The opinion of the court was delivered by: HAIGHT
HAIGHT, District Judge: Plaintiff Phyllis Sanders, a former minority shareholder of defendant Chamberlain Manufacturing Corporation ("Chamberlain"), brings this action to redress alleged violations of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., arising out of events preceding defendant Thrall Car Manufacturing Company's ("Thrall") 1979 tender offer for Chamberlain shares. Also named as defendants are Chamberlain and the individual members of its board of directors at the time of the disputed transaction. The case is presently before the Court on defendants' motion to dismiss the second amended complaint putsuant to Fed.R.Civ.P. 12(b)(1) and (6) and plaintiff's motion for leave to amend the complaint to assert an additional claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq. For the reasons stated below, plaintiff's motion is denied and defendant's motion to dismiss is granted.
At the time of the events giving rise to this suit, Chamberlain Manufacturing Corporation was a publicly owned Iowa corporation engaged primarily in the manufacture and sale of electronic, home improvement, and forging and machining products. Thrall Car is a privately held Delaware corporation engaged in the manufacture, assembly, and repair of railroad freight cars and, through various subsidiaries, in the leasing of railroad freight cars and the repair of railroad rolling stock and other equipment. All Thrall Car common stock is owned beneficially by the families of Jerome A. Thrall and defendant Richard L. Duchossois; all outstanding shares of preferred stock are owned by Mildred E. and Arthur J. Thrall, parents of Jerome Thrall.
Prior to January 1977, when Thrall first purchased shares in Chamberlain, Thrall held discussions with certain Chamberlain officers and directors concerning Thrall's potential interest in acquiring control of the company. (Offer Booklet, Def. Exh. 1 at B-19). Defendants state that such discussions were terminated prior to any actual purchase of shares and that "it was not until August 1978 that [Thrall] formed a definite intention to acquire control." Id. Between January 10, 1977 and April 6, 1979, Thrall acquired approximately 53.8% of Chamberlain's common stock through a series of some thirty different purchase transactions. (Id. at B-30; Comp. P7).
As stated in the informational materials ("Offer Booklet") accompanying Thrall's subsequent tender offer:
"Such Shares were purchased for investment, and such purchases were not made for the purpose of acquiring control of the Company. Throughout that period, however, the Purchaser consistently stated (i) that it might (and probably would) purchase additional Shares, and (ii) that it intended regularly to review its position in the Company and might (a) increase or decrease its holdings of Shares, and/or (b) seek to acquire control of the Company." Id. at B-19.
In July of 1977, Thrall indicated to Chamberlain its intention to seek representation on Chamberlain's board of directors. At the request of Thrall, the board subsequently voted to increase its membership from twelve to fourteen directors, and immediately thereafter elected defendants Duchossois and Christianson, Thrall's president and vice-president of finance, respectively, to fill the vacancies thereby created (Id. at B-20; Comp. P10). On April 10, 1978, Thrall announced that it intended to expand its representation on the board. Shortly thereafter, the directors voted 12 to 2 to return to a twelve-member board, effective at the 1978 annual meeting, and to recommend as part of management's slate three individuals nominated by Thrall: defendants George F. Gerk, a financial consultant to Thrall; Robert H. Hayes, a Thrall director; and Arthur M. Barrett. Two directors voted against, and one director abstained from voting on, the proposal to increase Thrall's representation from two directors to five. All five Thrall candidates were elected to the Chamberlain board at the 1978 annual meeting, and were reelected in 1979 (Id. at B-20).
Prior to the 1979 annual meeting, Chamberlain mailed proxy statements to all shareholders regarding two matters to be voted on at the meeting: the election of directors and a proposed merger of Chamberlain with one of its wholly owned subsidiaries, a Delaware corporation (Def. Exh. 2). The intent and effect of such a merger, known as a "migratory" merger, would be to change Chamberlain's state of incorporation from Iowa to Delaware. Both the merger and management's slate of directors, the party defendants in this action, were approved at the annual meeting. The new board elected Richard Duchossois to the position of chairman of the board.
On August 14, 1979, Thrall announced publicly its intention to make a tender offer for all outstanding shares of Chamberlain common stock at a price of $26.50 per share (Exh. 3), subject to completion of the necessary filings with the Securities and Exchange Commission and compliance with applicable state securities laws.
The offer itself commenced on August 27, 1979 at a price of $30.00 per share (Offer Booklet, Def. Exh. 1 at B-1). In the Offer Booklet, Thrall stated that its attempt to acquire the entire equity interest in Chamberlain at this time was prompted by shareholder approval of the proposed migratory merger. More specifically, Thrall expressed concern over the right of dissenting shareholders under Iowa law to demand payment of the fair value of their shares and the consequent reduction in corporate assets occasioned by such cash payments. Thrall viewed the effects of a migratory merger as inconsistent with its own objectives and determined that it would be in Thrall's best interests to initiate a tender offer which, if successful, would set the stage for a merger of Chamberlain and a Thrall subsidiary.
Abandonment of the migratory merger would also benefit Thrall in two other respects. As stated in the Offer Booklet:
"[S]ince the Purchaser presently intends to cause the Company to be merged with the Purchaser or to become a wholly-owned subsidiary of the Purchaser . . ., abandonment of the migratory merger would . . . avoid the expense (and possibly inconsistent results) of simultaneous appraisal proceedings in two separate jurisdictions (i.e., Iowa as to the migratory merger and Delaware as to the subsequent merger with the Purchaser or a subsidiary of the Purchaser which the Purchaser intends to propose). Moreover, a cash merger following migration to Delaware would involve a risk to the Purchaser which it does not believe will be encountered if the Company remains in Iowa. The Supreme Court of Delaware has held that the merger of a Delaware corporation caused by its majority stockholder solely for the purpose of compelling the minority stockholders to relinquish their shares in exchange for a cash payment is a violation of a fiduciary duty owed by such majority stockholder to the minority, even though all statutory requirements of Delaware law relating to mergers have otherwise been met. . . . [Given] the normal uncertainties of litigation, the Purchaser could not be assured that a subsequent merger would, if challenged in the Delaware courts, ultimately be sustained by such courts. So far as Purchaser has been able to determine, there are no holdings by Iowa courts which are similar to the Delaware decisions referred to above.
"In addition, participation by the Company in any merger (including the migratory merger) would require that the Company obtain the consents of certain creditors of the Company and, possibly, the consents of parties to other contracts with the Company; and, in light of the Purchaser's present plans discussed below to propose a merger of the Company with the Purchaser or with a wholly-owned subsidiary of the Purchaser (see "Effects of the Offer"), the obtaining of such consents incident to the migratory merger would involve efforts (and might involve financial inducements) which might have to be duplicated in the near future. The Purchaser wishes to avoid such duplication." (Def. Exh. 1 at B-3-B-4).
On September 6, 1979, Chamberlain's board of directors, noting the pendency of the Thrall tender offer, declared the merger proposal "terminated and null and void." (Palermo Aff., Def. Exh. 4).
Response to the tender offer was extremely positive. Pursuant to the offer, and in transactions subsequent to its termination, Thrall purchased 700,066 shares of Chamberlain common stock for a purchase price of $21,014,029.61, thereby increasing its interest in Chamberlain from 53.8 percent to approximately 98 percent (Def. Exh. 1 at 9). Plaintiff Sanders tendered 890 of the 900 shares of Chamberlain stock she owned (Comp. P60). On January 30, 1980, proxies were solicited from Chamberlain shareholders for approval of a merger between Chamberlain and New-C-Corp ("NCC"), a wholly owned subsidiary of Thrall. The accompanying proxy statement described the right of dissenting shareholders to make a written demand upon the company for payment of the fair value of their shares and the tax consequences of so doing, and described the instant suit filed by plaintiff Sanders and another action filed on behalf of all Chamberlain shareholders against Thrall in the Circuit Court of Cook County, Illinois, Chancery Division (Def. Exh. 1 at 12-16).
At the time of this solicitation, NCC, as successor to Thrall, owned beneficially 1,554,426 shares of the 1,587,418 Chamberlain shares outstanding. Given that NCC owned 98 percent of the voting shares and approval of the plan required affirmative votes from holders of at least two-thirds of those shares, approval of the merger was a certainty. Of the 26,215 shares held by entities other than NCC, 2,915, or approximately 11 percent, were voted against the merger and 23,300 were voted in favor of the plan. No shares registered in plaintiff's name were voted against the merger, and she did not seek appraisal under Iowa law in connection with the merger (Palermo Aff. P2). On March 17, 1980, Thrall, now the sole owner of record of all outstanding Chamberlain shares, elected defendants Barrett, Boyce, Bergstrom, Duchossois, Christianson, Gerk, Hayes, Kessler, Krum, Schultz, and Sommers to serve as directors of the corporation.
Plaintiff's Motion to Amend
Essential to a determination of plaintiff's motion to file a third amended complaint in this action is a brief review of the proceedings to date.Plaintiff's first complaint was filed on August 16, 1979, prior to Thrall's August 27, 1979 tender offer but immediately after Thrall publicly announced its intention to make the offer.The initial complaint alleged generally that Thrall had engaged in an effort to artificially depress the price of Chamberlain stock so as to obtain shares at a reduced price. Plaintiff challenged both the 1979 Chamberlain board of directors election and shareholder approval of the migratory merger.
In late October 1979, while defendants were in the midst of preparing a motion to dismiss the original complaint, plaintiff filed a first amended complaint containing new factual allegations and adding several causes of action based, in large measure, on information gleaned from the Offer Booklet accompanying Thrall's August 27, 1979 tender offer.Defendants allege that although plaintiff "was aware that defendants were expending considerable time and effort in preparing a motion to dismiss, they were given no advance notice of plaintiff's intention to amend" (Def. Mem. in Opp. at 3). Confronted with a materially altered complaint, defendants once again commenced preparation of motion papers responsive to the new pleadings.
On December 7, 1979, "after defendants had largely completed new motion papers," id., plaintiff requested leave to again amend the complaint to allege that plaintiff had tendered 890 of her 900 Chamberlain shares in response to Thrall's offer. Defendants strongly opposed a continuation of "plaintiff's ever-shifting pleadings" and averred that plaintiff's conduct, "by design or negligence, has imposed unwarranted burdens on defendants." (Kaplan Aff. at P2). This Court, noting that the parties were sharply divided on the question of whether plaintiff was actually aware of the imminence of defendant's motion to dismiss, chose to accept plaintiff's representation that the proposed amendment was not prompted by dilatory motives, but rather was occasioned by an oversight on the part of the plaintiff's counsel.However, in granting leave to file a second amended complaint, I concluded with the following admonition:
"In light of the history of this case, we may well have reached -- as defendants urge -- "the time [which] must arrive at some stage of every litigation when plaintiff must be required to stand upon the allegations he is asserting . . ." Bernstein v. N.V. Nederlandsche-Amerikaansche Stoomvaart Maatschappij, 79 F. Supp. 38, 42 (S.D.N.Y. 1948), modified on other grounds, 173 F.2d 71 (2d Cir. 1949). Although I am not willing to preclude formally any further amendments, I do embrace Judge Ryan's statement in Bernstein, supra. " (Op. at 7).
In a motion presently before the Court, defendants moved to dismiss the second amended complaint. Plaintiff's papers in opposition were served some eleven months later on August 14, 1981 and defendants' reply papers on January 26, 1982. Shortly thereafter, plaintiff sought leave to file a third amended complaint based on identical facts but not alleging a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., "in connection with the purchase of defendants in two stages of the shares of Chamberlain Manufacturing Corporation. . . ." Fischer Aff. at 1). Defendants vigorously oppose any further amendment to plaintiff's complaint that would once again put them to the task of revising their pending motion to dismiss and characterize the effort as "a last-ditch attempt" on plaintiff's part "to postpone dismissal of her suit." (Def. Mem. in Opp. at 20).
Fed.R.Civ.P. 15(a) requires that leave to amend "be freely given when justice so requires," an adjuration that has been construed by the Supreme Court as follows:
"If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason -- such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. -- the leave sought should, as the rules require, be "freely given." Foman v. Davis, 371 U.S. 178, 182, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962).
Stated simply, a court should exercise its Rule 15(a) discretion liberally to permit amendment of pleadings, except where the rule's salutary objective of encouraging disposition of litigation on the merits is outweighed by equally compelling policy considerations.Defendants argue persuasively that "this case abounds with such reasons" (Def. Mem. in Opp. at 5), including plaintiff's excessive delay in asserting an additional cause of action and her repeated failure to cure this alleged deficiency in previous amemdments. While a court may not properly deny an amendment solely on the ground of delay, where, as here, "a considerable period of time has passed between the filing of the complaint and the motion to amend, courts have placed the burden upon the movant to show some "valid reason for his neglect and delay." Hayes v. New England Millwork Distributors, Inc., 602 F.2d 15, 19-20 (1st Cir. 1979), quoting Freeman v. Continental Gin Co., 381 F.2d 459, 469 (5th Ciir. 1967). See also Gregory v. Mitchell, 634 F.2d 199, 203 (5th Cir. 1981); Roorda v. American Oil Co., 446 F. Supp. 939, 947 (W.D.N.Y. 1978). After considering plaintiff's proffered reasons, I do not find that this burden has been met.
The only explanation counsel for plaintiff offers for failing to assert a RICO cause of action in the initial complaint or in two successive amended complaints, pleadings which spanned a period of two and one-half years, is ignorance of the statute:
"A claim for relief under RICO was not previously asserted in the complaint because I was not familiar with this act until December 21, 1981. I do not have total command of all 50 titles of the United States Code. I did not learn of RICO until Aetna Casualty v. Liebowitz, (E.D.N.Y. 81 Civ. 2616, December 8, 1981), was reported on the front page of the New York Law Journal on December 21, 1981 and a case called Spencer Companies Inc. v. Agency Rent-A-Car Inc. was reported at page A2 in issue number 633 of the BNA Security Law and Regulation Report which I received that same day." (Fischer Aff. at 2).
The Court of Appeals for the Sixth Circit, confronted with a similar explanation for delay -- i.e., that plaintiff became aware of a particular statute's potential as an alternative ground for relief only after filing the complaint -- held that the district court had not abused its discretion in denying plaintiff's motion to amend. Head v. Timken Roller Bearing Co., 486 F.2d 870, 875 (6th Cir. 1975). While the plaintiff in Head contended that the discovery of "new law" justified his delay in seeking an amendment, the Court found that the statutory cause of action proposed was "new" only in the sense that plaintiff had been unaware of it, an insufficient ground for delay. Id. at 874-75. Citing to Head, the Second Circuit noted that where plaintiff "advances no reason for his extended and undue delay other than ignorance of the law; such a failure has been held an insufficient basis for leave to amend." Goss v. Revlon, Inc., 548 F.2d 405, 407 (2d Cir. 1976), on remand, 16 FEP Cases (BNA) at 44 (S.D.N.Y. 1966), aff'd, 556 F.2d 556 (2d Cir.), cert. denied, 434 U.S. 968, 98 S. Ct. 514, 54 L. Ed. 2d 456 (1977).
In the instant action, the statute in question was enacted in 1970, almost a decade before this suit was commenced, and plaintiff has had two opportunities subsequent to the initial filing to remedy any perceived deficiencies in the complaint. As strongly suggested to plaintiff in this Court's prior Opinion, the liberality with which a court grants leave to amend does not impart to litigants the privilege of re-shaping their legal theories endlessly, even where there is no evidence of improper motive or dilatory objectives. "While we must give a party a fair chance to present claims and defenses, we also must protect "a busy district court [from being] imposed upon by the presentation of theories seriatim." Daves v. Payless Cashways, 661 F.2d 1022, 1025 (5th Cir. 1981), quoting Gregory v. Mitchell, supra, 634 F.2d at 203.Cf. Rhodes v. Amarillo Hospital Dist., 654 F.2d 1148, 1154 (5th Cir. 1981) ("The retention of a new attorney able to perceive or draft different or more creative claims from the same set of facts is itself no excuse for the late filing of an amended complaint."). Accordingly, I deny plaintiff's motion to amend and turn now to a consideration of defendants' motion to dismiss the second amended complaint.
Defendants' Motion to Dismiss
Before addressing the specific issues raised by defendants' motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and (6), I note preliminarily that, in ruling upon a motion to dismiss for failure to state a claim, this Court is obligated to accept as true all well-pleaded allegations of the complaint. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). This Court is fruther mindful of the well-established rule that a complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). See Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980). Although each of plaintiff's various claims for relief reiterates substantially the same conduct on defendants' part and reflects plaintiff's general disappointment over the tender offer and her apparent conviction that defendants engaged in a scheme to "freeze out" Chamberlain's minority shareholders, each asserts a different violation of the securities laws and will be considered seriatim.
A. First and Second Claims for Relief
Plaintiff alleges in her first and second claims for relief that the 1978 and 1979 Chamberlain board of directors elections and the authorization of a migratory merger in 1979 were achieved through the use of misleading proxy statements in violation of § 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) [hereinafter § 14a],
and Rule 14(a)-9, 17 C.F.R. § 240.14(a)-9,
promulgated thereunder. The specific allegations in the complaint common to these counts and others describe the steps allegedly taken by defendants in pursuit of a "long-standing plan to freeze out Chamberlain's minority shareholders" (Pl. Mem. in Opp. at 5) and thereby ...