Fed. Sec. L. Rep. P 91,539liberty National Insurance Holding Company, Plaintiff-appellant, v. the Charter Company, et al., Defendants-appellees, 734 F.2d 545 (11th Cir. 1984)

In this securities case, we are called upon to decide whether an issuer can bring suit under sections 10(b), 13(d), and 14(d) and (e) of the Securities and Exchange Act of 1934¹  (the Exchange Act) to require a shareholder to divest himself of his stock holdings in the issuer. None of these sections expressly authorizes such a suit. We hold that none of these sections impliedly authorizes such a suit. The district court dismissed the issuer's complaint. We affirm.

Between May 4 and December 22, 1981, the Charter Company, and certain of its subsidiaries²  (Charter), purchased an aggregate of 962,400 shares of the common stock of Liberty National Insurance Holding Company (Liberty), representing approximately 5.1% of Liberty's outstanding common stock. On December 28, 1981, Charter filed a schedule 13D statement with the Securities and Exchange Commission (SEC or Commission) reporting those purchases and other information as required by law.³  From December 22, 1981, through January 22, 1982, Charter acquired an additional 255,100 shares of Liberty stock, increasing its holdings of outstanding Liberty stock to approximately 6.5%. This additional purchase was the subject of Amendment 1 to Charter's schedule 13D.

On February 1, 1982, Liberty brought this suit against Charter in the district court alleging that Charter had embarked on an unlawful scheme to reap illicit profits by manipulating the market for Liberty stock to bring about an upward displacement in the price, and "attempting to precipitate an auction for control of Liberty"⁴  by use of false and misleading schedule 13D statements. Liberty alleged that Charter's conduct violated various provisions of the Exchange Act⁵  and of state law⁶  and sought an injunctive order requiring Charter to divest itself of all its Liberty shares and in the interim to refrain from exercising its right to vote those shares or otherwise participate as a stockholder in Liberty's affairs. Charter moved to dismiss Liberty's complaint on February 4.

On February 16, Charter filed a second amendment to its schedule 13D, which incorporated a copy of the complaint Liberty had filed in the district court and set forth Charter's position with respect to Liberty's allegations. Amendment 2 also reported Charter's acquisition of an additional 78,000 shares of Liberty stocks raising its holdings to approximately 6.9%. On March 17, 1982, Charter filed a third amendment to its schedule 13D, reporting the acquisition of an additional 188,200 shares which increased its holdings to approximately 7.9% of the total outstanding Liberty common stock. On April 27, 1982, the district court, acting on Charter's February 4 motion, dismissed Liberty's complaint with leave to amend. Liberty filed an amended complaint on May 17, 1982.

Liberty alleged in its amended complaint that Charter had pursued a widespread and pervasive scheme in violation of the Exchange Act to enrich itself at the expense of the investing public, including former and present Liberty shareholders. Charter's putative scheme was to accumulate a block of Liberty shares large enough to enable Charter either to sell the shares at a control premium or to coerce Liberty's management to give Charter business concessions to the economic detriment of Liberty shareholders. Liberty's amended complaint asserted three distinct claims for relief. Each claim sought the same injunctive relief Liberty had asked for in the original complaint: that the court order Charter to divest itself of its holdings of Liberty stock, either by rescinding its purchases or selling on the open market, and pending such divestiture to refrain from voting its shares or otherwise exercising its rights in those shares.⁷ 

Liberty's first claim for relief was based on section 13(d)⁸  of the Exchange Act. Liberty alleged that Charter, in carrying out its scheme to acquire a control position, filed false and misleading schedule 13D statements. Section 13(d) of the Exchange Act requires that anyone acquiring more than five percent of any class of equity securities of a company registered with the SEC file with the Commission, any exchanges on which the stock is traded, and the issuing company a schedule 13D statement setting forth, among other things: (a) the background and identity of the purchaser; (b) the source of funds used to purchase the securities; and (c) the purpose of the acquisition and the purchaser's future plans and intentions with respect to the issuer. SEC rule 12(b)20, 17 C.F.R. Sec. 240.12(b)-20 (1983), promulgated under section 13(d), requires periodic updating of schedule 13D statements to reflect changes in the facts previously disclosed. Liberty alleged that Charter's schedule 13D statement, including the amendments thereto, was false and misleading as to the identity of the purchaser, the source of the funds, the purpose of the acquisition and the purchaser's future plans.⁹ 

Liberty did not allege how the false schedule 13D statement enabled Charter to acquire its shares of Liberty stock; Liberty pled no facts that indicated that Charter's 13D statement was ever communicated to the market or to the Liberty shareholders who sold to Charter.¹⁰  Nor did Liberty allege how it was injured by Charter's 13D statement. Notwithstanding the lack of any allegation of a causal relationship between Charter's schedule 13D statement and Charter's acquisition of Liberty stock, Liberty nevertheless sought the injunctive relief stated above: that Charter be divested of its Liberty shares.

Liberty's second claim for relief was that Charter engaged in a tender offer in violation of sections 14(d)¹¹  and (e)¹²  of the Exchange Act. According to Liberty, Charter solicited and purchased large blocks of Liberty shares at a premium, and this constituted a tender offer. Section 14(d) requires that persons making a tender offer for securities disclose certain prescribed information by filing it with the SEC. This information includes all that is required in a section 13(d) filing. Section 14(e) prohibits fraudulent conduct in connection with a tender offer.

Liberty alleged that Charter failed to file the required information under section 14(d), and that Charter's false and misleading schedule 13D statement amounted to fraudulent conduct under section 14(e). Liberty did not allege how it was injured by this fraudulent conduct. Nor did Liberty allege how it was injured by Charter's failure to comply with section 14(d).¹³  Liberty merely alleged that Charter, in seeking a control position in Liberty, had violated sections 14(d) and (e) and that Liberty was therefore entitled to an injunction requiring Charter to divest itself of its holdings in Liberty.

Liberty's third claim for relief was based on sections 9¹⁴  and 10(b)¹⁵  of the Exchange Act and rule 10b-5¹⁶  promulgated by the Commission. Liberty alleged that Charter violated these laws by engaging in a scheme to manipulate the market for Liberty stock to bring about an upward displacement in the price. According to Liberty, Charter filed a false and misleading schedule 13D statement and made an illegal tender offer as it pursued this scheme.

Section 9 contains, in four subsections, a variety of proscriptions against price manipulation, and creates a cause of action in favor of "any person who shall purchase or sell any security at [a manipulated price]." Liberty did not specify the provisions of section 9 that Charter supposedly violated.¹⁷  It did allege that Charter had manipulated the market price of Liberty stock and had filed a false schedule 13D statement "for the purpose of inducing the purchase or sale of (Liberty stock) by others," thus conceivably stating a subsection (a) (2) or (4) violation. Liberty did not allege, however, how Charter manipulated the market or that its false schedule 13D statement was communicated to any Liberty shareholders or induced any sales. Finally, Liberty did not allege that it was a purchaser or seller of a security authorized to bring suit under section 9; it simply concluded that because Charter had violated section 9, Liberty was entitled to an injunction requiring Charter to divest itself of all its Liberty stock.

Section 10(b) and rule 10b-5 prohibit the employment of manipulative and deceptive devices, including false statements of material facts, "in connection with the purchase and sale of any security." Liberty, again, did not allege that it was a purchaser or seller of Liberty stock in any transaction affected by Charter's alleged manipulation or false schedule 13D statement. Liberty alleged only that because Charter had engaged in such conduct Liberty was entitled to a court order requiring Charter to divest itself of all of its holdings in Liberty.

Charter moved to dismiss Liberty's amended complaint on May 27, 1982. The district court treated the motion as a motion for summary judgment under rule 12(b) of the Federal Rules of Civil Procedure because it considered, in addition to the allegations of Liberty's amended complaint, amendment 5 to Charter's 13D statement, which summarized the amended complaint, attached a copy of it as an exhibit, and set forth Charter's position with respect to the allegations therein. The court concluded that none of Liberty's three claims stated a cause of action and dismissed Liberty's complaint without prejudice.¹⁸ 

The district court dismissed the first claim on the ground that an issuer does not have standing¹⁹  to challenge a facially sufficient schedule 13D filing. The court dismissed the second claim on the ground that Liberty had failed to allege facts from which one could reasonably conclude that Charter had made a tender offer within the meaning of section 14. The court dismissed the third claim on the ground that sections 9 and 10(b) and rule 10b-5 do not create a cause of action for someone, like Liberty, who is neither a purchaser nor a seller of a security. Liberty now appeals.²⁰  It asks us to uphold the sufficiency of each of its claims for relief, and to remand the case to the district court for trial. Before turning to the merits of Liberty's appeal, several observations must be made to place Liberty's three claims in proper context.

Liberty alleged with respect to each claim that a variety of classes of individuals have been, are being, and will be injured by Charter's illegal actions. Members of the investing public who may have contemplated purchase of Liberty's shares have been forced to make their decision without the benefit of information to which they are legally entitled. Similarly, Liberty shareholders who may have contemplated sale of their shares have been forced to make that decision without the same legally required information. Holders of small amounts of Liberty stock have not been afforded the same opportunity to sell their shares that Charter has offered to large shareholders. Charter has caused confusion which has resulted in disruption of the market for Liberty's stock (an upward displacement in price) which presumably has been and will be injurious to those who purchased and will purchase at this higher price.²¹ 

Though Liberty alleges injuries to all these parties it does not bring this suit as either a class plaintiff, or a trustee, in behalf of shareholders or former shareholders, nor does it bring suit in behalf of the SEC; Liberty sues only for itself. Nonetheless, Liberty claims that Charter's violations of the securities laws, and the consequent injury to a variety of investors, entitle it to seek the extensive equitable relief mentioned above.

None of the Exchange Act provisions on which Liberty bases the claims it presents on appeal explicitly creates a right of action on behalf of an issuer, such as Liberty, or any other private party. If Liberty has a right to bring any of these claims, it must be by judicial determination that Congress implied such a right. With this in mind we turn to an analysis of each of Liberty's three claims. We discuss Liberty's third claim first, then its first and second claims. Much of our discussion will be repetitive. While the sections of the Exchange Act implicated in this case have unique histories and purposes, they have much in common; therefore our analysis of whether Liberty has an implied right to bring suit under any of them will address many of the same questions.

Liberty's third claim for relief was based on sections 9 and 10(b) of the Exchange Act and rule 10b-5. On appeal, Liberty does not question the district court's determination that an issuer does not have an implied right of action under section 9. We focus our attention, therefore, on section 10(b) and rule 10b-5. Liberty alleged that Charter violated section 10(b) because it employed in connection with its purchase of Liberty stock a "manipulative or deceptive device" in contravention of rule 10b-5. The device was a false and misleading schedule 13D statement which, according to Liberty, contained "untrue statements of material facts." Liberty contends that, as the issuer of the stock involved in the purchase, it was entitled to an injunction requiring that Charter divest itself of its holdings of Liberty stock by either rescinding its purchases or selling on the open market, and pending that result that Charter be enjoined from voting its shares.

Liberty's claim fails on two grounds. First, Liberty did not allege that Charter's schedule 13D statement, or any of its amendments, was made in connection with any purchase or sale of Liberty stock. Moreover, Liberty's factual allegations did not even permit the inference that Charter's schedule 13D statements allowed Charter to purchase Liberty stock at a price different from that which would have otherwise prevailed.

The precise meaning of "in connection with" is provided neither by section 10(b) nor rule 10b-5. The case law reveals that in order for this element to be satisfied there must be some causal relationship between the alleged deception and some consequent purchase or sale. Courts have spoken of this connection in terms of reliance and causation. See, e.g., Rogen v. Ilikon Corp., 361 F.2d 260, 266-268 (1st Cir. 1966); List v. Fashion Park, Inc., 340 F.2d 457, 463 (2d Cir. 1965), cert. denied, sub nom. List v. Lerner, 382 U.S. 811, 86 S. Ct. 23, 15 L. Ed. 2d 60 (1965), and authorities there cited; Trussell v. United Underwriters, Ltd., 228 F. Supp. 757, 771 (D. Colo. 1964). See generally, L. Loss, "Fraud" and Civil Liability under the Federal Securities Law, 22-25, 56-58 (Federal Judicial Center 1983). The former Fifth Circuit spoke to the issue of reliance and causation in Shores v. Sklar, 647 F.2d 462 (5th Cir. 1981) (en banc), cert. denied, 455 U.S. 936, 103 S. Ct. 722, 74 L. Ed. 2d 949 (1983).²²  The court noted that one of the traditional elements of a 10b-5 claim is that the "plaintiff must justifiably rely on [a false representation of a material fact]." Id. at 468. Liberty did not allege that any seller relied in any way on what Charter stated in any of its schedule 13D filings. In Sklar the court drew an exception to the requirement of reliance in a case where a party (the buyer) relied on the integrity of the market rather than a specific statement by the defendant. Id. at 471. The court went on to note, however, that its treatment of the reliance requirement did not diminish the necessity of a causal relationship between the alleged misdeeds and some aspect of a securities transaction, such as the price, or that it took place. Id. Liberty has made no factual allegation that any transaction was affected in any way by Charter's allegedly false schedule 13D statement.

Second, there is no implied right of action in an issuer of the securities involved in a purchase made in violation of rule 10b-5 to compel the wrongdoer to rescind the transaction or otherwise divest himself of the securities he acquired. Implied private rights of action under section 10(b), for violations of rule 10b-5, have been recognized by district and circuit courts since 1946, Kardon v. National Gypsum Co., 69 F. Supp. 512 (E.D. Pa. 1946), and have been confirmed by the Supreme Court since 1971. Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 13 n. 9, 92 S. Ct. 165, 169 n. 9, 30 L. Ed. 2d 128 (1971), and Affiliated Ute Citizens v. United States, 406 U.S. 128, 150-54, 92 S. Ct. 1456, 1470-472, 31 L. Ed. 2d 741 (1972). It is settled law that one who has been defrauded in connection with the purchase or sale of securities has an implied right of action under section 10(b) and rule 10b-5 if he was a party to the purchase or sale, that is, a buyer or seller, but there is no judicial precedent for the claim Liberty has brought. Liberty contends that its claim is consistent with the congressional purpose in enacting section 10(b) and that Congress intended issuers to play a role, such as the one Liberty assumes here, as a policeman of section 10(b). Charter argues in response that Supreme Court precedent, specifically Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975), forecloses such a claim. A careful reading of Blue Chip and the precedent it applies convinces us that the question is still open.

In Blue Chip, the Supreme Court considered the question of whether Congress intended that a private right of action for damages under section 10(b) be extended to persons who are not parties to a securities transaction, i.e., buyers or sellers.²³  The section 10(b) plaintiffs before the court were persons who claimed they would have bought the securities in question had they not been misled by the defendant. The right of an issuer to bring suit was not involved. The Blue Chip plaintiffs were former retailers of the Blue Chip Trading Stamp Company who had been deceived by an overly pessimistic prospectus and dissuaded from purchasing shares in the company pursuant to an antitrust consent decree in which they had been given first rights of purchase of what was intended to be, and was, a bargain. The stock later went up in value and they sought to recover damages for the rise in value of the shares they claimed they would have purchased but for the deceptively pessimistic prospectus.

To determine whether section 10(b) accorded putative buyers a right of action for damages, the Supreme Court construed the intent of Congress in enacting section 10(b). The Court used three tools of construction: textual analysis, legislative history and policy considerations. Section 10(b) and rule 10b-5 both use the expression "in connection with the purchase or sale of any security." The Court pointed out that both at the time of enactment and subsequently in considering amendments Congress declined to amend the language of section 10(b) to permit a wider class of plaintiffs, implying that it was clearly aware of and fully intended the narrow reading of the term "purchase and sale." Id. at 732-3 & n. 5, 750 n. 13, 95 S. Ct. at 1924 & n. 5, 1932 n. 13. Congress also showed itself to be willing and able to provide a remedy to a non-purchaser-seller, and to an issuer in particular, when it chose to do so. Section 16(b) of the Exchange Act, 15 U.S.C. § 78p(b) (1982), for example, provides a cause of action on behalf of issuers to recover profits from transactions in the security of the issuer by certain insiders. Id. at 731, 95 S. Ct. at 1923. Thus it cannot be argued that the absence of an express cause of action was a mere oversight or error.

Justice Rehnquist, speaking for the Court, did not limit his rationale to statutory language and legislative history. Noting that " [w]hen we deal with private actions under Rule 10b-5 we deal with a judicial oak which has grown from little more than a legislative acorn" and that " [s]uch growth may be quite consistent with the congressional enactment and with the role of the federal judiciary in interpreting it," id. at 737, 95 S. Ct. at 1926, the Justice then turned his attention to policy considerations, in order to aid the Court in determining whether implying a cause of action on behalf of the Blue Chip plaintiffs was "consistent" with the purpose of Congress. Id.

The Court's overriding concern was that under section 10(b) and rule 10b-5 there are extensive opportunities for "vexatious" litigation of highly speculative claims. Id. at 739-49, 95 S. Ct. at 1927-32. The Court pointed out that

While the damages suffered by purchasers and sellers pursuing a Sec. 10(b) cause of action may on occasion be difficult to ascertain, in the main such purchasers and sellers at least seek to base recovery on a demonstrable number of shares traded. In contrast, a putative plaintiff, who neither purchases nor sells securities but sues instead for intangible economic injury such as loss of a noncontractual opportunity to buy or sell, is more likely to be seeking a largely conjectural and speculative recovery in which the number of shares involved will depend on the plaintiff's subjective hypothesis.

Id. at 734-35, 95 S. Ct. at 1925 (citations omitted). For example, a putative purchaser would hypothesize the number of shares he would have purchased, the date purchased and the price paid, how long he would have held them and the profit he would have made. Operating with perfect hindsight, he would obviously assert that he would have sold his stock at its peak price. Such testimony would have questionable, if any, probative value. Nonetheless, as the court pointed out, it would have some "settlement value to the plaintiff out of any proportion to [his] prospect of success at trial so long as he may prevent [his] suit from being resolved against him by dismissal or summary judgment."²⁴  Id. at 740, 95 S. Ct. at 1927. These policy considerations would not require the dismissal of a suit for injunctive relief, however, since a plaintiff seeking an injunction is quite often successful precisely because he cannot calculate the damages he suffers.

In summary, the policy considerations underpinning Blue Chip's rationale do not extend to the suit which Liberty has brought.²⁵  Given this point and the fact that Blue Chip involved putative purchasers of securities and not an issuer such as Liberty, we conclude that Blue Chip does not answer the question of whether Liberty has the right to bring the claim it presents.²⁶  We therefore must turn elsewhere to determine whether section 10(b) implies a private right of action in an issuer to seek the extensive relief sought by Liberty in this case.²⁷ 

Eight days after Blue Chip the Supreme Court decided Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975). Cort v. Ash provided a test for

determining whether a private remedy is implicit in a statute not expressly providing one, .... First, is the plaintiff "one of the class for whose especial benefit the statute was enacted,"--that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?

Id. at 78, 95 S. Ct. at 2088 (citations omitted).

The Cort standard is more chary of creating private rights of action than was its predecessor, the Borak standard. J.I. Case Co. v. Borak, 377 U.S. 426, 84 S. Ct. 1555, 12 L. Ed. 2d 423 (1964). Under Borak it was "the duty of the courts to be alert to provide such remedies as are necessary to make effective the congressional purpose." Id. at 433, 84 S. Ct. at 1560. The full meaning of Cort has been clarified by more recent Supreme Court pronouncements. The Court has now informed us that the central inquiry under Cort is congressional intent, Touche Ross & Co. v. Redington, 442 U.S. 560, 575, 99 S. Ct. 2479, 2489, 61 L. Ed. 2d 82 (1979); Transamerica Advisors, Inc. v. Lewis, 444 U.S. 11, 15-16, 100 S. Ct. 242, 245, 62 L. Ed. 2d 146 (1979), and that where an examination of one of the constituent Cort criteria unequivocally reveals congressional intent "there is no need for us to 'trudge through all four of the factors.' " Merrill Lynch, Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 388, 102 S. Ct. 1825, 1844, 72 L. Ed. 2d 182 (1982).

Following the guidance of Cort we shall attempt to determine whether there exists an implied cause of action under section 10(b) for this plaintiff to seek this remedy. We shall begin with the fourth prong of the Cort test, because though a relevant consideration, it is least likely to be dispositive. Although section 10(b) and rule 10b-5 are meant to address many of the same fraudulent activities covered by state fraud law, nonetheless, as our discussion of Sklar makes clear, they are intended to cover a broader class of wrongs within the confined area of securities transactions. Therefore, it is not inappropriate to create a cause of action based on federal law. This result is merely the absence of a negative inference to be drawn from state law and not a positive argument in favor of implying a private right of action under section 10(b).

The first prong of Cort asks whether this plaintiff is "one of the class for whose especial benefit the statute was enacted." In Bankers Life, the first Supreme Court case to find an implied private right of action under section 10(b), the Court referred approvingly to the discussion of the purposes of the legislation in Hooper v. Mountain States Securities Corp., 282 F.2d 195 (5th Cir. 1960). 404 U.S. at 10-11, 92 S. Ct. at 168. In Hooper the Court stated that "obviously those sought to be protected were the very persons who would be engaged in buying and selling and trading in corporate securities as broadly defined in the [Exchange] Act." 282 F.2d at 202. More recently, the Supreme Court has informed us that the Exchange Act was designed "to protect investors against fraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 195, 96 S. Ct. 1375, 1382, 47 L. Ed. 2d 668 (1976) (emphasis added). See H.R.Rep. No. 85, 73d Cong., 1st Sess. 1-5 (1933). From this we can conclude that the issuer qua issuer is not a party for whose especial benefit this section was enacted.

The second Cort criterion is whether there is "any indication of legislative intent to create such a remedy." Though Congress did not explicitly state that it did not wish to create the cause of action that Liberty seeks to bring, there are two reasons for concluding that the creation of such a cause of action was not Congress' intent. First, as Blue Chip makes clear, Congress rejected the opportunity to amend the language of section 10(b) to permit a wider class of plaintiffs. Second, section 16(b) of the Exchange Act, 15 U.S.C. § 78p(b) (1982), creates a cause of action on behalf of the issuer to recover profits from the trading of certain insiders. This demonstrates that Congress, when it chose to do so, knew how to create an issuer cause of action. We conclude that the language and legislative history of section 10(b), and its textual context, counsel against any finding of a congressional intent to imply a private right of action in favor of an issuer against a shareholder to require the shareholder to divest himself of the issuer's shares.

The third prong of Cort asks whether this remedy for this plaintiff is consistent with the legislative scheme. The purpose of section 10(b) is "to promote ethical standards for honesty and fair dealing," Hochfelder, 425 U.S. at 195, 96 S. Ct. at 1382, and to "instill confidence in the securities markets by penalizing unfair dealings." Sargent v. Genesco, Inc., 492 F.2d 750, 760 (5th Cir. 1974). Liberty argues that, as the issuer concerned with the integrity of the market for its securities, it is best positioned to police section 10(b) and effectuate its purposes. We cannot agree.

A little knowledge of the delicate nature of the market for corporate control convinces us that there is no sound reason to provide an additional shield--in the form of the shareholder divestiture action Liberty presents--with which entrenched management can fend off hostile takeover attempts. Further, as this case illustrates, the remedy sought by management is all too likely not to serve the shareholders' interests.²⁸  When a party purchases stock on the market, it has the effect of raising the price; when a party sells stock, it lowers the price. Were the district court to order Charter to divest itself of Liberty's stock, it would have the effect of lowering the market value of the shares of all Liberty stockholders.²⁹  Moreover, the removal of voting power from Charter for its shares pending the divestiture might significantly change the balance of power among the remaining shareholders. At the same time incumbent management would likely gain from such a shift because a significant, presumably hostile force would have been removed from the equation. Finally, a divestiture order would serve to remove power from an outside force whose interest is to monitor inside management--on behalf of itself to be sure, but nonetheless serving shareholders' interests. We conclude that it could not have been Congress' intention to imply such a right of action. We therefore affirm the district court in its dismissal of Liberty's claim under section 10(b) and rule 10b-5.

As our discussion of Liberty's section 10(b)-rule 10b-5 claim illustrates, the gravamen of all of Liberty's claims is that Charter filed a false³⁰  and misleading schedule 13D statement.³¹  The question we must now address, in assessing Liberty's first claim for relief, is whether an issuer has an implied right of action under section 13(d) of the Exchange Act for injunctive relief to expel an unwanted shareholder from the company.³² 

The determination of the existence of and limits on implied private rights of action is, as we have indicated in part II, supra, a question of statutory construction. We have no Supreme Court precedent that comes to grips with the existence of and limits on implied private rights of action under section 13(d).³³  Both parties cite Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 95 S. Ct. 2069, 45 L. Ed. 2d 12 (1975), as having done so, and as supporting their respective positions. A careful reading of that decision, however, reveals that it is not dispositive of the issue before us.

In Rondeau, the Supreme Court addressed a section 13(d) claim brought by an issuer against a stockholder who had failed to make a timely section 13(d) filing. The issuer requested the same injunctive relief that Liberty requests. The Supreme Court found that the issuer had failed to show the irreparable harm which was necessary for an injunction and upheld the district court's denial of such relief. Though it might be argued that by reaching the question of irreparable injury the Court implicitly found the existence of a right of action in the issuer, such a conclusion is foreclosed by the Court's opinion; it observed that the question of the issuer's right to bring the suit had not been raised. Id. at 62, 95 S. Ct. at 2078. The Court did proceed, however, to voice some skepticism concerning the notion that Congress intended that section 13(d) should be used by an issuer to obtain the expulsion of a shareholder: "Congress expressly disclaimed an intention to provide a weapon for management to discourage takeover bids or prevent large accumulations of stock which would create the potential for such attempts." Id. at 58, 95 S. Ct. at 2076. This language is, of course, dicta; the question still remains whether Congress intended that an issuer have a cause of action under section 13(d) to seek the relief that Liberty requests.

Once again, it is incumbent on us to conduct the four-part inquiry of Cort v. Ash, and its progeny: (1) whether the plaintiff is a member of a class for whose especial benefit the statute was enacted; (2) whether there is any explicit or implicit indication of congressional intent to create or deny this private remedy for this plaintiff; (3) whether this private remedy for this plaintiff would be consistent with the underlying purpose of the legislative scheme; and (4) whether the cause of action is one traditionally relegated to state law, so that it would be inappropriate to infer a cause of action based solely on federal law. Once more we begin with the fourth prong, because though it is a relevant consideration, it is least likely to be dispositive. Applying that prong, it is obvious that since the obligations imposed on investors under section 13(d) are exclusive to federal law, it is not inappropriate to create a cause of action based on federal law. This result is merely the absence of a negative inference to be drawn from state law and not a positive argument in favor of implying a private right of action.

Under Cort's first prong we note that Liberty is a corporation, and that corporations as such are not the intended beneficiaries of section 13(d). Rather, as the Supreme Court recognized in Piper v. Chris-Craft Industries, Inc., infra, 430 U.S. 1, 35, 97 S. Ct. 926, 946, 51 L. Ed. 2d 124 (1977), the legislative history of the Williams Act, of which section 13(d) is a part, makes clear that its sole purpose was the protection of present and potential investors. See, H.R.Rep. No. 1711, 90th Cong., 2d Sess., reprinted in 1968 U.S.Code Cong. & Ad.News 2811, 2813; S.Rep. No. 550, 90th Cong. 1st Sess., 3 (1967).

The second prong of Cort asks whether there is any evidence of legislative intent to create or deny the remedy Liberty seeks in this case. The Supreme Court in Merrill Lynch, Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 102 S. Ct. 1825, 72 L. Ed. 2d 182 (1982), recently provided us with a tool for discerning congressional intent. Curran placed a gloss on the Cort v. Ash inquiry. Curran holds that the fact that Congress has conducted a "comprehensive reexamination and significant amendment of [a statute and] left intact the statutory provisions under which the federal courts had [routinely and consistently]³⁴  implied a cause of action is itself evidence that Congress affirmatively intended to preserve that remedy." 456 U.S. at 381-82, 102 S. Ct. at 1841 (footnote omitted, emphasis added).³⁵  This evidence is not dispositive of congressional intent. It is merely indicative of that intent.³⁶  With this in mind we examine the legislative and judicial history with respect to section 13(d).

The Williams Act, of which section 13(d) is a part, was enacted into law by Congress in 1968. Section 13(d) has been amended twice since, in 1970 and in 1977. Therefore we must examine the state of the law and the nature of the amendments both in 1970 and again in 1977, with respect to the existence under that section of an implied cause of action on behalf of an issuer seeking to divest a stockholder of his shares.

In Curran the Supreme Court was attempting to determine congressional understanding of the state of judicial interpretation of the Commodity Exchange Act which had been in force for fifty-three years at the time of the enactment of its amendment. In contrast, the Williams Act had been in force for only two years at the time of the 1970 amendment. We do not believe that any pattern of judicial interpretation that would rise to the level of being "routine and consistent" could possibly have existed with respect to the 1970 amendment of the Williams Act; two years is simply an insufficient passage of time. With respect to the 1977 amendment it is a different matter. Liberty, and the Commission, as amicus curiae, cite to us a plethora of cases all finding an implied right of action in the issuer prior to 1977.³⁷  This serves to establish the routine and consistent character of finding an implied right of action for issuers under section 13(d). That most of these cases merely assume a cause of action on behalf of the issuer rather than decide that one exists speaks even more strongly to the routine and consistent quality of this principle. Therefore, if Congress, presumably knowing of this judicial treatment of section 13(d), addressed the issuer's right of action in the course of revising and amending the statute, and left untouched that portion in which the courts had discerned a private right of action in the issuer, we would have strong evidence of congressional intent.

A critical examination of the legislative history of the 1977 amendments does not, however, permit an unambiguous inference of legislative intent to preserve a judicially recognized issuer right of action. The matters addressed by the framers of those amendments were far removed from the question we now face. The 1977 amendments are contained in Title 2 of the "Domestic and Foreign Investment Improved Disclosure Act of 1977." Pub. L. 95-213, 91 Stat. 1498 (amending 15 U.S.C. § 78m, 78o) (1977). The framers of this legislation were primarily concerned with the ownership of American corporations by foreigners.³⁸  It was in response to this concern, and particularly the increased ownership by oil-rich Arabs, that an amendment to section 13(d) was enacted requiring the disclosure of the residence and citizenship of those filing a schedule 13D statement. An amendment with such a limited focus, lacking the "comprehensive" quality of the amendments to the Commodity Exchange Act examined in Curran, 456 U.S. at 378, 102 S. Ct. at 1839, is too narrow a base on which confidently to erect an adoption by Congress of a judicially discovered implied issuer right of action for an injunction to compel a stockholder to divest himself of the issuer's stock.³⁹  Therefore, while we do not reject the proposition that this failure to amend the relevant portion of the statute is evidence of congressional intent, we are loath to consider it dispositive of the issue.

There are a variety of other reasons, however, for concluding that Congress could not have intended that an issuer have the right to such injunctive relief. The first is provided by Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S. Ct. 2479, 61 L. Ed. 2d 82 (1979). There the Supreme Court construed an Exchange Act reporting provision analogous to section 13(d), section 17(a) which required members of national securities exchanges to file such financial reports as the Commission prescribed by rule. 15 U.S.C. § 78q(a) (1970 ed.). In that case, the trustee of an insolvent broker, a member of the New York Stock Exchange, sued Touche Ross & Co., a certified public accountant, for preparing and filing with the SEC an inadequate financial statement of the broker's condition. The trustee alleged that the statement failed to disclose that the broker was on the brink of bankruptcy and that had Touche Ross reported its true condition the broker's customers could have avoided the losses they incurred when the broker eventually failed. Though section 17(a) did not provide a right of action in anyone, the trustee contended that he had an implied right of action in behalf of the customers, for whose ultimate benefit the statute had been enacted.

The district court dismissed the suit, holding that no private right of action could be implied from section 17(a). Redington v. Touche Ross & Co., 428 F. Supp. 483 (S.D.N.Y. 1977). The court of appeals reversed. It observed that a broker's customers were "favored wards" of section 17(a) and that Congress could not have meant them to go without a remedy to protect their interests. Redington v. Touche Ross & Co., 592 F.2d 617, 623 (2d Cir. 1978). The Supreme Court disagreed. In an analysis which we think is plainly applicable to the case at hand, the Court concluded that Congress could not have intended that a statute which neither conferred rights on a private party nor proscribed any conduct as unlawful provided a private right of action.

The Court concluded that

The intent of Sec. 17(a) is evident from its face. Section 17(a) is like provisions in countless other statutes that simply require certain regulated businesses to keep records and file periodic reports to enable the relevant governmental authorities to perform their regulatory functions. The reports and records provide the regulatory authorities with the necessary information to oversee compliance with and enforce the various statutes and regulations with which they are concerned. In this case, the Sec. 17(a) reports, along with inspections and other information, enable the Commission and the Exchange to ensure compliance with the "net capital rule," the principal regulatory tool by which the Commission and the Exchange monitor the financial health of brokerage firms and protect customers from the risks involved in leaving their cash and securities with broker-dealers. The information contained in the Sec. 17(a) reports is intended to provide the Commission, the Exchange, and other authorities with a sufficiently early warning to enable them to take appropriate action to protect investors before the financial collapse of the particular broker-dealer involved. But Sec. 17(a) does not by any stretch of its language purport to confer private damages rights or, indeed, any remedy in the event the regulatory authorities are unsuccessful in achieving their objectives and the broker becomes insolvent before corrective steps can be taken. By its terms, Sec. 17(a) is forward-looking, not retrospective; it seeks to forestall insolvency, not to provide recompense after it has occurred. In short, there is no basis in the language of Sec. 17(a) for inferring that a civil cause of action for damages lay in favor of anyone. Cort v. Ash, 422 U.S., at 79, 95 S. Ct., at 1088.

442 U.S. at 569-71, 99 S. Ct. at 2486 (footnote omitted). The Court found no evidence to the contrary in the legislative history of section 17(a), or any other provision of the Exchange Act. In fact, the Court observed that "when Congress wished to provide a private damage remedy, it knew how to do so and did so expressly," id. at 572, 99 S. Ct. at 2487, citing the provisions of sections 9, 16(b), and 18(a) of the Exchange Act, 15 U.S.C. §§ 78i(e), 78p(b), and 78r(a), and that " [t]here is evidence [in the legislative history] to support the view that Sec. 18(a) was intended to provide the exclusive remedy for misstatements contained in any reports filed with the Commission, including those filed pursuant to Sec. 17(a)." Id. at 573-4, 99 S. Ct. at 2488 (footnote omitted, emphasis added).

Section 13(d) is identical to section 17(a) in that it "neither confers rights on private parties nor proscribes any conduct as unlawful." Id. at 569, 99 S. Ct. at 2486. It simply requires persons acquiring a substantial interest in a firm to report their acquisition to the Commission, the exchanges, and the issuer. Like section 17(a), there is no basis in the statute's language for implying a private right of action in anyone, and, like section 17(a), section 13(d)'s legislative history contains no suggestion that Congress intended such a right of action.

For purposes of Cort v. Ash intent analysis the only significant difference between the two statutes, as the plaintiffs have applied them in Touche Ross and in this case, is that, here, the issuer received a copy of the SEC filing, while in Touche Ross the plaintiff trustee's customer beneficiaries did not.⁴⁰  This difference, however, does not detract from the analogy we have drawn between the two cases. Touche Ross is strong precedent for the view that Congress did not intend the sort of claim Liberty has brought.

There are still other reasons why we conclude that Congress harbored no such intent. In addition to the enforcement mechanisms Congress expressly provided in sections 9, 16(b) and 18(a), it provided in section 21 of the Exchange Act, 15 U.S.C. § 78u (1982), an express method of enforcing the provisions of section 13(d). Section 21 authorizes the Commission to investigate the possible violation of any provision of the Act. It empowers the Commission to bring suit in federal court against any suspected, or expected, violator, and authorizes it to forward any evidence of a violation to the Attorney General for the commencement of criminal proceedings at his discretion. 15 U.S.C. § 78u (1982). The Supreme Court in Transamerica found that where a statutory scheme provides explicit remedies "a court must be chary of reading others into it." 444 U.S. at 21, 100 S. Ct. at 247. In light of these extensive and varied enforcement mechanisms it cannot be argued that Congress failed to direct its attention to the problem of enforcing section 13(d).⁴¹  Rather, the more persuasive inference is that Congress did not intend to supplement Commission and shareholder enforcement of the statute with the issuer remedy Liberty has proposed in this case.

Congressional intent not to imply the right of action Liberty has brought is also made apparent when one focuses on the particular injunctive remedy Liberty seeks; it is both inappropriate and lacking in proportion to the wrong alleged.⁴²  Section 13(d) creates an affirmative duty in a person after he has acquired more than five percent of the shares of an issuer to file a form for purely informational purposes. It strikes us that the obvious antidote for an allegedly false filing is a corrected filing. Yet Liberty does not request such a remedy. Instead, it seeks to force a major stockholder to unload its vast holdings and to lose its voting power over the shares it owns. The primary effect of such relief, if granted, would be to lower the market price of Liberty shares, which plainly would not be beneficial to shareholders. This result would be plainly contrary to congressional intent in adopting the Williams Act.

Under the second prong of Cort, then, we conclude from the statutory language, the contextual setting, the Supreme Court's interpretation of subsidiary questions, and the relationship between the alleged wrong and the relief requested in this case that there was no clear legislative intent to imply an issuer right of action to obtain the ouster of a shareholder who has made a false schedule 13D filing.

The final Cort inquiry, and the one we think dispositive of the question before us is whether the private remedy Liberty seeks is consistent with the underlying purpose of the legislative scheme. We are convinced that it is not.

The Williams Act dealt mainly with tender offers. It is clear from the legislative history that the framers of the Williams Act sought to "take extreme care to avoid tipping the balance of regulation either in favor of management or in favor of the person making the takeover bid," and that their goal was to promote "full and fair disclosure for the benefit of investors while at the same time providing the offeror and management equal opportunity to present their case." S.Rep. No. 550 at 3. To give Liberty the relief it asks would defeat this purpose. When an outsider acquires a large amount of stock in a publicly held company this creates at the very least a nascent potential conflict between the outsider and management. To permit the issuer to oust the new stockholder simply because he made a false filing would tip the balance towards management, thereby injuring the existing investors. Moreover, incumbent management could solidify its position by subjecting to suit any outsider who accumulated more than 5% of the shares of the company, and thus discourage such accumulations. The threat of this sort of litigation might remove from the field a player whose self-interest is to monitor management, and who is poised to mount a proxy fight or a tender offer.

Ever since Berle & Means' seminal work, The Modern Corporation and Private Property (1933), it has been generally recognized that small shareholders in large publicly held companies have an insufficient incentive adequately to monitor the management of the firm. Nevertheless, these shareholders are not bereft of all relief from improper or inefficient management. Large shareholders, or outsiders who may challenge incumbent management, help protect the small shareholders' interest in monitoring--by possibly challenging--incumbent management. The more obstacles that are placed in the path of those who would acquire large holdings, and the more expensive and time consuming the take over process becomes, the less protection for the small shareholder.

The inappropriateness of implying the remedy Liberty seeks is illustrated by an examination of the consequences that remedy would visit on existing shareholders. While section 13(d) is intended to ensure the provision of information to the market through the Commission, the exchanges and management, and it is the investors who are the intended beneficiaries of this legislation, the relief requested by the issuer, here, is at best ambiguous, even in its immediate effect on the shareholders. Requiring that Charter divest itself of Liberty shares, by selling them back to non-parties or on the open market, will depress the price, by increasing the supply of Liberty stock on the market without a corresponding increase in the demand. Removing voting power from Charter will have the effect of removing outside monitoring of management by a shareholder with significant financial interest in policing management. Thus, the divestiture remedy sought by the "issuer" illustrates only too well that the interests of shareholders and management are not likely to be identical with regard to policing schedule 13D filings.

While there is a sense in which management acting through the issuer can efficiently reflect the collective interests of the stockholders, this does not hold true when the interests of the stockholders and management are adverse to one another.⁴³  When an outsider is perceived as threatening to displace the insiders, management has a clear economic interest in protecting its position, even though this might not be in the economic interest of the firm or its shareholders. The creation of a private right of action on behalf of the firm would allow incumbent management to use corporate resources, rather than their own, to harass and burden aggressive outsiders. Moreover, it would be difficult for the outsider to avoid vexatious litigation by any manner of careful craftsmanship in his filing; all the incumbent management would have to demonstrate to maintain its claim for relief would be that the outsider's schedule 13D statement of his intentions with respect to the issuer was false or misleading. Whether the outsider is unequivocal or equivocates as to his intentions, the issuer could simply allege, as Liberty did in this case, that his true intentions are the opposite. As Judge Friendly pointed out in one of the first cases to construe the Williams Act, "It would be as serious an infringement of these regulations [for the outsider] to overstate the definiteness of [its] plans as to understate them." Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937, 948 (2d Cir. 1969).

Measuring the truthfulness of a filing could pose significant problems for a district court as well. The court might find it difficult, even after an extensive evidentiary proceeding, to determine the subjective intentions of the party filing the schedule 13D statement at the time it filed it. And once the court made its determination it might have difficulty withdrawing from the dispute. Having entered a coercive order, enforceable through the court's contempt power, requiring the party to amend its schedule 13D, the court could be faced with still further proceedings. For example, the issuer might find fault with the party's schedule 13D amendment and move the court to issue an order requiring the party to show cause why it should not be held in contempt for filing an inadequate amendment. If the show cause order issued, the court would once again be required to find the party's intent, and the process of an amended filing and a new show cause proceeding might well begin anew.

A final concern to us is the precedential effect a divestiture order in this case would have on the market for securities generally. Parties contemplating the acquisition of large holdings in publicly traded companies would be faced with substantial transaction costs in the form of section 13(d) litigation expenses, including delay, whenever perceived by incumbent management as a threat to their economic welfare. The chilling effect of the remedy Liberty would have us approve could have a deleterious impact on the market for corporate control and the value of securities generally. We therefore agree with the district court that no cause of action under section 13(d) exists for the relief Liberty requests.⁴⁴ 

Liberty's second claim for relief, though stated as one claim, actually presents two discrete causes of action, each seeking the same relief: that Charter be required to divest itself of its Liberty holdings and pending such divestiture enjoined from voting any of its shares. Liberty's first cause of action is that Charter made a tender offer without complying with the filing requirements of section 14(d) of the Exchange Act; it neglected to submit an information statement to the SEC. Liberty's second cause of action is that Charter in making the tender offer committed certain fraudulent acts in violation of section 14(e) of the Act; it filed a false schedule 13D statement. Liberty does not inform us how either of these statutory violations injured Liberty or why Congress intended that the relief it seeks be a means of enforcing these two laws.

Section 14(d) requires that persons making a tender offer for securities disclose certain prescribed information by filing it with the Commission and the issuer, and section 14(e) prohibits fraudulent conduct in connection with such a tender offer. Liberty must surmount two hurdles before it can recover under either of these two sections. First, Liberty must demonstrate that an implied right of action exists on behalf of an issuer for the type of injunctive relief sought. Second, Liberty must have alleged sufficient facts to permit a court to infer that Charter conducted a tender offer. We conclude that the right of action Liberty asserts cannot be implied under either section. Accordingly, we need not determine whether Charter made a tender offer.

Sections 14(d) and (e) do not by their language create private rights of action. The existence of and limits on the right to bring a private cause of action are, as we have stated, of judicial origin. The question of whether, and when, an issuer can bring an action under sections 14(d) and (e) is similar to that under section 13(d), in that all of these sections were incorporated into the Exchange Act by the Williams Act and were attempts to protect the same group, investors, and address similar problems. Therefore, our analysis will cover much the same ground we addressed in part III, supra. Nonetheless, there are some facial differences between these sections which must be discussed.

The Supreme Court addressed the existence and limits on private rights of action under sections 14(d) and (e) in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977). Piper, while not on all fours with the case before us, is nevertheless extremely useful for achieving a proper understanding of implied rights of action under sections 14(d) and (e). Chris-Craft was an unsuccessful tender offeror who sought damages against the management of the company it sought to take over, Piper, Piper's investment adviser, and Bangor Punta Corporation, the successful "white knight"⁴⁵  that defeated Chris-Craft in its bid for control of Piper. The Supreme Court held that since the purpose of the Williams Act was to provide protection for shareholders and not for tender offerors, no implied cause of action would lie for a defeated tender offeror.⁴⁶ 

The Court specifically stated:

Our holding is a limited one, whether shareholder-offerees, the class protected by Sec. 14(e), have an implied cause of action under Sec. 14(e) is not before us, and we intimate no view on the matter. Nor is the target corporation's standing to sue in issue in this case. We hold only that a tender offeror, suing in its capacity as a takeover bidder, does not have standing to sue for damages under Sec. 14(e).

Id. at 42 n. 28, 97 S. Ct. at 949 n. 28 (emphasis added). In view of those words of limitation supplied by the High Court, it would be unseemly to attempt to read a hidden meaning into the Court's holding that was not its voiced intent. With that caution in mind, we must nonetheless make proper use of the reasoning provided by the Court to determine whether the law requires that we find that Congress has implied a cause of action on behalf of issuers under sections 14(d) and (e).

In Piper, the Court refined the test it had outlined in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975), for determining whether a private remedy is to be found implied in a statute which did not explicitly grant one. Piper is fundamentally concerned with legislative intent; which apparently is the focus of the Cort v. Ash inquiry. Touche Ross, 442 U.S. at 575, 99 S. Ct. at 2489; Transamerica, 444 U.S. at 15-16, 100 S. Ct. at 245. As our earlier discussion of section 13(d) makes clear, the purpose of the Williams Act as a whole, and the tender offer provisions in particular, is to provide protection to investors.⁴⁷  We must determine, then, by asking the Cort v. Ash questions, whether creating a cause of action on behalf of the issuer to seek equitable relief in the form of expelling a tender offeror from the company was the intention of the framers of sections 14(d) and (e).

As was the case in our analysis of Liberty's sections 10(b) and 13(d) claims, here too we begin with Cort's fourth prong, i.e., whether Liberty presents a cause of action traditionally relegated to state law. While the response to this question may be informative, it is least likely to be dispositive of the issue of congressional intent. The tender offer provisions of the Williams Act were intended to dominate the field. Edgar v. Mite Corp., 457 U.S. 624, 102 S. Ct. 2629, 73 L. Ed. 2d 269 (1982). It is therefore not inappropriate that a cause of action be implied under federal law as distinct from state law. This, however, is merely the lack of a negative inference to be drawn from the existence of a state law remedy, and not a positive argument in favor of discovering an implied federal remedy.

Under the first prong of Cort, we must reach the same conclusion that we did with respect to section 13(d); the purpose of the Williams Act was to benefit investors. Piper, 430 U.S. at 35, 97 S. Ct. at 946. Issuers are not the class for whose especial benefit sections 14(d) and (e) were enacted.

The second prong of Cort asks whether there was either explicit or implicit intent to create this remedy for this party. Unlike our treatment of section 13(d) we need not engage in the Curran analysis of whether Congress had comprehensively amended these sections in the face of "routine and consistent" recognition by the courts of an implied issuer cause of action to divest a shareholder. Sections 14(d) and (e) were enacted in 1968 and have only been amended once since, in 1970. As we said before, the two-year period between 1968 and 1970 is insufficient for any judicial construction of a statute to rise to the level of being "routine and consistent." We thus repair to the texts of sections 14(d) and (e) and the legislative history to divine congressional intent.

The texts of sections 14(d) and (e) give no indication that Congress intended to imply the sort of action that Liberty presses. The legislative history, as far as we can determine, is silent on the issue; the parties point us to nothing in the legislative process that spoke to the subject. Nor do the other provisions of the Exchange Act indicate the answer. It is true that section 18(a) of the Act provides a cause of action, at law or in equity, for purchasers and sellers injured by false or misleading statements in documents required to be filed with the Commission. While this gives some support for the argument that Congress did not intend to provide an additional private remedy, it does not carry the dispositive weight that it did in our analysis of section 13(d). Sections 14(d) and (e) place a variety of other obligations on a party in addition to filing documents. Therefore, since section 18(a) would not provide any remedy for wrongs committed in fulfilling those obligations, it is possible that Congress did intend additional private remedies to supplement the Commission's broad enforcement powers under the Exchange Act. See 15 U.S.C. § 78u (1982). In sum, the second prong of Cort v. Ash yields no definitive result.

The third prong of Cort asks whether implying the cause of action presented is consistent with the underlying purpose of the legislation. Our analysis of this question is virtually identical to the one we conducted in part III with regard to section 13(d). Rather than reiterate those arguments we confine our discussion to the few minor differences in the purposes of sections 14(d) and (e) and section 13(d).

First, we note that sections 14(d) and (e) deal specifically with tender offers, rather than mere accumulations of stock as does section 13(d). Since it is tender offers with which the Williams Act is primarily concerned, the congressional admonitions with regard to the even-handed treatment to be given tender offerors and incumbent management have even greater force with respect to sections 14(d) and (e) than they do with respect to section 13(d).

Second, sections 14(d) and (e) are formally part of 15 U.S.C. § 78n (1982), entitled "Proxies." Section 14(a) of this title, enacted in 1934, provides an implied private cause of action for individuals to challenge proxy contests. J.I. Case Co. v. Borak, 377 U.S. 426, 84 S. Ct. 1555, 12 L. Ed. 2d 423 (1964). The introductory language of section 14(d) is virtually identical to that of section 14(a). Both sections begin with these words: "It shall be unlawful for any person ... by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of a national securities exchange or otherwise ..." The identical nature of the introductory language and the fact that sections 14(d) and (e) appear under the same title as section 14(a), combined with the fact that the Supreme Court has found an implied private right of action under section 14(a), lends, at first blush, support to the finding that an implied issuer right of action to expel an unwanted tender offeror is consistent with the congressional scheme.

There are three substantial reasons for rejecting such a finding, however. First, the mere use of the same introductory boilerplate language cannot compel us to treat sections 14(a) and (d) identically. Second, we do not here decide the question of the existence of any private right of action under sections 14(d) and (e), only the issuer's right to bring such a claim.

Finally and most importantly, the Supreme Court, without overruling Borak, appears to have limited its holding to its facts. In Touche Ross the Court stated, " [w]e do not now question the actual holding of [Borak], but we decline to read the opinion so broadly that virtually every provision of the securities Acts gives rise to an implied private cause of action. E.g., Piper v. Chris-Craft Industries, Inc." 442 U.S. at 577, 99 S. Ct. at 2490. Piper, like the case before us, involved sections 14(d) and (e) and did not recognize an implied right of action; therefore, by citing Piper it is apparent that the High Court in Touche Ross did not believe that the Borak rationale extends to these two sections.

In summary, just as we found under section 13(d), an issuer right of action under sections 14(d) and (e) is (1) not mandated by the legislative history, and in fact is inconsistent with the even-handedness called for; (2) would not serve the interests of those for whose especial benefit this legislation was enacted, shareholders; and (3) would not be consistent with the underlying purpose of the legislation in that it would lead to vexatious litigation by entrenched management, employing the issuer's resources, to fend off presumed hostile takeover attempts. We hold, therefore, that Liberty was not entitled to maintain its second claim.

None of Liberty's three claims stated a cause of action. Each claim should have been dismissed with prejudice but was not. Charter has not cross-appealed the court's "without prejudice" disposition, however. Accordingly, for the reasons we have stated the judgment of the district court is

AFFIRMED.

VANCE, Circuit Judge, concurring in part and dissenting in part:

I join the majority's opinion with respect to section 10(b). The precepts of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S. Ct. 1825, 72 L. Ed. 2d 182 (1982), however, compel me to conclude that implied causes of action exist under sections 13(d), 14(d) and 14(e) that permit Liberty to seek injunctive relief.

Divining the collective intent of a body of lawmakers is a task fraught with difficulty, and it is this task that divides the court. In my view, the majority's resolution of Liberty's claims under the Williams Act places undue emphasis on Cort v. Ash. By lending each of the Cort factors nearly equal weight, my colleagues embrace precisely the mechanical application of Cort that the Supreme Court rejected in Touche Ross & Co. v. Redington, 442 U.S. 560, 575-76, 99 S. Ct. 2479, 2488-89, 61 L. Ed. 2d 82 (1979). See California v. Sierra Club, 451 U.S. 287, 302, 101 S. Ct. 1775, 1783, 68 L. Ed. 2d 101 (1981) (Rehnquist, J., concurring). In the years since Cort the Supreme Court has emphasized that congressional intent is the touchstone of any claim of implied private right. Curran, 456 U.S. at 377-78, 102 S. Ct. at 1838-39; Touche Ross, 442 U.S. at 568, 99 S. Ct. at 2485. An examination of the intent behind section 13(d), under the guidance of Curran, is dispositive of claims under that provision as well as under sections 14(d) and 14(e).

A critical guidepost in discerning legislative intent is "Congress' perception of the law that it was shaping or reshaping." Curran, 456 U.S. at 377-78, 102 S. Ct. at 1838-39; see also Herman & MacLean v. Huddleston, --- U.S. ----, 103 S. Ct. 683, 689, 74 L. Ed. 2d 548 (1983). Thus in Cannon v. University of Chicago, 441 U.S. 677, 99 S. Ct. 1946, 60 L. Ed. 2d 560 (1979), the Supreme Court, in recognizing a private remedy under Title IX of the Education Amendments of 1972, stressed that Title IX was modeled on Title VI of the Civil Rights Act of 1964 and was enacted at a time when Title VI had been construed as creating a private remedy. Id. at 694-703, 99 S. Ct. at 1956-1960.

In Curran, the Court expounded upon the significance of the contemporary legal context surrounding a statute's enactment:

"Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change...."

456 U.S. at 382 n. 66, 102 S. Ct. at 1841 n. 66 (quoting Lorillard v. Pons, 434 U.S. 575, 580, 98 S. Ct. 866, 870, 55 L. Ed. 2d 40 (1978)).

In determining whether a private cause of action is implicit in a federal statutory scheme when the statute by its terms is silent on that issue, the initial focus must be on the state of the law at the time the legislation was enacted.... 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 ... the inquiry logically is different. Congress need not have intended to create a new remedy, since one already existed; the question is whether Congress intended to preserve the pre-existing remedy.

456 U.S. at 378-79, 102 S. Ct. at 1839. Accordingly, the Curran Court viewed the comprehensive 1974 amendment of the Commodity Exchange Act (CEA),¹  which did not expressly displace the unanimous case law implying a private action for damages, as proof that Congress positively intended to retain the judicially implied remedy. Once it resolved the question of legislative intent, the Curran Court perceived no need to dwell upon the remaining Cort factors. Id. at 388, 102 S. Ct. at 1844.

The evidence that Congress approved of implied relief under the Williams Act is unusually strong because it combines the indicia relied on by the Supreme Court in Cannon and Curran. Congress enacted the Williams Act and twice amended section 13(d) in a legal climate in which implied remedies had already been recognized. The majority ignores the fact that the Williams Act was cast upon the statute and regulations governing proxy solicitations, chiefly section 14(a) of the Securities Exchange Act, 15 U.S.C. § 78n(a) (the 1934 Act).²  H.R.Rep. No. 1711, 90th Cong., 2d Sess. 3-4 (1968), U.S.Code Cong. & Admin.News 1968, p. 2811; S.Rep. No. 550, 90th Cong., 1st Sess. 2-5 (1967). On the Senate floor, Senator Williams explained:

What this bill would do is to provide the same kind of disclosure requirements which now exist, for example, in contests through proxies for controlling ownership in a company.

* * *

[It] is patterned on the present law and the regulations which govern proxy contests.

113 Cong.Rec. 24,665 (1967).

The significance of this lineage lies in J.I. Case Co. v. Borak, 377 U.S. 426, 84 S. Ct. 1555, 12 L. Ed. 2d 423 (1964), decided four years before the passage of the Williams Act. In Borak the Supreme Court construed section 14(a) to allow a shareholder to sue for damages on behalf of the corporation to redress injuries from false and misleading proxy solicitation materials distributed in violation of that provision. Given the Williams Act's origin in section 14(a), Borak gave Congress ample reason to assume that the federal judiciary would imply private rights of action to enforce the newly enacted mandates.³  See Curran, 456 U.S. at 379, 382 n. 66, 102 S. Ct. at 1839, 1841 n. 66; Cannon, 441 U.S. at 694-703, 99 S. Ct. at 1956-1960.

The courts did not refute that notion. To the extent that issues preliminary to the merits were litigated before the courts, the outstanding question was not whether a private remedy existed, but rather who would have standing to sue. See, e.g., General Aircraft Corp. v. Lampert, 556 F.2d 90, 94-95 (1st Cir. 1977) (section 13(d)); GAF Corp. v. Milstein, 453 F.2d 709, 719 (2d Cir. 1971), cert. denied, 406 U.S. 910, 92 S. Ct. 1610, 31 L. Ed. 2d 821 (1972) (section 13(d)); Electronic Specialty Co. v. International Controls Corp., 409 F.2d 937, 946 (2d Cir. 1969) (sections 14(d) and 14(e)). In the three years Congress spent deliberating the 1977 amendments to section 13(d), unanimous authority granting standing to issuers continued to mount⁴  and Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 95 S. Ct. 2069, 45 L. Ed. 2d 12 (1975), was decided.

In reading Rondeau to cast doubt on the existence of a private remedy under section 13(d), the majority takes too crabbed a view of that case. Two remarks are in order. First, it is important to note that Rondeau was decided on the same day as Cort v. Ash. Justice Brennan, who wrote for a unanimous majority in Cort, explicitly stated in Rondeau that he read the Williams Act to authorize injunctive relief to issuers. Id. at 65, 95 S. Ct. at 2079 (Brennan, J., dissenting). He wrote to register his dissent precisely because he felt an injunction should have issued, a result that necessarily assumed the existence of a cause of action.

More importantly, what matters is not what Rondeau held but the impression it gave to Congress. Curran, 456 U.S. at 378 n. 61, 102 S. Ct. at 1839 n. 61. Curran contains an instructive parallel. In Chicago Mercantile Exchange v. Deaktor, 414 U.S. 113, 94 S. Ct. 466, 38 L. Ed. 2d 344 (1975), the Supreme Court conferred the Commodity Exchange Commission with primary jurisdiction over private actions to enforce the CEA. The Curran Court subsequently characterized Deaktor as having "simply assumed" that the CEA afforded an implied right of action. 456 U.S. at 380-81 & 381 n. 65, 102 S. Ct. at 1840-41 & 1841 n. 65. Because Deaktor left the impression that an implied cause of action no longer was in question, the Curran Court viewed the case as part of the legal backdrop to the 1974 CEA amendments. Id. at 381, 102 S. Ct. at 1841. In the case of Rondeau, its discussion of the prerequisites of relief and its coincidence with Cort v. Ash only strengthened the assuring impression it gave.

Indeed, my colleagues elsewhere concede that lower court cases which simply assume an implied right of action "speak [ ]... strongly to the routine and consistent quality" of the case law. While they agree that a "plethora" of such cases supports relief under section 13(d), they refrain from lending dispositive weight to Congress' silence in the face of this authority because in their view the focus of the 1977 amendments was too narrow, in contrast with the comprehensive reenactment in Curran, to ensure that Congress considered the question.

I take issue with the majority's view both of the 1977 amendments and of Curran. The legislative history of the 1977 amendments reveals that Congress' main concern was not with foreign investors but rather with the use of financial intermediaries and nominee accounts to cloak the true identity of owners, both foreign and domestic. See generally S.Rep. No. 114, 95th Cong., 1st Sess. 4-7, 12-15 (1977), reprinted in 1977 U.S.Code Cong. & Ad.News 4102-04, 4110-13. For this reason Congress amended section 13(d) to require disclosure of information concerning beneficial ownership interests.⁵  5] This change, coupled with others extending the reach of section 13(d) and mandating a centralized databank for purposes of consolidating ownership information, bespeaks a clear intent to strengthen the overall regulatory scheme consistent with a private right of enforcement. Cf. Curran, 456 U.S. at 394, 102 S. Ct. at 1847.

Likewise, nothing in Curran precludes us from giving congressional action in the face of judicially implied relief dispositive weight despite the fact that Congress did not debate the merits of private relief in the course of the deliberations over the 1977 amendments. Cf. Northwest Airlines, Inc. v. Transport Workers Union, 451 U.S. 77, 94, 101 S. Ct. 1571, 1582, 67 L. Ed. 2d 750 (1981). In fact, in Herman & MacLean v. Huddleston, --- U.S. ----, 103 S. Ct. 683, 74 L. Ed. 2d 548 (1983), the Supreme Court unanimously held that the 1975 amendments to the 1934 Act effectively ratified the ample authority affirming the cumulative nature of the section 10(b) action. It reached this result, citing Curran, without referring to any debates on the issue, even though the amendments themselves neither addressed nor changed section 10(b). Huddleston thus suggests a flexible approach in which a substantial remedial amendment in the face of extensive case law unanimously affording a private remedy can substitute for a more direct expression of congressional intent.

In certain respects the claim to an implied cause of action under section 13(d) is even stronger than the parallel claim in Curran. The Williams Act, unlike the CEA, was originally enacted in a judicial climate favoring implied causes of action, and it was patterned after the very provision that Borak had previously endowed with a private remedy. Not even the CEA in Curran could lay claim to such ancestry. There was no pressing need, given Borak and Rondeau, for Congress to reexamine the case law establishing issuer redress, and it twice passed up the opportunity to do so.⁶  For these reasons I am convinced that we are obliged to follow Curran.

In resolving the question of legislative intent, several considerations recommend against the majority's resort to Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S. Ct. 2479, 61 L. Ed. 2d 82 (1979). First, that case, decided in 1979, has no bearing on the state of the law as Congress perceived it in 1968, 1970 or 1977.⁷  Furthermore, the Touche Ross Court noted that section 17(a), the provision at issue, had no history of long-standing lower court interpretation. Id. at 577 n. 19, 99 S. Ct. at 2490 n. 19. After Cannon and Curran, that distinction became highly relevant, if not dispositive. We are bound to follow Curran, the later case, to the extent that its method of elucidating legislative intent differs from Touche Ross. Importantly, Touche Ross involved a claim for money damages rather than for injunctive relief.⁸  Finally, an analogy to Touche Ross is no substitute for a direct examination of the origins of the Williams Act.⁹ 

" 'It is just as much "judicial legislation" for a court to withdraw a remedy which Congress expected to be continued as to improvise one that Congress never had in mind.' " Curran, 456 U.S. at 394 n. 100, 102 S. Ct. at 1847 n. 100 (quoting Leist v. Simplot, 638 F.2d 283, 313 (2d Cir. 1980)). The foregoing examination, under Cannon and Curran, of the contemporary legal context surrounding the enactment and amendments of section 13(d) reveals that Congress intended to create a private right of action. This examination complete, the majority's argument that issuers fall outside the class for whose special benefit section 13(d) was enacted lapses into irrelevance. " [T]here is no need for us to 'trudge through all four of the [Cort ] factors when the dispositive question of legislative intent has been resolved.' " Curran, 456 U.S. at 388, 102 S. Ct. at 1844 (quoting California v. Sierra Club, 451 U.S. at 302, 101 S. Ct. at 1784 (Rehnquist, J., concurring)).

The fact that section 13(d) underwent careful reexamination and substantial amendment in 1977, while sections 14(d) and 14(e) have not received similar scrutiny since 1970, does not dictate a different conclusion as to the existence of causes of action under the latter provisions. All three sections were cut from the same bolt--section 14(a)--and all thus came into being stamped with the imprint of Borak. Congress' reevaluation of section 13(d) is significant because it confirmed in 1977 what was true of all three sections as of 1968, that is, that Congress expected the courts to clothe each section with the incidents of judicial relief, as the Supreme Court had done with section 14(a) in Borak.

The issue in this case thus devolves into one of standing because it raises the question whether Liberty, as the issuer, is properly authorized to seek an injunction for the benefit of the shareholders as a body. There is of course no question that Congress in framing the Williams Act took pains to "avoid [ ] tipping the balance of regulation either in favor of management or in favor of the person making the takeover bid." H.R.Rep. No. 1711, 90th Cong., 2d Sess. 4 (1968), U.S.Code Cong. & Admin.News 1978, p. 2813; see also S.Rep. No. 550, 90th Cong., 1st Sess. 3 (1967); Rondeau, 422 U.S. at 58-59, 95 S. Ct. at 2075-2076. But while the sole purpose of section 13(d) is to provide shareholders with the necessary information to reach informed decisions whether to sell their stock, shareholders as a practical matter lack the opportunity and the information to protect their interests. To begin with, schedule 13D statements are distributed to issuers, exchanges, and the Commission, but not to the shareholder public. 15 U.S.C. § 78m(d) (1). Furthermore, only target corporations have the familiarity with day-to-day operations to recognize inaccuracies and correct them. Indiana National Corp. v. Rich, 712 F.2d 1180, 1185 & n. 2 (7th Cir. 1983); GAF Corp. v. Milstein, 453 F.2d at 719-21; Steinberg, The Propriety and Scope of Cumulative Remedies Under the Federal Securities Laws, 67 Cornell L. Rev. 557, 598 n. 241 (1982). In Piper, the Supreme Court recognized that misleading statements injure the corporation by committing deceit on the shareholders as a whole. See 430 U.S. at 32 n. 21, 97 S. Ct. at 944 n. 21. As the parties best able to detect misrepresentations, issuers have standing to ensure the accuracy of the offeror's filings for the benefit of the shareholder body.¹⁰ 

I close by observing that the principal effect of Curran is to refrain from conducting an independent judicial discourse on the proper ends of legislation and the best ways to achieve them. I would not second-guess, as the majority does, the advisability of issuer standing and injunctive relief under the cloak of Cort v. Ash because our role under Curran is to respect congressional intent as determined under the guidance of that case, whether or not policy considerations so advise. I am further satisfied that careful scrutiny of self-serving management claims and the judicious tailoring of injunctive relief can avoid most if not all of the deleterious effects the majority conjures. For these reasons I would grant Liberty standing to sue for injunctive relief under sections 13(d), 14(d) and 14(e).