The opinion of the court was delivered by: WARD
This action has a protracted and peripatetic history. It comes to this Court bearing the mandate of two Court of Appeals decisions Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787 (2d Cir. 1969), cert. denied, 400 U.S. 822, 27 L. Ed. 2d 50, 91 S. Ct. 41 (1970) (" Crane I ") and Crane Co. v. American Standard Inc., 490 F.2d 332 (2d Cir. 1973) (" Crane II ").
This suit arose out of the battle for control of Westinghouse Air Brake, Inc. ("Air Brake"). Crane Company ("Crane") approached Air Brake's management in regard to a possible merger on May 15, 1967 and on June 15 of that year began making substantial purchases of Air Brake stock. On November 3, 1967, Air Brake spurned Crane's merger proposal. Undaunted, and already the beneficial owner of almost ten percent of Air Brake's outstanding stock, Crane continued to accumulate Air Brake shares.
In December of 1967, Paul Devlin, chairman of the investment banking firm of Blyth and Company ("Blyth") contacted A. King McCord, chairman of Air Brake, and, on behalf of American Standard Inc. ("Standard"), offered the latter's assistance in resisting Crane's takeover effort.
Crane filed the requisite 14-B statements with the Securities and Exchange Commission ("the SEC") on February 20, 1968 in order to solicit proxies for the election of Air Brake directors. At this time, Air Brake stock was selling on the New York Stock Exchange for approximately $36 per share. Not long thereafter, a majority of the Air Brake directors approved a merger of Air Brake into Standard based on an exchange of one share of Standard convertible preferred stock worth about $50 for each Air Brake share. Air Brake stock rose to $44.
Crane responded by offering to exchange Crane subordinated debentures with a total face value of about $50 for each Air Brake share. This offer was to end at 5 P.M. on April 19, 1968. During the same week that Crane mailed its offer to the Air Brake stockholders, Air Brake sent out its proxy statement seeking proxies in favor of the proposed merger with Standard. The value of Air Brake stock was about $49 on April 10.
On April 17, 1968, Crane brought suit in this Court claiming misrepresentations in the Air Brake proxy statement and asking for an injunction against continued solicitations and use of the proxies and "such other and further relief as to this Court may seem just and proper. . . ." Later, on May 6, 1968, Crane filed a second action ("the fraud action") naming Standard and Blyth as defendants and charging violations of Sections 9, 10, and 14 of the Securities Exchange Act of 1934 ("1934 Act") (15 U.S.C. § 78i, 15 U.S.C. § 78j, 15 U.S.C. § 78n), Rules 10b-5 and 10b-6 (17 C.F.R. § 240.10b-5, 17 C.F.R. § 240.10b-6) and Regulation 14A (17 C.F.R. 240.14a-1 et seq.). The complaint in Crane's second action sought to enjoin Standard from voting Air Brake stock, buying Air Brake shareholders' votes, consummating the merger, and from engaging in violations of the 1934 Act. It did not ask for damages, but did request "such other and further relief as may be just and proper."
The Air Brake stockholders meeting began on May 16, 1968. On May 21, while the proxies were still being counted, trial of both of Crane's complaints, which had been consolidated, commenced before Judge Ryan of this Court. On June 5, the Judge dismissed both complaints; on June 7, the Air Brake -- Standard merger became effective.
Before the Court of Appeals, this dismissal was affirmed in part and reversed in part, and remanded for further proceedings. The Second Circuit held for Crane on one claim of the fraud action concerning certain transactions in Air Brake stock by Standard on April 19, 1968. On that day, Standard purchased 82,400 shares
on the market for cash at an average price of $49.08 while it engaged in undisclosed sales of 100,000 shares to a friendly investment company at 44 1/2 and 20,000 shares to a friendly investment banking house at 44 7/8.
Following the remand, the litigants became locked in what Judge Friendly has aptly dubbed, "a Brobdingnagian procedural imbroglio," 490 F.2d at 334. Rather than recount the details, it suffices to say that the action was again returned to this Court with the direction, "to get on with the task which the concluding paragraph of our earlier opinion directed it to perform." Id. at 345.
Although the niceties of English prose form might suggest otherwise, it seems advisable to quote verbatim from the Court of Appeals' mandate in Crane II even to the extent that it cited the earlier decision in Crane I in order that this Court's mission may be most accurately set forth.
As stated in Crane II, referring to the decision in Crane I :
The court held that [the activities of April 19] violated § 9(a)(2) of the Securities Exchange Act, which makes it illegal to effect "a series of transactions in any security registered on a national securities exchange creating actual or apparent active trading in such security or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others," and that non-disclosure of the sales violated SEC Rule 10b-5(3) which makes it illegal "to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security." Apparently because of Crane's later forced sale of the American Standard stock it received in the merger, 419 F.2d at 794, the court further concluded that Crane came within the class of persons whom § 9(e) protects against violation of § 9(b), to wit, "any person who shall purchase or sell any security at a price which was affected by such act or transaction." Finally, the court held that under Vine v. Beneficial Finance Co., 374 F.2d 627, 634-35 (2 Cir.), cert. denied, 389 U.S. 970, 19 L. Ed. 2d 460, 88 S. Ct. 463 (1967), Crane met the "in connection with" requirement of Birnbaum v. Newport Steel Co., 193 F.2d 461 (2 Cir.), cert. denied, 343 U.S. 956, 96 L. Ed. 1356, 72 S. Ct. 1051 (1952).
Later, the Crane II panel observed that the task of calculating what damages Crane may have suffered by the one act of wrongdoing found to have been committed by Standard would demand prodigies of prophecy and measurement beyond the capacity of jurors and perhaps of a judge. While this court found "that the causation requirement is satisfied here to the extent of imposing liability upon Standard for the consequences of concealing from the public material information relevant to the market value of Air Brake stock," 419 F.2d at 797, it did not determine what these consequences were. Certainly it is not to be merely assumed that but for Standard's acts on April 19, 1968, Crane's tender offer would have succeeded and the merger would have failed. Mr. Justice Harlan emphasized in Mills v. Electric Auto-Lite Co., 396 U.S. 375, 24 L. Ed. 2d 593, 90 S. Ct. 616 (1970), that in cases like this "damages should be recoverable only to the extent that they can be shown." Quite conceivably a judge here might find the chain of causation so dubious and the task of determining damages so elusive as to lead him to decide that, except for some items that may be readily provable, he could not properly award anything save perhaps attorneys' fees, see Mills, supra, 396 U.S. at 389-97.
The curtain rose on the next act of Crane against Standard on April 5, 1976 and was finally brought down on May 21, 1976 when the trial of this action was concluded.
II. The Impact of Chris-Craft
After the trial of this action but before the Court had rendered a decision, the Supreme Court handed down its opinion in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S. Ct. 926, 51 L. Ed. 2d 124, 45 U.S.L.W. 4182 (1977) (" Chris-Craft "). Chris-Craft, too, involved a contest for control of a target corporation. The Court held that, "a tender offeror, suing in its capacity as a takeover bidder, does not have standing to sue for damages under the Williams Act." Id., 430 U.S. at 42, n.28, 45 U.S.L.W. at 4193. It was also held that, under the facts presented, Chris-Craft lacked standing to sue for damages caused by the successful contestant's alleged violations of Rule 10b-6. Id. 430 U.S. 1, 45 U.S.L.W. at 4194.
B. The Effect of Subsequent Authority on the Mandate of Crane I and II
A district judge does not sit to review the decisions of the Court of Appeals. Ordinarily, the lower court simply carries out a mandate as it is received without reexamination. However, this doctrine is not wholly without exception. This Court is not bound by the mandate of the Court of Appeals if the Supreme Court has subsequently changed or clarified the relevant law.
In Page v. St. Louis Southwestern Railway Co., 349 F.2d 820 (5th Cir. 1965) the Fifth Circuit observed:
Here again for the second time after a second trial, this case is not yet over. Unfortunately, we must reverse and remand for still a third trial. We must do so not because the District Judge failed to follow our pronouncements, but rather because he did.
In that case, the district court had adhered to a prior holding of the Court of Appeals despite interim contradictory decisions of the Supreme Court. Upon the second appeal, after the observation noted above, the Court of Appeals stated the following principle:
[Where] the point is properly preserved for review, a different result is compelled where, subsequent to the first decision, there is an intervening change in the law by authoritative declaration of the authoritative court. Lumbermen's Mutual Cas. Co. v. Wright, 5 Cir., 1963, 322 F.2d 759, 763; Pacific American Fisheries v. Hoof, 9 Cir., 1923, 291 F. 306, cert. denied, 263 U.S. 712, 44 S. Ct. 38, 68 L. Ed. 520; Messenger v. Anderson, 1912, 225 U.S. 436, 32 S. Ct. 739, 56 L. Ed. 1152.
This principle was reiterated in Harkless v. Sweeny Ind. School District, 388 F. Supp. 738, 746 (S.D. Texas 1975):
There is . . . an exception to the "law of the case" doctrine which is well recognized in this Circuit. The doctrine does not apply where "there is an intervening change in the law by authoritative declaration of the authoritative court." Page v. St. Louis Southwestern Ry., 349 F.2d 820, 821 (5th Cir. 1965). The instant case is a classic example of such an intervening change in the law.
The Second Circuit has recognized this exception. In Banco Nacional de Cuba v. Farr, 383 F.2d 166, 178 (2d Cir. 1967), cert. denied, 390 U.S. 956, 19 L. Ed. 2d 1151, 88 S. Ct. 1038 (1968), the Court noted with approval that
Other courts in applying the law of the case rule have held that a lower court is not bound to follow the mandate of an appellate court if the mandate is, in the interim, affected by an authority superior to the court issuing the mandate.
And, in Winters v. Miller, 517 F.2d 1337, 1339 (2d Cir. 1975), the Court of Appeals ruled that the district judge was obliged to follow its prior order absent, "supervening federal law."
Standard Oil Co. v. United States, 429 U.S. 17, 97 S. Ct. 31, 50 L. Ed. 2d 21, 45 U.S.L.W. 3303 (1976) (per curiam) also provides some support for this exception. The court held that appellate leave need not be obtained before a district court could reopen a case which had been reviewed on appeal in order to consider a Rule 60(b) Fed. R. Civ. P. motion. Requiring appellate leave, "adds to the delay and expense of litigation and also burdens the increasingly scarce time of the federal appellate courts." Id. It was also noted that, "[like] the original district court judgment, the appellate mandate relates to the record and issues then before the court, and does not purport to deal with possible later events." Id.
Accordingly, this Court will analyze the impact of recent developments on the instant action.
C. The Parties' Contentions
The parties in this action were asked to submit memoranda analyzing the impact of Chris-Craft on the instant case. The response was as follows:
Standard emphasized the similarity of the two cases, noting that Rule 10b-5 and § 9, relied upon by Crane here, were both among the bases for Chris-Craft's original complaint. Standard asserts that the legislative history of the 1934 Act evidences no intent that these provisions would be applied to tender offers, or provide a private cause of action for a defeated offeror. According to Standard, if a statute designed to regulate tender offers -- the Williams Act -- does not give an offeror standing to sue for damages, it would be anomalous to derive such a right of action from statutes directed at other ends. The wording of Rule 10b-5 is compared to that of § 14(e) and found to be strikingly similar.
Standard insists that the Chris-Craft reasoning applies with equal force to Crane's claims. Neither § 9 nor Rule 10b-5 nor § 14(e) expressly provide a tender offer contestant with a cause of action for damages; can the Courts infer such a remedy? Like the Williams Act, the 1934 Act as originally promulgated was designed to protect the public investor. Contestants for corporate control, Standard claims, are not members of the class sought to be protected by either the 1934 Act or the Williams Act amendments. Indeed, members of the protected class -- shareholders -- stand to suffer if corporate combatants secure a cause of action for damages.
Deterrence of unlawful conduct in the tender offer situation is no more likely through a § 9 or § 10 remedy than through § 14(e) relief, Standard argues. Instead, injunctive relief is most appropriate.
Just as the Supreme Court found Chris-Craft's Rule 10b-6 claim lacking, says Standard, Crane's § 9 claim is without merit. Neither provision is concerned with tender offer battles. Using reasoning similar to that used in Chris-Craft, Standard argues that Crane cannot rely upon § 9 because it neither purchased nor sold Air Brake stock at a price affected by Standard's manipulation.
Standard concludes that federal law provides no damage remedy for a defeated combatant in ...