As Modified on Denial of Rehearing and Rehearing En Banc in No. 76-1316 April 18, 1977 and in Nos. 76-1317-18, May 18, 1977.
CUMMINGS, Circuit Judge.
These five appeals were consolidated and heard together. They arise out of an action brought by Sundstrand Corporation to secure redress for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j) and SEC Rule 10b-5 (17 C.F.R § 240.10b-5) by Standard Kollsman Industries, Inc. (SKI),
Another judge tried the case without a jury from September 16 to October 8, 1975, and rendered judgment against defendants for $6,287,190 (including prejudgment interest) plus costs and dismissed Huarisa's counterclaim. The judgment was accompanied by a 76-page unreported memorandum opinion containing numerous unsegregated findings of fact and conclusions of law. We of course accept the credibility findings therein. Brennan v. Midwestern United Life Ins. Co., 417 F.2d 147, 149 (7th Cir. 1969), certiorari denied, 397 U.S. 989, 90 S.Ct. 1122, 25 L.Ed.2d 397. Appeal No. 76-1317 was brought by Sun Chemical and the co-executors of Huarisa's estate; appeal No. 76-1316 was brought by defendant Henry W. Meers; and appeal No. 76-1318 was brought by Huarisa's estate because of the dismissal of Huarisa's counterclaim. The remaining two appeals concern costs in the district court. We affirm as to liability but the damages assessed below are modified.
The district court summarized the pleadings as follows:
As might be expected in litigation which is completing its eighth year, the factual setting is complex. Prior to its merger into Sun Chemical on December 31, 1972, SKI was an Illinois corporation with places of business in Melrose Park, Illinois, and other parts of the United States. Its common stock was traded on the New York Stock Exchange, and 2,380,000 shares were outstanding during the pertinent period. SKI's financial reports to the stockholders and public usually consolidated the financial information for itself, Kollsman Instrument Corporation (KIC), and its other subsidiaries.
During the relevant period, Huarisa was chairman of the board and president of SKI. He owned 172,000 shares of its stock, which he had acquired at an average cost of $8.75 per share. He also had a right of first refusal on 223,190 shares of common stock owned by members of the family of James O. Burke, the late founder of Standard Kollsman. On January 8, 1969, he exercised that option by delivering to the Burke family his written election to purchase their shares, together with 5 per cent of the purchase price, namely, $334,785. On January 9, Sundstrand and Huarisa entered into a stock option transfer agreement which provided that Huarisa was selling the 223,190 shares of SKI stock to Sundstrand "subject to payment by Sundstrand of the unpaid balance of $6,360,915 due * * *."
The stock option transfer agreement of January 9 was preceded by merger negotiations between Sundstrand and SKI commencing in November 1968. Meers, a managing partner of the Chicago office of White, Weld & Co., underwriter of securities and merger broker for corporations, was an outside director of SKI. He served as such from May 1967 to May 1970. In late spring or early summer of 1968, Meers recommended several companies, including Sundstrand, to Huarisa as good merger prospects for SKI. In mid-November 1968, at Huarisa's direction, Meers telephoned James Ethington, Sundstrand's president, to inquire as to his present interest in a merger.
On the afternoon of December 26, 1968, Ethington and Louis H. Schuette, vice chairman of Sundstrand, met with Meers to negotiate a price for Sundstrand's proposed acquisition of SKI. Meers was acting as an agent for Huarisa at the meeting and periodically called Huarisa about the price terms. After three hours of bargaining, Ethington and Schuette offered $38.25 per share for SKI's stock. This offer was accepted by Huarisa who agreed to submit it to his board of directors. On December 27, 1968, Ethington delivered a written proposal for Sundstrand to acquire SKI in exchange for Sundstrand's common stock at its market value, which was approximately equivalent to $38.25 for each share of SKI stock. On January 2, 1969, SKI's board of directors authorized Huarisa to proceed on the basis of Sundstrand's proposal, which was made public the same day. On January 7, officers and employees of Sundstrand began to survey SKI's operation in order to determine whether the merger should be consummated. On January 20, Sundstrand concluded to cancel the merger negotiations. The district court found that the reasons were as follows:
At a January 22 meeting with SKI officials and Meers, Sundstrand adhered to its decision to call off the merger negotiations, but Sundstrand president Ethington said that Sundstrand was going to honor "its commitment" of January 9 to Huarisa with respect to purchasing the Burke shares. The next day, the two companies announced that the merger plans had been dropped.
I. Liability Standard for Huarisa and Sun Chemical
In considering the liability of Huarisa, the district court concluded that
The court added that Huarisa conspired with SKI and other officers, particularly Messrs. Ryan and Werle,
In employing the intentional or reckless test with respect to Huarisa's and other SKI employees' conduct, the district court acted correctly. In Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668, the Supreme Court held that a private cause for damages would not lie under Section 10b and Rule 10b-5 in the absence of an intent to deceive or manipulate on the defendant's part. Sundstrand's amended complaint alleged both fraud and deceit, and the intent standard of Hochfelder was employed by the court below in passing on Huarisa's liability. It is true that in Hochfelder the Supreme Court did not decide whether reckless behavior is sufficient for civil liability under Section 10(b) and Rule 10b-5, although it recognized that recklessness is sometimes considered a form of intentional conduct for purposes of imposing liability for some acts. 425 U.S. at
Sun Chemical does not contest that it is liable as the successor to SKI if Huarisa, Ryan, Werle and other SKI personnel violated Rule 10b-5, as the court found.
To escape liability, Huarisa and Sun Chemical assert that Sundstrand is barred from recovery by its failure to exercise due care or diligence. However, that defense is not available in an intentional fraud case. Holdsworth v. Strong, 545 F.2d 687 (10th Cir. 1976) (en banc) As will be seen, Sundstrand has amply shown reliance on Huarisa's and SKI's misrepresentations and omissions when entering into the January 9 agreement, and that its reliance was then justified. Under Holdsworth, that is sufficient to establish a causal connection between the misrepresentations and omissions and Sundstrand's injury. Therefore, the judgment below is affirmed insofar as it imposes liability on Huarisa and Sun Chemical for causing Sundstrand to enter into the stock option transfer agreement of January 9.
A. Misrepresentations and Failures to Disclose by Huarisa and SKI
For Huarisa and Sun Chemical to be liable under Rule 10b-5, their statements must have contained material misrepresentations or they must have omitted to state material facts. The most recent test of materiality under the Securities Exchange Act of 1934 is whether "there is a substantial likelihood that a reasonable [investor] would consider [the omitted facts or misrepresentations] important in deciding" whether to invest. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2133, 48 L.Ed.2d 757; S. D. Cohn & Co. v. Woolf, 426 U.S. 944, 96 S.Ct. 3161, 49 L.Ed.2d 1181. Applying this test, we believe the following misrepresentations and omissions were material and that Sundstrand relied thereon.
As to 1968, Huarisa represented to Sundstrand that SKI would earn $2.6 million or $2.9 million, and $1.16 per share, whereas it lost $367,803, or 15¢ per share. Like the court below, we remain unconvinced that these projections were reasonable because Huarisa and Ryan knew of SKI's production and financial difficulties and of the distinct possibility of large write-offs having to be made at the end of that year.
The projection of $2.13 to $2.50 per share earnings for 1969 was also overstated, for the actual 1969 earnings were only 35¢ per share. Defendants have not convinced us that the 1969 projections were reasonable. Again, we agree with the district court that Huarisa and SKI knew, or were reckless in not knowing, that the 1969 earnings were grossly inflated. The pre-merger misrepresentations about SKI's earnings projections for 1968 and 1969 were continued by Huarisa and Ryan at the January 22 meeting when they endeavored to persuade Sundstrand to revoke its decision not to proceed
Huarisa and other SKI personnel also failed to disclose to Sundstrand that dissident SKI director James W. Burke filed a May 1968 report with the SKI board of directors questioning its accounting practices for 1967, particularly with respect to continuing to defer certain preproduction costs. Burke filed a supporting report from the accounting firm of Ernst & Ernst. These reports were discussed by the SKI's board at 25 board meetings during 1968, and representatives of Price Waterhouse, SKI's accounting firm, also discussed Burke's questions at several board meetings. Because of Burke's report, commencing in April 1968, the board received monthly financial reports showing the continual increase of deferred preproduction costs on certain SKI programs. In view of Burke's complaints to the SEC, SKI sent a Price Waterhouse partner and one of SKI's lawyers to discuss Burke's charges with the SEC, where it was concluded that the 1967 annual report did not reflect improper accounting practices. However, the Price Waterhouse firm assured the SEC that it would re-evaluate the situation when the 1968 annual report was prepared. The materiality of the nondisclosure of these reports is apparent, for SKI's board and Price Waterhouse representatives devoted major attention to them during 1968, and they certainly were a factor in causing Price Waterhouse to insist that SKI could not continue to defer preproduction costs in 1968. As a reviewing court, we are bound by the district judge's credibility determination that Sundstrand's president Ethington was influenced by the nondisclosure of these critical reports. This was supported by his and Sundstrand's secretary's March 22 flight to New York just after the president of Sun Chemical informed them of the reports.
On January 27, 1969, Price Waterhouse completed a memorandum stating its preliminary assessment that write-offs ranging from $3 million to $4.5 million would have to be made on the books of KIC for the year 1968. KIC's vice president-controller Werle admittedly received a copy of this report on January 31, and SKI's financial vice president and treasurer Ryan admittedly received it on February 3. The district court found that Huarisa also must have known of this Price Waterhouse assessment before February 6 when Sundstrand paid the $6,360,915 balance for the 223,190 Burke shares of SKI stock. This memorandum was obviously material, for it resulted in $4.6 million being charged on the KIC books in 1968, causing SKI to lose 15¢ per share. The memorandum should have been disclosed to Sundstrand, for it contradicted previous representations made by SKI personnel and certainly would have affected any reasonable investor's decision to proceed with a purchase of the magnitude involved on February 6.
Thus a number of material misstatements and omissions were made by Huarisa and SKI upon which Sundstrand relied. Whether or not this reliance was justified for purposes of damage causation, we defer to a later discussion in this opinion. However, in order to assess damage causation intelligently, it is necessary to study Sundstrand's obligation to purchase the Burke stock in greater detail.
B. Obligation of Sundstrand to Purchase Burke Stock
In the court below, Sundstrand contended that it purchased the Burke family stock on January 9 and was obligated by its written agreement of that date with Huarisa to complete the payment therefor. We agree with the district court that the January 9 agreement between Sundstrand and Huarisa did not obligate Sundstrand to complete the purchase of Burke stock. Paragraph 2 of that agreement did require Sundstrand to convey 5,686 shares of Sundstrand stock to Huarisa to reimburse him for the $334,785 which he had paid the Burkes when he exercised his option to purchase their stock at $30 per share on January 8. In order to determine Sundstrand's liability under the January 9 contract, it is necessary to consider also the December 7, 1968, Burke family's written offer to sell 223,190 common shares of SKI stock to Huarisa at $30 per share and the pooling agreement referred to therein. The pooling agreement between the Burke family and Huarisa was dated February 23, 1967. It and the offer to sell gave John B. Huarisa the right of first refusal to purchase the Burke shares for 30 days after December 10, 1968,
As Sundstrand has explained (Br. 15-16) and as the district court found (mem. op. 19), its reason for entering into the January 9 agreement with Huarisa was to prevent Sun Chemical from acquiring a block of SKI stock large enough to frustrate the proposed Sundstrand-SKI merger before Sundstrand could complete its study of SKI which commenced on January 7 and ended on January 20. Previously Sundstrand had been erroneously told by its counsel that the agreement of January 9 obligated it to buy the 223,190 shares, and accordingly it proceeded with the purchase on February 6. As a result, although Sundstrand's president told Huarisa on January 6 that Sundstrand would only be interested in buying the Burke stock if the proposed merger with SKI were to take place, on January 22, after the merger negotiations terminated, he told Huarisa that Sundstrand would honor "its commitment" of January 9 with respect to the Burke shares.
II. Liability of Meers
Finally, we must consider whether Meers is also liable under Rule 10b-5 for the injury suffered by Sundstrand. The district court held him liable for three independent reasons: (1) failure to disclose the Burke and Ernst & Ernst reports even though he had a duty to do so; (2) as an aider and abettor of Huarisa and SKI; and (3) as a "controlling person" of SKI under Section 20(a) of the Securities Exchange Act of 1934 (15 U.S.C. § 78t(a)). We reach only the first ground.
Nondisclosure of the Burke and Ernst & Ernst Reports
A. Duty to Disclose
As the district court phrased it. Meers was "on both sides and in the middle of the transaction" (mem. op. at 68). Meers was an SKI director and was also acting as a merger broker for SKI and Huarisa with respect to Sundstrand. His firm was to receive a $150,000 fee if the merger with Sundstrand was completed. In the past, his firm had performed investment banking services for Sundstrand and its officials had confidence in him.
Thus, although he was acting in a nominally adversary relationship vis-a-vis Sundstrand as SKI's merger broker, Sundstrand could properly rely on its preexisting and contemporaneous banker-client relationship with Meers for fair disclosure. In this posture as a quasi-fiduciary with respect to Sundstrand, Meers had an affirmative common law duty to disclose material facts relating to the proposed merger.
B. Meers' Culpability in Omitting the Material Facts
After Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668, a merely negligent breach of a duty defendant owes plaintiff is not sufficient to trigger liability under Section 10(b) of the Securities
As noted above in our discussion of Huarisa's and Sun Chemical's liability, Bailey v. Meister Brau, Inc., 535 F.2d 982 (7th Cir. 1976), resolved for this Circuit the ambiguity in footnote 12 of Hochfelder in favor of including reckless behavior in the definition of what behavior is necessary to maintain a Rule 10b-5 action. However, Meers' conduct comprised reckless nondisclosure rather than disclosing information with a reckless disregard for the truth of the material asserted. Thus a more extended analysis of the reckless behavior standard is required in our discussion of Meers' liability.
At common law reckless behavior was sufficient to support causes of action sounding in fraud or deceit. Since there is no hint in Hochfelder that the Court intended a radical departure from accepted Rule 10b-5 principles,
Apparently the only post-Hochfelder reported definition of recklessness in the context of omissions appears in Franke v. Midwestern Oklahoma Development Authority, 428 F.Supp. 719 (W.D.Okl.1976):
As the Supreme Court conceded in Hochfelder:
The Franke definition of recklessness is "the kind of recklessness that is equivalent to wilful fraud". SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 868 (2d Cir. 1968) (Friendly, J., concurring) (en banc), certiorari denied sub nom. Coates v. SEC, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756.
Indeed, the Franke definition of recklessness should be viewed as the functional equivalent of intent. Cf. Bucklo Scienter and Rule 10b-5, 67 Nw.U.L.Rev. 562, 570-571 (1972). Under this definition, the danger of misleading buyers must be actually known or so obvious that any reasonable man would be legally bound as knowing,
Application of the Recklessness Standard to Meers' Conduct
1. The Objective Element
At the December 26 merger negotiation meeting, Meers agreed with Ethington that Ethington's earnings estimates for SKI of $1.16 per share in 1968 and $2.00
Meers denies actual knowledge of the danger, and the trial court made no determination that Meers possessed actual knowledge. However, a finding on the objective obviousness of the danger was made (mem. op. 32-34), which is sufficient for liability even absent an actual appreciation by Meers of the significance of the omitted material to Sundstrand.
The factual findings of the district court relevant to the obviousness of the danger, which upon our independent examination of the record we find amply supported, are most succinctly stated in the trial court's own words (mem. op. 32-34):
The trial court concluded that "the materiality of the Burke and Ernst & Ernst reports is not open to serious question" (mem. op. 36).
Meers places heavy reliance on the SEC meeting of August 1968 as dispelling the doubts the Burke and Ernst & Ernst reports had raised in his mind. However, the 1968 accounting practices were not passed on in the SEC meeting. The monthly financial reports which Meers requested as a result of Burke's initial complaints continued to show an increase in deferred preproduction costs. At every board meeting Meers asked about the preproduction costs. Indeed, Meers found out that the computer unit CPU-46 had still not been qualified with the government, a condition precedent for additional government contracts for that product. Thus the principal expected source of revenue against which to amortize the mounting preproduction costs remained indefinite and unreliable. Under these circumstances, any reasonable man would be bound to know that the danger posed to Sundstrand by the serious conflict on SKI's accounting policy among its board members and two public accounting firms as to deferred preproduction costs had not been vitiated by the inconclusive August 1968 SEC meeting.
2. The Subjective Standard
Yet even if constructive knowledge of the danger to Sundstrand of omitting certain facts is imputed to Meers, an omission caused because Meers genuinely forgot about these facts would not be actionable, even if such an omission derived from inexcusable neglect. Cf. SEC v. Bausch & Lomb, 420 F.Supp. 1226, 1241-1244, nn. 3 & 4 (S.D.N.Y.1976). But we need not remand for a factual determination here since a subsequent pre-January 9 event removed Meers' omission from the putative realm of mere inexcusable neglect. At the January 2, 1969, board meeting to approve the Sundstrand merger proposal, in Meers' presence Burke asked if Sundstrand had been told of the Burke and Ernst & Ernst reports and Huarisa replied that it had not. Therefore, rather than putting the question out of his mind, Meers must have consciously decided not to disclose (and did not disclose)
C. Remaining Elements of the Cause of Action
Since the omitted facts pass the stringent objective element of the recklessness test, the district court's determination of the materiality of the Burke and Ernst & Ernst reports—that there is a substantial likelihood they would be considered important by a reasonable investor—is not open to argument, especially since materiality assessments are peculiarly for the trial court as fact-finder.
Of course, Sundstrand would be open to a defense of non-reliance on the omissions if Meers could meet the burden of proof running against him to establish such an affirmative defense. McLean v. Alexander, 420 F.Supp. 1057, 1077-1079 (D.Del.1976). Note, The Reliance Requirement in Private Actions Under SEC Rule 10b-5, 88 Harv.L.Rev. 584, 606 (1975); Wheeler, Plaintiff's Duty of Due Care Under Rule 10b-5: An Implied Defense to an Implied Remedy, 70 Nw.U.L.Rev. 561 (1975); Note, Reliance Under Rule 10b-5: Is the "Reasonable Investor" Reasonable?, 72 Colum.L.Rev. 562, 567 (1972). In a nondisclosure case, reliance is vitiated if the plaintiff is chargeable with the omitted information. Under a negligence standard of liability, plaintiff could not justifiably claim reliance if he had not exercised due diligence. Wheeler, supra. But under a reckless or Hochfelder scienter standard, "[i]f contributory fault of plaintiff is to cancel out wanton or intentional fraud, it ought to be gross conduct somewhat comparable to that of defendant." Holdsworth v. Strong, 545 F.2d 687, 693 (10th Cir. 1976); cf. McLean v. Alexander, 420 F.Supp. 1057, 1078 (D.Del.1976).
We find nothing in the record that remotely suggests that Sundstrand was recklessly remiss in not ferreting out on its own the information contained in the Burke and Ernst & Ernst reports before its down payment to Huarisa on January 9, 1969 (mem. op. at 60-61). Rather, the record clearly
Nor can Meers insulate himself from this liability by urging that he was only involved in the SKI-Sundstrand merger, for it is clear that the January 9 agreement was an integral part in any such merger by preventing Sun Chemical from purchasing the Burke shares "for another thirty days" (mem. op. 17-18), i.e., until February 9. Since Meers' conduct was partly responsible for Sundstrand's signing the stock option transfer agreement,
It follows that Meers must share in the Huarisa estate's and Sun Chemical's liability on a material omission Rule 10b-5 theory. Therefore, we need not decide whether Meers would also be liable as an aider and abettor
III. Damage Causation for Purchase of SKI Stock on February 6
When the January 9 agreement was made between Sundstrand and Huarisa as to the Burke stock option, Huarisa's and SKI's intentional or reckless misrepresentations and omissions and Meers' reckless omissions had convinced Sundstrand that it should seriously consider merging with SKI. A prerequisite of the merger, viz., keeping the huge block of Burke stock out of Sun Chemical's hands, prompted Sundstrand to execute the agreement. However, as seen, that agreement only required Sundstrand to transfer 5,686 of its shares to Huarisa, which was accomplished on March 3. Sundstrand was not bound by the January 9 agreement to buy the Burke shares by paying the $6,360,915 balance on February 6 or later.
We cannot accept the district judge's sua sponte suggestion that Sundstrand completed the transaction for investment purposes. During the January 7-20 survey period,
While Rule 10b-5 imposes "no obligation to pull back from a commitment previously made by the buyer and accepted by the seller because of after-acquired knowledge," it is true that for the purpose of damage assessment, "the time of a `purchase or sale' of securities within the meaning of Rule 10b-5 is to be determined as the time when the parties to the transaction are committed to one another." Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 891 (2d Cir. 1972).
Sun Chemical and Huarisa contend that they are not liable even for this $334,785 because Sundstrand's obligation to pay this amount to Huarisa remained executory until March 3, 1969, when it transferred 5,686 of its shares to Huarisa pursuant to paragraph 2 of the January 9 agreement. However, Sundstrand had not learned of the Burke and Ernst & Ernst reports until March 21. In any event, the "commitment" occurred on January 9, 1969, under Radiation Dynamics, Inc., supra, at 891. Therefore, we cannot agree that its March 3 transfer to Huarisa was voluntary rather than on account of material misrepresentations and omissions. Because the record supports the district judge's findings that SKI's and Huarisa's misrepresentations and omissions were intentional or reckless and because Meers' omissions were reckless, Sundstrand is entitled to prejudgment interest on a judgment for $334,785 at the rate of 6% per annum from January 9, 1969, to the date of judgment in this Court.
IV. Dismissal of Huarisa's Counterclaim
The district court dismissed Huarisa's counterclaim under paragraph 4(a) of the January 9, 1969, stock option transfer agreement. Under that paragraph, Sundstrand agreed that it would purchase from Huarisa all or any part of its 5,686 shares transferred to Huarisa on March 3, 1969, for $58.75 per share on 15 days' written notice from Huarisa. He gave such notice on November 11, 1970, but Sundstrand rejected it on November 23, 1970, on the ground that Huarisa had violated the Securities Exchange Act of 1934 and SEC rules thereunder. The counterclaim sought specific performance or damages of $334,763.25 plus interest.
The reason given below for the dismissal of the counterclaim is that the agreement in question was made in violation of the Act and Rule 10b-5, so that it was void as regards the rights of Huarisa under Section 29(b) of the Act (15 U.S.C. § 78cc(b)) (mem. op. 76). This accords with our opinion in Sundstrand I, 488 F.2d at 816. The testimony of Messrs. Ethington, Schuette, Sadler and Ross was receivable under Rule 601 of the Federal Rules of Evidence and therefore not barred by the then current Illinois Dead Man's Act (Ill.Rev.Stat.1971 ch. 51, § 2).
For the foregoing reasons, we affirm the judgment below as to liability. As to damages, the judgment is vacated with directions to enter judgment for plaintiff for $334,785 plus 6% interest from January 9, 1969, to date. Each party will bear its own costs on appeal. We affirm the district court's order of August 18, 1976, with respect to costs in that court.
On petition for rehearing and rehearing en banc in No. 76-1316
On consideration of the petition for rehearing and suggestion for rehearing en banc filed in the above-entitled cause by defendant-appellant Henry W. Meers, no judge in active service has requested a vote thereon, and all judges on the original panel have voted to deny a rehearing. Accordingly,
IT IS ORDERED that the aforesaid petition for rehearing be, and the same is hereby, DENIED.
IT IS FURTHER ORDERED that the slip opinion be modified by the insertion of the following clause after "counsel" in the 20th line of page 1049:
Judge Tone disqualified himself from consideration of this petition for rehearing.
Nos. 76-1317, 1318
On consideration of the petition for rehearing and suggestion for rehearing en banc filed in the above-entitled cause by appellee Sundstrand Corporation, and on consideration of the answer thereto filed by appellants Sun Chemical Corporation and Huarisa Estate, a majority of the judges of the original panel have voted to deny a rehearing, and a majority of the judges in active service have voted to deny a rehearing en banc. Accordingly,
IT IS ORDERED that the aforesaid petition for rehearing be, and the same is hereby, DENIED.
IT IS FURTHER ORDERED that the following be added at the end of the last line of footnote 35 of the slip opinion:
FAIRCHILD, C. J., voted for rehearing by the panel, BAUER, J., voted for rehearing en banc, and TONE, disqualified himself from consideration of the petition.
Therefore, we will only reach the reckless nondisclosure question in this case since the other two theories of liability discussed below—aiding and abetting and control person—would require us to face the difficult task of defining the elements of these theories after Hochfelder. We leave this task to another day.
But by the same token, there is no justification for construing Section 10(b) more narrowly in light of the fact that good faith is not appropriate as a defense to reckless or intentional behavior. McLean v. Alexander, 420 F.Supp. at 1081.
Cf. note 9 supra.