                             In the
 United States Court of Appeals
               For the Seventh Circuit
                          ____________

No. 02-1073
HARTMARX CORPORATION,
                                                 Plaintiff-Appellee,
                                 v.

A. ROBERT ABBOUD, SPENCER HAYS,
TOM JAMES COMPANY, et al.,
                               Defendants-Appellants.
                    ____________
            Appeal from the United States District Court
       for the Northern District of Illinois, Eastern Division.
             No. 01 C 6942—Milton I. Shadur, Judge.
                          ____________
   ARGUED SEPTEMBER 23, 2002—DECIDED APRIL 9, 2003
                   ____________


 Before DIANE P. WOOD, EVANS, and WILLIAMS, Circuit
Judges.
  DIANE P. WOOD, Circuit Judge. This case concerns an
abortive effort by one group of investors, collectively known
as the Lincoln Company, to acquire Hartmarx Corporation
(Hartmarx). Shortly after Lincoln publicly announced its
intention to pursue an acquisition, Hartmarx filed suit,
claiming that Lincoln had violated § 14(e) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78n(e), by failing to
commence its anticipated tender offer within a reasonable
period of time and by making false and misleading state-
ments concerning their financing for the proposed deal.
2                                               No. 02-1073

Ugly litigation ensued, with denials, cross-claims, and a
string of publicly released letters.
  Lincoln ultimately terminated its acquisition efforts, but
the litigation continued. Without finding liability under
§ 14(e), the district court conditioned dismissal of the ac-
tion on Lincoln’s issuance of a “corrective release” concern-
ing the alleged misstatements. On its second try, Lincoln
complied with that order, and the action was dismissed.
Relying on the 1995 Private Securities Litigation Reform
Act (PSLRA), 15 U.S.C. § 78u-4(c)(3), which incorporates
FED. R. CIV. P. 11, the district court then imposed sanc-
tions against Lincoln in the amount of $99,264 for the
alleged misrepresentations and for bringing frivolous
counterclaims. Lincoln now appeals that award. We con-
clude that Lincoln’s statements and actions did not run
so far afoul of the governing standards under the tender
offer rules that sanctions were warranted. We therefore
reverse that order and remand for correction of the judg-
ment.


                             I
  On August 13, 2001, a group including the Tom James
Company, its chairman Spencer Hays, and A. Robert Ab-
boud, a former director of Hartmarx, which together had
created the Lincoln Company as a vehicle for their invest-
ments, sent a public letter to the directors of Hartmarx
stating an intention to execute a future cash tender offer
for all of Hartmarx’s outstanding stock beyond the 5% it
already owned. In that letter, Lincoln stated, “The Lincoln
Company, LLC, which is the investor group we have as-
sembled, is made up of The Tom James Company and other
investors, who have committed $70 million in cash equity
for this transaction.” Lincoln then added that “we have
arranged financing to cover the purchase, refinance the
No. 02-1073                                              3

existing Hartmarx debt and provide for the working cap-
ital needs of the Company.” The press release was simulta-
neously filed with the Securities and Exchange Commis-
sion (SEC) on a Schedule TO form.
  With its stock price rising, Hartmarx refused to meet
with Lincoln’s representatives and instead issued its own
public letter, dated August 14, demanding details of Lin-
coln’s financing. Lincoln responded by public letter on
August 22 proposing that a confidentiality agreement
should be executed before financing details could be
provided. Hartmarx offered a written proposal for such an
agreement, but the parties were unable to agree on the
details. In a September 7 press release, Hartmarx declared
that it would not meet with Lincoln because Lincoln was
being too “secretive.”
  That same day, Hartmarx filed suit claiming that Lin-
coln’s conduct violated § 14(e) of the 1934 Act. Among
other things, Hartmarx alleged that Lincoln had violated
§ 14(e) by failing to commence its proposed tender offer
within a “reasonable period of time” of the August 13
release and by making false and misleading statements in
the release and the corresponding Schedule TO concern-
ing its supposed financing for the deal and its intent to
proceed with an offer. Hartmarx’s complaint requested the
issuance of a corrective press release stating that “defen-
dants do not presently have [the necessary] financing
commitments” to complete the offer, an injunction prevent-
ing Lincoln from proceeding with a tender offer until such
corrections had been made, and an order that Lincoln had
to commence any tender offer by a time specified by the
district court.
  Lincoln filed its answer on September 13. It claimed that
neither the press release nor the Schedule TO communi-
cated any intent to commence a tender offer. Furthermore,
it asserted that the August 13 communication did not
4                                              No. 02-1073

constitute an actual tender offer at all under SEC Rule 14e-
8. Lincoln also denied Hartmarx’s allegation that it had not
arranged financing for the deal. Finally, it filed counter-
claims and a third-party complaint against Hartmarx and
certain of its directors, claiming breach of state-law fidu-
ciary duties and misrepresentation under § 14(e) for
claiming that Lincoln lacked financing.
  On September 17, Hartmarx moved for judgment on
the pleadings. Lincoln responded in two ways. First, it pro-
vided Hartmarx’s counsel with a number of letters provid-
ing further details about its financing arrangements,
which showed a mix of written and oral commitments
including $175 million from Bank of America, $35 million
of equity and $45 million of debt from Stephens Group,
and $35 million of equity from Tom James Company and
Abboud. Two days later, Lincoln filed an amended answer
and counterclaim. At that point, it said that “[w]hile the
form of the ultimate transaction may change to include a
cash merger or other mechanism, it has been and continues
to be Lincoln’s intent to commence and complete a ten-
der offer” under certain conditions. It also claimed that it
had proper financing for such an offer. The conditions to
which it referred included regulatory approval and the
Hartmarx Board’s retraction of a poison pill defense
mechanism. Lincoln deleted its defense that the August
13 press release did not constitute a tender offer under
SEC Rule 14e-8.
  At a September 19 hearing, the court held that Lincoln’s
amended pleadings rendered moot Hartmarx’s motion for
judgment on the pleadings. The court added, however, that
Lincoln’s earlier admissions, while fully superseded by
the amended pleadings, still constituted evidentiary ad-
missions. Both parties indicated their intention to file a
motion for summary judgment.
  On September 25, Hartmarx filed its written motion for
summary judgment. That motion argued that the financ-
No. 02-1073                                              5

ing details provided by Lincoln conclusively showed that
Lincoln’s August 13 release contained misrepresenta-
tions about its financing arrangements—principally, that
they were securely in place when they were not—and
that Lincoln had acted knowingly or recklessly in issuing
public statements. For instance, the Bank of America
financing letter was dated September 7, 2001, some 25 days
after the tender offer announcement, but Lincoln did not
execute it until September 14. The Stephens Group financ-
ing letter was dated September 14, some 32 days after the
tender offer, and Lincoln had not yet executed it. Lincoln,
despite its statement at the September 19 hearing, chose
not to file its own motion for summary judgment. Instead,
it publicly revealed the source documents evidencing its
financing agreements. (These documents had been delivered
to Hartmarx on September 17 under a protective order.)
Lincoln also publicly stated that if Hartmarx would not
consent to a meeting by October 1, it would cease all
acquisition efforts.
  On September 28, Hartmarx moved separately to dis-
miss Lincoln’s counterclaims, including the § 14(e) claims
for Hartmarx’s alleged misrepresentations about Lin-
coln’s supposed lack of financing. Hartmarx did not ad-
dress the merits of the state-law fiduciary duty claims. It
argued instead that the district court should decline to
exercise supplemental jurisdiction because of pending
actions in Delaware Chancery Court.
  Lincoln made good on its threat to withdraw its offer
on October 1, but proceedings nonetheless continued in the
district court. This prompted Lincoln to file a motion to
dismiss for mootness on October 2, in which it offered to
dismiss its own counterclaims in return for Hartmarx’s
dismissal of its claims. At an October 4 hearing, the dis-
trict court expressed the opinion that the documents
indicated that the August 13 press release contained mis-
representations as to financing. Moreover, the district
6                                              No. 02-1073

court said that even Lincoln’s mootness motion contained
untruthful or misleading statements about the state of
Lincoln’s financing throughout the contest. As a result, the
district court denied Lincoln’s motion to dismiss and
ordered Lincoln to cure its misstatements as a service to
still-pending lawsuits in other jurisdictions, most notably
Delaware.
  Lincoln complied with the court’s order and issued a
new press release on October 15 acknowledging that at
the time of the August 13 press release it had only oral
agreements for financing from the Tom James Company
and A. Robert Abboud, “oral indications” from the KPS
Special Situation Fund and the Stephens Group, and an
unexecuted commitment letter from SunTrust Capital
Markets, Inc. It indicated that it had also engaged in
preliminary discussions with Bank of America, though a
commitment letter was not drafted until after the August
13 release. Lincoln conceded that its financing arrange-
ments “did not expressly provide for the acquisition of
Hartmarx through a tender offer,” and further character-
ized the entire contest as more of a negotiated acquisi-
tion that, with appropriate financing arrangements,
might have ultimately taken the form of a tender offer.
Upon publication of the October 15 corrective release, the
district court dismissed the action.
  On October 24, Hartmarx filed a motion for attorneys’
fees and costs, relying as we noted before on the PSLRA’s
incorporation of Rule 11. (For convenience, we refer be-
low to Rule 11 directly, as there is no indication that the
PSLRA modified the rule in any relevant respect.) Hart-
marx sought recovery for costs related to four different
pleadings: (1) its September 17 motion for judgment on the
pleadings, which had been “torpedoed” by Lincoln’s “flip-
flop” on the question whether the initial announcement
contemplated a tender offer; (2) its September 25 motion for
summary judgment, which it said was necessitated by
No. 02-1073                                              7

Lincoln’s alleged mistruths about the status of its financ-
ing as of August 13; (3) its September 28 motion to dis-
miss Lincoln’s counterclaims, which it claimed was also
necessitated by Lincoln’s alleged misrepresentations
about financing; and (4) its opposition to Lincoln’s Oc-
tober 2 motion to dismiss for mootness after Lincoln’s
public withdrawal of the tender offer. After several hear-
ings and supplemental briefings, the district court im-
posed sanctions under the PSLRA and Rule 11, awarding
Hartmarx fees and costs totaling $99,264, imposed jointly
and severally on Lincoln and its attorneys. This appeal
followed.


                            II
  Our review of a district court’s grant of Rule 11 sanc-
tions is for abuse of discretion. See Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 405 (1990); Finance Inv. Co.
(Bermuda) Ltd. v. Geberit AG, 165 F.3d 526, 530 (7th Cir.
1998). We therefore will apply that standard of review to
the PSLRA sanctions imposed here. Whether examined
under the PSLRA or Rule 11 directly, “[a] district court
would necessarily abuse its discretion if it based its rul-
ing on an erroneous view of the law or on a clearly er-
roneous assessment of the evidence.” Cooter & Gell, 496
U.S. at 405. In exercising its discretion, a district court
must also bear in mind that such sanctions are to be
imposed sparingly, as they can “have significant impact
beyond the merits of the individual case” and can affect
the reputation and creativity of counsel. Pacific Dunlop
Holdings, Inc. v. Barosh, 22 F.3d 113, 118 (7th Cir. 1994).
  Lincoln’s principal contention in this appeal is that the
sanctions order rested on a fundamentally incorrect view
of the way the tender offer process is designed to operate.
Much of the confusion on all sides here stems from the
SEC’s relatively recent adoption of a broad package of
8                                                No. 02-1073

amendments to the rules governing tender and exchange
offers, mergers, and other business combinations under
the Securities Act of 1933 and the Securities Exchange
Act of 1934. The new rules were promulgated by the
Commission in a release entitled “Final Rule: Regulation
of Takeovers and Security Holder Communications.” See
Exchange Act Release No. 33-7760; 34-42055; IC-24
107 (October 22, 1999) [“M&A Release”]. The amendments
fundamentally overhauled the regulatory framework
governing business combinations. They were intended to
achieve a number of broad goals, including harmonizing
the regulations governing tender offers with the rules
pertaining to other kinds of business combinations; in-
creasing the flow of information to shareholders and
other market players; and minimizing regulatory tension
particularly with SEC Rule 10b-5 and other parts of the
securities laws. Importantly, the new rules became effec-
tive on January 24, 2000, well before the acquisition at-
tempt beginning in August 2001 that spawned this case.
  Two of the changes made by the M&A Release are
especially important for our purposes. First, the new
rules permit free communication with security holders
beginning with the first public announcement of the
transaction so long as the materials that relate to a ten-
der offer are published with the Commission upon first
use. Under the new rules, a “public announcement” is “any
oral or written communication by the bidder, or any per-
son authorized to act on the bidder’s behalf, that is rea-
sonably designed to, or has the effect of, informing the
public or security holders in general about the tender offer.”
17 C.F.R. § 240.14d-2 (explanatory note 5). “Commence-
ment” is not triggered until a bidder “has first published,
sent or given the means to tender to security holders.” Id.
at § 240.14d-2(a). By allowing oral and written communica-
tions with security holders prior to extending a formal of-
fer to purchase, the new rules substantially eliminate
No. 02-1073                                                9

existing restrictions on pre-commencement communica-
tions.
  Second, the new rules abolish the requirement that a
bidder must formally commence within five days of its
announcement of the tender offer, and rely instead only
on the general anti-fraud provisions of Rule 14e-8. That
rule implements section 14(e) of the 1934 Act, which
makes it unlawful for a 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 circum-
   stances . . ., not misleading, or to engage in any fraudu-
   lent, deceptive, or manipulative acts or practices, in
   connection with any tender offer.
15 U.S.C. § 78n(e). The relevant implementing regula-
tions contained in Rule 14e-8 prohibit announcement of
an offer if the bidder:
   (a) Is making the announcement of a potential tender
   offer without the intention to commence the offer
   within a reasonable time and complete the offer;
   (b) Intends, directly or indirectly, for the announcement
   to manipulate the market price of the stock of the
   bidder or subject company; or
   (c) Does not have the reasonable belief that the person
   will have the means to purchase securities to com-
   plete the offer.
17 C.F.R. § 240.14e-8. These new anti-fraud rules seek
to balance the related policy goals of maximizing the flow
of information prior to formal commencement of a tender
offer, on the one hand, and the need to prevent fraudu-
lent and misleading communications by market players
with ulterior motives, on the other. The upshot is that
a bidder is no longer required to commence a tender offer
within a set period of time. Nevertheless, the buyer is
10                                              No. 02-1073

still forbidden to inject false or misleading information
into the marketplace while the tender offer remains a
possibility.
  We turn first to the district court’s imposition of sanc-
tions against appellants on the basis of its conclusion
that Lincoln lacked the requisite intent to complete a
tender offer and a reasonable belief that it had the finan-
cial means to do so. Those were legitimate concerns, as
a brief look at the first and third subsections of Rule 14e-8
shows. In support of its decision, the court pointed to
Lincoln’s repeated statements throughout the pleadings
that it had “arranged” the necessary financing to carry
out a business combination with Hartmarx. These state-
ments, the court believed, amounted to misrepresenta-
tions of the true state of Lincoln’s financing as of August
13. Lincoln’s intransigence, the district court thought,
justified an award of sanctions as compensation for ex-
penses incurred in preparing both Hartmarx’s September
25 motion for summary judgment and its September 28
motion to dismiss Lincoln’s counterclaims.
  Perhaps following the lead of the district court, the
parties have approached this part of the case as if it
turns on the meaning of the word “arranged”—how con-
crete did the arrangements have to be? Did the money
have to be in the bank or were promises enough? How
unconditional did those promises have to be? While this
is interesting, we do not believe that the ultimate mean-
ing of the word “arranged” should dictate the outcome
here. The important fact for Rule 11 purposes is that
this was a new rule. The debate between the parties
involves a close question of law under this new regime. As
such, as long as Lincoln was taking a reasonable legal
position on the meaning of the rule, it should not be
sanctioned even if the district court concluded that
Hartmarx had the better reading.
No. 02-1073                                               11

   In particular, the M&A Release readily acknowledged
that Rule 14e-8’s “reasonable belief” requirement was a
slippery one and would probably be a locus of future
litigation. See M&A Release at II.D.1. In an attempt to
provide some guidance on what constitutes a “reasonable
belief,” the SEC noted in its release that “[a]lthough not
required, a commitment letter or other evidence of fi-
nancing ability (e.g., funds on hand or an existing credit
facility) would in most cases be adequate to satisfy the
rule’s requirement that the bidder have a reasonable
belief that it can purchase the securities sought.” Id. We
read this language as stating that commitment letters
are sufficient, but not necessary, to stave off attack under
Rule 14e-8(c). See also Erica H. Steinberger, et al., Compre-
hensive M&A Reforms Reflect New Market Realities, 1259
PLI/Corp 97, 120 (June 2001) [hereinafter “M&A Reforms”]
(taking the position that the new rules are “not intended
to alter how bidders legitimately finance their offers or
require that financing be arranged or a commitment
letter obtained in advance or immediately after commence-
ment”).
  In light of this guidance from the SEC, we find it at
least plausible that Lincoln’s mix as of August 13 of oral
“agreements” and “indications” from the Tom James
Company, A. Robert Abboud, KPS Special Situation Fund,
and Stephens Group, the unexecuted commitment letter
from Suntrust, and preliminary financing discussions
with Bank of America would be enough to establish an
“existing credit facility” within the meaning of the SEC’s
interpretation of the rule. But that question is not before
us, and so we do not wish to intimate a firm conclusion
on the matter. For the moment, it is sufficient to note
that, whatever linguistic analysis can be brought to bear
on Lincoln’s use of the word “arranged” in its August
13 announcement and subsequent pleadings, the SEC
interpretation of the new regulatory rules specifically
12                                             No. 02-1073

contemplates the announcement of tender offers with
something less than fully committed financing. In short,
while we withhold judgment on whether Lincoln’s state-
ments ran afoul of Rule 14e-8, we have no trouble conclud-
ing that its legal position was “warranted by . . . a
nonfrivolous argument for the extension, modification,
or reversal of existing law or the establishment of new
law.” FED. R. CIV. P. 11(b)(2).
  The district court also sanctioned Lincoln for its Sep-
tember 13 statement in its Verified Counterclaim and
Third-Party Complaint that the proposed business com-
bination was not a formal tender offer. The court com-
pared Lincoln’s initial denial that the August 13 statement
was a tender offer with its revised statements in both its
September 19 amended answer and counterclaim and the
October 15 corrective release that it instead sought a
negotiated acquisition that might have ultimately taken
the form of a tender offer. The district court saw the
change in course in the amended answer as a deliberate
attempt to undercut—or, in the district court’s words,
“torpedo”—Hartmarx’s duly filed September 17 motion for
judgment on the pleadings. This change in position, the
district court thought, merited the award of sanctions for
the expenses incurred by Hartmarx in preparing the
“torpedoed” motion for judgment.
  As an initial point, we should make it clear that we do
not regard the statements Lincoln made as part of its
October 15 corrective release as relevant to this issue.
Those statements were made under the direction of the
district court. In fact, the district court had specifically
conditioned dismissal of the case on the issuance of the
corrective release that comported with its view of the
facts, and Lincoln’s prior efforts to produce a corrective
release had been rejected as unacceptable. Lincoln’s com-
pliance with the court’s ruling merely reflected its ac-
quiescence to the district court’s ultimate determination
No. 02-1073                                              13

on the merits, not the way Lincoln’s earlier arguments had
to be evaluated for Rule 11 purposes.
  Setting aside statements made in the corrective re-
lease, we believe that, as with Lincoln’s alleged misrep-
resentation of its financing arrangements, the question
whether Lincoln’s alleged change in position violated Rule
14e-8 is open to interpretation under the new M&A rules
and is therefore an inappropriate basis for Rule 11 sanc-
tions. The district court seized upon Lincoln’s statement
in its initial counterclaim that “[t]he Offer is not a ten-
der offer.” But this statement is in fact a legally correct
statement of the status of its acquisition efforts at that
time under the revised definition of “commencement” as
set forth in Rule 14d-2(a). Indeed, formal commencement
of a tender offer would have required that Lincoln pro-
vide specific information on how shareholders could ten-
der their shares. See 17 C.F.R. § 240.14d-2(a).
  Further, Lincoln’s hesitance to label its proposed combi-
nation a “tender offer” in the August 13 release and in its
initial pleadings may be explicable as a legitimate tactical
choice under the new regulatory framework. The SEC it-
self notes in its interpretation of the rules that some
bidders “do not use the term ‘tender offer’ in their public
announcement of a proposed business combination trans-
action in an attempt to avoid triggering application of
Rule 14d-2.” See M&A Release at II.D.1. Among other
things, the triggering of Rule 14d-2 creates obligations
on the part of the target, most notably Rule 14e-2’s re-
quirement that the subject company take a position on the
offer within 10 days. Thus, while we do not wish to specu-
late about strategy, Lincoln may have preferred to avoid
any suggestion that its offer was in fact a formal tender
offer for tactical reasons that are specifically supported
by the SEC’s interpretation of the new regulatory frame-
work.
14                                            No. 02-1073

  We also believe that the allegedly contradictory posi-
tions adopted by Lincoln in its initial and amended plead-
ings are consistent with Lincoln’s stated desire to pursue
a “bear hug” approach to acquiring Hartmarx. The term
denotes a situation in which a bidder proposes a negoti-
ated merger or friendly tender offer and implicitly or
explicitly suggests that the breakdown of negotiations
may ultimately lead to a hostile takeover attempt or other
unpleasant action. See Michael J. Kennedy, The Business
Judgment Syllogism—Premises Governing Board Activity,
1316 PLI/Corp 285, 300 n.54 (June 2002); see also Rowe
v. Maremont Corp., 850 F.2d 1226, 1230 (7th Cir. 1988).
For instance, Lincoln noted in its initial answer that it
had filed the Schedule TO “formally [to] announce that it
intended to pursue a business combination with Hart-
marx in a form to be negotiated in good faith between the
Lincoln Entities and Hartmarx.” This statement is entirely
consistent with its revised statement in the amended
answer that “Lincoln intended, and intends, to commence
and complete a tender offer upon satisfaction of the above
conditions.” Those conditions included regulatory approval
and the Hartmarx Board’s cancellation of its poison pill
provision, the latter of which would have been unnecessary
in the event of other forms of friendly, negotiated merger,
or, more obviously, a hostile takeover attempt. Thus, the
record supports Lincoln’s contention that from the very
beginning it contemplated a friendly, negotiated acquisi-
tion of Hartmarx by any of a number of possible means,
including a friendly tender offer, with a hostile takeover
attempt serving as a possible back-up plan in the event
that negotiations stalled (or failed).
  Here again, the SEC’s M&A Release specifically sup-
ports such tactics. Indeed, the SEC rejected the sugges-
tion made in some comments that the five-day rule be
retained for hostile takeovers, but eliminated for negoti-
ated transactions, noting that “applying the rule only to
No. 02-1073                                              15

hostile offers could present problems when the same tar-
get is the subject of both a negotiated transaction and a
hostile offer, or when a negotiated transaction becomes
hostile as a result of changed circumstances or another
offer.” See M&A Release at II.D.1; see also Steinberger,
M&A Reforms, at 105.
  Finally, it is important to note that the “partial admis-
sion” by Lincoln on which the district court relied came
in its counterclaim, not in its answer. Given that Lincoln
was bringing counterclaims under § 14(e), the actual
statement was not a denial of an allegation, but rather
an effort to justify a claim brought under Rule 14e-8
against a target. The full statement reads:
    The Offer is not a tender offer. Hartmarx, however, is
    acting in anticipation of a tender offer or a request or
    invitation for tenders, and is therefore subject to
    the strictures of Section 14(e) of the Exchange Act.
This statement contains at least three elements: first, a
correct description of the status of Lincoln’s offer as of
August 13 under the definition of “commencement” con-
tained in Rule 14d-2(a); second, an acknowledgment that
Lincoln was pursuing a “bear hug” acquisition that might
or might not lead to a tender offer; and third, an admission
that both its statements and those of Hartmarx were
subject to Rule 14e-8’s restrictions because of the pos-
sibility that negotiations might lead to a tender offer,
whether friendly or hostile in nature. Of course, Hartmarx
could and did point to these statements in making the
argument that Lincoln lacked the requisite intent or
means to commence a tender offer under 14e-8. But we
find that all three are at the very least legally plausible
positions under existing law, and so we conclude that
there was no blatant “flip-flop” that might have justified
Rule 11 sanctions.
  We turn finally to the district court’s award of sanctions
for costs incurred in responding to Lincoln’s filing of a
16                                               No. 02-1073

motion for mootness. Here, under established principles
of justiciability doctrine, Lincoln’s withdrawal of its tender
offer on October 1 rendered moot both sides’ claims under
§ 14(e). Indeed, because both parties’ claims sought in-
junctive relief only, the district court could properly
have continued to exercise jurisdiction only upon finding
that the alleged infractions of Rule 14e-8 were “capable
of repetition, yet evading review.” See, e.g., City of Los
Angeles v. Lyons, 461 U.S. 95, 109-10 (1983); Knox v.
McGinnis, 998 F.2d 1405, 1413 (7th Cir. 1993); see also
Southmark Prime Plus, L.P. v. Falzone, 776 F. Supp. 888,
900 (D. Del. 1991). In short, Lincoln’s position that the
case was moot was correct, and accordingly it cannot
serve as a basis for the imposition of Rule 11 sanctions.
  Hartmarx argues in response that Lincoln’s October 1
withdrawal of its offer was a further violation of § 14(e)
because the press release that finalized the withdrawal
continued to perpetrate misrepresentations as to the
state of Lincoln’s financing on August 13. But it is
unclear why this should matter for purposes of a claim
focused on the tender offer process. If adopted, this position
would in effect grant Hartmarx an abstract right under
§ 14(e) to cleanse the public record even after the underly-
ing tender offer to which Rule 14e-8’s anti-fraud rules
attach has been withdrawn. We decline the invitation to
read § 14(e) and the rule this expansively.
   Hartmarx further argues that allowing yet another
“objectively false” press release to go uncorrected would
have resulted in prejudice to Hartmarx in its continuing
litigation efforts in Delaware state court. There are at
least two problems with this argument. First, no one can
invoke issue preclusion based upon this litigation, for the
simple reason that the district court never reached the
merits of Hartmarx’s § 14(e) case and thus no issues were
actually litigated. See Parklane Hosiery v. Shore, 439 U.S.
322, 326 n.5 (1979); Loeb Indus., Inc. v. Sumitomo Corp.,
No. 02-1073                                              17

306 F.3d 469, 496 (7th Cir. 2002); People Who Care v.
Rockford Bd. of Educ., 68 F.3d 172, 178 (7th Cir. 1995).
Further, we are confident that the state courts in Dela-
ware and elsewhere are able to sort through the issues
on their own. See Michigan v. Long, 463 U.S. 1032, 1040
(1983); Younger v. Harris, 401 U.S. 37, 43 (1971). Hart-
marx’s position amounts to the argument that, though
the Delaware courts had before them many of the same
facts as did the district court, they would somehow be
duped by Lincoln’s October 1 release without federal court
guidance on the matter. We will not make such an assump-
tion.


                            III
    Because the district court’s imposition of sanctions
against appellants did not take into account the changes
in the regulatory regime governing tender offers, we con-
clude that it was an abuse of discretion to order them here.
The judgment of the district court is therefore REVERSED.
  Accordingly, we also DENY Hartmarx’s Rule 38 motion
for attorneys’ fees and double costs on appeal.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit




                   USCA-02-C-0072—4-9-03
