Court Opinion

ID: 9467817
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:57:21.678881+00
Date Added: 2024-06-11T17:40:32.661326
License: Public Domain

CUDAHY, Circuit Judge,
concurring in part and dissenting in part:
Unfortunately, the majority here has moved one giant step closer to shredding whatever constraints still remain upon the ability of corporate directors to place self-interest before shareholder interest in resisting a hostile tender offer for control of the corporation. There is abundant evidence in this case to go to the jury on the state claims for breach of fiduciary duty. I emphatically disagree that the business judgment rule should clothe directors, battling blindly to fend off a threat to their control, with an almost irrebuttable presumption of sound business judgment, prevailing over everything but the elusive hobgoblins of fraud, bad faith or abuse of discretion. I also disagree with the majority’s view that misleading and deceptive representations about an offeror’s proposal are immunized from the proscriptions of Section 14(e) if the offer is withdrawn before the shareholders have an opportunity to tender.
On the other hand, I agree with the majority that many of the Securities Act misrepresentation claims here represent impermissible transmutations of claims for breach of fiduciary duty into federal securities violations. This result is frequently obtained through allegations that the failure of directors to disclose the culpability of their activities or their improper motives are unlawful misrepresentations. There is, however, at least one clear exception. The jury should have been allowed to consider the company president’s public letter of December 20, 1977, claiming a 13% increase in consolidated net income for the nine months ended October 31, when management expected a decline in earnings for the full year.
I.
Addressing first the state law claims of breach of fiduciary duty by the Board, the majority has adopted an approach which would virtually immunize a target company’s board of directors against liability to shareholders, provided a sufficiently prestigious (and expensive) array of legal and financial talent were retained to furnish post hoc rationales for fixed and immutable policies of resistance to takeover. Relying on several recent decisions interpreting the Delaware business judgment rule, the majority fails to make the important distinction
between the activity of a corporation in managing a business enterprise and its function as a vehicle for collecting and using capital and distributing profits and losses. The former involves corporate functioning in competitive business affairs in which judicial interference may be undesirable. The latter involves only *300the corporation-shareholder relationship, in which the courts may more justifiably intervene to insist on equitable behavior.
Note, Protection for Shareholder Interests in Recapitalizations of Publicly Held Companies, 58 Colum.L.Rev. 1030, 1066 (1958) (emphasis supplied).
The theoretical justification for the “hands off” precept of the business judgment rule is that courts should be reluctant to review the acts of directors in situations where the expertise of the directors is likely to be greater than that of the courts. But, where the directors are afflicted with a conflict of interest, relative expertise is no longer crucial. Instead, the great danger becomes the channeling of the directors’ expertise along the lines of their personal advantage — sometimes at the expense of the corporation and its stockholders.1 Here courts have no rational choice but to subject challenged conduct of directors and questioned corporate transactions to their own disinterested scrutiny. Of course, the self-protective bias of interested directors may be entirely devoid of corrupt motivation, but it may nonetheless constitute a serious threat to stockholder welfare. See Gelfond and Sebastian at 435-37 (footnotes omitted).
Despite this potential for abuse, the majority relies heavily on the business judgment rule’s presumption of good faith in the exercise of corporate decision-making power and attaches special significance to the “independence” of Field’s Board. Maj. op. ante at 294.2 The fact that Field’s may have had a majority of non-management (independent) directors is hardly dis-positive. The interaction between management and board may be very strong even where, as here, a relationship of symbiosis seems to prevail over the normal condition of “management domination.” 3 Whether the relationship is symbiotic or management “dominates,” I do not think it necessary to rely primarily on such directly pecuniary relationships as one director’s senior partnership in Field’s investment banking firm (although this was admittedly a quite profitable arrangement) or another director’s ownership of stock in a Field’s depository bank (obviously a more attenuated interest) to establish a conflict of interest here. These factors deserve appropriate attention. But the very idea that, if we cannot trace with precision a mighty flow of dollars into the pockets of each of the outside directors, these directors are necessarily disinterested arbiters of the stockholders’ destiny, is appallingly naive.
Directors of a New York Stock Exchange-listed company are, at the very least, “interested” in their own positions of power, prestige and prominence (and in their not inconsequential perquisites).4 *301They are “interested” in defending against outside attack the management which they have, in fact, installed or maintained in power — “their” management (to which, in many cases, they owe their directorships). And they are “interested” in maintaining the public reputation of their own leadership and stewardship against the claims of “raiders” who say that they can do better. Thus, regardless of their technical “independence,” directors of a target corporation are in a very special position, where the slavish application of the majority’s version of the good faith presumption is particularly disturbing.
Under the business judgment rule, once a plaintiff demonstrates that a director had an interest in the transaction at issue, the burden of proof shifts to the director to prove that the transaction was fair and reasonable to the corporation. Treadway Companies v. Care Corp., 638 F.2d 357 at 382 (2d Cir. 1980). Accord, Crouse-Hinds Co. v. InterNorth, Inc., 634 F.2d 690 (2d Cir. 1980). There was more than sufficient evidence in the instant case to permit the jury to shift the burden of proof to Field’s directors and to consider the reasonableness of the transactions. The majority here, however, affirms a directed verdict which determines that the evidence was insufficient as a matter of law to establish that Field’s directors were interested in this transaction. A brief examination of the majority’s “overwhelming weight of authority” demonstrates that even these cases do not support its notion of the quantum of evidence necessary to create a jury question in this case.
In Crouse-Hinds Co. v. InterNorth, 634 F.2d 690 (2d Cir. 1980), the tender offeror (InterNorth) arrived on the scene after a merger of the target (Crouse-Hinds) with a third party (Belden) had been announced. The tender offeror sought to enjoin preliminarily an exchange of stock in furtherance of the merger on the grounds that the exchange was designed merely to perpetuate the target management in office.5 Even though the target directors were allegedly “interested” in the merger because they would remain in control of the new corporation after its consummation, the court declined to shift the burden of proof to the directors for essentially two reasons.6 *302First, at the time the merger was negotiated, the tender offeror had indicated no interest in the target and, hence, the directors could not have been motivated by a desire to retain control. Second, the tender offer was conditioned on abandonment of the merger and the target company directors’ attribution of the exchange of stock to the facilitation of the merger was entirely credible.
Crouse-Hinds is distinguishable from the instant case in at least two respects. First, the Crouse-Hinds/Belden merger, which provided the basis for the self-interest charges, was negotiated prior to the tender offer. There was sufficient evidence (independent of any judgment made after the takeover attempt had been announced) to demonstrate that the combination was in the best interest of the stockholders. Thus, any activity to facilitate the merger after the tender offer could legitimately be ascribed to a valid business purpose.
In the present case, however, the challenged board activity occurred after CHH made known its acquisitive intentions. The responses of Field’s Board could not be justified, as they were in Crouse-Hinds, on documented negotiations and decisions made prior to the tender offer. When reviewed against a background of cast-in-concrete hostility to merger offers, the hasty acquisition of five Liberty House stores in the Pacific Northwest (two of which were acknowledged “dogs”), the $17 million commitment for a Field’s store in the Galleria complex in Houston, Texas (the site of a CHH Neiman-Marcus store) and the institution of a major antitrust action within hours of a merger proposal (ostensibly on the mere oral opinion of company counsel) represent some of the facts from which a jury might reasonably conclude that the directors improperly sought to perpetuate their control of the corporation. See pp. 304-310, infra.
Crouse-Hinds is also distinguishable from the instant case in that the Crouse-Hinds court as factfinder did consider and evaluate the merits of the self-interest claim.7 The district court and the majority here, however, refuse to allow the jury as fact-finder to consider, and evaluate any evidence of the directors’ self-interest. Thus, Crouse-Hinds cannot legitimately support the affirmance of the directed verdict in the instant case.
The recent decision in Treadway Companies v. Care Corp., 638 F.2d 357 (2d Cir. 1980), is similarly inappropriate authority for the majority’s result. In Treadway, the tender offeror (Care) challenged the issuance and sale of a substantial number of shares of the target company (Treadway) to a third company (Fair Lanes) on the ground that Treadway’s directors improperly approved the sale to perpetuate their control over the corporation.8 Although the district court denied Care’s request for injunctive relief, the court later ruled in Care’s favor at the bench trial on the merits and permanently enjoined the voting of the disputed shares. In evaluating the motivation of the Treadway directors, the district court examined “both the manner in which the sale agreement was entered into and negotiated and the ostensible justification for the sale itself.” Treadway, 638 F.2d at 372. The court was *303disturbed by: 1) the haste with which the Treadway-Fair Lanes negotiations had been conducted; 2) a consistent effort to structure the proposed transactions to avoid shareholder scrutiny; and 3) the lack of a good faith effort by the Treadway management to determine whether a takeover by Care would or would not be in the best interest of the corporation. Id. These factors led the court to conclude that the Board had breached its fiduciary duty by improperly seeking to perpetuate its control.
On appeal, the Second Circuit examined the business judgment rule and explained:
In nearly all of the cases treating stock transactions intended to affect control, the directors who approved the transaction have had a real and obvious interest in it: their interest in retaining or strengthening their control of the corporation. It is this interest which causes the burden of proof to be shifted to the directors, to demonstrate the propriety of the transactions. (Citations omitted) ... [Thus,] in attacking a transaction that was intended to affect control, plaintiff ... bears the initial burden of proving that the directors had an interest in the transaction, or acted in bad faith or for some improper purpose.
Treadway, 638 F.2d at 382 (emphasis supplied). Although the court ultimately found that the Treadway Board had not acted to maintain control, the case does not, for several reasons, require a similar result in favor of Field’s directors.
First, the Treadway court premised its finding on Care’s failure to show that all or even a majority of the directors had a personal interest in having the merger consummated. Only one director (Lieblich) had been promised a position in the merged corporation, and the district court had explicitly found that the other directors expected to lose their board positions if the merger went through. It was therefore reasonable to conclude that the decision to merge was not motivated by the desire of these disinterested directors to perpetuate their control of the corporation. Treadway, 638 F.2d at 383.
More importantly, however, the Tread-way court agreed that “there was ample evidence to support a finding that Lieblich acted improperly and determined, for his own selfish reasons and without giving the matter fair consideration, to oppose a Care takeover at all costs.” Treadway, 638 F.2d at 383. The fact that the court was unable to attribute Lieblich’s improper motives to the other directors or to find that Lieblich dominated the Board does not diminish the conclusion that Lieblich’s action was improper. The district court analysis was thus valid insofar as it related to a director who had an interest in maintaining his position as a director.
In the present case, the directors had a personal interest in defeating the takeover attempt — “their interest in retaining or strengthening control of the corporation.” See Treadway, 638 F.2d at 382. Therefore, under the business judgment rule’s burden-shifting doctrine the Board should be required to demonstrate that these transactions were fair and reasonable to the corporation. As in Treadway, the haste with which the Board acted in making acquisitions and filing a major lawsuit, the absence of shareholder scrutiny of any of the Board’s actions and the apparent lack of a good faith effort to determine whether the takeover was really in the shareholder’s best interest are troublesome.
Moreover, the Treadway court as fact-finder had the opportunity to consider all of the evidence of director self-interest and decide the merits of the fiduciary duty claims. The district court’s directed verdict here, however, decided as a matter of law that similar, if not stronger, evidence was insufficient to sustain the charges of self-interested misconduct. Based on Tread-way, it was surely improper for the district court to take these claims from the jury.
The majority also relies on Johnson v. Trueblood, 629 F.2d 287 (3d Cir. 1980) and quotes from Chief Justice Seitz’s opinion essentially to establish that self-interest must be the sole or primary motive underlying a director’s challenged action rather than merely “a” motive when control is *304implicated. The issue arose in Trueblood, however, in the context of how a jury was to be charged, not whether the evidence should go to a jury at all. The Trueblood court concluded (and the majority here agrees) that to survive a motion for a directed verdict, the “plaintiff must make a showing from which a factfinder might infer that impermissible motives predominated in the making of the decision in question.” Id. at 292-93. Regardless whether “a” self-interested motive is sufficient or whether a “primary” self-interested motive is requisite, there is sufficient evidence in the instant case to satisfy either standard. See pp. 304-310, infra. Nothing in True-blood supports the view that the district court properly foreclosed jury consideration of the claims of Field’s shareholders.
Beyond this, however, I believe that Judge Rosenn’s dissent in Trueblood states the proper interpretation of the business judgment rule in control cases: “Once a plaintiff has shown that the desire to retain control was ‘a’ motive in the particular business decision under challenge, the burden is then on the defendant to move forward with the evidence justifying the transaction as primarily in the corporation’s best interest.” Trueblood, 629 F.2d at 301. This statement of the rule is compatible with both the Delaware case law9 and the realities of corporate governance, and is by no means a minority position. In Klaus v. Hi-Shear Corp., 528 F.2d 225 (9th Cir. 1975), the logic of which the defendants ignore and the majority chooses to reject, the Court of Appeals for the Ninth Circuit approved the application of a rigorous rule which required directors of a target company, as fiduciaries, to demonstrate a “compelling business purpose” for their actions. Id. at 233-34. The Klaus standard is entirely consistent with the standard which the Second Circuit clearly spelled out in Treadway and left intact in Crouse-Hinds. See note 6, supra. See also Podesta v. Calumet Indus. Inc., [1978 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 96,433 (N.D.Ill. 1978); Royal Indus., Inc. v. Monogram Indus., [1976-77 Transfer Binder] Fed.Sec.L. Rep. (CCH) ¶ 95,863 (C.D.Cal.1976).
Thus, the majority here has no basis for asserting that in “control” cases an interpretation of the business judgment rule which shifts the burden of proof to interested directors and requires them to establish a valid business purpose for their actions is a “novel” rule contrary to the “overwhelming weight of authority.”10 In none of the cases cited by the majority was the fact-finder (whether judge or jury) precluded from evaluating the merits of the fiduciary duty claims. In the instant case, on the other hand, similar claims are buffered against jury examination by the cordon sanitaire of a distorted business judgment rule.
II.
The basic error of the majority in the instant case is in holding as a matter of law that there was insufficient evidence to go to the jury on the state claims of breach of *305fiduciary duty. In reviewing a directed verdict, this court must evaluate the evidence in a light most favorable to the appellant and determine “whether it is of sufficient probative value that members of the jury might fairly and impartially differ as to the inferences to be reasonably drawn therefrom.” Hohmann v. Packard Instrument Co., 471 F.2d 815 (7th Cir. 1973). See also Chillicothe Sand & Gravel Co. v. Martin Marietta Corp., 615 F.2d 427 (7th Cir. 1980). There was abundant evidence from which a jury in this case could have concluded that Field’s directors breached their fiduciary duties to the shareholders: 1) by pursuing a fixed, nondebatable and undisclosed policy of massive resistance to merger with, or acquisition by, a series of the nation’s foremost retailers; 2) by making hasty and apparently imprudent defensive acquisitions to reduce Field’s attractiveness as a takeover candidate and to force the withdrawal of the CHH offer; and 3) by hastily filing a major antitrust suit to further impair persistent acquisitive efforts of CHH.
Reviewing first the evidence on the existence of a policy of independence in a light most favorable to appellants, it is difficult to understand the basis for the majority’s conclusion that jurors could not fairly and impartially differ as to the inferences to be drawn from the facts presented. See Hohmann, 471 F.2d at 820. Marshall Field’s Board of Directors had long been aware of the fact that the company’s “accumulated worth, strong balance sheet, large cash reserves and borrowing potential” made Field’s vulnerable to an involuntary merger or takeover. Panter v. Marshall Field & Co., 486 F.Supp. 1168 (N.D.Ill.1980). In December 1969, at approximately the same time that Associated Dry Goods expressed an interest in acquiring Field’s, the Board retained Joseph Flom of the New York law firm of Skadden, Arps, Slate, Meagher & Flom for advice on defeating takeover bids. Id. at 1175-76. Flom recommended the application of his “pyramid theory” which is based on the principle that the best way to remain independent is to acquire other enterprises.11 In this way, Field’s would either become too large to be acquired or would have so much overlap that acquisition of Field’s by another major retailer would inevitably create antitrust problems.
While the majority notes that Flom advised the Board to be interested and listen carefully to proposals from other retailers, the majority apparently overlooks the curious coincidence that Field’s made a major acquisition and/or raised antitrust problems to fight off virtually every serious merger or takeover attempt after the company hired Flom. See maj. op. ante at 278. In response to the interest of Associated, a predominantly Ohio and Pennsylvania operation, Field’s conveniently acquired the Cleveland and Erie retail operations of Halle Brothers. Panter, 486 F.Supp. at 1177. These stores have, however, been less than profitable for Field’s in the decade since they were acquired. See Plaintiffs’ Exhibits 370, 372.
Similarly, after a merger proposal from Federated Department Stores in 1975, Field’s actively employed Flom’s antitrust approach to prevent a takeover. Record at 2101-03. No major acquisition was necessary in this instance because Federated’s Chicago Division of I. Magnin and the Chicago, Seattle, and Milwaukee-based Boston Stores (which Federated offered to divest12) *306created sufficient antitrust leverage for Field’s to stave off the unwelcome opportunity. Again, in 1976, Field’s was under siege by Dayton-Hudson, but sought to acquire overlapping stores in Portland, Oregon and Tacoma, Washington from Liberty House.13 Although Field’s Board vociferously contends that its fascination with the Pacific Northwest was part of a long-range plan to sustain growth and profitability, the Board’s interest in the Liberty House stores coincidentally subsided as Dayton-Hudson’s interest in Field’s waned. See Panter, 486 F.Supp. at 1177. Finally, it should surprise no one that Field’s initial response to the CHH proposal was to raise antitrust questions and hastily seek to acquire retail operations which were adjacent to CHH operations. See pp. 306-312 infra.
The majority accepts. the defendants’ claim that the Board’s responses were tailored to a “desire to build value within the company and the belief that such value might be diminished by a given offer.” Maj. op. ante at 296.14 But one man’s desire to “build value” may be another man’s desire to “keep control at all costs,” and a jury must decide which characterization is most consistent with the facts. A properly charged jury could have fairly concluded that Field’s carefully weighed each merger or takeover offer to determine stockholder interest, but they could have just as fairly concluded that Field’s carefully built its defenses against each offer without regard to stockholder interest. A directed verdict on these claims is therefore indefensible.
The plaintiffs also presented extensive evidence to substantiate their claims that Field’s Board gave the CHH merger proposal no bona fide consideration and instead engaged in classic anti-takeover maneuvers. Throughout the busy Christmas season, the Board hastily solicited and apparently imprudently consummated several defensive acquisitions to reduce the company’s attractiveness as a takeover candidate, create additional antitrust problems and ultimately force the withdrawal of the CHH offer. The documentary and testimonial evidence presented at trial provided a sufficient basis from which a jury could conclude that Field’s Board in this respect breached its fiduciary duty.
The Board first learned of the CHH interest at a meeting following the death of Field’s then chief executive, Joseph Burnham, in October 1977. Panter, 486 F.Supp. at. 1178. A resolution passed at that meeting announced the Board’s swift and uncompromising response: “The proposed business combination should not be considered because the best interests of the company’s shareholders would be served by ... continuing as an independent entity.” Id. (emphasis added). When CHH presented a formal merger proposal to the Board *307on December 12, 1977, the directors received a limited review of the financial aspects of the merger,15 heard conflicting reports on Marshall Field’s future earnings,16 and rejected the CHH proposal as “illegal, inadequate and not in the best interest of Marshall Field & Co., its stockholders and the community which it serves.” Id. at 1181.
Less than two weeks later (and only four days before Christmas), a committee of Field’s officers and investment bankers reviewed a list of candidates available for immediate acquisition by Field’s. Record at 553. Within ten days of this meeting, committee members met with the principal stockholders of Dillard's, a southwestern retailer in direct competition with CHH’s Neiman-Marcus division, to see if a deal could be struck.17 Record at 555-57. Correspondence from one of Field’s investment bankers established that the Board sought a speedy transaction which would not require shareholder approval.18 Because there was no time for a full scale financial analysis, the banker relied on “the intuitive judgment [of a Field’s officer] as to the business potential” of the acquisition. Plaintiffs’ Exhibit 137. The deal ultimately fell through, however, when Dillard’s was purchased by Dutch interests. Record at 578-79.
Shortly after the demise of the Dillard’s deal, Field’s Board considered a proposal to acquire five Liberty House stores in the Pacific Northwest.19 In the absence of any *308historical operating data,20 and despite reports from Field’s Vice-President of Corporate Development that the estimated earnings potential of these stores was marginal,21 the Board unanimously approved a $24 million agreement to purchase these operations. Record at 603. The acquisition was publicly announced the following day. Plaintiffs’ Exhibit 154.
Field’s Board supplemented its sudden interest in acquiring operating retail stores with a hasty investigation of opportunities for expansion in two major shopping centers. While members of the acquisition team were concentrating on Dillard’s, Field’s Vice-President in charge of real estate was assigned to negotiate with Homart Development Corporation, managers of Northbrook Court in Chicago’s northern suburbs. Although the Board had rejected an earlier plan to develop a Field’s store in this shopping center22 their renewed interest could be credited to the fact that Nieman-Marcus had a successful operation in the same location.23 The center was designed to contain four anchor stores, and Homart had commitments from four major tenants. The Field’s representative pressed for the creation of a fifth anchor, but the negotiations ultimately fell apart. Record at 391-92.
The Board was more successful in its efforts to acquire space in the Galleria, an exclusive shopping center in Houston, Texas (and, of course, the location of another Neiman-Marcus store). In less than a month, Field’s Board received an initial presentation on the Galleria,24 authorized negotiations for a lease25 and approved a $17 million dollar commitment to establish the first Marshall Field’s store outside the Chicago area.26 The letter of agreement between Field’s and the Galleria management was signed one day after CHH made a formal tender offer to purchase Field’s stock at $42 per share. The agreement was announced on February 8,1978, and shortly thereafter, CHH withdrew its offer because Field’s expansion program27 had “created sufficient doubt about Marshall Field’s earning potential to make the offer no longer in the best interest of CHH shareholders.” Plaintiffs’ Exhibit 345.
The majority reviewed this sequence of events and concluded that there was “uncontroverted evidence that such expansion was reasonable and natural.” Maj. op. ante at 297. There was more than sufficient evidence here, however, for a jury to conclude that it was not “reasonable and natural” for the directors of a major retailer to make expansion commitments totalling more than $40 million dollars during and shortly after a busy Christmas season in which their “top priority” was to help a new chief executive officer become familiar with Field’s operation.28, Particularly when con*309sidered with the evidence of a long-standing and uncompromising policy of independence, I am astonished that the business judgment rule under any guise could keep this case from the jury.
Finally, the plaintiffs presented sufficient evidence to survive a directed verdict on the claim that Field’s directors breached their fiduciary duty to the shareholders by filing a major antitrust suit against CHH within hours of the receipt of CHH’s first merger proposal. The majority here has concluded that the defendants were “fairly and reasonably exercising their business judgment to protect the corporation against the perceived damage an illegal merger could cause.” Maj. op. ante at 297. Once again, however, the facts presented at trial could easily support a quite different conclusion.
CHH President Philip Hawley informed Field’s President, Angelo Arena, on December 10th that CHH intended to make a formal merger proposal within two days unless Field’s agreed to enter serious negotiations with CHH representatives. Record at 1341. Arena then hastily assembled one director, one officer and several of Field’s investment bankers and lawyers in New York on Sunday, December 11th at an emergency meeting. Panter, 486 F.Supp. at 1180; Record at 457-59, 2861-62. . Although Arena had privately solicited an opinion on the antitrust implications of a merger with CHH from Kirkland & Ellis, no Kirkland & Ellis representative attended the meeting. Record at 459. Arena reported, however, that he had received oral confirmation from a Kirkland attorney that the proposed merger was illegal. Panter, 486 F.Supp. at 1181. Two prominent law firms representing CHH had also reviewed the matter and believed an adequate agreement could be worked out to avoid any antitrust problems.29 Id. at 1180. However, without written legal analysis and without further discussion, the emergency anti-takeover cabal agreed that Field’s would file an antitrust suit against CHH and solicit investigatory action by the FTC,30 the SEC and the Illinois Securities Commission31 to help block the merger. Arena then called each director not present at the meeting, briefly outlined the antitrust problem and obtained authorization to file the suit. Id. at 1181. The following day, the Board issued a press release announcing the merger proposal and stating that a suit had been filed. Plaintiffs’ Exhibit 113.
A jury considering this evidence could have found that Field’s Board failed to adequately review the legal aspects of the proposed merger with CHH. In addition to hastily approving a lawsuit arguably based on insubstantial antitrust claims (involving quite remediable problems), the Board made defensive acquisitions which bolstered those claims, drained Field’s of cash and ultimately led to the withdrawal of the CHH offer. The jury could have concluded that the directors in a sense used Field’s own assets against the shareholders to defeat the takeover proposal of a high quality retailer which essentially doubled the market price of Field’s stock.32 With these *310findings, a jury charged even under the defendants’ version of the business judgment rule could have decided the case for plaintiffs.
One may, of course, argue that what the directors did here was merely to make the normal reflexive response of incumbent management to efforts by outsiders to take over control of a corporation. In fact, applicable federal and state takeover legislation suggests that incumbent management — protective of its own powers and perquisites — may almost automatically attempt to defeat hostile tender offers, whatever their merits.33 These assumptions may reflect a realistic view of human and corporate nature, and perhaps the law should simply excuse directors for thinking of themselves first and stockholders second in the event of a threatened takeover. In that regard I do not perceive the actions of Field’s directors here as necessarily more egregious than many others in like circumstances. But under the legal norms which now must guide us (and no matter who has the burden of proof), there is no good reason to take this unfortunately too typical, but nonetheless important and substantial, case from the jury.
III.
In addition, I disagree with the majority’s conclusion that, because the CHH tender offer was withdrawn before plaintiffs had the opportunity to decide whether or not to tender their shares, any deception which Field’s Board might have practiced cannot be a violation of Section 14(e) of the Williams Act. Maj. op. ante at 283-285. The type of rule which the majority advocates is simply an invitation to incumbent management to make whatever claims and assertions may be expedient to force withdrawal of an offer. Management could speak without restraint knowing that once withdrawal is forced there is no Securities Act liability for deception practiced before withdrawal took place. Such a rule provides a major loophole for escaping the provisions of Section 14(e) and obviously frustrates the remedial purpose of the Act.
“It is well settled that [statements made by either the offeror or the target company prior to the actual effective date of a tender offer but after the announcement of the offer and preliminary filings fall within the purview of § 14(e). ... During this interim period the policies behind Section 14(e) apply with as much force as they do following the effective date of the offer.” Berman v. Gerber Products Co., 454 F.Supp. 1310, 1318 (W.D.Mich.1978) (footnotes omitted and emphasis added). The management of a company subject to a tender offer proposal is in a unique position to take steps and make representations that may have a significant impact on the likelihood that the proposal will be frustrated. For example, in the instant case, Field’s undertook a hasty acquisition program which may have made Field’s significantly less attractive and contributed to the withdrawal of the proposal. Admittedly, this was a course of action rather than primarily a course of representation — but the effect of the latter could be the same.
Compelled by the logic of its position that Section 14(e) provides no protection with *311respect to offers which are withdrawn before stockholders have an opportunity to tender, the majority also concludes that Section 14(e) does not apply to decisions not to sell into markets which are rising on news of a tender offer announcement. But in Gerber v. Berman Products Co., supra, the court said that claims based on the interim market price of stock were actionable even where a proposed tender offer is withdrawn without becoming effective:
The requisite causation does exist, however, to the extent that [shareholders] were misled into retaining their holdings when they could have sold them on the market at a higher price. The legislative history of the Williams Act indicates that the legislation was intended to reach such transactions as well as those involving the actual tender of a stockholder’s shares.... If [the board of directors] misrepresented or omitted material facts in connection with their opposition to the [tender offer] proposal so that [the shareholders] were induced to retain their shares in reliance upon the integrity and good judgment of the board of directors, but had they known the truth they would have sold their stock in the rising market, a direct causative link exists between [the board of directors’] acts and [the shareholders’] investment decision.
Berman, 454 F.Supp. at 1325.
The majority places heavy reliance on Lewis v. McGraw, 619 F.2d 192 (2d Cir.) (per curiam), cert. denied,—U.S.-, 101 S.Ct. 354, 66 L.Ed.2d 214 (1980) where the Court of Appeals for the Second Circuit dismissed the stockholders’ Section 14(e) claim for failure to establish reliance or causation. There a tender offer, conditioned on the approval of target management, never became effective because the board of the target corporation rejected the proposal. The district court in Lewis concluded that the complaint sufficiently alleged deception “in connection with the tender offer” because “the prospective offeror [had] made a public announcement of a proposed tender offer and [plaintiff had alleged] a clear and definite intent to make a tender offer.” Lewis v. McGraw, [1979-1980 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 97,195, 96,568 (S.D.N.Y.1979). Although the complaint was dismissed for failure to allege causation and reliance, the district court emphasized that “it would be inconsistent with the purpose of Section 14(e) to preclude an action for damages relating to pre-tender offer violations in cases where no tender offer was in fact made. Such [a rule] would have the effect of providing a safe harbor for target companies who were successful in their use of misstatements or deception to discourage the making of tender offers.” Id. at 96,568. I find the district court’s mode of analysis reflective of the economic realities of the situation and consistent with the thrust of prior case law. See Berman v. Gerber Products Co., supra; Applied Digital Data Systems, Inc. v. Milgo Electronic Corp., 425 F.Supp. 1145 (S.D.N.Y.1977).34 If, therefore, Lewis is to be construed as the majority would have it here, I am quite unpersuaded by what would seem to be the Second Circuit’s unexplained and summary departure from a well-established line of analysis.
But, as the Securities and Exchange Commission in its amicus curiae brief in the instant case points out:
The Lewis opinion [by the Second Circuit] ... addressed only the question whether protection was afforded against deception that operates to prevent a tender offer from becoming effective and thus deprives shareholders of the opportunity to make a decision whether to tender their shares.... [T]he Lewis opinion [does not address] the different question presented here, of whether shareholders are afforded protection from deception that influences investment decisions which they do in fact make after a tender offer proposal is publicly announced.
*312SEC Supplemental Br. at 11-12. This distinction (between loss of the tender offer itself and loss of the opportunity to sell at rising prices induced by the tender offer proposal) is clear and realistic. If there was deception in the present case, then many Field’s shareholders could have failed to sell their stock at the high prices induced by the tender offer announcement because they were deceived. From the perspective of a public shareholder, once announcement of a tender offer proposal is made, it matters little whether fraud occurs before or after shareholders are given the opportunity to tender to the bidder, or whether they are ever given that opportunity. A shareholder, who, in the face of a proposed tender offer elects not to sell into the market in reliance on management’s misleading statements, is in a position similar to that of a shareholder who elects not to tender to the bidder in reliance upon such statements. Congress clearly protected the latter, as well as, I believe, the former.
IV.
Without attempting to analyze all the statements alleged in this case to be false or misleading, I address only the letter from Field’s president to its shareholders dated December 20,1977. In this letter the president reported consolidated net earnings for nine months ended October 21 to be up 13% without adverting in any way to his expectation (evidenced in a five-year plan just submitted to the Board) that consolidated net earnings for the year would decline by 6V2%. Thus it was fully expected that there would be a drop in annual earnings from $2.01 to $1.86 per share. In fact, earnings for the year turned out to be $1.76 (down 25%). Having disseminated glowing generalities about the future, citing interim financial figures, defendants had the duty to disclose the anticipated, though unpleasant, immediate expectations of management. See First Virginia Bankshares v. Benson, 559 F.2d 1307, 1314 (5th Cir. 1977), cert. denied, 435 U.S. 952, 98 S.Ct. 1580, 55 L.Ed.2d 802 (1979). The majority finds this very questionable communication to be so far from deceptive or misleading as not to require its submission to the jury.
By way of defending its conclusion, the majority argues that it was clear from the context of the letter that unprofitable ventures would turn the year-to-year comparison distinctly unfavorable. Maj. op. ante at 291-292, note 5. I think it just as rational to interpret the letter as saying that, but for the sour undertakings, the nine-month numbers would be even better. The majority also defends its conclusions by arguing that, since the internal estimates were not precise, it was better to leave the public with an upbeat nine-month impression than to suggest that the full year would be down, although no one knew exactly how much. Maj. op. ante at 292-293. But this defense ignores the fact that management’s pitch to the shareholders was bolstered by three-quarter figures which the managers then believed to be unrepresentative of the full year. Whatever may have been management’s (perhaps perennial) hope that “there [was] light at the end of the earnings’ tunnel” (maj. op. ante at 291-292, note 5), this misleading use of the numbers created a serious question for the jury.
V.
To have taken this close case presenting a wide range of defensible inferences from the jury is a major disservice to stockholders everywhere. This case announces to stockholders (if they did not know it before) that they are on their own and may expect little consideration and less enlightenment from their board of directors when a tender offeror appears to challenge the directors for control. I believe that only the submission to jury verdict of cases like this one can restore confidence in our system of corporate governance. While I concur as to many of the Securities Act deception claims, I must respectfully dissent in the areas which I have indicated.
Cudahy, J., dissenting.

. Hostile tender offers unavoidably create a conflict of interest.... Nearly all directors and managers are interested in maintaining their compensation and perquisites.... [A] hostile tender offer unavoidably involves forces tending to shape decisions that are not necessarily for the benefit of all shareholders. As a result a ... business judgment approach in hostile tender offer cases is inappropriate.
Gelfond and Sebastian, Reevaluating the Duties of Target Management in the Hostile Tender Offer, 60 B.U.L.Rev. 403, 435-37 (1980) (hereinafter “Gelfond and Sebastian”).

. “In practice [and presumably regardless of its numerical composition], the American corporation’s board of directors is largely dominated by the management of the corporation.” Gel-fond and Sebastian at 436. I recognize, however, that plaintiffs here have not sought to prove that management “controlled” the Board. Appellee’s Br. at 78.

. In Mite Corp. v. Dixon, 633 F.2d 486 (7th Cir. 1980), this court invalidated a provision of the Illinois Business Take-Over Act, Ill.Rev.Stat. ch. 121½, § 137.51 et seq. (1979), which provided for a hearing on the equity of a tender offer by the Illinois Secretary of State at the request of “a majority of the directors of the target company who [were] not officers or employees of the target company....” We there said that this provision was apparently not intended to give incumbent management the right to require hearings. Nonetheless, we said of this procedure that, “It still seems likely that in a significant number of cases management will be able to use the provision ... through' its ability to influence outside directors.” Mite, 633 F.2d at 494-95.

. Apart, of course, from the very substantial salaries of the “inside” (management) directors and the benefits to certain outside directors, noted supra, all the outside directors had annu*301al incomes from Field’s which ranged from $11,200 to $16,000 in 1977. Plaintiffs’ Exhibit 437.

. The suit, initially filed by Crouse-Hinds, alleged that InterNorth had violated New York business corporation law and federal securities law and sought an injunction preventing Inter-North from acquiring Crouse-Hinds stock. InterNorth counterclaimed arguing that the “Exchange Offer” which facilitated the merger of Crouse-Hinds and Belden lacked a legitimate business purpose and was unfair to CrouseHinds’ stockholders. InterNorth sought to enjoin Crouse-Hinds from purchasing Belden stock. The district court subsequently denied Crouse-Hinds’ motion to dismiss the counterclaim and granted InterNorth’s request for a preliminary injunction. The Court of Appeals for the Second Circuit reversed.

. The court affirmed the “normal requirement that a complaining shareholder present evidence of the director’s interest in order to shift the burden of proof,” but rejected the logic of the district court’s conclusion that “if the directors are to remain on the board after the merger, perpetuation of their control must be presumed to be their motivation.” CrouseHinds, 634 F.2d at 702. To the extent that this language may have been intended to prevent a shift in the burden of proof upon a showing that the directors of a target corporation had an interest in maintaining their control of the corporation, I reject the holding as inconsistent with apposite case law, corporate reality and sound public policy. I do not believe, however, that the Second Circuit intended to establish a rule which would preclude an examination of fairness in the instant case. The facts in Crouse-Hinds are complicated and special, and the Second Circuit summed up its holding by saying: “In short, when the tender offeror has presented the target company with an obvious reason to oppose the tender offer, the offeror cannot, on the theory that the target’s management opposes the offer for some other, unstated, improper purpose, obtain an injunction against the opposition without presenting strong evidence to support its theory.” Id. at 704 (emphasis supplied). In the instant case, CHH did not present Field’s with an “obvious reason” to oppose the tender offer nor are there alternative reasons “unstated” by plaintiffs here. Further, the Crouse-Hinds opinion recites a number of reasons why the InterNorth tender offer might have been inadequate on the merits, including the fact that the offering price was only $40 per share against a closing price the day before the announcement of $38 per share. Id. at 694 n.5. When examined from *302these perspectives, the Second Circuit’s digression into the principles of logic does not negate the interpretation of the business judgment rule advocated here.

. Since InterNorth sought injunctive relief, the court was only required to evaluate the likelihood of success on the merits or the existence of a sufficiently serious question going to the merits to make it a fair ground for litigation. Crouse-Hinds, 634 F.2d at 701.

. Treadway initially filed the action against Care and Daniel Cowin, Treadway’s financial consultant. The complaint alleged that Care and Cowin had unlawfully conspired to seize control of Treadway and sought an order divesting Care of its stock and requiring all defendants to account to Treadway for their profits. Care then counterclaimed seeking an injunction to prevent the issuance and sale of 230,000 Treadway shares to a third company, Fair Lanes. Care claimed that the Treadway Board had breached its fiduciary duty to the shareholders because the sale had been approved primarily to perpetuate the Treadway Board’s control of the corporation.

. Nothing in Bennett [v. Propp, 41 Del.Ch. 14, 187 A.2d 405 (1962)] or Cheff[v. Mathes, 41 Del.Ch. 494, 199 A.2d 548 (1964)] suggests that the plaintiff must first prove that the sole or primary purpose of the transaction was the directors’ desire to retain control over the corporation. Rather, the unequivocal thrust of Bennett is that once the record demonstrates that control is implicated in the transaction, a conflict of interest is ipso facto created. Once a conflict of interest is present, the burden of proof is shifted logically and pragmatically on the defendants ‘to justify [the transaction] as one primarily in the corporate interest.’ Bennett, supra, 187 A.2d at 409.
... Recent Delaware cases reveal a growing trend to impose obligations on management to justify control-related transactions. Cf. Singer v. Magnavox, 380 A.2d 969 (Del. 1977) ... Sinclair Oil v. Levien, 280 A.2d 717, 720 (Del. 1971) ... Petty v. Penntech Papers, Inc., 347 A.2d 140, 143 (Del.Ch. 1975).
Trueblood, 629 F.2d at 300-01 (Rosenn, J., dissenting).

. Another case which figures prominently in the majority’s discussion of the Delaware business judgment rule is GM Sub Corp. v. Liggett Group, Inc., No. 6155 (Del.Ch. April 25, 1980). Except for the fact that this unpublished preliminary ruling by a Delaware trial court makes a passing reference to the district court opinion in the instant case, GM Sub Corp. has little relevance to the claims of Field’s shareholders.

. Flom testified that he advised every Field’s Chief Executive from 1970 to 1977 that acquisitions were the best means to prevent takeover. Panter, 486 F.Supp. at 1176.

. Much of the documentary evidence relating to merger or tender offer proposals prior to the CHH offer was excluded by the district court on relevance grounds. Rule 401 of the Federal Rules of Evidence defines relevant evidence as anything which has a “tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.” Plaintiffs here sought to establish the existence of a fixed and pervasive policy of independence which prompted the board to actively resist any CHH proposal regardless of its merit. I believe Judge Will, who made several preliminary rulings in this case, correctly defined the parameters of relevant issues for trial when he said, “... the world didn’t start on October 12, 1977 [the day CHH first expressed an interest in Field’s]. The only way to interprete [sic] what happened from October *30612, 1977 to February ... 22nd, when the [CHH] offer [was] withdrawn, is to look at what happened before.” Hearing of 3/27/79, Record at 10-11 (emphasis added). Far from being irrelevant “collateral” material, much of the excluded evidence discloses facts which tend to make the existence of a policy of independence “more probable ... than it would be without [that] evidence,” and therefore was improperly withheld. Even in the absence of this evidence, however, I think the plaintiffs established a sufficient factual basis for a jury determination of the state claims.

. When asked to examine the antitrust aspects of a Dayton-Hudson/Marshall Field’s combination, William Blair & Co., Field’s investment banker, could find no competitive overlap between the two retailers. However, in a letter dated August 5, 1976, a Blair representative commented:
... it could be that Marshall Field itself has acquisition thoughts which, if consummated, could result in direct overlap or conflict and conceivably could be the basis for anti-competitive considerations. We suggest that your management give careful review to any acquisition thoughts resulting in entry into new markets by Field’s. To the extent that such expansion is a real possibility, it could at some point have a bearing on a consolidation with a company such as Dayton-Hudson.
Plaintiffs’ Exhibit 61. This piece of evidence, however, was improperly excluded at trial. See note 12, supra.

. There seems to be a striking paucity of evidence on how value might have been “diminished by a given offer.” For the most part, Field’s managed to squelch these offers before their impact on value could be fully appreciated by its stockholders.

. Field’s investment bankers were never asked to evaluate the adequacy or the fairness of the CHH proposal or determine the range for an acceptable offer. Record at 2275-76. The record only shows that Mr. Flom asked whether “it [was] reasonable to assume that if the Marshall Field Board chose to sell the company now, it could expect to attain a higher price than that proposed by CHH? The response was yes; [but] no price was specified.” Plaintiffs’ Exhibit 122.

. The investment bankers’ “best professional judgment” was that Field’s future earnings would rise 15% in 1978 and 12% each year thereafter. Plaintiffs’ Exhibit 122; Record as 2309-10. However, Field’s President Angelo Arena, who had been on the job less than two months, presented a hastily prepared “five-year plan” which projected an earnings per share increase of 23% for 1978 and approximately 20% for each year thereafter. The plan also showed that Field’s management expected the 1977 earnings (year ending January 31, 1978) would be down some 7% from the prior year, but anticipated a five year increase of up to 193% in Field’s per share earnings despite the fact that in the prior five years, Field’s per share earnings had declined by 20%. Plaintiffs’ Exhibits 122, 413E. The Board rejected the bankers’ estimates in favor of Arena’s five-year plan. Plaintiffs’ Exhibit 122; Record at 2314-17.

. The December 21, 1977 Acquisition Status Report indicates that less than two weeks prior to the meeting with Dillard’s shareholders, Field’s officers did not even know whether Dillard’s was a standard retailer or a discount operation. Plaintiffs’ Exhibit 130.

. The January 4, 1978, letter from a representative of William Blair & Co. to Field’s Executive Vice-President stated:
The most important benefits to Marshall Field & Co. from an all cash transaction are as follows:
The speed of consummation, since the approach will not require the filing of a registration statement and, since it would be a friendly offer endorsed by Dillard management, it would not run afoul of anti-takeover laws nor would there be a need for a stockholders meeting by either company.
sk sk sk n/i * sk
. .. The principal disadvantages of [a tax-free transaction] are the time required to effect the total transaction (registration and stockholders meetings) and the risk of certain Field’s stockholders throwing up roadblocks to the transaction....
Plaintiffs’ Exhibit 137 (emphasis supplied).

. Defendants claim that the acquisition of these Liberty House stores was the fruit of a long-standing desire to expand its Seattle-based Frederick and Nelson division. They point to 1975 and 1976 visits to these locations as proof of their good intentions. They conveniently ignore two important facts, however: 1) in 1975 and 1976 when these visits were made, Field’s was fighting off takeover attempts by Federated and Dayton-Hudson, respectively; and 2) a December 1, 1977, letter from John Nannes of Skadden, Arps to Joseph DeCoeur of Kirkland & Ellis suggests a Liberty House acquisition would bolster Field’s potential competition theory:
Dear Joe:
The Wall Street Journal reported in November 25, 1977 (page 14, column 6), that Carter Hawley Hale acquired a Liberty House department store in San Jose, California from Amfac, Inc. I understand that there are a number of Liberty House department stores in the Pacific Northwest, and this may well bolster our potential competition theory.
*308Plaintiffs’ Exhibit 109. This letter was written before CHH ever made a formal merger proposal which Field’s Board could consider.

. See Record at 668-69.

. The figures prepared by Field’s Vice-President of Corporate Development were rejected by Field’s management and replaced with more optimistic estimates dated January 19, 1978, the day of the Board meeting at which the Liberty House acquisition was approved. Cf. Plaintiffs’ Exhibit 148 (figures of Vice-President of Corporate Development) with Plaintiffs’ Exhibit 151 (figures used in replacement report).

. In 1975, Field’s management decided not to move into Northbrook Court because Field’s already had stores nearby at the Old Orchard and Hawthorn shopping centers. Record at 3200-01.

. The antitrust complaint filed by Field’s relied heavily on the competitive overlap between the Neiman-Marcus Northbrook Court store and Field’s Chicago stores. Plaintiffs’ Exhibit 195B.

. Record at 1937.

. Plaintiffs’ Exhibit 285.

. Plaintiffs’ Exhibit 290.

. Field’s also announced in February 1978 that it had commenced negotiations for a store in the North Park Mall in Dallas, Texas. Plaintiffs’ Exhibit 169. Dallas is the headquarters of CHH’s Neiman-Marcus division, and North Park Mall is the site of a Nieman-Marcus store.

. At one point during the trial, Director William Blair testified that the Board’s “top priority” was to help Arena in the transition period following Burnham’s death “because without capable management at the top of the company *309as our Christmas season was starting, we would have been in trouble and the stockholders would have suffered.” Record at 3021.

. The CHH proposal received by the Board on December 12, 1977, stated, “Our counsel have considered the antitrust aspect of the combination. They believe that the proposed transaction would be lawful and we will act on the basis of that advice.” Plaintiffs’ Exhibit 111.

. Kirkland & Ellis initiated the FTC investigation, but no formal action or complaint was ever filed against CHH. Plaintiffs’ Exhibit 441.

. Kirkland & Ellis also asked the Illinois Securities Commission (“ISC”) to file suit against CHH for violations of the state securities laws. Although Kirkland attorneys prepared a draft complaint and submitted it to the ISC, the Commission refused to take any action. Plaintiffs’ Exhibits 196, 441.

. The fair market value of Marshall Field & Co. stock in the period December 1977 — February 1978 was $18-20 per share. The actual price of Field’s stock on the New York Stock Exchange increased from about $19-20 per share in September 1977 to just under $23 on December 9, 1977. On December 14, 1977, when trading resumed after being suspended in light of the CHH $36 merger announcement, the price of Field’s stock jumped to about $32. *310In the next six weeks the price ranged from the high $20’s to the low $30’s. After the February 1, 1978, $42 tender offer announcement, the price of Field’s stock increased to a high of over $35 and stayed in the high $20’s and low $30’s until February 22, 1978 when the price plunged to $197/s with the announcement of the withdrawal of CHH’s offer. Plaintiffs’ Exhibit 510.

. In the debate on the Senate floor leading to enactment of the federal takeover disclosure statute, Senator Harrison Williams (its author) said:
I have taken extreme care with this legislation to balance the scales equally to protect the legitimate interests of the corporation, management, and shareholders without unduly impeding cash takeover bids. Every effort has been made to avoid tipping the balance of regulatory burden in favor of management or in favor of the offeror. The purpose of this bill is to require full and fair disclosure for the benefit of stockholders while at the same time providing the offeror and management equal opportunity to fairly present their case.
113 Cong.Rec. 854-55 (1967), quoted in Mite, 633 F.2d at 496 n.22.

. “When ... a public announcement of a proposed offer has been made, the very dangers that the Act was intended to guard against come into play, and the application of section ... 14(e) is thus appropriate.” Applied Digital, 425 F.Supp. at 1155 (footnote omitted).