Citation. J. I. Case Co. v. Borak, 377 U.S. 426, 84 S. Ct. 1555, 12 L. Ed. 2d 423, 1964)
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Brief Fact Summary.
The shareholders authorized a merger of J.I. Case Co. (Defendant) with another corporation and Borak (Plaintiff), shareholder of J.I. Case Co, then argued that the proxy statements violated federal securities laws and desired private relief.
Synopsis of Rule of Law.
When no private right of action is explicitly sanctioned or banned, but where a federal securities act has been violated, a private civil action will lie and the court is welcome to create a suitable remedy.
Facts.
A proposal of a merger was submitted to the shareholders for their approval by the management of J.I. Case Co. In association with the proposal, management solicited shareholder proxies approving of the merger. Borak argued that the proxy solicitations were fake and deceiving in violation of § 14(a) of the Securities Exchange Act and he desired rescission of the consummated merger plus damages for himself and all the other shareholders in similar situations and any other suitable equitable relief. The trial court held that the federal statute approved only declaratory relief and all other remedies must be sought under state law. The Wisconsin statute applied here required the posting of security for expenses. Borak declined to post security and all counts of the complaint were dismissed except the section which would result in a judgment of declaratory relief. Borak appealed, arguing that the Securities Exchange Act approved a private right of action by implication and he was not restricted to the state courts for other than declaratory relief.
Issue.
When no private right of action is explicitly sanctioned and no private remedies mentioned, is a shareholder able to pursue rescission of a merger or damages for a violation of a federal regulation in relation to proxy statements?
Held.
(Clark, J.) Yes. When no private right of action is explicitly sanctioned and no private remedies mentioned, a shareholder is able to pursue rescission of a merger or damages for a violation of a federal regulation in relation to proxy statements. Preventing management or others from attaining authorization for corporate action via the utilization of fake or deceiving proxy solicitations is the reason § 14(a) exists. The Act under which the rule publicized allowed the Securities and Exchange Commission (SEC) to pass rules and regulations decided are needed to secure the public interest and the shareholders interests. The congressional mandate to secure the interests of the investors needs an accessible judicial remedy to apply that defense. The SEC states that it lacks the ability to look into the veracity of all proxy statements submitted for registration. If investors’ interests are to be safeguarded in the spirit of the congressional mandate, a private right of action for shareholders who feel mistreated must be created. Seeing as the statute fails to provide for all kinds of relief, the court must choose what remedies are suitable to address the alleged mistreated. In this way, any accessible remedy to a federal court can be used to offer relief for the plaintiff. To hold that the plaintiff is limited to declaratory relief in federal courts, while having to seek other relief in state courts, could likely leave the plaintiff without an effective remedy. After obtaining the federal declaration of his rights, the plaintiff may discover that the state fails to identify the defendant’s actions as illegal, leaving the plaintiff without means to impose his judicially declared rights. The case is affirmed and remanded to the trial court for a hearing on the merits with relief being awarded abiding the result.
Discussion.
By totally eliminating state law from consideration in cases claiming violations of federal securities lawsthe Court relieved plaintiffs of a remarkable onus. Multitudes of jurisdictions have a condition that the plaintiff posts a security for expenditures on the defendant’s behalf. The posting of securities like this can be quite burdensome, especially if the case contains intricate issues resulting in lengthy litigation. In light of that information, in this case, Borak would have had to post $75,000. Regardless of how commendable a case may be, this type of onus may cause the plaintiff to cease going ahead with his case. Also, the Court’s ruling significantlywidens the remedies accessible to a plaintiff shareholder. Most state statutes restrict a shareholder who dissents from a merger to a right of evaluation for his shares. The federal court could rescind the merger totally if that action was necessary. This choice significantly widens the efficiency of the federal securities regulations by offering a wide range of implementation practices.
