On Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. Civil Action No. 90-07963.
Cowen, Nygaard and Weis, Circuit Judges.
In this appeal we decide that a class of shareholders of Chrysler Corporation has not stated a claim against the company and its board directors (collectively "Chrysler") under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1990), and Rule 10b-5 promulgated thereunder. The district court twice dismissed the class action under Fed. R. Civ. P. 12(b)(6), reasoning that the shareholders lacked standing to sue under the securities fraud statute and rule. We will affirm but on another ground, namely, failure to allege with particularity any misrepresentation or omission actionable under § 10(b) or Rule 10b-5.
In February 1988 Chrysler adopted a shareholder rights plan, commonly known as a "poison pill".*fn2 [para. 12] Under the Plan, Chrysler stockholders received one preferred share purchase right on each outstanding share of Chrysler common stock. [para. 12] Each purchase right could be exercised following certain triggering events, that is 10 days after the first public disclosure that a person or group acquired, or obtained the right to acquire, beneficial ownership of 30% or more of Chrysler's outstanding common stock, or 10 days after the first public disclosure or actual commencement of a tender or exchange offer intended to result in the offeror becoming the beneficial owner of 30% or more of Chrysler's outstanding common stock. [para. 14]
When exercisable, the purchase rights entitled Chrysler stockholders to purchase 1/100th of one share of Junior Participating Cumulative Preferred Chrysler Stock ("poison pill preferred") from the company at a purchase price of $120. [para. 12] Additionally, the Plan provided that following certain events the poison pill preferred purchase rights would entitle holders to exercise "flip-in" rights to buy Chrysler common stock at one-half market value or, alternatively, "flip-over" rights to buy common shares in an entity whose announced or actual acquisition of Chrysler common stock triggered the exercise of purchase rights. [para. para. 13, 15]
Allegedly, the Plan was originally enacted by Chrysler's board in order to cement their control and domination over the company. [para. 10] Furthermore, the Plan as originally enacted was intended to conceal Chrysler management's entrenchment motives from company shareholders and the investing public. [para. 11]
In 1989, Chrysler amended the Plan to reduce the 30% threshold of an acquiring entity's beneficial ownership in Chrysler needed to trigger exercise of shareholder rights under the Plan to 20%. [para. 16] The 1989 amendments also added an additional "flip-in" event: Chrysler shareholders would be entitled to purchase, at one-half market price, common stock of any would-be acquiror if Chrysler's Board of Directors declared such acquiror to be an "Adverse Person" after determining that he had become the beneficial owner of at least 10% of Chrysler common stock then outstanding, and that such beneficial ownership is intended to cause the company to repurchase the acquiror's shares or would cause a material adverse impact on Chrysler's business. [para. 16]
On December 14, 1990, Chrysler issued a press release which announced further amendments to the Plan. [para. 20] This Release, which is the focus of appellants' federal securities fraud claim, read as follows:
CHRYSLER REPORTS UNSOLICITED STOCK PURCHASE BY KERKORIAN; ANNOUNCES AMENDED SHARE PURCHASE RIGHTS PLANR$HIGHLAND PARK, Mich. -- Chrysler Corporation announced today it had been informed that Mr. Kirk Kerkorian had acquired in excess of nine percent of Chrysler's outstanding common stock.
Chrysler said that Mr. Kerkorian's stock purchase was not solicited by the Company.
The Company said that it had not yet received a Schedule 13D report by Mr. Kerkorian and would not comment on his motives for such an investment.
In addition, Chrysler's Board of directors today adopted amendments to the Company's share purchase rights plan.
The amendments reduce from 20 percent to 10 percent the threshold of beneficial ownership at which the rights "flip-in" -- that is, become exercisable to buy Chrysler stock at half-price. The rights plan now provides that if someone acquires beneficial ownership of 10 percent of Chrysler's common stock, each of the rights (other than those held by the 10 percent holder, which become void) entitles the holder, upon payment of the $120 exercise prices, to buy Chrysler common stock having a market value (as defined in the rights plan) equal to twice the exercise price.
Prior to the amendments adopted today, the rights plan provided that, if someone acquired beneficial ownership of 10 percent or more of the Company's common stock, the rights would flip in if Chrysler's directors determined that the acquirer was an "adverse person", and otherwise flipped in if someone acquired beneficial ownership of 20 percent of the Company's common stock.
The amendments also add a provision that, if someone acquires 10 percent, but less than 50 percent, of the Company's common stock, the Board of directors may exchange each right (other than those held by the 10 percent holder) for one share of common stock.
The Company said: "The amendments adopted today are intended to enhance the ability of Chrysler's Board to act in the best interest of all the Company's shareholders if someone should seek to obtain a position of control or substantial influence over Chrysler.
(Emphasis in amended complaint.)
Appellant alleges that the amended Plan renders a substantial outside acquisition of Chrysler common stock economically unfeasible and prohibitively expensive; and that the Plan gives Chrysler's board unilateral power to block a takeover whether or not it would be in the stockholders' best interests, if the acquiror is unwilling to meet the personal demands of the board members. [para. 24] Allegedly too, the last amendments to the Plan changed the nature of stockholders' investments in Chrysler [para. 23], chilled interest in Chrysler stock, deterred Kerkorian and other investors from making future purchases of common shares, and effectively caps the price at which Chrysler stock is traded [para. 28] - - all of which has or will cause economic damage to Chrysler stockholders. [para. 31]
Dismissal of Appellant's Complaints
Four days after the December 14, 1990 amendments to the Plan, appellant Harriet Lewis filed her original complaint in district court on behalf of herself and other Chrysler shareholders similarly situated. The Original Complaint advanced two counts: the first alleged Chrysler violated the anti-fraud provisions of § 10(b) and Rule 10b-5; the second alleged ...