The opinion of the court was delivered by: WERKER
This action was commenced by the plaintiffs Edgar Stromfeld and Sol Zisook against 22 defendants for alleged violations of sections 10(b), 13(d), 14(d), 18(a) and 20(a) and (b) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78m(d), 78n(d), 78r(a) and 78t(a) and (b), the rules and regulations promulgated thereunder, the statutory law of Maryland, and principles of common law. All of the defendants except the defendant Great Atlantic & Pacific Tea Company, Inc. (the "A&P")
move to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b) for failure to state a claim upon which relief can be granted and for failure to allege the circumstances constituting the purported fraud with sufficient particularity.
For purposes of this motion, the well-pleaded allegations of the complaint are taken as being true.
The defendant Tengelmann Warenhandelsgesellschaft ("Tengelmann"), a West German partnership, has successfully operated a chain of some 2,000 supermarkets in Europe for a number of years. As a result of this success, the Tengelmann defendants
decided to expand into the United States retail grocery market.
In 1978, representatives of the Tengelmann defendants met with representatives of the defendant John A. Hartford Foundation, Inc. (the "Hartford Foundation"), the owner of a substantial block of A&P common stock. This and other meetings were arranged by the defendant Dillon Read & Co., Inc. Because the Hartford Foundation did not own enough stock to meet the needs of the Tengelmann defendants, a selling group of individuals and foundations, holding some 42 per cent of A&P's common stock, was formed. All of the members of this selling group have been named as defendants herein.
The complaint alleges that each member of the selling group beneficially held in excess of 5 per cent of the stock of A&P, and that through secret meetings and negotiations, the members of the group decided to increase their leverage by acting together to dispose of their stock. The complaint further alleges that the selling group was formed without public disclosure, without notice to the other A&P shareholders or A&P itself, and without the public filings required by law.
On January 16, 1979, pursuant to confidential negotiations between the selling group and the Tengelmann defendants, each of the sellers signed a separate sales agreement with TN Delaware Incorporated ("TN Delaware"), a Delaware corporation whose stock is owned by Tengelmann. The effect of these agreements was to transfer to TN Delaware 7,291,170 shares of A&P stock at $ 7.375 per share, approximately 30 per cent of A&P's common stock. TN Delaware also acquired options to purchase 3,124,787 additional shares at $ 7.50 per share plus an option price of $ 1,406,154.15. Thus, TN Delaware acquired the rights to 10,415,957 shares, approximately 42 per cent of the common stock, for a total consideration of $ 78,614,436, approximately $ 7.50 per share. The complaint alleges that a substantial portion of the purchase price was paid to the selling group as a premium for the sale of control of A&P.
The agreements were consummated on February 21, 1979, and TN Delaware acquired voting control of approximately 42 per cent of A&P's common stock.
The complaint alleges that the defendants filed intentionally false and misleading statements with the Securities and Exchange Commission; that these statements falsely stated that there was no selling group, that TN Delaware did not intend to make changes in management, and that the purchases were made for investment purposes only; and that these statements omitted and concealed the facts that the sellers were receiving a premium for the sale of control, that the sellers were acting under a conflict of interest, and that there had been secret negotiations. The complaint further alleges that all of the above-mentioned activities depressed the market price of A&P stock, and further, that the members of the selling group used their positions as controlling shareholders and officers of A&P to gain "inside" information and to divert such information to their own advantage. Finally, the complaint alleges that the defendants engaged in an illegal tender offer and that the members of the selling group breached their fiduciary duties to A&P and its minority shareholders.
The plaintiff Stromfeld is the holder of 100 shares of A&P stock, which he purchased in January 1979. The plaintiff Zisook purchased 200 shares of A&P stock in December 1978 and sold these shares in or about February and March of 1979. Both plaintiffs bring this action in their individual rights as well as on behalf of a class of all persons (and entities) who purchased or held A&P stock during the time in question. In addition, Stromfeld purports to bring this action derivatively on behalf of A&P.
The first and second claims of the complaint arise from alleged violations of section 13(d) of the Exchange Act, 15 U.S.C. § 78m(d),
and the third claim is based in part on such purported violations.
The first claim alleges that the defendants failed to file statements reporting the formation of a selling group as required by section 13(d), and the second claim alleges that the defendants filed section 13(d) statements containing false and misleading declarations. Neither of these claims, in my opinion, states a cause of action under either section 13(d) itself or section 18(a).
The plaintiffs have not challenged the defendants' contention that there is no implied cause of action for damages under section 13(d), nor could they. Judge Weinfeld addressed this issue in Myers v. American Leisure Time Enterprises, Inc., 402 F. Supp. 213 (S.D.N.Y.1975), aff'd without opinion, 538 F.2d 312 (2d Cir. 1976), and held that no cause of action for damages could be implied under section 13(d). In a similar line of cases, the courts have consistently refused to imply a cause of action for damages under section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), which contains reporting requirements analogous to those of section 13(d).
See, e.g., In re Penn Central Securities Litigation, 494 F.2d 528, 539-41 (3d Cir. 1974); Rosengarten v. International Telephone & Telegraph Corp., 466 F. Supp. 817, 827 (S.D.N.Y.1979); DeWitt v. American Stock Transfer Co., 433 F. Supp. 994, 1005 (S.D.N.Y.1977). The plaintiffs herein have no independent cause of action for damages under section 13(d).
Plaintiffs have also failed to challenge, with respect to the second claim of the complaint, the defendants' contention that actual reliance on false or misleading statements in a filing is an essential prerequisite to a section 18(a) claim for damages. The cases are clear that "[section] 18 requires that a plaintiff establish knowledge of and reliance upon the alleged misstatements contained in any document filed with the S.E.C." Ross v. A. H. Robins Co., 607 F.2d 545, 552 (2d Cir. 1979); see also Heit v. Weitzen, 402 F.2d 909, 916 (2d Cir. 1968), cert. denied, 395 U.S. 903, 89 S. Ct. 1740, 23 L. Ed. 2d 217 (1969). ...