## Facts

- Murdoch-controlled entities (including News International plc) began acquiring substantial Warner Communications, Inc. common stock in the open market in 1983, prompting a corporate control contest.
- Warner’s management opposed Murdoch’s acquisition efforts and entered a defensive stock-exchange transaction involving Chris-Craft Industries, Inc. and BHC, Inc., placing a large block of Warner shares with perceived friendly holders.
- News International alleged the defensive transaction and related conduct were entrenchment tactics and involved deceptive practices and inadequate disclosures.
- News International also alleged Warner-related parties and Chris-Craft/BHC formed a coordinated “group” concerning Warner shares and failed to make required Schedule 13D disclosures under Exchange Act § 13(d).
- Warner challenged the Murdoch Group’s own Schedule 13D disclosures as false or misleading regarding intentions and acquisition plans.
- The case came before the district court on motions to dismiss News International’s counterclaims and third-party claims against Warner, Warner directors/officers, and Chris-Craft/BHC-related parties.

## Issues

1. Whether alleged entrenchment tactics, defensive transactions, and related public statements stated a claim for securities fraud under Exchange Act § 10(b) and Rule 10b-5.
2. Whether Warner, Chris-Craft, BHC, and associated directors/officers plausibly formed a § 13(d)(3) “group” requiring Schedule 13D filings or amendments, and whether an issuer can be part of such a group regarding its own stock.
3. Whether civil RICO claims could proceed when predicated largely on the alleged securities-law violations.
4. Whether ancillary state-law claims could proceed in light of the disposition of the federal claims.

## Decision

- The court dismissed with prejudice News International’s principal federal claims against Warner and most Warner-affiliated defendants, including the Rule 10b-5/§ 10(b) claims based on entrenchment and disclosure theories.
- The court dismissed the civil RICO counts, finding they depended on insufficiently pleaded securities-fraud allegations and did not independently establish required predicate acts or a pattern.
- The court allowed certain § 13(d) claims to proceed against Chris-Craft, BHC, and certain individuals based on allegations they acted as a § 13(d)(3) group and failed to file or update required Schedule 13D disclosures.
- The court dismissed § 13(d) claims against Warner, holding the issuer could not be treated as a member of a § 13(d)(3) group of beneficial owners regarding its own shares.

## Legal Principles

- Rule 10b-5 liability requires deceptive conduct—material misstatements, omissions in breach of a duty to disclose, or other fraud—in connection with a securities transaction; allegations framed as entrenchment or fiduciary-duty misconduct, without deception, do not suffice.
- Federal securities law generally does not require management to disclose subjective motives (including entrenchment motives) or contingent defensive strategies absent a specific duty and materiality.
- Exchange Act § 13(d) is a disclosure regime aimed at accumulations of voting securities and potential changes in control; a coordinated group of beneficial owners may trigger collective Schedule 13D obligations under § 13(d)(3).
- An issuing corporation is not a § 13(d)(3) “group” member with shareholders concerning beneficial ownership of the issuer’s own stock merely because it negotiates or implements defensive transactions.
- Civil RICO claims predicated on alleged securities fraud fail where the underlying fraud allegations are not adequately stated and do not supply viable racketeering predicates and a qualifying pattern.

## Conclusion

The court treated the dispute as primarily a corporate control fight and rejected efforts to convert alleged entrenchment and governance complaints into federal securities fraud and RICO liability, while permitting a narrower path forward only on § 13(d) “group” disclosure allegations against outside shareholders and related individuals, not against the issuer itself.


Warner Commc’ns, Inc. v. Murdoch, 581 F. Supp. 1482 (D. Del. 1984)