Brief Fact Summary. Shareholders (Plaintiff) of Electric Auto-Lite Company (Auto-Lite) (Defendant) wanted to have a merger set aside due to Auto-Lite’s dissemination of purported deceiving proxy information.
Synopsis of Rule of Law. Where a significant, deceiving statement or omission is contained in a shareholders’ proxy solicitation, an adequate demonstration of causation betwixt the violation and the injury is shown where a shareholder showing that the proxy solicitation, not the deceitful statement, was a vital connection in effectuating the merger.
This development has been most pronounced in shareholders derivative actions, where the courts increasingly have recognized that the expenses incurred by one shareholder in the vindication of a corporate right of action can be spread among all the shareholders through an award against the corporation, regardless of whether an actual money recovery has been obtained in the corporation's favor.
View Full Point of LawIssue. Where a significant, deceiving statement or omission is contained in a shareholders’ proxy solicitation, does an adequate demonstration of causation betwixt the violation and the injury is shown where a shareholder showing that the proxy solicitation, not the deceitful statement, was a vital connection in effectuating the merger?
Held. (Harlan, J.) Yes. Where a significant, deceiving statement or omission is contained in a shareholders’ proxy solicitation, an adequate demonstration of causation betwixt the violation and the injury is shown where a shareholder showing that the proxy solicitation, not the deceitful statement, was a vital connection in effectuating the merger. To move forward the rights of shareholders by giving them full disclosure of information about projected mergers is what § 14(a) of the 1934 Act was created for. Rule 14a-9 prevents any misleading or incorrect statements or omission of any significant fact in relation with a proxy solicitation. Removing a corporations liability from a defective proxy statement founded on the fairness of the merger fudges the congressional objective behind the legislation. A misrepresentation or omission is “material” when it is found that the fact would have had influence over a reasonable shareholder’s vote. An extra requirement that the defect affect the coting process is not necessary. Reversed and remanded.
Discussion. The appropriate retrospective relief to be granted by the court to shareholders alleging a violation of § 14(a) and Rule 14a-9 for misleading or omission of substantial facts regarding proxy solicitation should be founded on elements similar to those in a case of illegality or fraud. The court may grant either equitable or financial relief or set aside the merger, but a remedy is not requisite. If plaintiffs can prove the distortion or omission connected directly to the terms of the merger, an accounting may be directed to decide if the shareholders received their expectancy interest. If the defect is unrelated to the merger, then the plaintiffs may recover damages to the degree they can show they were hurt by said transaction.