## Facts

- Action Industries, Inc. prepared internal weekly, monthly, and quarterly sales and revenue projections.
- In May and early July 1982, internal forecasts indicated improving orders and projected higher sales and earnings for the first quarter of fiscal 1983.
- On July 16, 1982, Action commenced a self-tender offer to repurchase 15% of its common stock at $4.00 per share, expiring August 6, 1982.
- The tender-offer materials disclosed audited financial statements for fiscal years 1979–1981 and unaudited interim financials for fiscal 1982 through March 27, 1982, showing a substantial year-to-date loss versus prior-year earnings.
- The tender-offer materials stated that after March 27, 1982, sales were expected to increase while earnings were expected to decrease due to rising expenses.
- The tender-offer materials did not disclose internal projections for fiscal 1983.
- After the tender offer closed, Action issued an August 18, 1982 press release describing completed fiscal 1982 audited results consistent with earlier disclosures, without providing fiscal 1983 projections.
- Walker sold shares on September 21, 1982 for about $5.25 per share.
- On October 28, 1982, Action announced interim fiscal 1983 results showing sharply increased sales and net earnings; the market price later rose substantially.
- Walker sued alleging securities fraud under Exchange Act § 10(b) and Rule 10b-5 based on omissions in the tender-offer statement and press release, plus state-law fiduciary-duty claims, and sought class certification.

## Issues

1. Whether § 10(b) and Rule 10b-5 imposed a duty to disclose internal fiscal 1983 projections or improving sales/order trends in the tender-offer statement or press release, such that omission could constitute a material omission.
2. Whether the evidence supported a state-law breach of fiduciary duty by directors in connection with the self-tender and disclosures.
3. Whether the district court erred in denying class certification and in challenged evidentiary and trial-management rulings.

## Decision

- Affirmed the judgment for defendants in full.
- Held the jury was properly instructed that Action had no duty to disclose internal financial projections in the tender-offer statement or press release; the defense verdict on the Rule 10b-5 claim stood.
- Affirmed the directed verdict against Walker on the state-law fiduciary-duty claim.
- Affirmed denial of class certification and rejected claims of reversible evidentiary error or unfair prejudice from the trial judge’s comments.

## Legal Principles

- Rule 10b-5 does not impose a general affirmative obligation to disclose internal financial projections or forecasts.
- An omission is actionable under § 10(b) and Rule 10b-5 only when there is a duty to speak, including when disclosure is required by regulation or necessary to make existing statements not materially misleading.
- Compliance with required SEC tender-offer disclosures (including historical audited and specified interim financial information) may defeat a claim that additional nonrequired forward-looking “soft information” had to be disclosed.
- Denial of class certification and evidentiary rulings are reviewed deferentially and are reversed only for abuse of discretion causing unfairness.

## Conclusion

The Fourth Circuit upheld a defense verdict and related trial rulings, concluding that the securities laws did not require a company to disclose internal financial projections in tender-offer materials or a press release absent a specific disclosure duty or a need to correct a materially misleading statement.


Walker v. Action Indus., Inc., 802 F.2d 703 (4th Cir. 1986)