Gaf Corporation v. Milstein

453 F.2d 709 (2nd Cir. 1971)

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Nature of the Case

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Facts

Ds received 324,166 shares of P convertible preferred stock, approximately 10.25% of the preferred shares outstanding, when The Ruberoid Company, in which they had substantial holdings, was merged into P in May 1967. P alleges that Ds 'formed a conspiracy among themselves and other persons to act as a syndicate or group for the purpose of acquiring, holding, or disposing of securities of P with the ultimate aim of seizing control of P for their own personal and private purposes.' Ds sought senior management and board positions with P. Ds caused Circle Floor Co., Inc., a company in their control, to reduce its otherwise substantial purchases from P. P alleges that Ds undertook a concerted effort to disparage its management and depress the price of P common and preferred stock in order to facilitate the acquisition of additional shares. Ds also filed derivative actions for waste and spoliation of corporation assets, which P claims was only to disparage management. Paul and Seymour Milstein purchased respectively 62,000 and 64,000 shares of P common stock. When P its lawsuit, Ds complied with Section 13(d) and filed a schedule on September 24, 1970. They stated that they had 'no present intention as to whether or not any additional securities of P might be acquired by them in the future. . . .' Two months later Paul and Seymour each purchased an additional 41,650 shares of common. Ds thereafter filed a Restated and Amended Schedule 13D on November 10 to reflect these new purchases. On January 27, 1971, Ds filed a third Schedule 13D, disclosing their intention to wage a proxy contest at the 1971 annual meeting. They disclaimed any present intention to acquire additional shares, but Paul purchased 28,300 shares of common stock during February 1971. Section 13(d) requires any person, after acquiring more than 10% of a class of registered equity security, to send to the issuer and the exchanges on which the security is traded and file with the Commission the statement required by the Act. P filed its complaint alleging that D, his two sons, Seymour and Paul, and his daughter, Gloria Milstein Flanzer, violated section 13(d) of the Securities Exchange Act first by failing to file the required statements and then by filing false ones. P also alleged a violation of section 10(b) based on the same false statements and, in addition, market manipulation of P's stock. Ds moved for dismissal under Rule 12(b)(6). P sought both a preliminary and permanent injunction. The court dismissed, and P appealed.