Court Opinion

ID: 8904786
Source: CourtListenerOpinion
Date Created: 2022-11-27 01:44:40.962769+00
Date Added: 2024-06-11T17:08:05.189683
License: Public Domain

OAKES, Circuit Judge
(dissenting):
I most respectfully dissent.
I agree with Judge Pollack below that none of the asserted omissions or representations is sufficiently material to avoid dismissal. I shall deal seriatim with the three statements alleged to be misleading.
First, the representation that a purpose of the consolidation was to permit financing to be obtained more easily and at lower cost is not a representation that the stronger companies’ excess funds would not be used to strengthen the financial position of the New York Operating Company. Any consolidation implies to a reasonable stockholder, it seems to me, that there will be inter-corporate loans, quite likely from thé stronger to the weaker entities of the consolidation. Excessive lending, charging an unreasonably low rate of interest or imperiling the stronger corporation’s capital may give rise to a state cause of action for waste of assets or for mismanagement. However, as the majority and I agree, the omission to state that there will be such lending does not rise to the level of a 10b-5 claim.
Second, the reference to Rule 144, surely a boilerplate provision in the Information Statement, presents a somewhat closer question, but the statement issued did say that the shares of JBI “must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available.” That was true, and it was followed by another true statement that Rule 144 permits resale of restricted shares in limited quantities after a holding period of two years “in accordance with the terms and conditions of that Rule.” To my mind this language would put a reasonable shareholder on notice that unless “that Rule” were subsequently complied with,1 he would have to hold them “indefinitely.”
*708Finally, the reference to Delaware as the state of JBI’s incorporation and to two Delaware corporate law provisions particularly burdensome on these minority stockholders — relating to lack of preemptive rights and unavailability of cumulative voting— was factually accurate. Such a reference should have alerted even the most unsophisticated stockholder to the possibility that Delaware law had additional, perhaps more esoteric traps for the unwary which, to avert, might well require advice of counsel. But I should have thought that it has long been a matter of common knowledge to the business world generally that Delaware’s corporation law quite generally favors management and controlling interests, and disfavors minority stockholders. To my knowledge, the SEC has not yet required merger information or proxy statements to bear a sticker warning against the laws of Delaware. More to the point, perhaps, no allegation in the complaint indicates that any of the Delaware laws not mentioned in the Information Statement here have in some way been utilized by the controlling interests adversely to those of appellants.
I suspect that the proof may show that appellants received poor legal advice when they went into the exchange of stock. This might give them a state cause of action for negligence or other breach of fiduciary duty if, since allegedly their attorney benefited from the transaction, indeed, appellants have suffered loss. But I agree with Judge Pollack that the Information Statement does not give rise to a cause of action under federal securities law, and accordingly would affirm.

. Compliance with Rule 144 is no simple matter. Under the rule, a seller of restricted securities will not be deemed a Section 2(11), 15 U.S.C. § 77b(ll), underwriter, if inter alia, in addition to holding the securities for the requi*708site period, 17 C.F.R. § 230.144(d), and to complying with the applicable limitation on the amount of securities which may be sold, id. § 230.144(e), the issuer has made available adequate current public information with respect to itself. The issuer may satisfy the information requirement in either of two ways. It must have securities registered under either the Securities Exchange Act of 1934 or the Securities Act of 1933, thereby making itself subject to the reporting requirements of Sections 13 and 15(d) respectively of the 1934 Act, 15 U.S.C. §§ 78m, 78o, or it must have made publicly available the information required by Rule 15c2-l 1, 17 C.F.R. § 240.15c2-l 1(a)(4) (1977). See 17 C.F.R. § 230.144(c)(1), (2) (1977).