The opinion of the court was delivered by: KNAPP
In this multidistrict litigation, the defendants in two cases, Maris v. Sunshine Mining, and Stolz v. Sunshine Mining Company move for summary judgment on the ground that no federal question is presented, and accordingly there is no pendent jurisdictional basis for the state claims asserted. For reasons that follow that motion is granted.
Plaintiffs allege that as stockholders of Sunshine Mining Company, a corporation with its headquarters and principal place of business in the State of Idaho, they were injured by Sunshine management's initial refusal to accept a proposed tender offer by Great Western United Corporation and by its subsequent resistance to such tender offer.
Accepting as true the statements made in plaintiff Maris' memorandum, the relevant facts are as follows:
On March 19, 1977, Great Western, having acquired 335,070 shares of Sunshine stock, advised Sunshine's Board of Directors that it intended to make a tender offer which it would price at $ 16.75/share if the Board would approve the offer within twenty-four hours. Under existing Idaho law (then believed to be valid) such approval would have permitted the tender offer to proceed without extensive and time-consuming state registration proceedings. Great Western also advised the Board that, absent such approval, the tender offer would proceed, but at a lower price. The Sunshine Board made a public announcement that the offer had been received and was being considered, but did not give its approval within the specified twenty-four hours.
Two days later, on March 23, Great Western filed a registration statement with state officials as required by Idaho's anti-takeover statute, and filed a "13D statement" with the SEC. These papers indicated that Great Western was offering to purchase up to 2,000,000 Sunshine shares at $ 15.75/share. On March 25, Idaho officials, contending that there were inadequacies in Great Western's filings, took steps which prevented consummation of the tender offer.
Great Western met this challenge by Idaho State officials by instituting suit in the United States District Court for the Eastern District of Texas challenging the constitutionality of the Idaho anti-takeover statute. This suit was ultimately successful and on September 6, 1977, the court rendered a decision holding the Idaho statute unconstitutional and enjoining the State of Idaho from in any way interfering with the takeover. During the pendency of this lawsuit the Sunshine Board instituted its own suit in Idaho seeking to enjoin the tender offer. Sunshine's initial request for a preliminary injunction was denied.
On September 19, 1977 Great Western filed an amended 13D statement reducing the offering price to $ 14.75 and reducing the number of shares it would accept to 1,250,000. Two days later, on September 21, Sunshine management moved for another hearing on its request for a preliminary injunction. The Sunshine management suit was finally settled on October 4, 1977 by Great Western's agreement to raise its offering price to $ 15.00/share and to make an equivalent offer within eighteen months to all Sunshine stockholders. Throughout this entire period, Sunshine management made no public statements of any sort except to announce the various activities it was undertaking. Likewise, management never recommended to Sunshine shareholders that they refrain from tendering their shares.
Plaintiffs have not advised us as to the market price of Sunshine stock on March 19, 1977 when the tender offer was made. However, they have advised us that during the year of 1976 the market price ranged from 91/2 to 131/2 and that its book value at the close of the year was $ 4.70. From these facts it seems to us highly probable that if the Sunshine Board had approved the initial offer of $ 16.75 on March 19, 1977 (and if, as we shall assume, Great Western had carried out its intention to make that offer final) the plaintiffs and most members of their class would have accepted the offer. Moreover, as plaintiffs have not yet completed their discovery we shall assume for the sake of this motion that Sunshine management was in all the activities described motivated solely by its own selfish interests and was acting in complete disregard of its fiduciary obligations to its stockholders.
Plaintiffs' federal claim is that the defendants violated § 14(e) of the 1934 Act (15 U.S.C. § 78n(e)) by "deceptively" obstructing Great Western's tender offer. Defendants' motion for summary judgment is three-pronged. First, they claim that no action by a defendant prior to the formal making of a tender offer can support a claim by a shareholder under § 14(e). Second, that the damage to the shareholders is speculative. And third, that upon no interpretation of the facts can it be said that the defendants were guilty of fraud or deception as defined in the act. We do not pass on the first two contentions, but sustain the third and accordingly dismiss the complaints.
It is plaintiffs' contention that by withholding its support from Great Western's proposed tender offer, Sunshine management, acting in disregard of its fiduciary duties, violated Section 14(e). That section provides:
"It shall be unlawful for any person to make an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation. The Commission shall, for the purposes of this subsection by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative." 15 U.S.C. § 78n(e) (emphasis supplied).
In order for plaintiffs' complaint to withstand this motion to dismiss, we must find that the wrongful withholding of support for a proposed tender offer amounts to a fraudulent, deceptive, or manipulative act or practice. After Santa Fe v. Green (1977) 430 U.S. ...