Court Opinion

ID: 9475972
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:44:10.787897+00
Date Added: 2024-06-11T17:45:03.400209
License: Public Domain

CUDAHY, Circuit Judge,
concurring in the judgment and concurring in part:
I admire the clear and well-reasoned majority opinion which leads us through the cases and the economic theory required to come to grips with the problem before us. I have, however, important reservations and differences in perspective which require me to write separately — but not at great length.
First, I think the case could be decided, reaching the same result as the majority, on the issues of the instructions and the admission of evidence as the parties presented them. There were errors in the instructions but, taken in context, I am reasonably confident they were harmless. The instructions erred primarily in foisting some sort of erroneous burden of investigation on the plaintiffs. But the evidence does not present any real issue of investigation, and this error seems harmless. The majority does not mention the alleged errors of admission and exclusion of evidence, but here I would also find no reversible error.
Second, I am willing, though not eager, to go beyond the issues as presented by the parties to agree that the defendants win as a matter of law. The majority feels that this approach requires the adoption of a bright-line test (agreement on price and structure) and the specific approval of Staffin v. Greenberg, 672 F.2d 1196 (3d Cir.1982) and Reiss v. Pan American World Airways, Inc., 711 F.2d 11 (2d Cir. 1983).1 I understand the majority’s preference for a bright-line rule. If the secrecy of merger negotiations is in most investors’ ultimate best interest (a plausible premise though not necessarily one carved in stone), there is certainly an argument for keeping them quiet until agreement in principle is reached. (And, of course, here we are apparently considering only the welfare of investors.) My problems with the majority’s conclusion are primarily procedural— not necessarily substantive. We have heard no argument on the important issues which the majority boldly decides based on its own — no doubt well-informed — notions of how the corporate world turns. The Securities and Exchange Commission might have given us its views, had it not thought *1182this a case about instructions and evidence.2 I do not think it is necessary — or wise — to be so bold. I would merely hold that on the specific facts of this case there has been no nondisclosure or misrepresentation from which a reasonable jury could conclude that the securities laws had been violated. The evidence, as the majority has reviewed it, supports this conclusion, and that is all we are required to decide. To go on to lay down general rules applicable to all failure-to-disclose cases — even when the rules have been the subject of considerable litigation and academic debate — is simply not called for.
Third, I believe at several points in the majority opinion the moral underpinnings of the law are at risk in the sweep of the economic analysis. For example, in its generally approving discussion of Greenfield v. Heublein, Inc., 742 F.2d 751 (3d Cir.1984), the majority speaks kindly of lying in the interest of maintaining the secrecy of merger negotiations. Such an analysis may be economically rational and may tend to maximize investors’ wealth but it does seem to raise a few old-fashioned questions of corporate morality. Without pursuing the matter here, I do not think it is the place of the courts to undermine business morality even in the name of shareholder wealth maximization.
Fourth, I think the majority opinion is interesting and generally correct in most of its observations about fraud-on-the-market theory. Although their activities are not directly relevant, chartists and tape-readers find all they need to know about securities in their price (and sometimes in their volume of trading). True “technicians” eschew balance sheets, news, rumors and information of any kind outside the price as a distraction from the real, true and complete information discounted in the price attained in an efficient market. Perhaps, this is the right approach to security analysis (although I am certainly not suggesting that this is what the majority has in mind). But the securities laws were not written by market technicians and they put an emphasis on telling the truth and the whole truth about securities. Again I believe this is a moral dimension which may or may not contribute to wealth maximization in the context of an efficient market. It is important that we not lose sight of the moral underpinnings of the law in our concern for its economic consequences.

. Unlike the majority, I cannot conclude that the second circuit has adopted the price-and-structure rule. Nowhere does Reiss adopt a price-and-structure or any other bright-line test. See Reiss, 711 F.2d at 13-14.

. In its brief for the United States as amicus curiae filed in support of the petition for certiorari in Levinson v. Basic, Inc., 786 F.2d 741 (6th Cir.1986), cert. granted,—U.S.-, 107 S.Ct. 1284, 94 L.Ed.2d 142 (1987) the Solicitor General urged the Supreme Court to reject the price- and-structure rule adopted by the Third Circuit in Stasff in v. Greenberg, 672 F.2d 1196 (3d Cir.1982), and Greenfield v. Heublein, Inc., 742 F.2d 751 (3d Cir.1984), cert. denied, 469 U.S. 1215, 105 S.Ct. 1189, 84 L.Ed.2d 336 (1985). The Solicitor General stated:
The Third Circuit’s test ... could be read to permit corporations freely to issue intentionally false or misleading statements denying merger talks that any reasonable investor would consider important to his investment decision, misleading investors into making investment decisions on the basis of incorrect information---- Moreover, if merger negotiations are deemed immaterial until an agreement in principle is reached, the corporation, or its insiders who are privy to the negotiations, could acquire the corporation’s securities, taking advantage of uninformed shareholders by trading without making any disclosure of the negotiations.
Brief for the United States at 11-13, Levinson (86-279).
The majority, of course, adopts the Third Circuit’s standard in the context of nondisclosures, as enunciated in Staffin, but finds that on the present facts it need not decide whether to follow Greenfield and adopt the same standard in the context of misrepresentations. The Securities and Exchange Commission’s opposition to the price-and-structure rule apparently in both contexts should be a matter of serious concern to this court.