480 F.2d 341 (2nd Cir. 1973), 805-808, Chris-Craft Industries, Inc. v. Piper Aircraft Corp.

Docket Nº:805-808, 72-1053, 72-1064, 72-1120, 72-1140.
Citation:480 F.2d 341
Party Name:CHRIS-CRAFT INDUSTRIES, INC., Plaintiff-Appellant, v. PIPER AIRCRAFT CORPORATION, Howard Piper, Thomas F. Piper, William T. Piper, Jr., Bangor Punta Corporation, Nicolas M. Salgo, David M. Wallace, The First Boston Corporation, Paul L. Miller and Nicholas H. Bayard, Defendants-Appellees. BANGOR PUNTA CORPORATION, Plaintiff-Appellant, v. CHRIS-CRAFT
Case Date:March 16, 1973
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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480 F.2d 341 (2nd Cir. 1973)

CHRIS-CRAFT INDUSTRIES, INC., Plaintiff-Appellant,

v.

PIPER AIRCRAFT CORPORATION, Howard Piper, Thomas F. Piper, William T. Piper, Jr., Bangor Punta Corporation, Nicolas M. Salgo, David M. Wallace, The First Boston Corporation, Paul L. Miller and Nicholas H. Bayard, Defendants-Appellees.

BANGOR PUNTA CORPORATION, Plaintiff-Appellant,

v.

CHRIS-CRAFT INDUSTRIES, INC., Defendant-Appellee.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant-Appellee,

v.

BANGOR PUNTA CORPORATION, Defendant-Appellee-Appellant.

Nos. 805-808, 72-1053, 72-1064, 72-1120, 72-1140.

United States Court of Appeals, Second Circuit.

March 16, 1973

Argued Aug. 14, 1972.

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Arthur L. Liman, New York City (Stuart Robinowitz, Joseph J. Ackell, Jack C. Auspitz, Anthony M. Radice, and Paul, Weiss, Rifkind, Wharton & Garrison, New York City, on the brief), for Chris-Craft Industries, Inc. (plaintiff-appellant in No. 72-1064; defendant-appellee in No. 72-1120).

Zachary Shimer, New York City (Paul G. Pennoyer, Jr., Irene C. Warshauer, and Chadbourne, Parke, Whiteside & Wolff, New York City, on the brief), for Piper Aircraft Corp., Howard Piper, Thomas F. Piper, and William T. Piper, Jr. (defendants-appellees in No. 72-1064).

James V. Ryan, New York City (William L. D. Barrett, C. Kenneth Shank, Jr., and Webster, Sheffield, Fleischmann, Hitchcock & Brookfield, New York City, on the brief), for Bangor Punta Corp. (defendant-appellee in No. 72-1064; plaintiff-appellant in No. 72-1120; defendant-appellee-appellant in Nos. 72-1053 and 72-1140) and for Nicolas M. Salgo and David W. Wallace (defendant-appellees in No. 72-1064).

John F. Arning, New York City (Roger L. Waldman, Charles W. Sullivan, and Sullivan & Cromwell, New York City, on the brief), for The First Boston Corp., Paul L. Miller, and Nicholas H. Bayard (defendants-appellees in No. 72-1064).

Robert E. Kushner, Asst. Gen. Counsel, SEC, Washington, D. C. (G. Bradford Cook, Gen. Counsel, David Ferber, Solicitor, and James J. Sexton, Atty., SEC, Washington, D. C., on the brief), for SEC (amicus curiae in No. 72-1064; plaintiff-appellant-appellee in Nos. 72-1053 and 72-1140).

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Before MANSFIELD and TIMBERS, Circuit Judges, and GURFEIN, District Judge. [*]

TIMBERS, Circuit Judge:

PRELIMINARY STATEMENT

These consolidated appeals present important questions, some of first impression, involving the antifraud provisions of the federal securities laws in their application to a contest for acquisition of a controlling stock interest in a target corporation. Among the questions presented are those involving the scope of liability and relief under Section 14(e) of the Securities Exchange Act of 1934 and the type of relief necessary, in an SEC enforcement proceeding, to effectuate the broad remedial purposes of the federal securities laws.

The appeals are from judgments entered after non-jury trials of three separate but related civil actions in the Southern District of New York before Milton Pollack, District Judge.

In Chris-Craft Industries, Inc. v. Piper Aircraft Corporation, et al. (No. 72-1064), Chris-Craft appeals from the district court's dismissal after trial of its complaint against all defendants, 337 F.Supp. 1128 (S.D.N.Y.1971), essentially on the grounds that many of the alleged securities laws violations had not been proven, that those proven had not caused injury to Chris-Craft and that Chris-Craft had failed to prove its claim for damages. We reverse and remand.

In Bangor Punta Corporation v. Chris-Craft Industries, Inc. (No. 72-1120), Bangor Punta appeals from the district court's dismissal after trial of its complaint, 337 F.Supp. 1147 (S.D.N.Y.1971), on the ground of insufficient evidence to support Bangor Punta's claims that Chris-Craft had violated the securities laws or that such violations had caused injury to Bangor Punta. We affirm.

In SEC v. Bangor Punta Corporation (Nos. 72-1053 and 72-1140), the SEC appeals from those provisions of the district court's judgment after trial, 331 F.Supp. 1154 (S.D.N.Y.1971), which denied a permanent injunction against further violations of the securities laws and which imposed a condition upon Bangor Punta's rescission offer to former Piper shareholders. On the SEC's appeal, to the extent the judgment is appealed from, we affirm in part, and reverse and remand in part. On Bangor Punta's cross-appeal, we affirm.

I.

EVENTS LEADING TO INSTANT LITIGATION

Before turning to the issues raised on appeal in each of the three actions, we shall set forth a narrative of the events, beginning in the latter part of 1968 and during 1969 in connection with the contest for control of Piper Aircraft Corporation, which culminated in the instant litigation. Facts having specific bearing upon the issues in each of the three appeals will be discussed in more detail in connection with our rulings below on those issues in each case. 1 Our task on these appeals has been greatly facilitated by Judge Pollack's detailed, comprehensive findings of fact, and particularly by his evaluation of the facts as found. While we disagree with certain

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of his conclusions, as will appear below, we take this occasion to commend him upon the clarity of his opinions in these complex cases.

Chris-Craft Industries, Inc. (CCI) is a Delaware corporation. It is a diversified manufacturer of recreational products. Its securities, common and preferred stock and convertible debentures, are traded on the New York Stock Exchange (NYSE).

Piper Aircraft Corporation (Piper) is a Pennsylvania corporation. It is one of the nation's leading manufacturers of light aircraft. Its 1,644,890 shares of issued and outstanding stock were traded (during periods relevant to these appeals) on the NYSE from October 1, 1968 to August 11, 1969 and then on the Philadelphia-Baltimore-Washington Stock Exchange (PBWSE). The three individual Piper defendants (referred to herein as the "Piper family") were officers and directors of Piper and owned about 325,000 of the 1,644,890 outstanding Piper shares.

Bangor Punta Corporation (BPC) is a Delaware corporation. It is a conglomerate with holdings in diversified fields. Its securities are traded on the NYSE. Defendants Nicolas M. Salgo and David W. Wallace are principal officers and directors of BPC.

The First Boston Corporation (First Boston) is a Massachusetts corporation. It is an investment banking firm and also a registered broker-dealer. In connection with the events involved herein, it served as investment adviser to Piper and as underwriter for BPC. Defendant Paul L. Miller is president of First Boston and defendant Nicholas H. Bayard is a vice president in its underwriting department.

In the latter part of 1968, CCI undertook a large financing program designed to produce excess cash that could be used primarily for acquisitions. On October 30, 1968, CCI filed a registration statement and preliminary prospectus for an offering of 6% convertible debentures up to $26 million in principal amount. The offer was made to shareholders and executives of CCI. It was largely successful, producing over $25 million in excess cash. At about the same time, Herbert Siegel, CCI's president and chief executive officer, discussed with the Philadelphia National Bank the obtaining of a revolving line of credit of up to $15 million. Such credit was granted and was drawn upon in February 1969 when needed.

CCI made its first purchase of Piper stock on December 30, 1968. 2 The purchase totalling 5200 shares was made through a confidential numbered account at Mitchell, Hutchins & Co., Inc., a member of the NYSE and a registered broker-dealer retained primarily by institutional investors. Additional purchases of Piper stock were made through Mitchell, Hutchins shortly thereafter in 1969:

CCI also made market purchases of Piper stock in the following amounts through other brokers:

January 14 3,700 shares

January 20 800

January 21 3,200

On January 22, CCI negotiated the purchase of 101,100 shares of Piper stock from Technology Fund, Inc. at $65 per share. This brought its total holdings in Piper to over 200,000 shares, approximately 13% of the outstanding Piper shares.

Up to this point, CCI had not officially informed Piper of its extensive purchases

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of Piper stock, nor had a public announcement been made. 3 On the morning of January 23, Mr. Siegel telephoned Mr. W. T. Piper, Jr., then President of Piper, and informed him that CCI would be announcing that day a cash tender offer for the purchase of Piper stock and that CCI had tentative plans to acquire a majority shareholder interest in Piper. In a statement released to the press that day, CCI announced a cash tender offer beginning immediately and ending on February 3 for up to 300,000 shares of Piper at $65 per share. The price of Piper stock on the NYSE at the close of January 22 was $52.50. CCI also revealed in its press release of January 23 that it was purchasing the stock for investment with a view to control of Piper, but that it did not presently have any specific plan or proposal with respect to the future of Piper.

The first response of the Piper management (essentially the Piper family) to the tender offer was to call a meeting on January 23 of representatives of First Boston (Piper's investment adviser), Chadbourne, Parke, Whiteside and Wolff (Piper's legal counsel), and Arthur Young & Co. (Piper's auditors). The next day, January 24, the Piper family decided to oppose CCI's bid for control of Piper. First Boston was asked to contact other companies to solicit proposals which might be preferable to a CCI takeover....

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