The opinion of the court was delivered by: GOETTEL
In the continuing quest for control over Treadway Companies, Inc. ("Treadway"), the defendants Care Corporation, Browne, and deJourno (the "Care defendants"), along with defendant Daniel Cowin ("Cowin"), have moved to dismiss all counts of the complaint.
The salient facts of this action have previously been stated in the Court's opinions of October 12, 1979, (1979) Fed.Sec.L.Rep. (CCH) P 97,139 (S.D.N.Y.1979), and November 27, 1979, 490 F. Supp. 653 (S.D.N.Y.1979).
Briefly, the facts as relevant to the instant motions are as follows: Prior to April 30, 1978, the defendant Care owned approximately 2% of the outstanding common stock of Treadway. Thereafter, it began to purchase large amounts of Treadway stock so that it now owns approximately 32% of the stock.
Among the purchases made by Care was one of 175,000 shares from defendant Cowin, who was, at the time of sale, a director and paid consultant of Treadway (he resigned soon after the sale). The remaining shares, it appears, were brought by Care in open market transactions.
The plaintiff now asserts that the Care defendants and Cowin, acting in concert as a "syndicate" or "group," engaged in a plan to gain control over Treadway utilizing "material, proprietary, confidential, inside and non-public information." Specifically, Treadway asserts that all the defendants have: (1) failed to comply with the requirements of section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") in that the Schedule 13D filed by Care and the subsequent amendments thereto have been materially false and misleading; and (2) violated section 10(b) of the Exchange Act (and rule 10(b)-5 promulgated thereunder) in that they have purchased and held stock while in possession of material nonpublic information.
Additionally, plaintiff alleges that defendants Browne and deJourno, who are currently members of the Treadway Board of Directors (as well as being members of the Care Board), and Cowin, acting with Care, have, under New Jersey
statutes (see N.J.Stat.Ann. § 14A:6-14 (1959)) and common law principles violated their obligations to Treadway and its shareholders.
The plaintiff initially moved for a preliminary injunction.
After hearing argument, the Court, finding serious questions as to the probability of the plaintiff's success on the merits, and determining that the plaintiff had failed to sustain its burden of demonstrating that it would suffer irreparable injury if injunctive relief was not afforded, vacated a temporary restraining order then in effect and denied the motion for a preliminary injunction. Treadway Companies, Inc. v. Care Corp., (1979) Fed.Sec.L.Rep. (CCH) P 97,139 (S.D.N.Y. Oct. 12, 1979).
The defendants have now moved to dismiss. They contend that the instant suit is nothing more than a bald-faced attempt by Treadway's incumbent management to defend its entrenched position and assert that, in view of this Court's determination of plaintiff's motion for a preliminary injunction, this action is insufficient as a matter of law.
In support of its claims under section 13(d) of the Exchange Act, the plaintiff alleges that the Schedule 13D filed by Care and the subsequent amendments thereto have been and continue to be materially false and misleading. Specifically, it asserts that the most recent amendment filed is false and misleading in that it: fails to disclose the existence and stockholdings of a 13(d) "group" composed of Care, Browne, deJourno, and Cowin; fails to disclose that the defendants' "sole intention" in purchasing Treadway stock has always been to take control of the corporation; and misstates the defendants' ultimate intention in regard to Treadway, which is to liquidate certain property holdings and to replace current management.
As this Court has noted in its opinion of October 12, 1979, the purpose of section 13(d) is "to alert the marketplace to every large, rapid aggregation or accumulation of securities, regardless of technique employed, which might represent a potential shift in corporate control," GAF Corp. v. Milstein, 453 F.2d 709, 717 (2d Cir. 1971), and which is, therefore, information that shareholders and potential investors in a corporation need in order to determine both the likelihood of change in corporate control and the probable future value of the corporation. The statute was not intended to be used as a device by which incumbent management defends itself against a takeover bid. Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58-59, 95 S. Ct. 2069, 45 L. Ed. 2d 12 (1975). See Universal Container Corp. v. Horwitz, (1977-1978 Transfer Binder) Fed.Sec.L.Rep. (CCH) P 96,161, at 92,255 (S.D.N.Y. Sept. 6, 1977).
In denying the plaintiff's motion for a preliminary injunction, this Court held that the amendment to Care's Schedule 13D then on file was "sufficient to place shareholders and potential investors on notice as to the possibility of a change in corporate control." (1979) Fed.Sec.L.Rep. (CCH) P 97,139, at 96,287. Since that time, Care has filed a further amendment to its Schedule 13D, which states, in unequivocal terms, that it has "determined to seek control" over Treadway and that it will pursue that objective at the annual meeting of Treadway shareholders. Thus, if there had been any lingering doubts prior to the last amendment (which seems unlikely) as to Care's intentions in regard to Treadway, such doubts have now been dispelled.
The plaintiff asserts, nonetheless, that Care's current amendment to its Schedule 13D remains misleading and, consequently, the defendants should be enjoined. The Court is unconvinced. Even if we assume that, as alleged, a "group" consisting of Care, Browne, de Journo, and Cowin does exist, the Court believes, as it stated in denying the plaintiff's motion for a preliminary injunction, that the failure to include information relevant to this group, which, excluding Care, owns only 2,500 shares of Treadway stock, is nothing more than a de minimis violation of section 13(d), and as such constitutes an inadequate basis upon which to afford injunctive relief. See Wellman v. Dickinson, 475 F. Supp. 783, 833 (S.D.N.Y.1979); Universal Container Corp. v. Horwitz, supra.
The other claims asserted by the plaintiff also provide no basis upon which to grant the relief requested. Even if Care should have stated in its amended filing that it intended to replace current management after a takeover (an occurrence which, under the circumstances, seems patently obvious), failure to do so seems no more than a technical violation of section 13(d), insufficient for injunctive relief. See Wellman v. Dickinson, supra. Similarly, Care's alleged failure to state its intention in regard to liquidation of certain properties does not constitute an adequate basis. A corporation, it has been held, does not have "to make predictions of future behavior, however tentatively phrased," in order to comply with section 13(d). Susquehanna Corp. v. Pan American Sulphur Co., 423 F.2d 1075, 1086 (5th Cir. 1970). Rather, the Court believes that the information provided in Care's most recent filing is sufficient to alert the shareholders of Treadway to the likelihood that a change in corporate control would be accompanied by significant changes in the operation of the corporation, and quite possibly would lead to the sale or acquisition of certain assets.
Finally, even if it is true that, as alleged, Care's "sole" purpose in purchasing Treadway stock has always been to gain control over it, and that the earlier filings were, therefore, false and deceptive, that deficiency has been corrected in Care's most recent amendment. Injunctive relief is available under section 13(d) only to the extent of insuring that the information currently provided is accurate so that shareholders and potential investors have reliable information upon which to act in the future. See General Aircraft Corp. v. Lampert, 556 F.2d 90 (1st Cir. 1977). To the extent that the prior filings may have been false or misleading, the appropriate remedy would be an action for damages, Rondeau v. Mosinee Paper Corp., 422 U.S. at 60, 95 S. Ct. 2069, 45 L. Ed. 2d 12, brought by a buyer or seller of Treadway stock who has relied on such information, see Myers v. American Leisure Time Enterprises, Inc., 402 F. Supp. 213 (S.D.N.Y.1975), aff'd, 538 F.2d 312 (2d Cir. 1976), and not in a suit brought by Treadway for an injunction.
Faced with this latest amended filing, the plaintiff, relying on a footnote in Rondeau v. Mosinee Paper Corp., 422 U.S. at 59 n.9, 95 S. Ct. 2069, 45 L. Ed. 2d 12, and on dicta in various cases interpreting it, argues that, even if the defendants have now adequately corrected the misstatements contained in the previous filings, some form of injunctive relief remains appropriate, since in the instant situation a takeover bid "follows on the heels" of the filing of a corrective statement. In this regard, such relief may be proper in order "to allow a corporation, its shareholders and investors before a takeover might become a fait accompli the opportunity to receive, and react to, information required to be disclosed under Section 13(d)." Universal Container Corp. v. Horwitz, (1977-1978 Transfer Binder) Fed.Sec.L.Rep. (CCH) P 96,161, at 92,256. See General Aircraft Corp. v. Lampert, 556 F.2d at 97.
The Court agrees that, given the proper facts, some form of equitable relief might be appropriate where a takeover bid is likely to follow very soon after a corrective amendment has been filed. We need not reach this question, however, as this is not the situation presented in the instant action. Care filed its latest amendment on November 2, 1979, at a time when this litigation was being hotly contested and was the subject of media attention. Thus, shareholders and potential investors should have been aware of the rapidly changing situation of Treadway. More importantly, no shareholder meeting is scheduled to take place until March 1980, over four months after the date of this latest filing. Such a time period, especially under the circumstances of this action, provides all interested parties with ample opportunity in which to learn about and digest this new information, and dissipates any potential need for equitable relief. To the extent that any prior filings by Care were false or misleading, the appropriate remedy would be an action for damages, an action which, however, as noted, may not be maintained by this plaintiff. As to the action for injunctive relief, which Treadway may bring, the Court finds that Care's current amendment to its Schedule 13D is more than sufficient to alert shareholders and potential investors to the possibility of change in corporate control and to the various other changes that might accompany it. See Wellman v. Dickinson, supra. Whatever inaccuracies or omissions may still exist are no more than technical violations of the statute. Accordingly, the plaintiff's cause of action for alleged violations of section 13(d) of the Exchange Act is hereby dismissed against all defendants.
We turn to the plaintiff's claim based upon alleged violations of section 10(b) of the Exchange Act and rule 10(b)-5 promulgated thereunder. But before reaching the merits of this claim, the Court must address the threshold question of whether ...