The opinion of the court was delivered by: LEVAL
On Motion for Preliminary Injunction
Marshall Field & Co. moves for a preliminary injunction enjoining the defendants from further purchases of Field stock, requiring rescission of previous acquisitions and, alternatively, enjoining the defendants from voting certain shares acquired by defendants under an assertedly misleading Schedule 13-D.
The defendants form a group led by Carl Icahn that has purchased a substantial percentage of the Field common stock pursuant to a program of acquisition of Field shares.
On February 16, 1982, Field sought a temporary restraining order against further purchases by the defendants. I found the existence of a substantial question on the merits whether the 13-D statement then filed by the Icahn group adequately disclosed the defendants' proposals or plans, in the event the group acquired control, to engage in extraordinary transactions respecting the company's real estate assets. Because of the high likelihood that the Field shareholders and the market place generally were being misled as to information the acquiring group was required by law to disclose, I found that the balance of hardships decidedly favored the injunction of further purchases.
Field claims that, during the effective period of the assertedly deficient 13-D filing, the Icahn group acquired 942,000 shares or nearly 9% of the stock. The defendants contend that this number should be reduced by 380,000 shares which were purchased on the day of, but prior to, the filing.
Three days after the grant of the temporary restraining order the Icahn group amended the Schedule 13-D and sought revocation of the restraining order. I found that the new statement was adequate, in light of the evidence then available, to advise the public of extraordinary proposals being considered by the Icahn group. Accordingly, I lifted the order. The Icahn group has since increased its holdings to approximately 30% of the outstanding stock.
Marshall Field has made, in the meantime, additional applications for restraining orders which I have found to be without merit and have denied. Field has also been active seeking competing tenders from a "white knight". On March 17, 1982, BATUS, Inc., with the support of the Field management, announced a tender offer for Field shares. The price of BATUS' offer was increased the next day.
Field's first contention is that further purchases by the defendants should be enjoined on the ground that their 13-D filings misrepresent the intentions of the Icahn group. The argument is made with particular reference to the intention to acquire control and the intention thereafter to cause Field to make extraordinary transactions.
Recognizing that the matter remains in a preliminary stage in which findings are subject to change with further discovery of additional evidence, I conclude that Field has failed to make out these contentions in a manner calling for relief. The evidence suggests not that Icahn is operating under a firm plan to acquire control but rather that the defendant group is feeling its way with a mind open either to selling out if offered a sufficiently attractive profit or to pushing on for control if that seems preferable. In my view, based on the available evidence, to require a more definite statement of intention to acquire control may be to require a false overstatement, equally capable of misleading the marketplace.
As to plans or proposals for extraordinary transactions in the event control is obtained, I conclude that the amended filing is not inadequate or misleading when measured against the sketchy evidence available.
Field's alternative contention is that I should enjoin the voting of the shares acquired by defendants under the earlier 13-D filing. An argument in favor is that one who used false filings to assist him in an attempt to gain control should not be rewarded by being allowed to exercise the benefits of the fraudulently obtained stocks. Field argues that this ruling would encourage fraudulent filings with occasional correction from time to time as court decrees require.
The argument does not depend on irreparable harm which would flow from the voting of the shares or be avoided by an injunction. The argument depends rather on the policy of preserving the integrity of the requirements of the securities laws and preventing violators from profiting by the violation.
This argument has considerable force. However, strong arguments also point to the contrary in these circumstances. First, there has been no conclusive finding that the early 13-D was false. The finding was of the tentative kind which can justify temporary relief depending on the balance of equities. It is not clear that Field will be able to prove falsity by a preponderance of the evidence when all discovery is complete and the issue is ripe for definitive trial on the merits. Second, in the event it should eventually be shown that the earlier filing was false, those deceived by it, who arguably sold out more cheaply than they would have on proper information, would obtain no benefit from the relief Field now seeks. The victims of such a false filing can be protected by an action for money damages. The benefits of the injunction would go to persons other than those damaged by the false filing.
Third, the application is premature. No shareholder vote is currently scheduled before November, eight months hence. Even assuming that injunction of the voting will eventually be justified, no irreparable harm results from failure to grant such ...