Brief Fact Summary. Petitioners, Mills et al., brought an action under Section: 14(a) of the Securities an Exchange Act in response to misleading proxy solicitation by Respondent, Eclectric Auto-Lite Co.
Synopsis of Rule of Law. A material misstatement or omission in a proxy statement is all that is required to maintain an action under Section: 14(a).
Issue. The issue is whether the material misrepresentation in the proxy solicitation is sufficient to establish the cause of action.
Held. A material misrepresentation or omission is enough to establish a cause of action. The United States Supreme Court declined to follow the Appellate court’s “fairness of the merger” test because it basically removed the shareholders from the voting process. A company could release an extremely false proxy statement and justify it as long as they could demonstrate that the merger was fair. The Court noted that misleading material in a solicitation is in itself a violation of Section: 14(a). In this case, Petitioner has established facts, namely that shareholders may have been materially affected by the recommendation of an interested board of directors, which would allow for a cause of action.
Discussion. The Court refused to allow directors to cut out the shareholders of the voting process, and refused to allow a company to rationalize misconduct by declaring that the merger was fair.