## Facts

- Amster, Lafer, and Packer, partners in an investment firm later known as Amster & Co., acquired over 5% of Graphic Scanning Corp.’s shares in August 1985 and filed a Schedule 13D stating the shares were acquired “as an investment,” not to seek control.
- The investors expected Graphic to liquidate or sell major assets; in January 1986 Graphic disclosed it might not complete asset sales on unfavorable terms.
- Between February 3 and March 2, 1986, Amster management met with other institutional holders, consulted legal and financial advisers, discussed possible strategies (including a proxy contest), and continued to increase their holdings.
- Amster & Co. filed Schedule 13D Amendments 5, 6, and 7 (Feb. 10, Feb. 18, and Mar. 6, 1986). Azurite claimed these amendments falsely maintained an “investment” purpose and omitted a control-related purpose allegedly formed by early February.
- Azurite, a shareholder, sold Graphic shares between February 3 and March 3, 1986 and alleged it would have sold at higher prices had the market known of Amster management’s alleged proxy-contest/control intent.
- After a related SEC enforcement action involving the same alleged Schedule 13D deficiencies ended in summary judgment for defendants, the district court granted summary judgment for defendants in Azurite’s private § 10(b)/Rule 10b-5 damages action.

## Issues

1. Whether a Schedule 13D filer has a duty to disclose preliminary considerations of a proxy contest or other tentative control strategies before forming a definite intent to acquire or influence control.
2. Whether the evidence could permit a finding that, before March 3, 1986, defendants had formed the requisite “purpose” or “intention” to seek control such that the “investment” characterization and omissions in the amendments were materially misleading under Rule 10b-5.
3. Whether, given the asserted misstatements and omissions in Schedule 13D filings, plaintiff could establish the elements of a § 10(b)/Rule 10b-5 claim sufficient to avoid summary judgment.

## Decision

- The Second Circuit affirmed summary judgment for defendants.
- The court held defendants had no duty under § 13(d) and Item 4 of Schedule 13D to disclose preliminary, contingent deliberations about a proxy contest.
- The court concluded the record did not support a reasonable inference that defendants had formed a definite intent to seek control during the period in which Azurite sold its shares.
- Because no disclosure duty attached before a formed control purpose, the challenged Schedule 13D amendments were not materially false or misleading, and plaintiff’s Rule 10b-5 theory failed.

## Legal Principles

- Schedule 13D requires disclosure of plans or proposals related to control when the filer has formed a purpose or intention to seek control, not when the filer is merely evaluating options.
- A § 10(b)/Rule 10b-5 claim premised on omissions from Schedule 13D depends on the existence of a disclosure duty under § 13(d); absent a duty, nondisclosure of preliminary discussions is not an actionable omission.
- Professional investors may investigate potential strategies, including proxy contests, without triggering a disclosure obligation until their intention to pursue control becomes definite.
- When the evidence shows only exploratory discussions and ongoing evaluation, summary judgment is appropriate because material falsity/misleading omission and scienter cannot be established on a theory that the law did not require earlier disclosure.

## Conclusion

The Second Circuit held that Schedule 13D does not require disclosure of preliminary proxy-contest considerations and that disclosure obligations arise only when an investor forms a definite control-related purpose; because defendants had not formed such an intent during the relevant period, their filings were not materially misleading and the Rule 10b-5 damages claim was dismissed on summary judgment.


Azurite Corp. Ltd. v. Amster & Co., 52 F.3d 15 (2d Cir. 1995)