The opinion of the court was delivered by: GESELL
This is an action for equitable relief brought pursuant to section 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(d) (1976). Purolator seeks to enjoin Tiger from purchasing additional Purolator common stock in the open market on the ground that Tiger's disclosures on its required Schedule 13D statement are misleading.
Both Tiger and Purolator are publicly held corporations and their common stocks are registered pursuant to section 12 of the Securities Exchange Act of 1934. Tiger has long been interested in competing in the courier segment of the retail air freight market as a logical extension of its air services. It has considered and studied various small package express business possibilities for affiliation, including possible acquisition of Purolator's profitable ground courier services which constitute a substantial segment of Purolator's entire business. In the past, representatives of the two companies have conferred about possible joint ventures but they have been unable to reach a mutual accommodation.
Tiger's interest in Purolator's courier service has, however, continued, and on September 18, 1980, Tiger began purchases of Purolator's common stock on the open market. On January 14, 1981, Tiger's acquisitions totaled 244,400 shares, at a cost of almost $ 8 million, and exceeded five percent of Purolator's outstanding common stock. Tiger was then required to file a Schedule 13D statement within ten days, setting forth certain information regarding Tiger's purchases and future plans.
Tiger filed the required statement on January 23, 1981. In its Schedule 13D, Tiger stated that its purpose in buying the shares was "to acquire a significant minority interest in Purolator" and announced that Tiger was "prepared to explore with the management of Purolator the possibility of Tiger acquiring Purolator's Services Group." The statement also said that the source of the funds for the stock purchases was "general corporate funds." Since filing the initial Schedule 13D on January 23, Tiger has continued purchasing shares of Purolator and has twice amended its Schedule 13D to report the additional shares acquired. Tiger's latest amendment discloses that as of February 12, 1981, Tiger held 357,600 shares of Purolator common stock, constituting eight percent of the outstanding shares.
The thrust of Purolator's complaint is that Tiger's Schedule 13D is not legally sufficient in that (a) it does not disclose in the "Purpose of Transaction" section an alleged intent or plan to acquire control of Purolator; (b) it does not disclose in the "Source of Funds" section that the proceeds Tiger received from an issue of convertible debentures on August 28, 1980, were intended to be used to purchase Purolator shares, and thus that the source of funds was borrowed money rather than general corporate funds; and (c) it does not disclose elsewhere in the schedule certain regulatory procedures and approvals Tiger would have to follow or obtain in the event that it acquires control of Purolator. Tiger responds by stating that (a) it has no plan of acquiring control of Purolator and that the "Purpose of Transaction" section accurately reflects the only plans that Tiger now has; (b) the "Source of Funds" statement is accurate as written and that the proceeds from the debenture offering were not used to purchase Purolator stock; and (c) there was no need to indicate possible regulatory problems because those problems would arise only if Tiger intended to gain control of Purolator and it has no such intention at this time.
The law to be applied in this case is clear. Section 13(d) is a disclosure statute. It is intended to protect investors by enabling them to receive facts that are material to an informed investment decision. See, e.g., General Aircraft Corp. v. Lampert, 556 F.2d 90 (1st Cir. 1977); Financial General Bankshares, Inc. v. Lance, (1978 Transfer Binder)Fed.Sec.L.Rep. (CCH) P 96,403 (D.D.C.1978). A full, fair, and honest disclosure is required, SEC v. Savoy Industries, Inc., 190 U.S. App. D.C. 252, 587 F.2d 1149, 1165 (D.C.Cir.1978), cert. denied, 440 U.S. 913, 99 S. Ct. 1227, 59 L. Ed. 2d 462 (1979), but this does not include disclosure of possible plans that are indefinite, tentative, or still unformed. Disclosure of indefinite plans does not serve the purposes of 13(d) and, indeed, may actually mislead investors. In judging the adequacy of a Schedule 13D statement, fair accuracy, not perfection, is the appropriate standard. Laurenzano v. Einbender, 448 F.2d 1, 6-7 (2d Cir. 1971).
During expedited discovery, Purolator obtained broad access to files of Tiger, deposed key officers of the company, and pursued its inquiries by deposing a representative of Dominick & Dominick, the broker handling Tiger's purchases. A careful review of the facts thus developed supports the testimony before the Court of Wayne Hoffman, Tiger's chief executive officer. Hoffman testified categorically that Tiger does not have any present plan or intent to acquire control of Purolator. He confirmed that Tiger has a keen interest in the ultimate acquisition of Purolator's courier services and desired to enter into discussions with Purolator's management in the hope that these services could be acquired by Tiger. But it is apparent from the testimony, the documents, and the depositions that Tiger has not prepared any plan for carrying out such an acquisition and, indeed, is presently of the view that it does not have sufficient information concerning Purolator's courier operations to formulate a concrete business plan. The Court accepts Hoffman's testimony that Tiger has made no decision to acquire control of Purolator and that it has made no plan for acquiring control of Purolator.
There is no indication that Tiger is planning a tender offer or that it has made a concerted approach to holders of large blocks of stock. Tiger's broker, Dominick & Dominick, must confirm all purchases daily and, in any event, has no authority to purchase shares beyond a 9.9 percent interest in Purolator. Hoffman denied any interest in placing representatives of Tiger on Purolator's Board of Directors.
Tiger has been purchasing Purolator stock in the hope that its developing substantial interest in the company will serve as leverage to induce Purolator's management to enter into serious discussions relating to its courier business. So far this hope has not materialized, and Tiger may continue buying stock. Tiger has always recognized, however, that its strategy might not succeed.* It is feeling its way. Its plans are tentative and of long range.
Despite Tiger's showing, Purolator insists that a plan and intent to acquire control of Purolator should be inferred from a variety of factors: Tiger's files reflect Tiger's keen interest in acquiring Purolator's Services Group; Tiger has acquired other companies; Tiger has remained aggressive in acquiring Purolator despite rebuffs from Purolator's management; and selected phrases from documents and depositions provide grounds for suspicions that Tiger may seek to acquire control of Purolator if necessary to acquire the courier services group. The Court finds, however, that the inference urged is not sufficient to overcome direct evidence which the Court finds credible.
A similar situation was presented in Jewelcor, Inc. v. Pearlman, 397 F. Supp. 221 (S.D.N.Y.1975), and the Court finds the reasoning of that decision persuasive. Tiger's statement that it was prepared to explore the acquisition of the Services Group "necessarily implied" that one of the reasons it had bought Purolator stock was to aid this endeavor. Id. at 237. Although further ...