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July 26, 1985

CALEB & CO. and UNIT & CO., partnerships, on behalf of themselves and all others similarly situated, Plaintiffs, against E. I. DUPONT DE NEMOURS & COMPANY, FIRST JERSEY NATIONAL BANK, and CONOCO, INC., Defendants

The opinion of the court was delivered by: SWEET


This securities action, arising from the tender offer by E. I. DuPont de Nemours and Co. ("DuPont") for Conoco ("Conoco"), returns as the result of an amended complaint and a renewed motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). The motion is granted in part and denied in part, as set forth below.

 Prior Proceedings

 The initial complaint in this action, filed by plaintiffs Caleb & Co. and Unit and Co. ("Caleb") on June 11, 1984, was the subject of a motion to dismiss brought by defendants DuPont, Conoco, and First Jersey National Bank ("First Jersey"). In an opinion reported at 599 F. Supp. 1468 (S.D.N.Y. 1984), this motion was granted in part and denied in part. An amended complaint was filed on February 1, 1985, and this renewed motion to dismiss was argued by skilled counsel on May 31, 1985.


 Familiarity with the facts underlying this action, as set forth in the earlier opinion, is presumed. The facts alleged in the amended complaint are the same as those in the original complaint in all material respects, except that it is alleged that the Board of Directors of Conoco declared a dividend on July 31, 1981, payable to shareholders of record as of August 14, 1981. It is further alleged that DuPont failed to make any reference to the dividend in the prospectus, any supplement thereto, or any press release or public announcement. For the purposes of this motion, the material allegations as contained in Caleb's complaint are taken as true, Walker Process Equip. v. Food Mach. & Chem. Corp., 382 U.S. 172, 86 S. Ct. 347, 15 L. Ed. 2d 247 (1965), and in determining the legal sufficiency of the claims the exhibits annexed to the complaint will be considered. Fed.R.Civ.P. 10(c).

 The Complaint

 On the facts alleged, Caleb asserts four causes of action. The first cause of action alleges that by delaying payment until after the termination of the offer, DuPont breached its obligation under Rule 14e-1(c), 17 C.F.R. § 240.14e-1(c), promulgated under Section 14e of the Securities Exchange Act of 1934, to pay cash promptly to plaintiffs in exchange for shares accepted for exchange for cash.

 The second cause of action alleges that DuPont breached the contractual obligation created in the prospectus to pay cash as promptly as practicable for shares tendered by plaintiffs. Caleb alleges that the obligation to pay promptly was triggered on August 5, 1981.

 The third cause of action alleges that First Jersey aided and abetted DuPont in the violations alleged in Counts One and Two, thereby breaching Rule 14e-1(c) and First Jersey's fiduciary obligations to the class members.

 The fourth cause of action alleges that DuPont and First Jersey violated contractual and fiduciary obligations owed to Caleb by prematurely transferring the shares to DuPont thereby permitting DuPont wrongfully to receive the dividend payable to shareholders of record on August 14, 1981.

 DuPont and First Jersey have moved to dismiss each of the four counts of the amended complaint, and the courts will be addressed sequentially.

 Count One: Violation of Rule 14e-1(c)

 The earlier opinion held that the original complaint had satisfactorily plead a cause of action under Rule 14e-1(c) in all respects other than that it alleged payment to be due on August 5 rather than August 17. The amended complaint realleges a violation of Rule 14e-1(c) as a consequence of delayed payment, but asserts, as determined in the earlier opinion, that prompt payment was due on termination of the offer, August 17.

 DuPont now challenges Count One on the theory that there is no private cause of action under Rule 14e-1(c), promulgated pursuant to the authority granted to the Securities and Exchange Commission ("SEC") in the final sentence of § 14(e). That section states in its entirety:

It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request or invitation. The commission shall, for the purposes of this subsection, by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative. (emphasis provided).

 Rule 14e-1(c) states:

"As a means reasonably designed to prevent fraudulent, deceptive, or manipulative practices within the meaning of section 14(e) of the Act, no person who makes a tender offer shall:
. . .
(c) Fail to pay the consideration offered or return the securities deposited by or on behalf of security holders promptly after the termination of withdrawal of a tender offer.

 It is uncontested that a private right of action exists for an action brought directly under § 14(e). See Stull v. Bayard, 561 F.2d 429 (2d Cir. 1977), cert. denied, 434 U.S. 1035, 54 L. Ed. 2d 783, 98 S. Ct. 769 (1978); Electronic Specialty Co. v. International & Controls Corp., 409 F.2d 937 (2d Cir. 1969). No court has yet fully analyzed whether a private right of action exists under the rules promulgated pursuant to § 14(e), although in Pryor v. United States Steel, 591 F. Supp. 942 (S.D.N.Y. 1984), in denying a motion to dismiss a private action brought pursuant to Rule 14e-1(c), the Court implicitly held that such a cause of action exists. See also Crouse-Hinds Co. v. Internorth, Inc., 518 F. Supp. 416, 449 (N.D.N.Y. 1980) (private right under Rule 14e-1(a)); Curtiss-Wright Corp. v. Kennecott Corp., 504 F. Supp. 1044, 1054 (S.D.N.Y. 1980) (same); Camelot Industries Corp. v. Vista Resources, Inc., 535 F. Supp. 1174 (S.D.N.Y. 1982) (private right of action under 14e-3); O'Connor & Assoc. v. Dean Witter Reynolds, Inc., 529 F. Supp. 1179 (S.D.N.Y. 1981) (same). The Supreme Court has stated that implication of a private right of action if fundamentally a matter of ascertaining Congressional intent, Touche Ross & Co. v. Redington, 442 U.S. 560, 61 L. Ed. 2d 82, 99 S. Ct. 2479 (1979), and the four factors identified in Cort v. Ash, 422 U.S. 66, 45 L. Ed. 2d 26, 95 S. Ct. 2080 (1978) are properly viewed as indicia of an underlying Congressional intent. Touche Ross, supra, at 575-76.

 The first Cort factor inquires whether the plaintiff is a member of the class for whose benefit the statute was enacted. Cort, supra, at 78. The Williams Act was designed to protect investors confronted with a tender offer, Piper v. Chris Craft Indus., 430 U.S. 1, 3, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977), and there is no dispute that Caleb is a member of this class.

 The second Cort factor asks directly whether there is "any indication of legislative intent, explicit for implicit, either to create a remedy or deny one." Cort at 78. The terms of the statute are silent on this issue, and the legislative history does not reflect an explicit reference either to the creation or denial a private right of action. While the effort to divine Congressional intent from legislative silence is difficult even with respect to statutes actually drafted by Congress, it is necessary here to define a congressional intent with respect to regulations authorized by Congress but yet to be drafted by a regulatory commission. The conventional analysis that the existence of court decisions granting private rights of action before the statutory amendment appears inapplicable here. In this context, the remaining Cort factors acquire renewed significance, as indicia of Congressional purpose and goals, although some effort to clarify Congressional intent is nonetheless helpful.

 Caleb argues that the state of the law with respect to private rights of action at the time Congress enacts a particular provision bears upon the knowledge and intent Congress had at the time of enactment. Silence in that context can reflect a desire not to disturb pre-existing private rights of action, as the Supreme Court explained in Merrill Lynch, Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 378-79, 72 L. Ed. 2d 182, 102 S. Ct. 1825 (1982):

In determining whether a private cause of action is implicit in a federal statutory scheme when the statute by its term is silent on that issue, the initial focus must be on the state of the law at the time the legislation was enacted. More precisely, we must examine Congress' perception of the law that it was shaping or reshaping. When Congress enacts new legislation, the question is whether Congress intended to create a private remedy as a supplement to the express enforcement provisions of the statute. When Congress acts in a statutory context in which an implied private remedy has already been recognized by the courts, however, the inquiry logically is ...

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