The opinion of the court was delivered by: WEINER
The above-captioned action was brought as a class action on behalf of the plaintiff and all other shareholders of Chris-Craft Industries, Inc. ("Chris-Craft") alleging violations of Section 10 (b) of the Securities Exchange Act of 1934 and Rule 10b-5 adopted thereunder; a claim under Section 14(a) of the Act and Rule 14(a)-9 thereunder; an allegation of breach of fiduciary duties by defendants and finally a claim under 42 U.S.C. § 1983 and 28 U.S.C. § 1343. For the purposes of this opinion, we believe that it will serve no useful purpose to set out in detail the exact language of the Acts which will control the outcome of this case, because, when all of the charges are reduced to their common denominator, the ultimate question to be determined will relate to the truthfulness and accuracy of a proxy statement submitted to the shareholders of Chris-Craft.
The relevant facts that emerge as a result of our examination of the complaint depositions and affidavits establish that Baldwin-Montrose began purchasing shares of Chris-Craft on the open market in 1966. By the end of March 1967 it had acquired approximately 378,000 shares which constituted 20% of Chris-Craft shareholders shares. Thereafter, 150,000 additional shares were purchased thereby increasing its holdings from slightly more than 25% to approximately 35% of the outstanding shares of Chris-Craft. Prior to obtaining the additional shares, Baldwin-Montrose filed an application with the Securities and Exchange Commission for an exemption under Section 3(b)(2) of the Investment Company Act of 1940, for an order finding that Baldwin-Montrose was not an investment company and declaring that it was primarily engaged in a business other than that of investing, reinvesting, owning, holding or trading in securities. In this application the following statement appears:
"* * * The closing under the agreement will bring the Company's holdings from slightly more than 25% to approximately 35% of the outstanding shares of Chris-Craft. No other individual or group to the knowledge of the Company owns as much as 5% of the outstanding common stock and the Company believes it will clearly have working control of Chris-Craft".
The main prong of plaintiff's attack on the validity of the merger centers around that part of the proxy which stated:
"Each Board approved the Plan and Agreement of Merger by unanimous vote of the directors, Messrs. Herbert J. Siegel, James J. Rochlis, C. Leonard Gordon, Lawrence R. Barnett and David Linowes, directors of Baldwin-Montrose have been directors of Chris-Craft, in the case of Messrs. Siegel and Rochlis, since April 1967, and, in the case of Messrs. Gordon, Barnett and Linowes, since December 1967. Accordingly, the entire Board of Baldwin-Montrose comprises five of the ten directors of Chris-Craft. Baldwin-Montrose owns approximately 34% of the outstanding Common Stock of Chris-Craft".
"In connection with the merger, the Board of Directors of Baldwin-Montrose selected the investment banking firm of Loeb Rhoades & Co. to consult with it and the Board of Directors of Chris-Craft selected the investment banking of Lehman Brothers to consult with it. Each firm considered the merger and the kind and amount of stock of the surviving corporation * * *. Loeb Rhoades and Company advised Baldwin-Montrose and Lehman Brothers advised Chris-Craft that the proposed terms of the merger were fair and equitable to their respective shareholders * * *."
"Baldwin-Montrose acquired its holdings of Chris-Craft in a series of purchases commencing in 1966. Prior to December, 1967, Baldwin-Montrose, from time to time, in market transactions, purchased an aggregate of 437,000 shares. In December 1967, Baldwin-Montrose purchased an additional 150,000 shares * * *"
Plaintiff argues that the defendants issued a proxy statement prior to the merger which was materially false and misleading. See, J.I. Case v. Borak, 377 U.S. 426, 84 S. Ct. 1555, 12 L. Ed. 2d 423 (1963). Basic to this thesis is the accusation that the proxy failed to advise the shareholders of Chris-Craft that, the closing under the agreement for the purchase of 150,000 shares raised the Baldwin-Montrose Company's holding from slightly more than 25% to approximately 35% of the outstanding shares of Chris-Craft. That no other individual or group to the knowledge of the Company owns as much as 5% of the outstanding stock and the Company believes it will clearly have working control of Chris-Craft. Relying upon the aforesaid, the plaintiff urges that it is entitled to summary judgment as a matter of law. The defendants sharply disagree and have countered with a motion to dismiss the complaint or in the alternative to transfer this action to the Southern District of New York.
Rule 14(a)-9 (supra) provides in relevant part:
"(a) No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any ...