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July 2, 1984

United States Steel Corporation, et al.

The opinion of the court was delivered by: LOWE

,895 MARY JOHNSON LOWE, D.J.: This is an action brought on behalf of a class of shareholders of Marathon Oil Co. ["Marathon"], *fn1" under the Securities Exchange Act of 1934, ,896 and certain rules promulgated thereunder. Plaintiff seeks damages allegedly sustained during the take-over of Marathon by United States Steel Corp. ("U.S. Steel"), *fn2" in January, 1982, by way of a tender offer. In addition to his federal claims, plaintiff has several pendent state claims for breach of contract.This matter is now before us on defendant's motion to dismiss, brought pursuant to Rule 12b(6), Fed.R.Civ.P.


 The following facts are not in dispute. On November 19, 1981, defendants U.S. Steel and USS, Inc., made a tender offer to purchase 30,000,000 shares of Marathon common stock for $125.00 per share. The tender offer provided that in the event that more than 30,000,000 shares were tendered and not withdrawn, shares were to be purchased pro rata according to the number of shares tendered on or before the proration date. *fn3" The proration date was originally set as November 28, 1981, at 12:00 midnight, New York City time, thus establishing a ten day proration period. The tender offer was too expire on December 17, 1981, at 12:00 midnight, New York City time, unless extended. Subsequently, extensions of the original deadlines became necessary because of litigation brought by Mobil Corporation against defendants U.S. Steel and USS, Inc., which delayed implementation of the tender offer. Pursuant to a first Supplement to Offer, published on December 1, 1981, the proration date was extended to December 4, 1981, at 12:00 midnight, New York City time. Pursuant to an order of the Sixth Circuit Court of Appeals, dated December 23, 1981, and as set forth in a second Supplement to Offer, published on December 24, 1981, the expiration date was extended so that the tender offer would expire on January 6, 1982, at 12:00 midnight, New York City time. *fn4"

 According to the tender offer, tender could be perfected either by delivery of the shares to BTC, or under prescribed circumstances, by transmittal of a guarantee of delivery to BTC, on or before the proration date, and delivery of the shares to BTC within eight business days after execution of the guarantee.This meant that the latest possible date by which shares would have to be delivered in order to be included in the proration pool, was December 16, 1981, at midnight.

 However, since Marathon shareholders who had tendered could withdraw the shares up until the expiration date, January 6, 1982, the actual number of shares in the proration pool, and hence the proportion of each participant's tendered shares that would be bought for cash, did not become fixed until that date.

 On December 8, 1981, defendants announced publicly that approximately 54 million shares had been tendered by the proration date. Following this initial announcement, two intermediate announcements were made indicating that a lesser number of shares -- "approximately 51 million" -- had been "perfected . . . within the required time period." *fn5"

 ,897 The purchase by U.S. Steel of thirty million tendered shares took place shortly after midnight on January 7. In a press release dated January 8, 1982, U.S. Steel announced that 54,200,000 Marathon shares were held by the Depository as of midnight January 6, 1982. Plaintiff's Exhibit G to Affidavit. Finally, in a press release dated January 11, 1982, U.S. Steel announced that "53,880,360 Marathon Co. shares have been accepted for proration." Plaintiff's Exhibit H to Affidavit.

 On January 11, three business days after the purchase occurred, shareholders were paid $125 per share for 55.6% of the shares tendered.

 Plaintiff alleges, and the Court must assume for the purposes of this motion, that defendants accepted for inclusion in the proration pool approximately three million shares of common stock, which had not been duly and validly tendered under the terms of the tender offer on or before the proration date of December 4, 1981. According to plaintiff, some of these shares were accepted for inclusion in the proration pool after December 16, 1981, the latest possible delivery date.

 The acceptance of the late tendered shares reduced the pro rata percentage of plaintiff's shares that were purchased and paid for by defendants, from approximately 58.8% of plaintiff's tendered shares to approximately 55.6% of plaintiff's tendered shares (or a 3.2% difference). Plaintiff allegedly perfected tender on 1,500 Common Shares of Marathon prior to the proration deadline. Therefore, according to plaintiff, he was entitled to have 882 shares purchased, but defendants have accepted and paid for only 834 shares at the $125 price. Plaintiff claims that he has been damaged in an amount of approximately $50 per share not accepted because of the wrongful inclusion of the three million late tendered shares. In addition plaintiff claims, upon information and belief, that the persons and entities which constitute the class of shareholders on whose behalf this action is brought, perfected tender of approximately 51,000,000 common shares of Marathon in accordance with the terms of the tender offer prior to or on the proration deadline. Plaintiff estimates that the damages caused by the wrongful exclusion of 3.2% of the shares tendered by the class, amounted to approximately 83 million dollars together with interest from January 7, 1982.

 In the alternative plaintiff alleges that if defendants did not accept shares perfected after the proration date and delivery date, they intentionally made false and misleading statements of material fact to the public (in both the December 17 press release and the December 24, Supplement to the Offer), in that defendants knew that a materially larger number of shares -- approximately 54 million -- were to be accepted for proration. Plaintiff further alleges that he and other members of the class reasonably relied on defendants' misrepresentations in calculating the number of shares that were to be returned to them unpurchased at the end of the waiting period, and acted on the basis of this information in their subsequent investment decisions. Knowing that the market price for the unpurchased and returned shares would be substantially lower than the cash price of $125 per share being paid under the tender offer, plaintiff and other class members allegedly attempted to reduce their losses by engaging in various hedging transactions, including selling calls and/or buying puts, and engaging in option transactions and shorts sales. Plaintiff alleges that because of their reliance on defendants' misrepresentations, he and other class members suffered financial injury and losses in connection with their hedging transactions and with the eventual disposition or sale of unpurchased shares.

 Plaintiff makes several claims for relief. He claims first that the defendants' acceptance of late-tendered shares for proration, violated Sections 10(b), 14(d)(6), and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n(d)(6) and 78n(e) and the rules promulgated thereunder including Rule 10b-13, Rule 14d-6(d), and Rule 14d-6(e), C.F.R. §§ 240.10b-13, 240.14d-6(d), 240.14d-6(e), and the common law of contracts. See Plaintiff's Second Amended Complaint, First, Second and Sixth Claims For Relief. He further claims that by accepting ,898 late-tendered shares, defendants effectively extended the proration date, without public notice of such extension in violation of Section 14(e) of the Securities Exchange Act of 1934, and Rule 14e-1(d), C.F.R. § 240.14e-1(d). See Plaintiff's Third Claim for Relief.

 Alternatively, plaintiff claims that defendants made false and misleading statements of material fact in violation of Sections 14(d) and 14(e) of the Securities Exchange Act and Rules 14d-6(e) and Rule 14d-6(e). See Plaintiff's Fourth Claim for Relief.

 Finally, plaintiff claims that defendants' failure to pay promptly for the stock tendered by plaintiff and other members of the class, violated Section 14(e) of the Securities Exchange Act of 1934, and Rule 14e-1(c) promulgated pursuant thereto, and the common law of contracts.See Plaintiff's Fifth and Seventh Claims for Relief.

 Defendants have moved to dismiss all of the plaintiff's claims. For the reasons set forth below, we find that defendants' motion should be granted in part and denied in part.

 Section 14d(6) Claim

 Plaintiff's first and primary claim arises under Section 14d(6) of the Williams Act, 15 U.S.C. § 78n(d)(6). Section 14d(6) provides in relevant part:

 Where any person makes a tender offer, or request or invitation for tenders, for less than all the outstanding equity securities class, and where a greater number of securities is deposited pursuant thereto within ten days after copies of the offer or request or invitation are first published or sent or given to security holders than such person is bound or willing to take up and pay for, the securities taken up shall be taken up as nearly as may be pro rata, disregarding fractions, according to the number of securities deposited by each depositor.

 Plaintiff argues that § 14d(6) imposes a mandatory proration deadline, and prohibits the acceptance of shares tendered after that deadline. He alleges that defendant violated this provision by including in the proration pool, approximately three million Marathon shares which were not validly tendered by the proration date or delivered by the delivery date.

 Defendants move to dismiss this claim on two grounds. First, they argued that this Court should not imply a right of action on behalf of plaintiff under § 14d(6) absent any indication, either in the language or legislative history of the statute, that Congress intended to create a private damages remedy. Second, defendants argue that § 14d(6) does not require that the proration pool be limited to shares tendered at a certain place or by a certain time; rather, the deadlines and mechanics for the tender of shares are set by the terms of the tender offer. Since plaintiff's sole claim under § 14d(6) is that the defendants wrongfully accepted late-tendered shares for proration, defendants maintain that at best, plaintiff states only a common law claim for breach of contract.

 Because the Court agrees with defendants that plaintiff has failed to allege a violation of § 14d(6), we find it unnecessary to reach the more general question of whether a shareholder who does allege injury stemming from a violation of § 14d(6) has a private damages remedy.

 The question before us is apparently one of first impression. Plaintiff cannot point to a single case in which a shareholder has attemnpted to invoke § 14d(6) in the manner which he proposes. *fn6" However, it is neither the novelty of plaintiff's position nor the absence of supporting authority which leads us to reject plaintiff's claim. As set forth below, we find no support for plaintiff's position ,899 in either the language or legislative history of the statute.

 Section 14d(6) does not on its face impose a mandatory proration deadline. It merely provides that all shares tendered "within ten days" of the tender offer "shall be taken up as nearly as may be pro rata . . .". The mandate of Section 14d(6) necessarily implies that there must be at least ten days between the making of the tender offer and the proration deadline. However, as Rules 14d-8 *fn7" and 14d-6(e)(vi) *fn8" make clear, the actual proration deadline is left to the terms of the tender offer. Thus the language of § 14d(6) and the rules promulgated thereunder would suggest, as defendants contend, that the enforcement of the proration deadline is a matter of contract law.

 Plaintiff argues, however, that the legislative purpose of Section 14d(6) will be undermined if the Section is not read to prohibit the acceptance for proration of shares tendered after the proration of shares tendered after the proration deadline. The Court cannot agree. Section 14d(6) is part of a larger scheme designed to protect shareholders of a target corporation who are faced with a tender offer. See Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 35, 51 L. Ed. 2d 124, 97 S. Ct. 926 (1977). Section 14d(6) in particular aims to provide shareholders with adequate time to make a reasoned and informed decision whether or not to tender their shares. As explained by Senator Williams, the sponsor of the Williams Act, the purpose of the Section was to "outlaw tender offers on a first-come, first-served basis and thus eliminat[e] pressure on shareholders to make hasty deposits." 113 Cong. Rec. 854, 855 (January 13, 1967).This purpose is accomplished by establishing a minimum period of time, i.e., ten days, during which shareholders can decide whether to tender their shares, with the assurance that any shares tendered during that period will be included in the proration pool.In the present case, plaintiff does not claim that the minimum ten days proration period was not allowed by the defendants or that the shares which he tendered within the proration period were not accepted for proration. Thus the primary purpose of Section 14d(6), as well as the letter of the law, would seem to be complied with.

 We do not disagree with plaintiff that the goal of § 14d(6) and the Williams Act in general goes beyond that of disclosure and seeks "to assure fair treatment of all shareholders who decide to accept a tender offer." Testimony of SEC Chairman Manuel Cohen at a Hearing Before the Senate Subcommittee on , 900 Securities, at 36. Pro rata acceptance of shares is "a method of achieving equitable treatment of all stockholders." Id. However, this does not mean that Congress intended to make any imperfection in a tender offer or in the proration process remediable under the Williams Act. Many important details of a tender offer, including the date, place and method of tender, are left to the terms of the offer itself, and are enforceable only on a breach of contract theory. We believe that the proration deadline is another such detail. Our holding does not, as plaintiff suggests, leave the offeror with unlimited discretion to accept late-tendered shares. As noted above, the proration deadline established by the offeror must be included in the tender offer materials; failure to adhere to this deadline would presumably give rise to an action for breach of contract. *fn9" Furthermore, it might be argued that acceptance of a significant number of late tendered shares would amount to a de facto extension of the proration date without adequate notice to all shareholders as required by Rules 14d-6(d), 14d-6(e)(vi), and 14e-1(d). However, only those shareholders who were deprived of the opportunity to tender after the deadline would have standing to pursue such a claim. See discussion, infra, at 50-52.

 To hold that the proration deadline is enforceable under § 14d(6) would, we believe, unduly involve the federal courts in questions concerning the mechanics of a tender offer.In order to determine whether a purchaser properly accepted shares for proration, the courts would necessarily have to determine what constitutes valid tender under the terms of the tender offer, and whether all of the shares accepted were validly tendered by the proration deadline. Even a technical defect in tender, if waived by the purchaser, would presumably constitute a violation of § 14d(6). *fn10" In short, the federal securities law would be converted into an omnibus tool for enforcing the terms of a tender offer. We do not believe that Congress intended such a result.

 In sum, based on the plain language of § 14d(6) and the rules promulgated thereunder, the legislative history of the statute, and the absence of any judicial authority to the contrary, we conclude that plaintiff's allegations that the defendants accepted for proration shares tendered after the proration deadline, do not state a claim under § 14d(6). Accordingly, plaintiff's First Cause of action must be dismissed.

 Section 14(e) Claim

 Plaintiff's second claim, arising under the anti-fraud provision of the Williams Act, *fn11" is based on the alternative statement of the facts. The Second Amended Complaint alleges that the press releases issued by defendants contained material misstatements as to the number of shares tendered or perfected by the proration date, which were relied on by plaintiff in deciding not to engage in hedging transactions with respect to the shares which he believed the defendants would purchase, and that plaintiff suffered monetary damage as a result.

 Defendants argue that plaintiff's § 14(e) claim is fatally defective in several respects. First, they claim that because plaintiff's injury does not arise out of his decision to tender, it is not remediable under § 14(e). In addition, defendants claim that plaintiff has failed to adequately plead the essential elements ,901 of a fraud claim, including scienter, materiality, reliance, injury and causation. Each of defendants' claims are discussed separately below.

 Plaintiff's Failure to Claim Injury arising Out of His Decision Whether to Tender.

 Defendants contend that "[s]ince there is no averment that defendants' allegedly misleading statements impacted any shareholder's decision to tender or withdraw his Marathon shares, this case simply does not present the evil which § 14(e) was designed to remedy." Memorandum of Defendants United States Steel Corporation and USS, Inc. In Support of Motion to Dismiss Second Amended Complaint, at 2. Defendants draw on the legislative history of § 14(e) which, in the words of the Supreme Court, reveals that the "sole purpose of the Williams Act was the protection of investors who are confronted with a tender offer." Piper v. Chris-Craft Industries Inc., 430 U.S. 1, 35, 51 L. Ed. 2d 124, 97 S. Ct. 926 (1977) (" Chris-Craft "). In light of this purpose, defendants argue that a shareholder in the position of plaintiff, whose alleged injury did not arise from his decision whether or not to tender, does not have standing to bring a cause of action under § 14(e).

 Plaintiff responds that § 14(e) broadly prohibits fraud "in connection with a tender offer." Relying on Judge Lasker's decision in O'Connor & Associates v. Dean Witter Reynolds, Inc., 529 F. Supp. 1179 (S.D.N.Y. 1981), plaintiff argues that as long as the alleged misstatements which gave rise to his injury were made "in connection with a tender offer", the fact that he was engaging in option transactions at the time he was injured, should not defeat his cause of action under § 14(e).

 Although the Supreme Court in Christ-Craft, supra, at 42 n.28, expressly reserved decision on the issue, the lower courts have uniformly implied rights of action under § 14(e), on behalf of both tendering and nontendering shareholders injured by fraudulent misrepresentations impacting on their decisions whether to tender. See, e.g., Stull v. Bayard, 561 F.2d 429, 432 (2d Cir. 1977) ("Although § 14(e) does not specifically provide plaintiff a cause of action for this deprivation such a right to sue has generally been inferred"), cert. denied, 434 U.S. 1035, 54 L. Ed. 2d 783, 98 S. Ct. 769 (1978); Electronic Specialty Co. v. International & Controls Corp., 402 F. Supp. 213, 214 (S.D.N.Y. 1975), aff'd mem., 538 F.2d 312 (2d Cir. 1976); Petersen v. Federated Development Co., 416 F. Supp. 466, 472 n.2 (S.D.N.Y. 1976); Smallwood v. Pearl Brewing Co., 489 F.2d 579, 596 (5th Cir. 1974), cert. denied, 419 U.S. 873, 42 L. Ed. 2d 113, 95 S. Ct. 134 (1974); In re Com. Oil/Tesoro Petroleum Corp. Sec. Lit., 467 F. Supp. 227, 242 (W.D. Tex. 1979); Hurwitz v. R.B. Jones Corp., 76 F.R.D. 149 (W.D. No. 1977); Scott v. Multi-Amp Corp., 386 F. Supp. 44, 50 (D.N.J. 1974); contra, Neuman, v. Electronic Speciality Co., FED. SEC. L. REP. (CCH) P92,591 (N.D. Ill. 1969) (since nontendering shareholders are neither purchasers nor sellers of securities they have no standing to sue for damages under either 10b-5 or § 14(e)). However, few courts have considered whether shareholders who claim reliance and injury outside of their decisions whether to tender, have standing to sue under § 14(e). Those which have, have reached differing results. See O'Connor & Associates v. Dean Witter Reynolds, Inc., supra; Panter v. Marshall Field & Co., 646 F.2d 271 (7th Cir. 1981). *fn12" Furthermore, in ,902 both O'Connor and Panter, the plaintiffs alleged injury resulting from pre-tender offer decisions, where impending tender offers never became effective. Thus the courts in those cases were faced with the question not presented here, of whether the alleged misstatements/omissions were made "in connection with" a tender offer. Our research has disclosed no cases which have addressed the precise issue raised herein.

 In considering the scope of a cause of action under § 14(e), we are mindful that "Congress intended securities legislation enacted for the purpose of avoiding frauds to be construed "not technically and restrictively, but flexibly to effectuate its remedial purpose". Affiliated Ute Citizens v. United States, 406 U.S. 128, 151, 31 L. Ed. 2d 741, 92 S. Ct. 1456, (1972) quoting, SEC v. Capital Gains Research Bureau, 375 U.S. 180, 195, 11 L. Ed. 2d 237, 84 S. Ct. 275 (1963). At the same time, we recognize that "generalized references to the "remedial purposes" of the securities laws "will not justify reading a provision "more broadly than its language and the statutory scheme reasonably permit." Touche Ross & Co. v. Redington, 442 U.S. 560, 578, 61 L. Ed. 2d 82, 99 S. Ct. 2479 (1979) quoting, SEC v. Sloan, 436 U.S. 103, 116, 56 L. Ed. 2d 148, 98 S. Ct. 1702 (1978).

 There is nothing in the language of § 14(e) which would limit the applicability of the statute in the manner proposed by defendants. Section 14(e) prohibits any untrue statements made in connection with any tender offer. Defendants do not and cannot deny that the allegedly false statements in this case were made in connection with a tender offer. They were made by the offeror during the course of the tender offer and pertained directly to shares which had been tendered pursuant to the tender offer. *fn13"

 Turning to the history and purpose of the statute, it is undeniable that Congress's primary concern, in enacting § 14(e) was with the dilemma of shareholders faced with the decision whether or not to tender their shares. As Senator Williams stated during the congressional hearings:

 Today, the public stockholder in deciding whether to reject or accept a tender offer possesses limited information. No matter what he does, he acts without adequate knowledge to enable him to decide rationally what is the best course of action. This is precisely the dilemma which our securities laws are designed to prevent.

 113 Cong. Rec. 24662-66 (1967). Further:

 In the rather common situation where existing management or third parties contest a tender offer, shareholders may be exposed to a bewildering variety of conflicting appeals and arguments designed to persuade them either to accept or to reject the tender offer.

 Id., at 855-56. *fn14" There is no discussion in the legislative history of any other type of decision which a shareholder might face in connection with a tender offer. However, we do not infer from this silence any intent on the part of Congress to limit the Act's protection to shareholders confronted with the decision whether to tender.

 As the facts of the present case illustrate, the decision whether to accept or reject a tender offer is not the only significant decision which a target shareholder may face in the tender offer context. See also O'Connor ,903 & Associates v. Dean Witter Reynolds, Inc., supra, 529 F. Supp. at 1191. Nor is it the only decision to which statements made "in connection with" a tender offer, may be material. According to the facts alleged herein, plaintiff, having decided to tender his shares, was subsequently confronted with the decision how to best dispose of the shares which would be returned to him unpurchased; one alternative was to sell options with respect to these shares prior to their actual return. Given the fact that the tender offer was for less than the total number of outstanding securities, and thus subject of outstanding securities, and thus subject to the proration requirement of § 14(d)(6), the dilemma which plaintiff faced was a readily foreseeable consequence of his decision to tender. Moreover, plaintiff was totally dependent on the offeror to provide him with the facts upon which to make an informed decision; only the offeror had knowledge of how many shares had been properly tendered by the proration deadline. Thus as with the decision to tender, the need for informed decision-making was great, and the possible consequences of a decision based on erroneous information was significant and foreseeable.

 In short, this Court can find no principled reason to exclude a shareholder in the position of plaintiff from the protection of § 14(e). *fn15" Therefore, in the absence of any affirmative indication of congressional intent, we are unwilling to assume that Congress intended to so limit the scope of § 14(e).

 Defendant relies heavily on the "sole purpose" language of the Supreme Court in Chris-Craft, supra. However, as Judge Lasker observed in O'Connor, supra, "that statement was made in the context of the Court's consideration of the issue whether there existed "a private cause of action for damages by one of several contending offerors against a successful bidder or by a losing contender against the target corporation." Id. at 1192, quoting Chirs-Craft, supra, at 35. The Court had no occasion to consider which type of shareholders the statute was designed to protect, or which types of injuries the statute was designed to remedy. Therefore, nothing in the Chris-Craft decision is determinative of the issue before us.

 Likewise, the Second Circuit's decision in Lewis v. McGraw, 619 F.2d 192 (2d Cir. 1980), cert. denied, 449 U.S. 951, 66 L. Ed. 2d 214, 101 S. Ct. 354 (1981), is not controlling. In McGraw, the target shareholders sued the corporation and is directors, alleging that the board made false statements of material facts in response to a proposed tender offer. The shareholders claimed that had the board provided complete truthful information, the tender offer would have been consummated.The Court of Appeals affirmed the district court's dismissal of the complaint, for failure to allege reliance, an essential element of a cause of action under § 14(e). The Court reasoned that the shareholders could not possibly have relied on the alleged misrepresentations by the target corporation, since they were never given an opportunity to tender their shares. In response to the plaintiff's argument that reliance should be presumed from materiality, the Court stated that, "[h]ere, where no reliance was possible under any imaginable set of facts, such a presumption would be illogical in the extreme." Id. at 195. In the present case, unlike McGraw, plaintiff alleges that he relied on defendants' alleged misrepresentations, in connection with his hedging activities. Therrefore, we cannot say that no reliance was possible. Like Judge Lasker, "we do not read the McGraw opinion to constitute a broad interpretation of the general reach of § 14(e), but rather to consider the statute's application in the circumstances of that case." Id. at 1192-93.

 Finally, defendants argue that the rationale of the Supreme Court's decision in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 44 L. Ed. 2d 539, 95 S. Ct. 1917 (1975), precludes a shareholder in plaintiff's position, from asserting a claim under § 14(e). In Blue Chip, the Supreme Court held that since the plaintiff was neither a purchaser or seller of the securities in issue, he had no standing to sue under § 10(b) and Rule 10b-5, which prohibit fraudulent misstatements or omissions in connection with the purchase or sale of any security. The Court refused to recognize a claim based on the plaintiff's failure to buy or sell the security in question. Defendants argue that "[ a ] fortiori, there can be no claim where, as here, there is a claimed failure to buy or sell a security (i.e., a "put" or a "call") different from the security (the Marathon shares) to which the alleged misrepresentation relates. [footnote omitted]." Memorandum of ,904 Defendants United States Steel Corporation and USS, Inc. in Support of Motion To Dismiss the Second Amended Complaint at 3. *fn16"

 This Court does not agree that the Blue Chip decision warrants dismissal of plaintiff's § 14(e) claim. Section 10(b), the statute at issue in Blue Chip, and Rule 10b-5, explicitly prohibit fraud in connection with a "purchase" or "sale" of securities. Since § 14(e) has no such language, there is no basis for reading a purchaser/seller requirement into it. Thus the courts have held that nontendering shareholders, as well as tendering shareholders, have standing to sue under § 14(e), notwithstanding the holding in Blue Chip Stamps. See Hundahl v. United Benefit Life Ins. Co., 465 F. Supp. 1349 (N.D. Tex 1979); Hurwitz v. R.B. Jones Corp., 76 F.R.D. 149 (W.D. Mo. 1977). Moreover, plaintiff claims that he did engage in hedging transactions with respect to at least some of the shares he expected would be returned to him. Thus, his claim that he would have hedged with respect to the 3.2% which he did not know would be returned, is not totally dependent upon uncorroborated oral evidence.

 For all of the foregoing reasons, this Court concludes that plaintiff's § 14(e) claim should not be dismissed for lack of standing.


 Defendants argue that the Second Amended Complaint fails to adequately plead "scienter", i.e., intentional or reckless conduct, on the part of defendants. According to defendants, the facts as alleged by plaintiffs at best raise an inference of negligence. In particular, defendants emphasize the total absence of any facts from which a motive for the fraud alleged might be inferred.

 In response, plaintiff argues that there are two operative portions of § 14(e), the first of which imposes an obligation of full disclosure, and the second of which prohibits fraud. *fn17" According to plaintiff, the first clause of § 14(e), i.e., the disclosure requirement, does not require a showing of scienter. Alternatively, plaintiff maintains that even if scienter is an essential element of his § 14(e) claim, he has adequately pleaded scienter in accordance with the federal rule that "intent" and "condition of mind" need only be averred generally.Plaintiff rejects defendant's suggestion that plaintiff must speculate as to the possible motive defendants may have had for making the alleged misrepresentations.

 Plaintiff's argument that a showing of scienter is not a requirement in every action brought under § 14(e) is contrary to precedent in this circuit and others. Because of the close similarity between § 14(e) and Rule 10b-5, in both language and purpose, courts have consistently held that the elements of a cause of action under § 14(e) and Rule 10b-5 are the same with the exception of the standing requirement, *fn18" and have ,905 applied the case law under each interchangeably. See, e.g., Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341 (2d Cir. 1973); Atchley v. Qonaar Corp., 704 F.2d 355, 359 (7th Cir. 1983); Adams v. Standard Knitting Mills, Inc., 623 F.2d 422, 431 (6th Cir. 1980); Berman v. Gerber Products Co., 454 F. Supp. 1310, 1316 (W.D. Mich. 1978); SEC v. Texas International Co., 498 F. Supp. 1231 (N.D. Ill. 1980); Applied Digital Data Systems v. Milgo Electronic, 425 F. Supp. 1145, 1157 (S.D.N.Y. 1977). It is firmly established that an action under Rule 10b-5 requires a showing of scienter, i.e., "intent" to deceive, manipulate or defraud." Ernst and Ernst v. Hochfelder, 425 U.S. 185, 193, 47 L. Ed. 2d 668, 96 S. Ct. 1375 (1976). Therefore, we conclude that proof of scienter is also required in an action under § 14(e). See Indiana National Bank v. Mobil Oil Corp., supra, 578 F.2d 180, 184 n.10; Lowenschuss v. Kane, 520 F.2d 255, 568 (2d Cir. 1975); Chris-Craft Industries, Inc. v. Piper Aircraft Corp., supra, 480 F.2d at 363-64; Adams v. Standard Knitting Mills, Inc., supra, 623 F.2d at 431; Morgan v. Prudential Group, Inc., supra, 81 F.R.D. 418, 426 (S.D.N.Y. 1978); Applied Digital Data Systems v. Milgo Electronic supra, 425 F. Supp. at 1157. *fn19"

 Under the law of this circuit, the scienter requirement does not mean that plaintiff must prove intent to defraud; a showing that defendants had knowledge of the falsity of their statements or reckless disregard for ,906 the truthis sufficient. *fn20" Rolf v. Blyth, Eastman Dillon & Co., Inc., 570 F.2d 38, 45-47 (2d Cir. 1978); IIT v. Cornfeld, 619 F.2d 909, 923 (2d Cir. 1980); Lanza v. Drexel & Co., 479 F.2d 1277, 1300-02 (2d Cir. 1973); Chris-Craft, supra, 480 F.2d at 363. A showing of mere negligent conduct, however, will not suffice. Chris-Craft, supra, 480 F.2d at 363. We therefore turn to the question of whether plaintiff has adequately pleaded knowing, intentional, or reckless conduct on the part of the defendants.

 We note from the outset that Rule 9(b) of the Federal Rules of Civil Procedure does not require the same specificity of pleading with respect to intent and knowledge as v. does with respect to the other elements of fraud. Zaretsky v. E.F. Hutton & Co., Inc., 509 F. Supp. 68 (S.D.N.Y. 1981). By its own terms Rule 9(b) provides that "[m]alice, intent, knowledge and other condition of mind of a person may be averred generally." Nevertheless, to survive a motion to dismiss, the facts alleged in the complaint "must be such as to permit an inference of fraud." Denny v. Barber, 73 F.R.D. 6, 9 (S.D.N.Y. 1977).This does not mean, as defendants would have it, that the facts pleaded must suggest the defendants' motive.21 It is sufficient that facts alleged give rise to an inference that the defendants acted knowingly or recklessly. See Ross v. A.H. Robins Company, Inc., 607 F.2d 545, 558 (2d Cir. 1979). In the present case, plaintiff must allege facts which permit an inference that as of December 17 and December 24, 1981, defendants had knowledge of how many shares had actually been tendered by the proration deadline, or recklessly failed or refused to ascertain the number from information available to them.

 The relevant section of the Complaint is found in paragraphs 59-65 wherein plaintiff alleges that the defendants had both a duty to know and the means to know how many shares had been perfected as of the proration deadline. In particular, plaintiff alleges that during all relevant times defendants had the staff, facility and resources adequate to determine the number of shares tendered, and in fact maintained a comprehensive system of records, including records maintained in computers.Plaintiff claims specifically that defendant Bankers Trust "maintained and operated a comprehensive, computerized electronic data processing system for recording and generating up-to-the-minute information and tallies and summaries of shares tendered, guaranteed, delivered, perfected, withdrawn, eligible for purchase and accepted to be accepted for purchase," Second Amended Complaint P64. In addition, plaintiff alleges that Bankers Trust had a duty to provide such information to the other defendants and in fact, "Bankers Trust prepared and provided regular written reports of such information (including a report entitled "Daily Report of Securities Tendered") to defendant [U.S. Steel] and its other agents, and in addition made frequent verbal or telephoned reports of such information to defendant U.S. Steel and its other agents." Second Amended Complaint P65.

 Whether these allegations are sufficient to support a claim of fraud is a close question. While the facts alleged permit an inference that the defendants acted recklessly or with knowledge, they just as easily permit an inference that one or more of the defendants were negligent, either in their record-keeping or in the carrying out of their duty to accurately convey the information which they had recorded. *fn22" In fact, the inference of negligence may be somewhat stronger than the inference of scienter, in light of the defendants' apparent lack of motive to commit fraud. Nevertheless, although we are doubtful of plaintiff's ability to prove scienter at trial we do not believe the issue can be decided on the pleadings. Therefore, defendants' motion to dismiss plaintiff's § 14(e) claim on this ground will be denied.

 ,907 Materiality

 Defendants also argue that plaintiff has failed to adequately plead materiality. *fn23" In Paragraph 74 of the Second Amended Complaint plaintiff alleges:

 The numberr of shares validly tendered by delivery within the proration deadline, from which the proration factor and the number of Unpurchased Shares are calculated, was a material fact of substantial significance to plaintiff and to all tendering shareholders who wished to or did attempt to reduce losses incurred in connection with the sale or disposition of Unpurchased Shares by engaging in short sales or other hedging transactions for the purpose of protecting themselves against the risks of proration.

 Plaintiff also argues that information as to the true number of Marathon shares deposited by midnight of December 16 was "obviously "material" because "any change . . . would alter the amount the shareholder will receive" and thus "would be of significance to a shareholder in determining what to do." Plaintiff's Memorandum in Opposition at 73, 74. Defendants maintain that plaintiff's general allegation as to materiality is totally unsupported by, and in fact inconsistent with, other facts alleged in the Complaint.

 Defendants argue first that the use of the word "approximately" in both the December 17 and 21 press releases, makes clear that the press releases did not purport to give an exact count of the number of shares tendered, or of shares tendered which had been perfected, but only a rough figure. Defendants also question how there could be any "material" difference between "approximately 51 million" shares and the "53,880,360 shares" actually accepted for proration. Defendants' contentions raise two related questions: first, is there "a substantial likelihood that a reasonable shareholder" would consider such an "approximate" figure important to any investment decision?; and second, would a reasonable shareholder find that "approximately 51 million" shares is materially different than "53.88 million shares"?

 Defendants further argue that because plaintiff has failed to allege that he hedged all of the shares that he thought would be returned to him unpurchased there is no basis for assuming that plaintiff would have hedged with respect to the additional 3.2% of the shares which were unexpectedly returned to him. In other words, since there is no allegation from which it can be inferred that the additional 3.2% would have been relevant to any hedging decision which plaintiff made or might have made, the allegedly erroneous press releases should be found to be immaterial as a matter of law.

 Although we believe that each of these issues may pose serious problems for plaintiff at trial, we do not believe that they can be resolved against plaintiff as a matter of law. What the Supreme Court said of tha materiality question in the context of a summary judgment motion is equally apt here:

 The issue of materiality may be characterized as a mixed question of law and fact, involving as it does the application of a legal standard to a particular set of facts. In considering whether summary judgment on the issue is appropriate, (footnote omitted) we must bear in mind that the underlying objective facts, which will often be free from dispute, are merely the starting point for the ultimate determination of materiality. The determination requires delicate assessments of the inferences a "reasonable shareholder" would draw from a given set of facts and the significance of those inferences to him, and these assessments are peculiarly ones for the trier of fact. [footnote omitted].

 TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 450, 48 L. Ed. 2d 757, 96 S. Ct. 2126 (1976). Accordingly, we conclude that plaintiff should be given the opportunity to prove the materiality of defendants' alleged misstatements at trial. *fn24"

 ,908 Reliance, Injury and Loss Causation

 The Second Amended Complaint is particularly sketchy in the area of reliance and injury. Plaintiff alleges that he reasonably relied on defendants' press releases to determine the number of unpurchased shares which were to be returned to him. In order to reduce losses which he expected would be incurred in connection with the sale of the unpurchased shares, plaintiff engaged in a series of hedging transactions during the period of the tender offer. Because of his reliance on defendants' statements, plaintiff allegedly suffered financial injury and losses because he was forced to sell the additional unpurchased shares at the lower market prices prevailing on and after January 7, 1982. See PP70, 77-80 of the Second Amended Complaint.

 More significant than what is included in the Complaint, is what is missing. The Complaint totally fails to allege the details of plaintiff's hedging transactions, including the type of hedging transactions plaintiff engaged in, how many shares were included in the transactions, precisely when the transactions took place, *fn25" what specifically caused plaintiff's financial losses, what specifically plaintiff would have done to prevent those losses had he had the correct information, and whether he was actually able to cut his losses with respect to the shares he did hedge on. *fn26"

 In light of these omissions, the Court finds that the Second Amended Complaint is not sufficiently specific in the areas of reliance, injury and causation to satisfy Rule 9(b).However, plaintiff will be granted one final opportunity to amend the Complaint.

 Plaintiff's Claims Under Rules 14d-6(d), 14d-6(c) and 14e-1(d)

 Plaintiff has also made claims under Rule 14d-6(d), 14d-6(e) and 14e-1(d). Each of these rules seeks to protect target company stockholders faced with a tender offer decision by imposing disclosure requirements on the tender offeror. *fn27" Plaintiff argues that defendants violated these rules by failing to ,909 disclose to all shareholders that late-tendered shares would be accepted for proration, or, in other words, that the proration deadline was being extended.

 The problem with plaintiff's claim under the disclosure rules is one of standing. Plaintiff does not and cannot claim that he would have tendered or withdrawn his shares after December 4, 1981, had he known that the proration deadline was being "extended". Thus even assuming that plaintiff alleges a violation of the disclosure rules, he does not allege the type of injury which the rules were designed to prevent. In fact, the only injury which plaintiff alleges, that which allegedly occurred in connection with his hedging activities, does not in any way flow from the defendant's failure to disclose an extension of the proration period. If the defendant's failure to disclose the correct number of shares tendered by the proration deadline. However, the rules relied on by plaintiff do not require such disclosure. Accordingly, since plaintiff lacks standing to bring claims under the disclosure rules, these claims must be dismissed.

 Plaintiff's Claim Under Rule 10b-13

 Rule 10b-13 prohibits a tender offeror from purchasing target company securities during the effective period of the tender offer "otherwise than pursuant to" the tender offer. *fn28" Plaintiff apparently claims that by including late-tendered shares in the proration pool, defendants purchased these shares "otherwise than pursuant to" the offer. *fn29" Under plaintiff's theory it would seem that any deviation, however minor, from the terms of a tender offer in the purchase of shares, would constitute a violation of 10b-13. We do not believe that the SEC intended such a result.

 The purpose of the SEC in promulgating Rule 10b-13 was:

 to safeguard the interests of the persons who have tendered their securities pursuant to the stated terms of a tender offer by prohibiting the offeror from making any "outside" purchases on different terms during the offer's duration.

 Heine v. The Signal Companies, Inc., FED. SEC. L. REP. (CCH) P95,898 (S.D.N.Y. 1977). In particular, Rule 10b-13 was designed to prevent "outside purchases" by the offeror at a different price than that stated in the tender offer. See Wellman v. Dickinson, 475 F. Supp. 783, 833 (S.D.N.Y. 1979); Warren v. Bokum Resources Corp., 433 F. Supp. 1360, 1367 (D.N.M. 1977); Bloomenthal, Securities and Purchases of Target Company Securities During an Exchange Offer, 69 Colum. L. Rev. 1392 (1969); SEC Securities Exchange Act Release No. 8712 (Oct. 8, 1969); SEC Securities Exchange Act Release No. 8595 (May 5, 1969); SEC Exchange Act Release No. 8391 (Aug. 30, 1968).

 In the present case, plaintiff challenges purchases which were made using the same proration formula and for the same price as every other purchase under the tender offer, including the purchase of plaintiff's own shares. As defendants point out, plaintiff is not really claiming that purchases from the late-tendering shareholders were made outside of the tender offer, but rather, that the "late-tendering shareholders were wrongfully allowed to participate in the ,910 Offer as if they had made a valid tender." Defendants' April 15, 1982, Memorandum in Support of Motion to Dismiss at 35-36. Therefore, plaintiff does not have a cause of action under Rule 10b-13.

 Plaintiff's Rule 14e-1(c) Claim

 Plaintiff bases his fifth claim on SEC Rule 14e-1(c) which makes it unlawful for a tender offeror to "[f]ail to pay the consideration offered or return the securities deposition offered or return the securities deposited by or on behalf of security holders promptly after the termination or withdrawal of a tender offer." 17 C.F.R. § 240.14e-1(c) (1979). Defendants were deemed to have accepted tendered shares shortly after 12:01 A.M. on Thursday, January 7, 1982 (when notice was given to defendant Depository Bankers Trust), and defendants commenced payment for accepted shares on Monday, January 11, 1982. As a consequence of that delay, plaintiff claims that tendering Marathon shareholders were wrongfully deprived of the purchase price for tendered shares and the use thereof, whereas defendants were unjustly enriched by an amount estimated at $6,000,000. Second Amended Complaint PP64-65.

 Defendants move to dismiss the fifth claim on the ground that payment on the third business day following expiration of the tender offer constitutes "prompt payment" as a matter of law.

 For "the only insight into how "prompt" payment is to be measure," defendants direct the Court's attention to a memorandum issued by the SEC's Department of Corporate Finance. Reply Memorandum of Defendants in Support of Motion to Dismiss at 11. The 1970 memorandum discloses that the Commission intended to direct its rulemaking authority against tender offerors who fail to conclude transaction "in accordance with the practices of the financial community, usually within five day. " SEC Exchange Act Release No. 16384, FED.SEC.L.REP. (CCH) P82,373 at 82,597 n.36 (Nov. 29, 1979) [hereinafter cited as SEC Release] (emphasis added). Defendants also present several self-regulatory rules promulgated by the securities industry which support such a five-day rule. *fn30" With regard to the allegation that it was practicable for defendants to have made payment on January 7, defendants assert that the magnitude of the transaction and the fact that the amount of each check could not be determined until after midnight of January 6, (the deadline for withdrawal) precluded payment prior to January 11. Memorandum of Defendants in Support of Motion to Dismiss at 40.

 Plaintiff argues that Rule 14e-1(c) requires that payment be made or commenced immediately upon purchase. Memorandum of Plaintiff in Opposition to Motion to Dismiss at 63 [hereinafter cited as Plaintiff's Memorandum]. Plaintiff charges that it was practicable for defendants to have made payment on January 7, but that defendants chose not to do so, and submits a New York Times article to support this allegation. Plaintiff's Memorandum, supra, at 61-62. The plaintiff also presents instances of recent tender offers in which payment commenced the day following expiration of the offer as evidence of the manner in which tender offer transactions are customarily concluded in the securities industry. *fn31" Plaintiff's Memorandum, supra, at 65-66.

 After consideration of the respective positions advanced by the parties, the Court concludes that defendants' motion to dismiss as to this claim should be denied. Although it appears unlikely that plaintiff will ultimately succeed on this "prompt payment" claim, we do not believe the issue can be resolved as a matter of law. The SEC Release relied on by the parties makes clear that the question of prompt payment is a question of reasonableness, to be determined in light of the facts and circumstances of a particular tender offer transaction and the customary practices of the financial community. *fn32" Furthermore, there is no merit to defendants' contention that the Release conclusively ,911 establishes that a three-day delay is reasonable as a matter of law. The portion of the Release relied on by defendants at best establishes that the practice of the financial community is usually to complete payment within five days. The use of the word "usually" clearly leaves room for flexibility in the determination of what constitutes prompt payment. Similarly, the specific examples of rules and practices in the securities industry presented by both parties, while relevant to a determination of reasonableness in this case, are certainly not conclusive.

 For the reasons set forth above, the Court finds that plaintiff's Rule 14e-1(c) claim presents factual issues which cannot be resolved on a motion to dismiss. Accordingly, defendants' motion to dismiss the claim is denied.


 In conclusion, plaintiff's claims under Section 14d(6), § 10(b) and Rules 10(b)13, 14d-6(d) (his first, second and third claims for relief) will be dismissed for failure to state a claim. Defendant's motion to dismiss will be denied with respect to plaintiff's claims under § 14(e) and Rule 14e-1(c)(his fourth and fifth claims and relief) and plaintiff's pendent state claims (his sixth and seventh claims for relief).

 It is So Ordered.

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