The December 13 Release
As CRITEF I describes, the proposed mergers did not proceed smoothly. Class actions challenging the proposed mergers were filed. See CRITEF I, 1996 U.S. Dist. LEXIS 3308, at *11, 1996 WL 120754, at *4 The buyer did not quickly obtain financing. Moreover, it has come to light since the Court's prior decision that during October 1995, Oppenheimer & Co. ("Oppenheimer") advised plaintiffs that the proposed merger consideration "would not support a fairness determination by Oppenheimer." (Schwartzberg Decl. Ex. 2, at 25)
Against this background, the Funds issued a second press release on December 13, 1995. The release indicated that conditions to the consummation of the previously announced mergers had not been, and might not be, satisfied. Nevertheless, it stated that the general partners of the Funds were in discussions aimed at improving the terms of the deal. (Id. Ex. 4) No mention was made of Oppenheimer's refusal to render a fairness opinion on the deal as originally announced.
The February 1, 1996 Release
On January 31, 1996, the Funds and Apollo reached agreement on revised merger terms. On the following day, the Funds issued the third press release here at issue to announce the new deal. The release was spare, noting only that the new agreement improved the merger terms and that the transactions were subject to obtaining a favorable fairness opinion, review by the SEC of a proxy statement, and approval by the BAC holders at a special meeting. (Id. Ex. 5)
Schwartzberg contends that the Funds' press releases were materially false and misleading because (1) the insiders knew, contrary to Dockser's statement, that the terms of the mergers as announced in the September 11 release did not yield "full value" to the BAC holders (2) they failed to disclose that Oppenheimer stated that it would not render a fairness opinion on the original merger terms, (3) they understated the extent of the self interest of CRI, Dockser and Willoughby in the proposed mergers, and (4) they falsely represented that the general partners of the Funds recommended approval of the transactions, knowing that Schwartzberg opposed them. Before considering the merits of these claims, it is necessary to deal with plaintiffs' contentions that Schwartzberg lacks standing to sue under the proxy rules and that the Funds' press releases were not "solicitations" subject to Rule 14a-9.
Plaintiffs challenge Schwartzberg's standing to bring this claim, arguing that he is not a BAC holder whose proxy is being solicited by the Funds. The argument is without merit.
Schwartzberg is locked in a contest with the Funds' management with respect to the mergers and, indeed, with respect to control over the Funds. He is both a general and a limited partner of CRITEF Associates, the managing general partner of and the owner of a 1.01 percent interest in CRITEF and thus has an economic interest in CRITEF similar to that of the BAC holders. Even more significant, he for all practical purposes is the only person situated and motivated to redress any violations of the proxy rules by plaintiffs' insiders. In these circumstances Schwartzberg's standing, in the constitutional sense, cannot seriously be questioned. The existence of a "concrete injury, . . . actual or threatened," that is the touchstone of the existence of an Article III controversy
is too clear to warrant extended discussion.
The question whether a proxy contestant has an implied cause of action for injunctive relief under Section 14(a) of the Exchange Act is a more substantial question, but only slightly so. In Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 51 L. Ed. 2d 124, 97 S. Ct. 926 (1977), the Supreme Court confronted the related question of whether a defeated tender offeror has an implied private cause of action for damages under Section 14(e) of the Exchange Act, 15 U.S.C. § 78p(e). It began its analysis by adverting to the Court's inference of private causes of action with respect to antifraud provisions of the securities laws "even though the relevant provisions are silent as to remedies." Piper, 430 U.S. at 25 (citing J.I. Case Co. v. Borak, 377 U.S. 426, 12 L. Ed. 2d 423, 84 S. Ct. 1555 (1964) (Exchange Act § 14(a) and Rule 14a-9) and Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 13 n.9, 30 L. Ed. 2d 128, 92 S. Ct. 165 (1971) (Exchange Act § 10(b)). It justified these holdings by noting that private remedies may be implied in favor of the class intended to be protected by a statute "where congressional purposes are likely to be undermined absent private enforcement . . ." 430 U.S. at 25. It quoted with approval the Borak Court's statement that judicial relief will be available under Section 14(a) "where necessary" to protect investors. Id. (quoting J.I. Case Co., 377 U.S. at 432) (emphasis in original). And while the Piper Court went on to hold that a defeated tender offeror does not have an implied right to sue for damages for violation of Section 14(e), it went out of its way to emphasize the "limited" nature of its holding, 430 U.S. at 42 n.28, and quoted approvingly Judge Friendly's observation that "in corporate control contests the stage of preliminary injunctive relief, rather than post-contest lawsuits, 'is the time when relief can best be given.'" Id. at 42 (quoting Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937, 947 (2d Cir. 1969)). Thus, although a great deal of water has flowed over the dam with respect to the implication of private causes of action by federal statutes since J.I. Case Co. was decided, the Supreme Court has (a) adhered steadfastly to the view that there are implied causes of action for violation of the antifraud provisions of the securities laws where they are necessary to achieve Congress' remedial purposes, and (b) suggested that private injunctive actions are an appropriate vehicle for enforcing the antifraud provisions in the fast-paced world of corporate control contests. See also Mobil Corp. v. Marathon Oil Co., 669 F.2d 366, 371 (6th Cir. 1981) ("Issues such as incomplete disclosure [in tender offers] . . . can only be effectively spotted and argued by parties with complete knowledge of the target, its business, and others in the industry."), cert. denied, 455 U.S. 982, 71 L. Ed. 2d 691, 102 S. Ct. 1490 (1982); Crane Co. v. Harsco Corp., 511 F. Supp. 294, 300 (D. Del. 1981) (rival "is the only party likely to possess timely knowledge of misrepresentations and thus the practical opportunity to enforce" the statutory scheme); Humana, Inc. v. American Medicorp, Inc., 445 F. Supp. 613, 616 (S.D.N.Y. 1977) ("Of course, the [action] furthers [the rival's] interest as well but the critical factor is not whether [the rival] may be benefited by the suit but whether the stockholders of the target company would be benefited . . . ."); cf. Consolidated Gold Fields PLC v. Minorco, S. A., 871 F.2d 252, 260 (2d Cir.) (upholding target company's standing to seek injunction barring takeover bid under the antitrust laws, in part because target companies are best situated to vindicate the public interests involved), cert. dismissed, 492 U.S. 939 (1989).
In arguing that Schwartzberg lacks standing or, more properly, that a proxy contestant cannot challenge its adversary's compliance with the antifraud rules, plaintiffs place principal reliance on AMR Corp. v. UAL Corp., 781 F. Supp. 292 (S.D.N.Y. 1992). In that case, plaintiff AMR, the parent of American Airlines, sought to enjoin the acquisition of Air Wis Services, Inc., a local carrier, by UAL, the parent company of American's rival, United Airlines. It contended, among other things, that the Air Wis-UAL joint proxy statement violated Rule 14a-9. Despite the fact that AMR had purchased 100 shares of Air Wis stock for the obvious purpose of obtaining standing to challenge the proxy disclosure, the Court held that AMR lacked standing to sue under Section 14(a) as a shareholder because its interest as a shareholder was incidental to its real purpose: to act as "a dog in the manger waiting to pick the bones of Air Wis should the proposed merger die as a result of its efforts." 781 F. Supp. at 295. But plaintiffs ignore the part of the decision far more germane to this case. In discussing the Sixth Circuit's holding in Marathon Oil that a competing tender offeror has standing to seek injunctive relief under Section 14(e), Judge Martin carefully noted that a competing tender offeror has a far stronger claim to relief than one in AMR's position:
"In the tender offer context, each of the competing tender offerors is holding itself out as willing to purchase stock of the shareholders whose shares are being solicited. Each is required to make accurate disclosure of relevant information and will suffer a direct and real injury if its adversary is permitted to solicit the purchase of the same shares on the basis of false and misleading information. Thus, each tender offeror is a real participant in the tender offer process regulated by Section 14(e), and recognizing their right to an implied cause of action does no violence to the case or controversy doctrine or to traditional notions of standing.
"Here, American is at most an interested bystander." Id.