supra, these claims are dismissed due to Plaintiffs' failure to comply with the No Action Clause. Plaintiffs' motion for summary judgment is dismissed as moot.
B. Defendants' Motion for Summary Judgment.
Defendants contend that several more grounds exist which warrant the entry of summary judgment in their favor. Before addressing these contentions, the Court stresses that there are numerous issues of material fact potentially making summary judgment inappropriate. Many of these issues are genuine and in need of resolution by the finders-of-fact. See McMahan & Co. v. Wherehouse Entertainment, Inc., 900 F.2d 576 (2d Cir. 1990), cert. denied, 501 U.S. 1249, 115 L. Ed. 2d 1052, 111 S. Ct. 2887 (1991).
1. Summary Judgment As to All Plaintiffs.
Defendants contend that they have not, as a matter of law, caused Plaintiffs to suffer damages under §§ 11 and 10 of the Securities Acts because losses in the value of the Debentures were not caused by the alleged misrepresentations in the Prospectus. Defendants state that the market value per Debenture was $ 1,000 when issued in July of 1986 and only $ 470 on the business day prior to December 21, 1987 -- the day the Wherehouse board of directors announced approval of the merger. Plaintiffs counter that they do not seek damages based on decline in market value, but upon their inability to exercise their right to tender at the time of Wherehouse's merger.
a. Section 11 Damages.
Damages under § 11 are measured by the difference between the amount paid for the security and the value of that security at the time suit is brought. 15 U.S.C. § 77k(e). Damages under § 11 are capped at the price at which the security was offered to the public. 15 U.S.C. § 77k(g). Defendants may prove that any portion of a plaintiff's losses are due to a depreciation in value not resulting from the alleged misrepresentation. 15 U.S.C. § 77k(e). Thus, Defendants may show "negative causation" in order to escape liability, while Plaintiffs must show a decrease in value due to fraud.
Plaintiffs claim that Defendants misrepresented in the registration materials the true nature of the debentureholders' right to tender. "Notwithstanding the broad discretion which issuers have in assembling and organizing their data, where the method of presentation obscures or distorts the significance of material facts, a violation of Section 11 will be found." Greenapple v. Detroit Edison Co., 618 F.2d 198, 205 (2d Cir. 1980) (citing cases). Defendants argue that any alleged § 11 violations did not impact upon the low market value of the Debentures at the time of merger, and that they therefore cannot be held responsible for this depreciation.
Under the very specific facts of this case, a showing of "negative causation" based upon market value is of no defense to Defendants. It is true that a "price decline before disclosure may not be charged to defendants." Akerman v. Oryx Communications, Inc., 810 F.2d 336, 342 (2d Cir. 1987) (citing cases). However, Plaintiffs do not seek to hold Defendants liable for this market-decline. Acceptance of Defendants' argument would make § 11 toothless: misrepresentation as to value to be received would be proscribed, but securityholders would be powerless to enforce this proscription.
Plaintiffs seek damages based on the promised value that was lost due to alleged fraud. Plaintiffs attempted to redeem the Debentures at a premium pursuant to the "right to tender." Instead, Plaintiffs received a reduced amount due to the alleged fraud of Defendants with respect to this right. The market is irrelevant to Plaintiffs' claimed economic losses. Obviously, the real market value of the Debentures is less than the premium to which Plaintiffs claim entitlement. Plaintiffs are permitted to seek damages based upon the alleged violation of § 11 of the Securities Act.
b. Section 10 Damages.
Defendants argue that Plaintiffs have suffered no legally cognizable damages under § 10 of the Securities Exchange Act. Section 10(b) requires that plaintiffs prove "loss causation" -- a loss in the value of an investment caused by defendants' fraud. Manufacturers Hanover Trust Co. v. Drysdale Securities Corp., 801 F.2d 13, 20 (2d Cir. 1986), cert. denied, 479 U.S. 1066, 93 L. Ed. 2d 1001, 107 S. Ct. 952 (1987). Again, Defendants argue that any loss in the value of the Debentures is attributable to the market, and that Plaintiffs are not entitled to "benefit-of-the-bargain damages" based upon the value the Debentures were allegedly represented to have.
Plaintiffs correctly argue that they may be compensated "for economic loss suffered as a result of wrongs committed in violation of the 1934 Act, whether the measure of those compensatory damages be out-of-pocket loss, the benefit of the bargain, or some other appropriate standard." Osofsky v. Zipf, 645 F.2d 107, 111 (2d Cir. 1981). Osofsky involved misrepresentations in a tender offer to shareholders as to the value of consideration they would receive in a merger. The Court of Appeals found that the shareholders should receive the amount which they were told they would receive. Id. at 113. The Court established the proper rule to be as follows:
The benefit-of-the-bargain rule should be applied under the 1934 Act to the limited situation involved in [that] case, where misrepresentation is made in the tender offer and proxy solicitation materials as to the consideration to be forthcoming upon an intended merger. . . . Giving the plaintiff benefit-of-the-bargain damages is appropriate only when they can be established with reasonable certainty