5th Circuit: No Private Money Damages Available for
13(d) Violations

A 5th Circuit panel followed the lead of earlier decisions from the 2nd and 11th Circuits and found that no private cause of action for money damages existed for violations of Exchange Act Section 13(d). The case arose from a failed attempt by Highland Capital Management, an investment fund, and its affiliates, to take over Motient Corp., an Illinois-based wireless communications company. The litigation in federal court on the 13(d) violations was one of several actions involving Motient and James Dondero, the principal of the investment fund group and a Motient director.

As alleged, the investment group filed Schedule 13D amendments "containing false, incomplete, and misleading information about the company, its management, and its board." Motient sought a declaratory judgment, an order that the investment group immediately amend the Schedule 13D amendments, injunctive relief preventing the buyers from taking further actions to purchase or sell Motient securities or solicit shareholder votes, and compensatory damages.

The appellate panel agreed with the district court's finding that the claims for money damages were not actionable. The court observed that "[t]he Williams Act was enacted to protect shareholders who are forced to make decisions between bidders and management. Since any material misstatement or omission to an investor who purchases or sells the security and actually relies on that information gives rise to a private cause of action under Section 18(a) of the Exchange Act, 15 U.S.C. § 78r(a)." This section, concluded the court, "provides the sole basis for a private right of action for damages resulting from a violation of Section 13(d)" and "Motient provides no compelling reason for recognizing a private right of action in favor of issuers for money damages."

The court also concluded that the requests for equitable relief were moot because the proxy fight was over and the investment fund had sold its Motient securities. "We decline to issue an advisory opinion forbidding Highland from soliciting shareholder votes for a tender offer or engaging in a contest for control, on the assumption that such activity might take place in the future," concluded the court.


Motient Corp. v. Dondero, May 27, 2008.