Appeal by plaintiffs, who purchased stock of defendant-appellee Ranco Incorporated after Ranco had issued two press releases concerning a tender offer by defendant Warner & Swasey Company, from the dismissal by the District Court for the Southern District of New York, Whitman Knapp, Judge, 486 F. Supp. 101 (1980), under F. R. Civ. P. 9(b) and 12(b)(6), of their complaint against Ranco under § 10b of the Securities Exchange Act and the Commission's Rule 10b-5. Reversed and remanded.
Before Friendly and Oakes, Circuit Judges, and Owen, District Judge.*fn*
Plaintiffs-appellants in this action in the District Court for the Southern District of New York are 22 persons who purchased stock in defendant-appellee Ranco Incorporated (Ranco). The purchases occurred on July 13, July 17, and July 18, 1979, and were consequent upon two press releases by Ranco with respect to a tender offer for its stock by defendant Warner & Swasey Company (W&S). The amended complaint also named as defendants W&S and Vorwerk & Co. KG (Vorwerk). It claimed that the press releases (and in W&S' case also a letter to Ranco filed with the SEC) violated § 10(b) of the Securities Exchange Act and the Commission's Rule 10b-5. In an opinion reported in 486 F. Supp. 101 (D.C., 1980), Judge Knapp dismissed the complaint as against Ranco for failure to state a claim on which relief could be granted but gave plaintiffs " "an additional albeit final opportunity to conform the pleadings to Rule 9(b)' " by alleging "any "factual basis' for the contention that Ranco had already on July 12 predetermined what its Board of Directors would do at the July 16 meeting (which meeting would accordingly amount to a mere charade)." Plaintiffs elected to stand on their amended complaint and moved for entry of final judgment in favor of Ranco, their claim against Vorwerk having been previously dismissed. Since their claim against W&S remained undetermined, they sought a statement with respect to finality concerning Ranco authorized by F.R.Civ.P. 54(b). The court granted this over the opposition of Ranco's attorney who believed it might lead to a duplication of appeals after plaintiffs had had discovery against W&S. Plaintiffs have appealed as against Ranco.
The amended complaint alleges that W&S is an Ohio corporation engaged in producing and distributing industrial machinery and equipment; that Ranco is an Ohio corporation engaged in the design, manufacture and distribution of control devices and systems which regulate temperature, pressure, time, etc. Vorwerk is a German trading and holding company engaged in a variety of businesses; allegedly it "had close business ties" with Ranco.
The amended complaint went on to allege that on September 1, 1978, W&S purchased on the New York Stock Exchange some 14% of the stock of Ranco. W&S reported this on a Form 13-D Statement to the SEC. Following the traditional scenario Ranco filed a complaint in an Ohio state court alleging that the purchase violated certain provisions of the Ohio takeover statute. A temporary restraining order issued. Before it terminated, Ranco and W&S entered into a settlement agreement whereby Ranco dismissed the Ohio action on condition that W&S agreed not to buy or sell Ranco stock for a year; the settlement agreement was terminable on 30 days written notice. W&S filed an amendment to its Rule 13-D statement which annexed the settlement agreement as an exhibit and stated that it and Ranco planned to hold discussions concerning the relationship between the two companies and W&S' equity interest in Ranco.
Allegedly in an effort to thwart W&S' continued interest in a takeover, Ranco, on June 15, 1979, caused Vorwerk to buy 78,400 shares, about 2%, of Ranco's stock. Ranco introduced Vorwerk to W&S as a possible purchaser of W&S' Ranco shares but W&S was not satisfied with Vorwerk's offer.
On July 12, 1980, W&S filed another amendment to its 13-D statement. Annexed was a letter of the same date to Ranco. The letter began by expressing W&S' disappointment that its discussions with Ranco over the last ten months had "not led to any serious negotiations towards a business combination." After referring to the negotiations with Vorwerk, the letter announced W&S' intention to make an offer to purchase all of Ranco's stock at $24 per share if it received "the approval of Ranco's Board of Directors." However, the letter added that because W&S believed that the settlement agreement would no longer serve any useful purpose, W&S "wishes to terminate that Agreement as promptly as possible in order to regain its full freedom of action." Accordingly W&S gave the required 30 day notice so that the agreement would terminate on August 11, 1979.
Ranco on the same day issued a press release which reported the offer and said that its Board of Directors would meet on July 16, 1979, "to consider and evaluate the Warner & Swasey proposal" and that its decision would be promptly announced following the meeting. However, the release continued:
A Ranco spokesman said that no hostile tender offer is anticipated because Warner & Swasey has been a major Ranco shareholder for ten months and throughout that period has consistently indicated it would not make an offer not deemed by Ranco's Board to be in the best interest of the company and its shareholders.
In any event, at the present time Warner & Swasey could not make an unfriendly offer because of the restrictions imposed by the Ohio takeover law and an agreement between the two companies.
Ranco common stock responded to the release by rising from $151/4 to $221/4; various plaintiffs bought it on July 13 at close to the latter figure.
On July 16 Ranco issued a second press release, which we quote in the margin.*fn1 The market was not much affected; several plaintiffs purchased Ranco stock on July 17 and two on July 18 at prices only slightly below those of July 13. However, on August 1 W&S entered into an agreement to sell its Ranco stock to Vorwerk at $26 per share. When this was announced, the market price of Ranco shares tumbled to $161/2.
The amended complaint alleged that the July 12 W&S letter created the false impression that if Ranco's board did not approve of the tender offer, W&S would make a hostile tender offer; that Ranco's July 12 press release was materially false and misleading in that it created the impression that Ranco might accept W&S' friendly tender offer when in fact Ranco's board was determined to resist W&S' overture; that the July 16 press release was also false and misleading in suggesting the possibility of a hostile tender offer for Ranco stock by W&S by its questioning of the "credibility" of W&S' management "in view of the agreement that has been in effect since September 1978 and assurances received from Warner & Swasey's management during that time"; that both releases were materially false and misleading in their failure to disclose W&S' allegedly ongoing negotiations with Vorwerk; and that the whole episode was somehow contrived by Ranco and W&S to help W&S sell its Ranco stock to Vorwerk at a considerable profit. Finding that the press releases were truthful and that the bald allegation that Ranco did not seriously intend to evaluate W&S' proposal did not allege fraud with the "particularity" required by F.R.Civ.P. 9(b), the judge dismissed the amended complaint although giving plaintiffs, as indicated, another chance to replead, which they rejected.
No useful purpose would be served in retracing this court's efforts to effect the necessary reconciliation between the requirement of F.R.Civ.P. 9(b) that "In all averments of fraud ... the circumstances constituting fraud ... shall be stated with particularity" and the provision in F.R.Civ.P. 8(a)(2) that a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief," with the consequence that evidence need not be pleaded. It suffices to cite such well known cases as Shemtob v. Shearson, Hammill & Co., 448 F.2d 442, 444 (2 Cir. 1971); Segal v. Gordon, 467 F.2d 602, 607 (2 Cir. 1972); Schlick v. ...