BANGOR PUNTA CORPORATION v. Chris-Craft Industries, Inc., 69 Civ. 2354.
| Decision Date | 10 December 1971 |
| Docket Number | No. 69 Civ. 2354.,69 Civ. 2354. |
| Citation | 337 F. Supp. 1147 |
| Parties | BANGOR PUNTA CORPORATION, Plaintiffs, v. CHRIS-CRAFT INDUSTRIES, INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Webster, Sheffield, Fleischmann, Hitchcock & Brookfield, New York City, for plaintiff by James V. Ryan, William L. D. Barrett and C. Kenneth Shank, Jr., Nancy L. Pasley, New York City, of counsel.
Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for defendants by Arthur L. Liman, Joseph J. Ackell and Jack C. Auspitz, New York City, of counsel.
This cross action by Bangor Punta, a defendant in Chris-Craft v. Bangor Punta et al., 337 F.Supp. 1128 (S.D.N.Y. 69 Civ. 2227) decided this day, arises out of the bitter struggle between the two companies for control of Piper Aircraft Corporation. That struggle ended in the marketplace with Bangor Punta in control and continues in the complaints and cross complaints by the parties against each other arising out of their competition.1
The principal facts are set out in this Court's opinion in 337 F.Supp. 1128, S.D. N.Y. 69 Civ. 2227. They will be deemed incorporated and need not be repeated at length here.
Chris-Craft sued for damages as the losing contender for control of Piper by reason of Bangor Punta's alleged wrongful acts. Bangor Punta countered by charging, in essence, that because of the wrongful acts of Chris-Craft it paid more than it would otherwise have paid to acquire control of Piper. Both suits were tried together.
Bangor Punta adduced no proof specifically in its case as plaintiff. It seeks support for its contentions in the record developed in Chris-Craft v. Bangor Punta et al., 337 F.Supp. 1128 (S.D.N.Y. 69 Civ. 2227).
This complaint, like that in the companion case, is replete with charges of breach of the requirements of securities laws and rules. Like the other, it has been brought and tried as though any such breach by a competitor automatically creates windfalls for a sophisticated and well-financed contender for corporate control. It must be remembered that this is an action by the willing and winning contender which bought Piper stock with its eyes open, presumably paying what it deemed control of Piper to be worth. The Court has here been especially challenged to maintain its footing in the realities and the equities in searching (in vain) for credible evidence establishing causal connections between alleged violations and actionable damage.
(a) Bangor Punta insists that the plan of Chris-Craft to acquire control of Piper existed before the time when, according to Chris-Craft, the plan was formulated and that Chris-Craft concealed its true purpose from a registration statement filed with SEC to raise capital for the purchase and from prospectuses legally required to be used during a period when its unrevealed plan to obtain control of Piper was in existence.
We comment here on this contention bcause it is typical of others in the case. Even if it rested on more than mere surmise, it raises no issue proper to a plaintiff in Bangor Punta's posture. Bangor Punta was not a purchaser of securities issued under the statement of which it complains. There are possible links of relevance between the alleged deficiency in the registration statement and Bangor Punta's campaign. But they are not links to liability of Chris-Craft to Bangor Punta. Thus:
(1) If the registration statement were materially misleading there might be room to argue that Chris-Craft obtained by illegal means the money used to compete with Bangor Punta. There might then be examined the rights of those from whom the money was so obtained. But the Court sees no basis for awarding damages to Bangor Punta because Chris-Craft failed to disclose to its sources of funds its intended use of those funds.
(2) If Chris-Craft did intend to use the proceeds of this registered issue to obtain control of Piper, a disclosure of that fact would have given Piper (and/or Bangor Punta) an earlier opportunity than they had in fact to prepare a counter-campaign. However, Chris-Craft owed no duty to Piper or Bangor Punta to announce its intentions for their benefit. Its disclosure obligations (assuming they existed as alleged) in the prospectus complained of or in 13-D reports, were for the benefit of investors with whom Chris-Craft would be dealing in its campaign for control.1A Bangor Punta does complain of failure to make — and of inadequate — 13-D statements. Thus:
(i) It asks us to find that Chris-Craft and the broker it used to buy Piper stock constituted a "group" or "syndicate" whose intentions should have been reported.
(ii) It contends that 13-D statements made by Chris-Craft should have disclosed that (as alleged by Bangor Punta) cash used in Chris-Craft's tender offer was borrowed and that such use of the cash would constitute a default under certain of Chris-Craft's arrangements with its creditors.
The first of these contentions is not only far-fetched, but is wholly out of Bangor Punta's reach as a weapon against Chris-Craft. The latter contention would be a dubious one even if made by a Piper stockholder to whom the statement is specifically addressed. For that stockholder either tenders and walks off with cash or remains a Piper holder having no concern with Chris-Craft's relations with its creditors.2
(b) Bangor Punta alleges that Chris-Craft opened a "secret" "numbered" account at a brokerage firm which assisted it in locating and acquiring large institutionally held blocks of Piper. At least one institution (Technology Fund) it is claimed, to which Chris-Craft paid $65 per share for more than 100,000 shares of Piper — at a time when the market was in the low fifties — simultaneously made a large purchase of Chris-Craft stock in the open market. The alleged purpose of this allegedly pre-arranged move was to "stabilize or manipulate" the price of Chris-Craft common. Chris-Craft planned to include in its acquisition program an offer of exchange of Chris-Craft for Piper securities. Obviously, a high price for Chris-Craft common would greatly facilitate such an exchange.
(c) Several other institutions (one of which had tendered Piper stock to Chris-Craft for cash during the pendency of a Chris-Craft tender offer) also bought large amounts of Chris-Craft on the open market. In the month shortly before Chris-Craft filed its registration statement to cover its proposed exchange offer, these institutions purchased some 231,800 Chris-Craft shares (more than 17%) of the number outstanding. These purchases caused the daily average of trading on the New York Stock Exchange to increase from 7,500 shares to 23,400 shares. The price of Chris-Craft common, during this month, rose to 45% above the average of its closing prices for the six weeks preceding these purchases.
By mid-1970, with the serious market decline, notably in prices of stocks of conglomerates, the institutions were taking heavy losses. Their liquidations of position, Bangor Punta claims, were designed to do the least damage to the price of Chris-Craft and hence to the progress of Chris-Craft's exchange offer program.
(d) While its cash tender offer for Piper stock was open Chris-Craft was also buying Piper stock in the open market. This was a violation of S.E.C.'s Rule 10b-6 and the Commission, upon becoming aware of what was happening, ordered Chris-Craft to cease these purchases. Thereupon at least one institution (which had previously sold a large block of Piper to Chris-Craft) purchased Piper stock in the open market and tendered the shares to Chris-Craft. Bangor Punta claims the transaction to be a device to have done by others what Chris-Craft could not do itself.
Bangor Punta bottoms its case on Rule 10b-5 under the Securities Exchange Act,3 claiming that Chris-Craft's "integrated" bid for control of Piper was in its entirety a "manipulative and deceptive contrivance" whose total effect was to inflate the price of Piper stock and so to damage Bangor Punta as a purchaser of that stock. It cites Eagle v. Horvath, 241 F.Supp. 341, 344 (S.D.N.Y.1965) for the proposition that while a thoroughly legal campaign by Chris-Craft for control of Piper might also have raised the price of Piper stock, it must make restitution for having done the same thing by illegal means.4 It cites other cases for the propositions that privity between buyer and seller is not an essential condition for application of Rule 10b-5, Fischman v. Raytheon Mfg. Co., 188 F.2d 783, 786 (2d Cir. 1951)5 and that manipulative activities unrelated to the plaintiff and not designed to induce the plaintiff to buy or sell are, nonetheless, actionable. Cochran v. Channing Corp., 211 F.Supp. 239 (S.D.N.Y.1962);6 Sarlie v. E. L. Bruce Co., 265 F.Supp. 371 (S.D.N.Y.1967).7 Characterizing itself as a buyer of Piper "deceived" by the manipulative activity of Chris-Craft, Bangor Punta also invokes Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787 (2d Cir. 1969),8 cert. denied, 400 U.S. 822, 91 S.Ct. 41, 27 L.Ed.2d 50 (1970).
Other aspects of Chris-Craft's program are complained of — quite apart from their place in an overall scheme alleged to be unlawful.
1. The allegedly induced purchases of Chris-Craft common by institutions preceding the Chris-Craft exchange offer are alleged to be manipulations in violation of Section 9(a) (2) of the Exchange Act9 which inflated the price of Piper common, as well as that of Chris-Craft. Crane, supra is cited as authority for Chris-Craft's liability.
2. Bangor Punta has reached into the Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq., in its search for deficiencies in Chris-Craft's program and purports to have found one in Section 17(a), 15 U.S.C. § 80a-17(a) (1971) of that Act. The Section (together with relevant Section 2(a) (3), 15 U.S.C. § 80a-2(a) (3)) provides that without an express order of S.E.C.
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...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 viol......
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