, I dissent from the majority’s conclusion that a target company does not have standing to assert a violation of the All-Holders Rule.
III.
Since I find that Polaroid does have standing to assert a violation of the All-*1009Holders Rule, I must address whether it has demonstrated that it is entitled to preliminary injunctive relief. In my opinion, Polaroid satisfies each of the four elements for a preliminary injunction.

1. Probability of Success

Clearly, as I noted earlier, Polaroid has demonstrated that it will likely be successful in demonstrating that Shamrock’s tender offer violates the All-Holder Rule. See supra, maj. op. at 990.

2. Irreparable Injury

Three arguments support a finding of irreparable injury in this case. First is the fact that Shamrock does not appear to have the resources to compensate the ESOP shareholders for the damages they will likely suffer if the tender offer closes, and they have not been accorded the opportunity to participate.
Second is the fact that the ESOP shareholders, who are employees of Polaroid, will be deprived of the influence in their employer’s affairs that they have as significant shareholders in their employing corporation. That interest is manifest in this case. If the employees are satisfied with the present management, as shareholders they can use the influence (by not tendering) of their substantial position. Deprivation of a substantial ownership position in one’s employer is not an interest that is readily compensable in money damages, particularly where shares in the successor corporation will not be publicly traded.
Finally, the ESOP shareholders have an interest in enjoying a full twenty days to evaluate any tender offer for their shares. If Shamrock amends its offer to include the ESOP shares, however, they will only have ten days to review the offer. The opportunity to have sufficient time to make an informed decision is also an irreparable interest.

3. Other Interested Parties

Aside from Polaroid, Polaroid’s shareholders, and Shamrock, no other party appears to have an interest that would be harmed by the grant or denial of a preliminary injunction.
4- The Public Interest
This factor, to the extent it applies in this case, is clearly in favor of the enforcement of a valid regulation promulgated by the SEC. It weighs heavily in favor of injunc-tive relief.
IV.
I concur in the majority’s finding that Shamrock’s offer violates section 14(e). However, the majority errs, in my opinion, when it concludes that Polaroid does not have standing to assert a violation of the All-Holders Rule. I would reverse the district court’s denial of Polaroid’s motion for preliminary injunctive relief on this ground, and remand this case to the district court for entry of an order preliminarily enjoining the tender offer because it likely violates both section 14(e) and the All-Holders Rule.

. I also agree that this Court’s recent decision in City Capital Associates Limited Partnership v. Interco Inc., 860 F.2d 60 (1988), is controlling on the issue of whether Wertheim Shroder & Co. and Drexel Burnham Lambert Inc., Shamrock’s financial advisors, are “bidders” for Polaroid, as that term is used in 17 C.F.R. § 240.14d, Schedule 14d-l, Item 9. We therefore must affirm the district court's finding that Shamrock’s offer did not violate this regulation when it failed to disclose the financial condition of these institutions. See Majority at 991 n. 2.

. I would note, however, that the majority’s conclusion that a target company lacks standing to assert a violation of the All Holders rule may be dicta, since it determines that Polaroid is entitled to preliminary injunctive relief on the basis of the probable § 14(e) violation.

.I reject the reasoning of the district court, which held that the "particular facts of this case” allowed Shamrock to exclude the ESOP shares from its tender offer. The fact that Shamrock has filed an action in the Delaware Chancery Court seeking to "invalidate” the ESOP shares, and has stated its “present intention" to amend its offer should that action not be successful is an insufficient basis to find that the All-Holders Rule does not apply. When Shamrock initiated its offer, the ESOP shares were valid and outstanding shares of Polaroid common stock. They remain valid and outstanding at the date of the filing of this opinion. Plainly, the holders of ESOP shares were, and are “security holders of the class of securities subject to the [Shamrock] tender offer.” 17 C.F.R. § 240.14d-10(a).

. The Supreme Court has characterized all of the Williams Act provisions as disclosure provisions. Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 9, 105 S.Ct. 2458, 2463, 86 L.Ed.2d 1 (1985). As the majority acknowledges, even those provisions of the Williams Act that impose substantive requirements on the maker of a tender offer, such as the proration and best price provisions, were referred to by the Supreme Court in Schreiber as relating to “disclosure.” Id. Thus, the Supreme Court's use of the term "relating to disclosure” means something less than a provision requiring the dissemination of particular information. Given this background, I conclude that the All-Holders Rule is also “related to disclosure.” Indeed, even the majority acknowledges that the All-Holders Rule is valid because it is “no less related to disclosure than are the proration and best price provisions,” and because the SEC has articulated a disclosure justification for the Rule. Majority at 994-95.