Full opinion text
MEMORANDUM OPINION AND ORDER PATRICK E. HIGGINBOTHAM, District Judge. Table of Contents Page I. NATURE OF THE LITIGATION 233 II. BOUCHARD 235 A. Facts 235 1. Parties 235 2. Motions 236 B. Discussion 236 1. The Federal Claims 237 a. Section 14(a) Claims 237 b. The 10b-5 Claims 238 c. The Section 14(e) Claims 240 (i) The Tender Offer Letters 240 (ii) The Joint Press Release and Amended Tender Offer 243 2. Summary of Federal Claims 247 3. State Law Claims 247 C. Summary 249 III. JAROSLAWICZ AND LEWIS 249 A. Pertinent Facts 249 B. Rule 9(b): Its Requirements and Purposes 250 1. Count I 251 a. The Role of the Defendants 251 b. Omissions and Misrepresentations 252 (i) Omissions 252 (ii) Misrepresentations: The Documents and Their Contents 254 2. Count II 254 3. DH&S 254 C. 12(b)(6) Motions — Causation 256 D. Motion for Summary Judgment 256 IV. JOSEPH 257 A. Motion to Intervene 257 1. Intervention 258 2. Limitations - 258 I. NATURE OF THE LITIGATION Pursuant to an order of the Judicial Panel on Multidistrict Litigation entered September 26, 1978, four separate actions have been transferred to this court for coordinated or consolidated pretrial proceedings. Three of the actions were originally filed in the United States District Court for the Southern District of New York. They are Morton S. Bouchard, et al. v. Tesoro Petroleum Corp., et al., No. 77-Civ.-2037; Harry Lewis v. Norman C. Keith, et al., No. 77-Civ.-3402; and Seymour Joseph v. Peter M. Detwiler, et al., No. 77—Civ—3809. The other action, David Jaroslawicz v. James C. Phelps, et a1, No. SA-78-101, was commenced in the United States District Court for the Western District of Texas. These actions are brought under the federal securities laws and various common law doctrines, and they focus in large measure upon a 1975 tender offer pursuant to which Tesoro Petroleum Corp. (Tesoro) purchased approximately 5.5 million shares of Commonwealth Oil Refining Co. (Coreo), and upon the actions of those corporations and their directors leading up to and following the tender offer. The primary defendants in these actions are Corco; Tesoro; present and former officers and directors of Corco and Tesoro; E. F. Hutton Co., Inc., the stockbroker that handled the 1975 tender offer for Tesoro (named as a defendant in Bouchard only); and Deloitte, Haskins & Sells, Corco’s accountant (named as a defendant in Lewis and Jaroslawicz only). In general, the actions are based on alleged violations of the antifraud provisions of the federal securities laws and upon state law theories of mismanagement and breach of fiduciary duty. Three of the actions — Bouchard, Lewis, and Jaroslawicz — are brought individually and on behalf of various classes of Coreo shareholders. The Joseph case is brought by a shareholder of Tesoro who also seeks to represent a class. 'Pretrial motions have been filed in each of the four actions, and these motions are the subject of this Order. Before considering the motions, and before considering in greater detail the scope and nature of each of the cases, a brief chronology of the events and circumstances that underlie the allegations in the various complaints is in order. The story must begin with a general description of the principal actors. The leading roles are played by the Commonwealth Oil Refining Company (Coreo) and the Tesoro Petroleum Corporation (Tesoro). Coreo is the largest industry in Puerto Rico. The company is principally engaged in the operation of a major oil refinery and petrochemical complex at Guayanilla Bay on the southern coast of Puerto Rico. The oil refinery, which commenced operation in 1955, has capacity to refine approximately 161,-000 barrels per day. The eight petrochemical plants have been added during the years since 1956. Coreo is also engaged in several joint ventures in the petrochemical field. During the 1960’s, Corco entered into several fixed-price arrangements — with PPG Industries, W. R. Grace & Co., and the Puerto Rico Water Resource Authority— that largely as a result of rapidly increasing crude oil costs, proved financially harmful. In addition, Corco has been beset with financial difficulties stemming from a perverse confluence of various laws and regulations. The fact that Corco’s products have been subject to price controls applicable to oil refined on the mainland United States, coupled with the high cost of transporting Corco oil from Puerto Rico to the mainland (in U.S. vessels carrying U.S. crews in compliance with the Jones Act) has substantially undermined Corco’s competitive position in the petroleum industry. In addition, Corco has been subject to an import fee of $2.00 per barrel imposed by the Government of Puerto Rico, a fee which it could not pass on to its customers under federal pricing regulations. As a result of these and other financial difficulties, during the past several years Corco’s earnings have declined. For the year 1975, for instance, Coreo reported a net earnings loss of over 24 million dollars. Eventually, Coreo became unable to service its substantial debts, and in March, 1978, filed a voluntary petition under Chapter XI of the Bankruptcy Act in the Western District of Texas. ' During the decline of Corco’s financial fortunes, significant changes in the control and management of Coreo took place. In 1972, defendant Norman C. Keith became president and chief executive officer of Coreo, as well as its largest stockholder. Plaintiffs in the Bouchard action allege that during his tenure as president, Keith charged to Coreo extravagant and unreasonable perquisites amounting to approximately $400,000 per year. By early 1975, perhaps because an arhythmic management pulse was sensed or for other reasons, several corporations became interested in acquiring control of Coreo through a tender offer or other means. These included the Ashland Oil Corporation, The Charter Company, and the Tesoro Petroleum Corporation. On April 18, 1975, Tesoro, an integrated oil company engaged in the exploration, development, and production of oil and gas reserves and in the refining of petroleum products, announced a tender offer for 5.5 million shares of Coreo at $11.50 per share. In response to that offer, Keith published two full-page advertisements in the Wall Street Journal in the form of letters to Coreo shareholders (the Keith tender offer letters) urging rejection of the offer. In the first of these letters, published April 22, 1975, Keith expressed confidence in Corco’s long-term earnings prospects and advised that “three critical problems which have seriously depressed the company’s earnings for several years” — the fixed-price contracts mentioned above — “have recently been resolved.” Keith added that “[t]he Tesoro offer falls far short of reflecting the potential of Corco’s petrochemical facilities,” and that the amount offered “is not even equal to the book value, let alone the replacement value.” The April 28, 1975 letter contained substantially the same recommendations against acceptance of the offer and predictions concerning Corco’s future. In addition, this letter advised that “the long-term prospects never looked brighter.” On April 23, 1975, Coreo filed an action in the United States District Court for the Southern District of New York against Tesoro and E. F. Hutton Co., Inc., alleging violations of the Williams Act and seeking to enjoin Tesoro from pursuing the offer. On April 30, that court (Cannella, J.) entered an order [see Commonwealth Oil Refining Co., Inc. v. Tesoro Petroleum Corp., 394 F.Supp. 267 (S.D.N.Y.1975)] requiring Tesoro to make further disclosures concerning the tax implications of the offer and to extend the duration of the offer. Sometime after that order, Tesoro agreed to increase its offer to $14.25 per share, and Keith and Coreo withdrew opposition to the tender offer. On May 4, 1975, in a joint press release, Coreo and Tesoro announced these events. The press release also stated that upon completion of the offer, the companies would “use their best efforts to develop a plan of consolidation of the companies which would be fair and equitable to the remaining shareholders of Commonwealth.” The press release further stated that Tesoro had “invited Mr. Keith to join the Tesoro Board of Directors and that Mr. Keith would continue as a director of, and senior consultant to, Commonwealth.” Tesoro amended its tender offer on May 5 to reflect these events. The amended offer contained essentially the same information as the joint press release, adding that Keith would serve “for a period of five years at his current compensation level.” In addition, both the press release and the amended tender offer stated that upon completion of the offer the companies would jointly nominate a single slate of candidates for Corco’s Board of Directors “in which Tesoro will have a majority of one.” The offer was successfully completed on June 6,1975. Tesoro purchased 5,505,735 of more than 11 million tendered shares and obtained approximately 37% ownership of Coreo. On July 15, 1975, a new Coreo board of directors was elected, the majority of whom were Tesoro nominees, and Corco’s executive committee was restructured to reflect the change of control. On that date, James C. Phelps, then president, chief operating officer, and director of Tesoro, was named president and chief executive officer of Coreo. On May 1, 1976, Corco’s headquarters moved to San Antonio, Texas, the corporate home of Tesoro. There is some dispute as to when Tesoro effectively took control of Coreo, but it is agreed that the correct date lies somewhere between July 16, 1975 and December, 1975. Following Tesoro’s acquisition of control of Coreo, both companies continued to file customary quarterly and annual reports, as well as occasional press releases relating to the relationship between the companies and the possibility of their consolidation. Several of the plaintiffs in the pending action challenge the adequacy of disclosure in these documents. During this time, Corco’s earnings continued to decline. As a result, Coreo borrowed from Tesoro approximately 64 million dollars to meet debt payments and to provide working capital. On October 22, 1976, Tesoro issued a press release announcing that discussions concerning consolidation of the two companies had been deferred pending Corco’s “demonstration of its ability to continue to improve its operations and financial results.” In addition, Coreo was forced to mortgage its refinery complex and to assign its interest in its joint ventures to its principal lenders. Several times Coreo had to obtain waivers of or amendments to the terms of its loan agreements due to inability to meet current ratio and earnings covenants in the agreements. On May 16, 1977, Tesoro’s board of directors approved a $32,-758,000 write-down of the carrying value of Tesoro’s investment in Coreo stock. Tesoro had made other write-downs during the preceding year totaling approximately 16.7 million dollars. By early 1978, the price of Coreo stock had fallen to approximately $3.00 per share. This chapter of the story ended on March 2, 1978, when Coreo filed a voluntary petition in bankruptcy in San Antonio. A new chapter began with the filing of these lawsuits. II. BOUCHARD A. Facts: The Bouchard action involves sweeping allegations of fraud, mismanagement, and bad faith against many of the parties involved in the affairs of Coreo and Tesoro from as far back as 1973 until the late fall of 1976. The suit encompasses both derivative and class action claims; some are alleged to arise under the antifraud provisions of the federal securities laws while others are grounded on state law. As there is no diversity of citizenship, jurisdiction of the state law claims exists, if at all, under the doctrine of pendent jurisdiction. With respect to the class action claims, plaintiffs seek monetary damages, and they seek attorneys’, consultants’, and accountants’ fees with respect to all claims. 1. Parties. The scope of the allegations in this action is such that a description of the cast of characters is a necessary backdrop to an understanding of the issues involved. The plaintiffs can be divided into two categories. The first category will, for simplicity, be called the Bouchard plaintiffs. This group consists of the following persons: Morton S. Bouchard and Marion Bouchard, as executors of the estate of Morton S. Bouchard, Sr.; Morton S. Bouchard and J. George Betz, as Trustees under eight express trusts; Marion Bouchard; and Bouchard Transportation Company, Inc. These plaintiffs sue individually and on behalf of the class of persons who held Coreo stock on June 6, 1975, but did not tender that stock in response to Tesoro’s tender offer. The individual plaintiffs themselves acquired their Coreo stock prior to March 1, 1973. The second category of plaintiffs will be called the Dusard plaintiffs. This group consists of Leo F. Dusard, who purchased 1,500 shares of Corco stock in November, 1975, and sold them at a loss in 1977 and who seeks to represent the class of persons who purchased Corco stock between June 6, 1975 and October 22, 1976. The defendants may, in an attempt to achieve some measure of simplicity, be resolved into four groups. First is the group of corporate defendants, which consists of Tesoro, E. F. Hutton Group, Inc., and Corco. The second group of defendants is comprised of persons elected to the Corco board of directors in 1973 and who continued as directors after Tesoro gained control of Corco. This group will be called the “ongoing Corco directors,” and the members are Norman Keith, Sol L. Descartes, J. Howard Laeri, Angel M. Rivera, Sergio Camero, and Dr. Rafael Pico. The third category of defendants consists of directors elected to the Corco board in 1973 but who did not continue as directors after July 15, 1975. This group, the “pre-Tesoro Corco directors,” consists of George F. Bennett, Ian K. MacGregor, Tom R. Ragland, and John A. Walstrom and William Lockwood. The final group of defendants consists of persons elected to the Coreo board of directors or appointed as officers of Corco on or after July 15,1975. The members of this group, the “post-tender Corco directors,” are Peter M. Detwiler, L. Robert Fullem, Robert G. Reed, Charles R. Roberts, John Rote, James F. Smith, Robert V. West, Jr., and James C. Phelps, all elected to the Corco board on July 15, 1975; Gary W. Davis, named President and Chief Executive Officer of Corco on July 23, 1976; and, finally, Dean M. Bloyd, elected a director of Corco in December, 1976. 2. Motions. The following defendants, or groups of defendants, have moved under Rules 12(b)(1), 12(b)(6), 9(b), and 56 to dismiss the claims asserted against them: E. F. Hutton & Company, Inc.; the Tesoro defendants (including Tesoro, West, Reed, Roberts, Smith, Phelps, Bloyd, Fullem, and Rote); Detwiler; Keith; Bennett and Lockwood; Rivera; and Descartes, Pico, and Camero. As all of the motions are accompanied by affidavits and documents, they will be considered as motions for summary judgment. The discussion that follows will not consider each of these motions in isolation; rather, the discussion will focus upon each of the claims asserted by the plaintiffs, and the arguments made in the motions will be considered in the discussion of the claim to which the arguments are directed. At the conclusion of this part of the order, the disposition of each of the motions will be summarized. B. Discussion: As noted above, the plaintiffs in this action have made allegations claimed to arise under both state and federal law. Jurisdiction over the state claims exists, if at all, under the doctrine of pendent jurisdiction. The maintenance of the state law claims depends in large measure, then, upon the disposition of the various challenges to the federal claims. Consequently, the initial focus of this discussion will be upon the claims grounded on federal law, followed by a consideration of the state claims. There will then follow a consideration of several attacks brought against the complaint as a whole, and, finally, a summary of the disposition of the various motions that are the subject of this order. 1. The Federal Claims. a. Section 14(a) Claims : The Bouchard plaintiffs assert a derivative claim on behalf of Corco, claiming that Corco was injured by misrepresentations in Corco proxy statements issued in 1973, 1974, and 1975 that accompanied solicitation of proxies for the election of Corco directors. Specifically, plaintiffs claim that these proxy statements violated section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) (1976), and SEC Rules 14a-3 and 14a-9, 17 C.F.R. §§ 240.14a-3, 240.14a-9 (1978) promulgated pursuant thereto. Rule 14a-3 requires, inter alia, that proxies solicited on behalf of management for the election of directors be accompanied by a schedule 14A, which consists essentially of broad disclosure of the aggregate renumeration received by officers and directors. Rule 14a — 9 is a broad antifraud provision that makes unlawful the issuance of any proxy material containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading. 17 C.F.R. § 240.14a-9 (1978). Plaintiffs allege that the 1973, 1974, and 1975 Corco proxy statements understated in material amounts the aggregate renumeration received by Keith as CEO and chairman of the board, that the entire Corco board of directors in those years was elected fraudulently, and that, as a consequence, Corco was deprived of a properly elected board of directors. With respect to the 1973 and 1974 statements, most of the “preTesoro” and “ongoing” Corco directors are named as defendants. With respect to the 1975 statements, the defendants are the “ongoing” and the “post-tender” Corco directors. The chief problem with this claim, as the defendants to whom it relates have pointed out in their motions, is that the causal link between the proxy statement and the alleged injury to Coreo is too attenuated to support a claim for violation of the proxy rules. Even assuming that the proxy statements were materially misleading, any injury Coreo suffered as a result of the election of directors for which proxies were solicited was caused by the directors’ acts after the election and not by the election itself. The only damage directly attributable to the proxy solicitations — the deprivation of Corco’s right to a duly elected board of directors — is too insubstantial to support a claim for relief. The cases uniformly hold that a claim seeking relief for injuries occasioned by mismanagement or breach of duty is not redressable under the proxy rules simply by virtue of the fact that the acts were committed by directors who would not have been elected but for the proxy solicitation. A party seeking relief under section 14(a) must show transaction causation — that is, that the claimed injury resulted from a transaction directly authorized by the allegedly misleading proxy materials. See Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374 (2d Cir. 1974), cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467 (1975). In Walner v. Friedman, 410 F.Supp. 29 (S.D.N.Y.1975), plaintiffs brought a derivative claim on behalf of a corporation against the corporation’s management, alleging that management had caused the corporation to file misleading financial reports. The court dismissed the allegation of violation of section 14(a) with the following words: [T]he misleading proxy statements here did not cause any damage to the corporation in the ordinary sense, in that management obtained authorization of shareholders for corporate actions by means of deceptive or inadequate disclosure therein. . Here, the damage, if any, will flow from breach of a fiduciary obligation owed as a director or officer, rather than from any shareholder vote obtained by false proxy solicitation materials. 410 F.Supp. at 32. In Markewich v. Adikes, 422 F.Supp. 1144 (E.D.N.Y.1976), plaintiffs complained that defendants’ scheme to conceal the true financial condition of an unincorporated association violated section 14(a). In dismissing that claim, the court held as follows: What the cases clearly hold, however, is that in order to constitute a proxy violation an omission or misrepresentation of material fact must also relate to the purpose for which the proxies are solicited. . “[N]o case has gone further and held that the proxy rules are violated because management has allegedly mismanaged the company and the proxy statement does not say so.” (citation deleted.) 422 F.Supp. at 1147. The reasoning of those cases is apposite here, and it is echoed in a number of other decisions. See, e. g., Epic Enterprises, Inc. v. Brothers, 395 F.Supp. 773 (N.D.Okla. 1975); Levy v. Johnson, 1976-1977 C.C.H. Sec.L.Rep. ¶ 95,899 (S.D.N.Y.1977); Limmer v. General Tel. & Electronics, 1977-1978 C.C.H.Sec.L.Rep. ¶ 96,111 (S.D.N.Y.1977); Wachovia Bank & Trust Co. v. National Student Marketing Corp., 461 F.Supp. 999 (D.C.1978). The Supreme Court in J. I. Case v. Borak, 377 U.S. 426, 431, 84 S.Ct. 1555, 1559, 12 L.Ed.2d 423 (1964), held that “[t]he purpose of Section 14(a) is to prevent management or others from obtaining authorization for corporate action by means of deceptive or inadequate disclosure in proxy statements.” It would unduly broaden that purpose to find that the claim made here is cognizable under section 14(a). In fact, such a holding would mean in effect that so long as the directors were elected by means of proxy solicitations, any act of director mismanagement could be cast as a violation of section 14(a). That would be a wholly unwarranted expansion of the scope of the statutes and rules governing proxy solicitation. Plaintiffs cite Goldberg v. Meridor, 567 F.2d 209 (2d Cir. 1977) for the proposition that a claim of mismanagement falls within the ambit of section 14(a). Goldberg, however, was a Rule 10b-5 action involving allegations that a corporate parent deceived its subsidiary, and the central issue was what constituted “deception” under Rule 10b — 5. The case certainly does not speak to the causation element of a section 14(a) claim and has no application here. In sum, because the insufficient causal connection between the alleged injury to Coreo and the proxy solicitations upon which the claim is based is facially apparent, the Bouchard plaintiffs have not stated a claim under section 14(a). Therefore, the motions to dismiss and for summary judgment, insofar as they are directed at claims under section 14(a), are granted. b. The 10b-5 Claims: Both groups of plaintiffs assert claims under Rule 10b — 5, 17 C.F.R. § 240.10b — 5 (1978). The Bouchard plaintiffs’ 10b-5 claim merits little attention. They claim that Tesoro, Hutton, West, Fullem, Detwiler, Rote, and “all other participants” violated the rule in their publication of the May 5, 1975, amended tender offer which, according to the complaint, contained material misrepresentations concerning, first, an alleged deal between Keith and Tesoro, and, second, plans to merge the two corporations. The moving defendants urge dismissal of this claim on the ground that the Bouchard plaintiffs fail to meet the standing requirement of Blue Chip Stamps v. Manor Drug Stores, 421 U.S 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). The point is well taken, and the claim must be dismissed. The Bouchards themselves obtained their Coreo stock prior to March 1, 1973, and they and the class they seek to represent held their Coreo shares at least beyond June 6, 1975. These plaintiffs neither purchased nor sold securities in response to the alleged misrepresentations in the amended tender offer; they therefore lack standing under Blue Chip to assert a claim under Rule 10b-5. The Rule 10b-5 claim asserted by the Dusard plaintiffs presents more difficult issues. The essence of the claim is that after learning of the falsity of statements Keith made in opposition to the tender offer, defendants Tesoro, Hutton, Detwiler, Fullem, Reed, Roberts, Rote, Smith, West, Phelps, and Bloyd failed to correct those statements and thereby violated Rule 10b-5. All defendants against whom the claim is brought seek dismissal on two grounds: first, that Rule 10b-5 imposes no duty on a successful tender offeror to correct the misstatements made by the target company before completion of the offer; and second, that the claim as alleged does not satisfy Rule 9(b)’s specificity requirements. Because Rule 10b-5 did not here impose a duty to correct, defendants’ 9(b) argument is not reached. Mere possession and nondisclosure of material facts does not alone create liability under Rule 10b-5. The 10b-5 duty to tell the whole truth is not an abstraction; it is grounded on relationship and conduct. Gold v. DCL, Inc., 399 F.Supp. 1123, 1127 (S.D.N.Y.1973). The Second Circuit set forth this precept in Murphy v. McDonnell & Co., 553 F.2d 292, 295 (2d Cir. 1977) reasoning, “The [defendants] themselves made no misrepresentations to the plaintiffs. Liability under 10b — 5 therefore could be based only upon breach of some duty to disclose.” See Wessel v. Buhler, 437 F.2d 279, 283 (9th Cir. 1971). Thus, unless the defendants here had some duty of disclosure which they breached, they did not violate Rule 10b-5. Plaintiffs in this case seek to impose on defendants a duty to disclose misstatements which were made during a tender fight by someone other than the defendants and which the defendants allegedly did not discover to be false until several months after the statements were made. The courts have refused to find a duty to disclose in circumstances less attenuated than these and this court declines to find such a duty in this case. Courts have held that it would be an intolerable burden to impose on one party to a tender offer the duty to correct misstatements which the other party makes in the heat of the offer. In Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 255 (2d Cir. 1973), the tender offeror failed to reveal either the amount of the judgment rendered against it in favor of the target company, the fact that acceptance of the offer might result in loss of target company’s listing on the New York Stock Exchange, or the possible effect of the offeror’s failure to vote on proposals to come before the stockholders. The court rejected the offeror’s arguments that the target company should have made the disclosures, holding that “the obligation is placed squarely on those making the offer in the first instance to disclose all material factors necessary to make their offer not misleading. That duty cannot be shifted to the shoulders of others.” Id. (Emphasis not added). Following the Sonesta ruling, the Third Circuit reached the same conclusion in Ronson Corporation v. Liquifin Aktiengesellchaft, 370 F.Supp. 597, 602 (D.N.J.), aff’d, 497 F.2d 394 (3d Cir.), cert. denied, 419 U.S. 870, 95 S.Ct. 129, 42 L.Ed.2d 108 (1974). The court warned that a contrary rule “permitting the offeror to look to the target corporation to correct the deficiencies in the offer,” would undermine the purposes of the securities laws. It is also clear that a tender offeror does not have the duty to correct a published misstatement for which it was not responsible. In Electronic Speciality Co. v. International Controls Corp., 409 F.2d 937 (2d Cir. 1969), plaintiffs, including the target company, charged that the tender offer- or, International Controls Corporation (ICC), had an affirmative duty to correct certain misstatements concerning its own holdings which appeared in the Wall Street Journal. ICC had reason to think that the statements were attributable to the target company, and plaintiffs did not claim that ICC was the source of the misstatements, 409 F.2d at 949. The Court of Appeals rejected plaintiffs’ contention and refused to impose on ICC the duty to correct the misinformation. See 2 A. Bromberg, Securities Laws § 6.3(415) at p. 116.20 (1977). Other courts have agreed with the Second Circuit and have refused to impose an affirmative duty on a corporation to correct misstatements about it made by third parties. See Hutto v. Texas Income Properties Corp., 416 F.Supp. 478, 482 (S.D.Tex.1976); Milberg v. Western Pacific Railroad Co., 51 F.R.D. 280, 282 (S.D.N.Y.1970), appeal dismissed, 443 F.2d 1301 (2d Cir. 1971). In this case plaintiffs are seeking to place on the Tesoro defendants an even greater burden than the courts refused to impose in the cases discussed above. The Dusard plaintiffs are seeking to impose on Tesoro and its officers and directors a duty not to correct misstatements by others about itself or its offer, but about the company it was seeking to acquire. Even more remote is the claim that Hutton, who was not even a party to the offering but was employed by Tesoro, had a duty to correct Corco’s misstatements about itself. Finally, plaintiffs have acknowledged that these defendants were ignorant of the falsity of the statements at the time they were made. This court will not impose a duty to disclose the misleading nature of a statement on parties that were neither the source nor the subject of the statements and were unaware of their falsity at the time of publication. The Dusard plaintiffs’ 10b-5 claims are therefore dismissed. c. The Section 14(e) Claims: The Bouchard plaintiffs ground several claims on section 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(e) (1976). That section, part of the Williams Act (a 1968 amendment to the Securities Act), provides as follows: It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation. Plaintiffs bring three claims under section 14(e). The first alleges that the Keith tender offer letters of April 22 and 28,1975, violated the section, and names Keith, the pre-Tesoro Coreo directors, and the ongoing Coreo directors as the defendants responsible for the publication of the letters. All of these defendants except for MacGregor, Walstrom, and Ragland (three of the preTesoro Coreo directors) have moved to dismiss this claim. The second and third claims under section 14(e) focus respectively upon the May 4, 1975 joint press release issued by Tesoro and Coreo, announcing withdrawal of Corco’s opposition to the tender offer, and the May 5, 1975 amended tender offer. The second claim is asserted against the same defendants as are named in the first claim as well as Tesoro, Hutton, West, Fullem, Detwiler, Rote, and “all of the other defendants who participated in the preparation thereof,” while the third claim is directed against only Tesoro, Hutton, West, Fullem, Detwiler, and Rote. Dismissal and summary judgment as to these claims, too, is urged by all of the defendants, with the same exception noted above. (i) The Tender Offer Letters : The claim based on the tender offer letters alleges that the sanguine statements in those letters concerning Corco’s future earnings prospects were false, and were made intentionally or with reckless disregard for the truth. It is further alleged that these letters caused the plaintiffs not to tender shares, ultimately causing them financial loss. The defendants’ argument in support of dismissal of this claim is essentially twofold. First, defendants argue that a nontendering shareholder may not maintain a suit for damages under section 14(e). Second, they argue that the claim fails to adequately allege a causal nexus between the alleged misrepresentations in the letters and the plaintiffs’ injury. At the outset, it is important to consider whether section 14(e) can be the basis for a claim for damages by any private party, whether tenderer or nontenderer. While the Supreme Court specifically reserved comment on the question in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 42 n.28, 97 S.Ct. 926, 51 L.Ed.2d 124 (1976), the lower federal courts have consistently held that section 14(e) may be the basis for' a private claim. In Sargent v. Genesco, Inc., 492 F.2d 750 (5th Cir. 1974), the court wrote that “[although section 14(e) does not expressly provide for a private right of action, courts have uniformly implied one.” The conclusion is a sound one in light of the same considerations that led the Supreme Court to find a private remedy under the proxy rules in J. I. Case v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964), and in light of the fact that section 14(e) tracks in large measure the language of Rule 10b-5 and was enacted at a time when Congress was fully aware that the courts had long been entertaining private damage suits under the rule. Furthermore, the reasoning of the Chris-Craft decision does not preclude implication of a private action for damages under section 14(e) on behalf of a target company shareholder. As the court in Chris-Craft emphasized, the legislative history of the Williams Act indicates that the Act was designed specifically for the protection of the investor. The legislative history thus shows that Congress was intent upon regulating takeover bidders, theretofore operating covertly, in order to protect shareholders of target companies. 430 U.S. at 28, 97 S.Ct. at 942. Further inquiry into the legislative history by the court in Chris-Craft revealed that another goal of the drafters of the Act was “to avoid tipping the scales either in favor of management or in favor of the person making the takeover bids,” id. at 31, 97 S.Ct. at 944, quoting from 113 Cong.Rec. 24664 (1967), and to avoid discouraging the making of tender offers by threatening potential offerors with the spectre of enormous financial liability. But a private shareholder remedy for damages under section 14(e) would do far less to “tip the scales” or to discourage tender offers than would the creation of a remedy on behalf of tender offerors, the result rejected in Chris-Craft, where the Second Circuit had awarded $36 million in damages. Moreover, monetary relief awarded to target company shareholders would in general not redound to the detriment of the shareholders for whose protection the Williams Act was designed, as would have been the case had Chris-Craft been permitted to recover under section 14(e). Finally, and perhaps most importantly, creation of a private damages remedy on behalf of target company shareholders is necessary to effectuate the purposes of the Williams Act, at least absent more widespread SEC involvement in the early stages of takeover activity. As one commentator has pointed out, the “questionable status of attorneys’ fees in such eases” makes injunctive relief an unsatisfactory vehicle for enforcing the Act, and, coupled with “the recent retrenchment in the area of class actions, the failure to recognize simplified rights of action for damages on the part of aggrieved target company shareholders could render the protections of the Williams Act a ‘share and a delusion.’ ” Pitt, Standing to Sue Under the Williams Act, 34 Bus.L. 117 (1978). In sum, Chris-Craft does not preclude creation of a private damages remedy under section 14(e) on behalf of target company shareholders, and the creation of such a remedy is a reasonably necessary means of effectuating the purposes of the Williams Act. The remedy, moreover, should extend to nontendering as well as tendering shareholders. Indeed, prior to Chris-Craft, the private remedy under section 14(e) had generally been held to extend to persons who were confronted with a tender offer but as a result of misrepresentations by the offer- or or by the target company, did not accept it. One year after the statute was enacted, the Second Circuit in Electronic Specialty Co. v. International Controls Co., 409 F.2d 937 (2d Cir. 1969), a suit for an injunction, held that a nontendering stockholder had standing to sue for violations of section 14(e). While a nontenderer suffers no immediate injury from inadequacy of price in the sense that he retains his stock, such inadequacy is likely to have a depressing effect on the market for some time and thus may hurt him if, for one reason or another, he should later find it necessary or desirable to sell. 409 F.2d at 946. In Smallwood v. Pearl Brewing Co., 489 F.2d 579 (5th Cir.), cert. denied, 419 U.S. 873, 95 S.Ct. 134, 42 L.Ed.2d 113 (1974), the Fifth Circuit reached a similar conclusion: To charge violations of Section 14(e) in federal court a private plaintiff need not be a purchaser or seller of any securities, as he must be to sue under Rule 10b-5. This is the primary contribution of the Williams Act to the antifraud arsenal; under Section 14(e) a plaintiff may gain standing if he has been injured by fraudulent activities of others perpetrated in connection with a tender offer, whether or not he has tendered his shares. 489 F.2d at 596. Other courts have reached the same result, see, e. g., Hurwitz v. Jones Corporation, 76 F.R.D. 149 (W.D.Mo.1977), and the result is sound, though not entirely without dispute. Nor is the force of these decisions permitting a nontendering stockholder standing under 14(e) significantly diminished by recent Supreme Court decisions narrowing the scope of actions under Rule 10b— 5. Section 14(e) does not contain the “in connection with the purchase or sale of any security” language of Rule 10b-5. Hence the reasoning of the decision in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975) is not directly applicable to the question of standing under 14(e). Moreover, many of the concerns expressed by the court in Blue Chip are inapposite to analysis of the 14(e) action. Most importantly, absent a purchaser-seller limitation, the possibility of a boundless class of nonpurchasing or nonselling plaintiffs seeking relief for violations of the securities laws does not exist under section 14(e) as it might under Rule 10b-5. The class of nontendering shareholders is limited to the persons actually confronted with the offer, that is, holders of target company stock at the time the offer was made. The reason for imposing a strict purchaser-seller requirement in Rule 10b-5 actions was set out by the court in Blue Chip as follows: The virtue of the Birnbaum rule, simply stated, is that it limits the class of plaintiffs to those who have at least dealt in the security to which the prospectus, representation, or omission relates. And their dealing in the security, either by way of purchase or sale, will generally be an objectively demonstrable fact in an area of the law otherwise very much dependent upon oral testimony. 421 U.S. at 747, 95 S.Ct. at 1931. The Bouchard plaintiffs, and nontendering shareholders in general, “have at least dealt in the security to which the . representation relates,” and “their dealing in the security” is an objectively demonstrable fact. The reasoning of Blue Chip, then, does not mandate exclusion of nontendering shareholders from the class of plaintiffs who may sue under section 14(e). It follows that the Bouchard plaintiffs have standing to assert claims under section 14(e). The second ground upon which dismissal of this claim is urged is that the plaintiffs have failed to allege that their injury was caused by the alleged misrepresentations in the letters. Plaintiffs do, however, allege that they “suffered damage” by not tendering their stock to Tesoro, and the inescapable inference from the first section 14(e) claim is that the Keith tender offer letters were a cause of their failure to tender. While it is true that causation is an essential element of a claim under the antifraud provisions of the security laws, see, e. g., Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970), summary disposition of a claim for failure to show causation is proper only where no substantial question of fact is raised as to whether the plaintiffs’ injury was caused by the alleged misrepresentations. Plaintiffs here have claimed that the alleged misrepresentations in the tender offer letters were the cause of their failure to tender, and, consequently, the cause of their injury. The defendants have not opposed that claim of causation with either affidavits or other documents. Rather, the defendants argue that the tender offer letters of April 22 and 28 could not have been the cause of a failure to tender shares in light of Keith’s withdrawal of opposition to the tender offer in the May 4 joint press release. The problem with the argument is that, while the withdrawal of opposition to the offer may have indicated that Keith believed that the amended offer of $14.25 per share was adequate, it did not retract or even significantly diminish the force of the statements made in the letters concerning Corco’s future earnings prospects. Hence a reasonable shareholder might have continued to be misled by the letters and might have refused the tender offer on the basis of them. In sum, it cannot be said on the basis of the pleadings and documents submitted to date that the failure of the Bouchard plaintiffs to tender their shares was not caused by the Keith tender offer letters. The question of causation, although defendants seem now to have the better of the argument, is one of fact that must be resolved at trial. Consequently, the section 14(e) claim based on those letters cannot be dismissed. (ii) The Joint Press Release and Amended Tender Offer: The second and third claims brought by the Bouchard plaintiffs under section 14(e) focus upon the May 4, 1975, joint press release in which Coreo withdrew its opposition to the Tesoro tender offer, and the May 5, 1975, amended tender offer. Plaintiffs allege that both of these documents contained fraudulent misrepresentations concerning, first, an alleged agreement between Keith and Tesoro and, second, the announced intention of Coreo and Tesoro to work toward a consolidation of the two companies. With respect to the consolidation plan, the allegation is simply that defendants Tesoro, Hutton, Detwiler, West, Fullem, and Rote “lacked sufficient knowledge of Coreo and its financial condition to make any representation with respect to such a consolidation.” Before reaching the defendants’ arguments in support of dismissal of this claim, it is instructive to note their somewhat anomalous nature. The drafters of both the press release and the amended tender offer clearly aimed to induce shareholders to tender; yet plaintiffs claim that they were fraudulently induced not to' tender their shares. More precisely, they contend that, had they been fully informed as to the nature of the agreement between Keith and Tesoro (plaintiffs allege that Keith was to receive $182,000 per year as salary plus $400,000 per year in perquisites), and had they known that Keith’s salary was to be paid from Coreo funds, they would have tendered their shares. Plaintiffs further contend that they would have been more likely to tender their. shares if the true prospects for consolidation of the companies had been disclosed. These allegations are sufficient to raise fact questions as to whether these plaintiffs were misled by the press release and amended offer; it cannot be said, as defendants urge, that as a matter of law they were not misled. What section 14(e) requires is simply a misleading statement or omission of a material fact made with intent to deceive in connection with a tender offer. It does not require that a stockholder be misled in the way that the alleged wrongdoer intended. That is, liability is not predicated upon specific intent to induce a stockholder to act in a certain way, but rather upon general intent to deceive. While there may also be a requirement that the stockholder have acted reasonably in response to the alleged misrepresentations, see, e. g., Dupuy v. Dupuy, 551 F.2d 1005 (5th Cir. 1975), it is not possible to determine on the basis of the pleadings and documents submitted that the plaintiffs’ response to the alleged misrepresentations was unreasonable. It cannot be determined as a matter of law that the plaintiffs’ response to the announcement of consolidation plans was unreasonable, even though that announcement may have been calculated to induce stockholders to tender their shares. The plaintiffs might, for instance, reasonably have hoped for a higher offer for their Coreo shares upon consolidation of the companies. Moreover, the fact that the vast majority of Coreo shareholders did tender their shares does not, as some defendants argue, negate the possibility that the plaintiffs here were induced to refuse the offer, though such evidence may weigh heavily at trial against the conclusion that these materials were misleading. The important point for purposes of this motion is that the plaintiffs have raised a substantial question of fact as to whether they were misled by alleged misrepresentations in the joint press release and the amended tender offer. The moving defendants challenge the maintenance of these claims on several other grounds. All of the defendants argue that the Bouchard plaintiffs lack standing to sue under section 14(e) because they did not tender their shares. That issue has been discussed and resolved in favor of the plaintiffs. In addition, the defendants argue that the misrepresentations and omissions alleged by plaintiffs are not material as a matter of law. The Supreme Court in TSC Industries, Inc. v. Northway, 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976), set out the test of materiality for suits under section 14(a) of the Act, a test that must logically be considered applicable to all of the antifraud provisions of the federal securities laws. An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to [act]. . . . What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available. 426 U.S. at 449, 96 S.Ct. at 2132. While TSC involved review of a decision that an alleged omission was material as a matter of law, there may certainly be cases where such an omission would be immaterial as a matter of law. In fact, the court in TSC recognized that “[t]he issue of materiality may be characterized as a mixed question of law and fact,” id. at 450, 96 S.Ct. at 2132, and went on to hold that: Only if the established omissions are “so obviously important to an investor, that reasonable minds cannot differ on the question of materiality” is the ultimate issue of materiality appropriately resolved “as a matter of law” by summary judgment, [citations omitted]. Id. at 450, 96 S.Ct. at 2133. It follows that the argument of the moving defendants here that the omissions alleged are not material can prevail only if the omissions are so obviously unimportant to an investor that reasonable minds cannot differ on the question of materiality. To be sure, there are cases where the conclusion can be drawn without benefit of a trial that alleged omissions would not have influenced a reasonable investor; but the conclusion cannot be drawn here. It cannot be concluded, on the basis of the documents submitted, that a reasonable investor would not have been influenced by disclosure of either the alleged agreement between Keith and Tesoro or of the alleged unfeasibility of consolidation of the two companies. A similar argument that alleged nondisclosures were immaterial as a matter of law was rejected in SEC v. Joseph Schlitz Brewing Co., 452 F.Supp. 824 (E.D.Wis.1978). The court there, citing TSC, refused to find that certain nondisclosures of illegal payments were immaterial as a matter of law, even though the amount of the payments was relatively small. See also Alton Box Board Co. v. Goldman, Sachs & Co., 560 F.2d 916 (8th Cir. 1977); McNally v. Esmark, Inc., 427 F.Supp. 1211 (N.D.Ill. 1977). At this stage, then, it cannot be determined that the alleged nondisclosures in the May 4, 1975 press release and the May 5, 1975 amended tender offer are immaterial, and the claims based on those documents cannot be dismissed on that ground. The Tesoro defendants and Hutton further argue that, as to them, these claims do not sufficiently allege scienter as to state a claim under section 14(e). It is settled, of course, that scienter — fraudulent intent to deceive — is an essential element of a private antifraud claim under the Securities Exchange Act. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). The requirement, moreover, is that the plaintiffs allege knowledge of the fraud, and not simply knowledge of the facts underlying the fraud. See, e. g., Murphy v. McDonnell & Co., 553 F.2d 292 (2d Cir. 1977). The scienter requirement, then, is a stringent one, but it is often difficult to determine the question of scienter before trial. With respect to the alleged misrepresentations concerning the plans for consolidation, however, the plaintiffs fail on the face of their complaint to meet the scienter requirement as to certain defendants. The complaint simply alleges that with respect to the consolidation plans, Hutton, Tesoro, Detwiler, West, Reed, Roberts, Smith, Phelps, Bloyd, Fullem, and Rote “lacked sufficient knowledge of Coreo and its financial condition to make any representation with respect to such a consolidation.” This allegation fails on its face to meet the standard of Hochfelder. Insofar as these section 14(e) claims relate to the representations concerning consolidation plans, then, they must be dismissed as to Hutton, Detwiler, and the Tesoro defendants. More difficult issues are raised by the allegations relating to the defendants’ failure to disclose fully the details of an alleged agreement between Keith and Tesoro. With respect to those claims, the complaint, read with reasonable charity, alleges scienter as to Hutton and the Tesoro defendants. Scienter, in fact, is implicit in the claim against the Tesoro defendants in light of the fact that Tesoro was one of the parties to the alleged agreement. The Tesoro defendants cannot reasonably claim that they lacked knowledge of an agreement between Tesoro and Keith, if indeed such an agreement existed, and they do not argue that the failure to disclose such an agreement in the press release or amended tender offer was unintentional. As to those defendants, then, the allegations concerning the alleged agreement cannot be dismissed by reason of failure to meet the scienter requirement. A more difficult question of scienter exists as to defendants Hutton and Detwiler. Detwiler has submitted an affidavit in which he states: I did not participate in the drafting of the Joint Press Release of Tesoro Petroleum Corporation and Commonwealth Oil Refining Company (“Coreo”) dated May 4, 1975, or in the drafting of the Amendment to Offer to Purchase Shares of Coreo Common Stock dated May 5, 1975. Hutton has submitted the affidavit of William P. Nicoletto, vice president in the corporate finance department of E. F. Hutton & Co., Inc., wherein Mr. Nicoletto states that: To the best of my knowledge, information and belief, Hutton did not participate in the drafting of the Joint Press Release . . . or in the drafting of the [Amended Tender Offer], Plaintiffs counter these affidavits only with the affidavit of Robert S. Whitlow, former general counsel of Coreo, in which Whitlow states, in relevant part, as follows: I first met Detwiler on May 4, 1975; this was the day the draft of the “Joint Press Release” regarding the amended Tesoro tender purportedly was prepared. I do not know whether Detwiler participated in the drafting of that document, but I do know that he saw it in my presence in Keith’s office following the adjournment of the Coreo board meeting in its original form, and that Detwiler was present when one or more amendments were made in the draft “Joint Press Release.” The question for decision here is whether, in light of'these affidavits, plaintiffs have produced “significant probative evidence . demonstrating that a genuine issue of fact exist[s]” as to the scienter element of the claim against Detwiler and Hutton. Scranton Construction Co. v. Litton Industries Leasing Corp., 494 F.2d 778, 782 (5th Cir. 1974), cert. denied, 419 U.S. 1105, 95 S.Ct. 774, 42 L.Ed.2d 800 (1975). As the Whitlow affidavit makes no mention of the May 5 amended tender offer, there is no substantial fact question concerning Hutton’s and Detwiler’s participation in the publication of that document. Hutton and Detwiler are therefore entitled to summary judgment on the 14(e) claims based upon the amended tender offer. As to the joint press release, there is simply Whitlow’s statement that Detwiler saw the document. Read against the sworn statement by Detwiler that he did not participate in drafting the press release, Whit-low’s statement does not constitute “significant probative evidence” sufficient to raise a genuine question of fact concerning the scienter element of the claim against Hutton. and Detwiler. Scranton Construction Co. v. Litton Industries Leasing Corp., supra. See also United States v. Pent-R-Books, Inc., 538 F.2d 519 (2d Cir. 1976), cert. denied, 430 U.S. 906, 97 S.Ct. 1175, 51 L.Ed.2d 582 (1977). Consequently, the motions of Hutton and Detwiler for summary judgment with respect to claims based upon the joint press release and the amended tender offer must be granted. Finally, several defendants argue that any misrepresentations in the joint press release or amended tender offer were corrected by disclosures in later documents beginning in August, 1975, and that, since these later adverse disclosures did not induce the plaintiffs to sell their shares, similar adverse disclosures in the tender offer documents would not have caused them to tender. One of the problems with the argument is that at the time of the later documents, the price of Coreo stock had dropped to $11 per share or lower, so that the decision that confronted the plaintiffs in May of 1975 was significantly different than that which confronted them in later months. It cannot be concluded, then, on the basis of the plaintiffs’ failure to sell in August, that they would not have tendered their shares in May if they had been afforded the benefit of disclosure of the allegedly misrepresented facts. Moreover, the adverse disclosures of later months may not have been sufficient to overcome the impact of the statements in the May, 1975 documents. The fact and timing of later disclosures may, of course, have significant bearing upon the extent of defendants’ liability, should that issue ever arise. 2. Summary of Federal Claims. Only the Bouchard plaintiffs have raised a claim under federal law that survives the various motions to dismiss and for summary judgment. The Bouchard plaintiffs surviving claims arise under section 14(e) of the Act. The first of these is a class action claim alleging that Keith, the ongoing Coreo directors, and the pre-Tesoro Coreo directors violated section 14(e) in their publication of the tender offer letters of April 22 and 28, 1975. The second surviving claim, also a class action claim, is based upon the May 4, 1975, joint press release and focuses upon two alleged misrepresentations in that document. As to the first of these misrepresentations — the alleged agreement between Keith and Tesoro — a claim survives as to all of the defendants specified in the claim except Hutton and Detwiler. As to the alleged misrepresentation of plans to consolidate the companies, a claim survives only against Keith, the ongoing Coreo directors, and the pre-Tesoro Coreo directors. The third and final surviving claim is based upon the May 5, 1975, amended tender offer, and is asserted against Hutton, Tesoro, West, Fullem, Detwiler, and Rote. This claim, too, is dismissed as against Hutton and Detwiler; as to the other defendants, only the portion of the claim that concerns statements in the offer relating to the alleged agreement between Keith and Tesoro survives dismissal. Finally, no valid claim is asserted against defendant Gary W. Davis, who was not involved in the affairs of either Coreo or Tesoro until some time after the events that are the subject of the surviving claims. 3. State Law Claims. The Bouchard plaintiffs bring a panoply of allegations of mismanagement and breach of fiduciary duty that arise under state law. Federal jurisdiction of these claims is based solely upon the doctrine of pendent jurisdiction, and the decision as to whether the state law claims asserted here fall within the purview of the doctrine must be made with reference only to those federal claims that have survived the motions for dismissal and summary judgment. The familiar refrain of the pendent jurisdiction doctrine, as written by the Supreme Court in United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), is that the jurisdiction may be exercised where the state and federal claims arise out of “a common nucleus of operative fact.” Application of that standard, however, does not end the inquiry as to whether pendent jurisdiction should be exercised over state law claims. A court must also consider judicial economy, fairness to litigants, the predominance, if any, of state law issues over federal issues, as well as the possible confusion of the jury that might result from trying the claims together. It is with these principles in mind, then, that the question of jurisdiction over the state law claims must be resolved. The first state law claim advanced is a derivative claim alleging that between 1973 and 1975, Keith, the ongoing Coreo directors, and the pre-Tesoro Coreo directors breached their fiduciary duty to Coreo by permitting Keith to take unreasonable executive perquisites at Corco’s expense. The focus of this claim is upon events that took place primarily before the publication of the documents that are the subject of the surviving federal claims. In that sense, exercise of jurisdiction over this claim would significantly expand at least the temporal scope of this lawsuit. On the other hand, much of the evidence that would support this state law claim would also be relevant to the federal claim concerning the alleged agreement between Keith and Tesoro, which also involves the question of Keith’s perquisites. The question of whether to exercise jurisdiction, then, is a difficult one. But the fact that the state claim of breach of duty over a period of several years substantially predominates over the much more precise federal claim of nondisclosure in two specified documents counsels strongly against hearing the state claim. Accordingly, this claim of breach of fiduciary duty is dismissed without prejudice to its assertion in a proper state court. In their second claim under state law, the Bouchard plaintiffs allege that Keith, the ongoing and pre-Tesoro Coreo directors, and later Hutton and the Tesoro defendants willfully and negligently mismanaged the affairs of Coreo by causing it to enter into