Lewis v. McGraw

United States Court of Appeals for the Second Circuit · 1980 · Corporations

619 F.2d 192 (2d Cir. 1980)

Updated August 22, 2026

CorporationsWilliams ActTender OffersSecurities Fraud§ 14(e)tender offerreliancematerial misstatement

Facts

American Express first proposed a business combination at $34 per share and later submitted a $40 per share proposal that would become effective only if McGraw-Hill's management agreed not to oppose it. McGraw-Hill's board rejected both proposals and publicly described the initial proposal as "reckless," "illegal," and "improper," while also making statements attacking American Express and the adequacy of the proposed price. Plaintiffs alleged those statements were false and claimed that truthful disclosure would have caused the American Express proposal to be consummated. Plaintiffs conceded, however, that no tender offer was ever actually made to McGraw-Hill shareholders and that no shareholder ever had the opportunity to tender shares.

Issue

May shareholders maintain a damages action under § 14(e) of the Williams Act for alleged misstatements made in connection with a proposed tender offer when no tender offer was ever made to them? More specifically, can reliance be presumed where shareholders never had any opportunity to tender their shares?

Rule

Section 14(e) is aimed at protecting investors confronted with a tender offer and ensuring they do not have to respond without adequate information. A cause of action for damages under § 14(e) requires misrepresentation and shareholder reliance; reliance may be presumed only where reliance is possible and it is logical to do so, not where no tender offer was ever made and reliance was impossible.

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Lakeview Publishing, a Delaware corporation based in Chicago, announced that its board had rejected a proposal from North Harbor Financial to acquire a large block of shares at $52 per share, calling the proposal "dangerous" and "unlawful." Before North Harbor ever made an offer directly to Lakeview shareholders, it withdrew after the board refused to cooperate. Shareholders later sue for damages under § 14(e), alleging the board's statements were materially false and caused the stock to fall back to its preproposal price.

Are the shareholders most likely to prevail on their § 14(e) damages claim?

Explanation. A damages action under § 14(e) requires misrepresentation and shareholder reliance. Under the majority's reasoning, § 14(e) protects investors confronted with a tender offer and ensures informed decisions whether to tender. If no tender offer was ever made to shareholders, reliance on the challenged statements in deciding whether to tender was impossible, so the claim fails.