Court Opinion

ID: 9477966
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:35:58.44175+00
Date Added: 2024-06-11T17:46:08.901840
License: Public Domain

*997MANION, Circuit Judge,
dissenting.
I respectfully dissent. I would adopt and affirm the district court’s opinion, which is reported at 673 F.Supp. 242 (N.D.Ill.1987). FMC may be irritated, but it has not been injured. Individual shareholders who sold low may have been injured — and management shareholders who bought higher than they would have liked may think of themselves as injured — but they are not parties, and FMC has no standing to sue on their behalf.
FMC claims that Boesky’s misdeeds caused it to pay an additional $235 million to recapitalize. But that additional payment was to its shareholders. As with any corporation, FMC’s assets belong to its shareholders, and a transfer from the corporation’s treasury to the shareholders damages no one. As Judge Williams stated in her opinion, “[t]he economic effect of the transaction can therefore properly be viewed as a distribution of part of FMC’s assets to the owners of those assets in exchange for their giving up a part of their equity interest to management.” 673 F.Supp. at 250.
FMC’s management obviously preferred the original plan proposed before Boesky’s interference, but — as the majority notes in footnote 8 — FMC could have but chose not to abandon the recapitalization. Instead, as the majority acknowledges in footnote 11, FMC’s board (and management) maintained that the recapitalization was good for the company and its shareholders because it would lead to a higher return on equity. The recapitalization was approved by both the board and the shareholders after Boesky “manipulated” the price. Thus, according to the face of the complaint, the entire injury FMC claims to have suffered, including the additional expenses incurred after Boesky’s involvement, was merely the cost of FMC’s choice to finance future opportunities other than through retained earnings. See D. Fischel, The Law and Economics of Dividend Policy, 67 Va.L.Rev. 699, 701-02 (1981). In his concurrence, Judge Ripple well captures the essence of FMC’s position when he writes that “[t]he alleged ... injury to FMC for
purposes of Article III standing, however, is that the structure of the corporation was changed.... It is the corporation itself that is vitally affected by the change in its structure.” In my view, varying the proportion of debt to equity or otherwise changing a company’s capital structure does not affect its value. See F. Modigliani and M. Miller, The Cost of Capital, Corporation Finance and the Theory of Investment, 48 Am.Econ.Rev. 261, 268-71 (1958). As Judge Williams stated, “it is difficult to articulate FMC’s injury when all of the shareholders benefited from the transaction, and there are no allegations of harm to creditors of FMC.” 673 F.Supp. at 251. With no injury to be found anywhere, the district judge properly found no constitutional standing and thus properly declined to call upon pendent jurisdiction to consider whether there were well-pleaded state law claims.
I specifically disagree with the majority’s invocation of Carpenter v. United States, — U.S. -, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987), to support its premise that the defendants’ “wrongful misappropriation” of confidential information, without more, constitutes a distinct and palpable injury to FMC. Under that premise, every breach of fiduciary duty that could give rise to a state law cause of action by the principal against the fiduciary to recover the fiduciary’s profits would make out a constitutional injury. This is an overly broad reading of Carpenter. See United States v. Ochs, 842 F.2d 515, 526 (1st Cir.1988).
As the Court emphasized in Carpenter, “[t]he Journal ... was defrauded of much more than its contractual right to [its employee’s] honest and faithful service, an interest too ethereal in itself to fall within the protection of the mail fraud statute, which ‘had its origin in the desire to protect individual property rights.’ ” Carpenter, 108 S.Ct. at 320 (quoting McNally v. United States, — U.S. -, 107 S.Ct. 2875, 2881 n. 8, 97 L.Ed.2d 292 (1987)). The content and timing of the columns are the Journal’s stock-in-trade, its product. Ochs, supra, 842 F.2d at 526. Any prepublication release damages the Journal’s reputation and the confidence its readership has *998in its product. In addition, enough trading caused by advance knowledge of a column’s timing and contents could by itself actually affect the quality (= accuracy) of the product by changing the stock’s price for reasons unrelated to those discussed in the column.
In contrast, chemicals are FMC’s stock-in-trade, not confidential restructuring advice. FMC does not allege that the information by itself had any commercial value to FMC or that its capital structure affected customers’ decisions about whether to buy its chemicals. FMC further does not allege that Boesky’s activities diminished its reputation. If anything, to the extent that a higher stock price is prestigious, Boesky’s activities enhanced its reputation.1 Cf. United States v. Grossman, 843 F.2d 78 (2d Cir.1988) (law firm enhanced its reputation by showing ability to protect information about client’s recapitalization. Therefore, the information was its “property” within meaning of mail and wire fraud statutes.).
In addition, Boesky’s “misappropriation” did not damage FMC because its “loss” due to publication was the FMC shareholders’ “gain.”2 FMC does not explain why its management was entitled to the exclusive use of the information generated by its investment advisors. The shareholders were paying for this information about the value of the corporation, and this information was their property.
These problems with defining the “property” which FMC lost when FMC has suffered no financial harm reemphasize that FMC has suffered no injury in the constitutional sense. Assuming arguendo that the information Boesky found out was FMC’s property for purposes of the RICO statutes under which FMC sues, this would still not without more confer Article III standing upon FMC. The majority correctly cites Warth v. Seldin, 422 U.S. 490, 500, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 (1975) for the proposition that “[t]he actual or threatened injury required by Art. Ill may exist solely by virtue of ‘statutes creating legal rights, the invasion of which creates stand-ing_’” But even when a plaintiff alleges that a defendant has violated a statute, the plaintiff must also allege that he has been injured by the violation to establish constitutional standing. O’Shea v. Littleton, 414 U.S. 488, 493 n. 2, 94 S.Ct. 669, 675 n. 2, 38 L.Ed.2d 674 (1974). Requiring constitutional injury prevents Congress from manipulating the courts: “the absence of any such requirement would mean that the federal courts could be put in the position of having to enforce a rule — even (or perhaps especially) when the Government is unwilling to do so and Congress may be acquiescing in, or even supporting, the violation — at the behest of any individual, with no claim of any personal harm from the asserted violation.” Hart & Wechsler, The Federal Courts (P. Bator, P. Mishkin, D. Shapiro, & H. Wechsler 1973), Supp.1981 at 63 (footnote omitted).
Here, there is no constitutional standing, and it cannot be supplied by FMC’s pendent state law claims. The district judge did not hold that the state law claims stated a claim upon which relief could be granted; she expressly did not reach the question. Even if she had, that would not, as the majority states, have contradicted her holding that FMC lacked an Article III injury. The majority offers no authority for its assertion that Article Ill’s injury requirement is met by the violation of “legal rights growing out of state or common law.” That position is directly contrary to the Supreme Court’s holding in Tileston v. Ullman, 318 U.S. 44, 63 S.Ct. 493, 87 L.Ed. 603 (1943) (per curiam). In Tileston, a physician challenged in Connecticut state court the constitutionality of a state antiabortion statute on the ground that it endangered the lives of his patients. The Connecticut Supreme Court of Errors ruled *999that the statute was constitutional. On appeal, the United States Supreme Court dismissed the appeal on the ground that the physician lacked standing, 318 U.S. at 46, 63 S.Ct. at 494, even though the state’s highest court had rendered a judgment on the merits. The Court further noted that if it were not dismissing the appeal for lack of standing, the Court would otherwise have to determine if a genuine case or controversy existed, again even though the state’s highest court had rendered a judgment on the merits. Id.
There is no way to get around FMC’s lack of injury. The shareholders, through FMC, are attempting to recover a second time as a judgment from the defendants what they have already received from the corporate assets in the alleged “overpayment” in the recapitalization. As Judge Williams stated when citing one defendant’s metaphor, “FMC here asks that it be allowed to shift corporate assets from the left pocket to the right pocket, and then to refill the left pocket by a recovery from the defendants.” 673 F.Supp. at 248. I would therefore hold that there is no injury, and thus no constitutional standing.

. For example, Business Week publishes an annual listing which ranks U.S. companies by market value. In the latest ranking published on April 15, 1988, FMC placed in the 499th position. 1988 Special Issue, Bus. Wk. (April 15, 1988) at 202.

. For purposes of determining constitutional standing, I do not reach whether the "misappropriation” theory could lead to a claim under the federal securities laws.