Brief Fact Summary. The Board of Directors of Virginia Bankshares (Defendant) in petitioning proxies to vote on a suggested merger, stood for to its minority shareholders, counting Sandberg, (Plaintiff) that $42 a share was a “high value†and “fair price†for their stock, regardless of a conviction that the amount was neither high nor fair.
Synopsis of Rule of Law. A minority shareholder who claims that a corporate board of directors intentionally presented fabricatedexplanations for recommendation of specific action states a private cause of action under Securities Exchange Act § 14(a) and SEC Rule 14a-9, even if such explanations were defined in conclusory or approximate terms.
Recognition of any private right of action for violating a federal statute must ultimately rest on congressional intent to provide a private remedy.
View Full Point of LawIssue. Is a minority shareholder who claims that a corporate board of directors intentionally presented fabricated explanations for endorsements of specific action states a private cause of action under Securities Exchange Act § 14(a) and SEC Rule 14a-9, even if such explanations were defined in conclusory or approximate terms?
Held. (Souter, J.) Yes. A minority shareholder who claims that a corporate board of directors intentionally presented fabricated explanations for endorsements of specific action states a private cause of action under Securities Exchange Act § 14(a) and SEC Rule 14a-9, even if such explanations were defined in conclusory or approximate terms. Shareholders know that directors generally have knowledge and expertise significantly beyond that of normal investor’s resources, and knowing that directors are obligated by state law to exercise their judgment in the shareholders’ interest. Thus, when offered a conclusory or qualitative statement during a proxy solicitation, shareholders reasonably comprehend a statement whose precision is warranted by a fact based foundation. In this instance, the statement that the price offered to the minority shareholders of the acquired bank was “fair†or “high†and offered a premium above both market price and book value was disproven by proof of the “growing concern†worth of the bank and the true worth of the acquired bank’s real estate holding (signifying a $60/share appraisal). Usually, Sandberg along with the other minority shareholders, in spite of the conclusory quality of the directors’ proxy solicitation statements, would be held to have stated palpable claims under Securities Exchange Act § 14(a), although, Sandberg lacks evidence to demonstrate that the proxy statement was a vital connection between the directors’ proposal and the merger, and that the necessary causation component is existent. The proxy solicitation was not necessary by relevant state law, and minority approval of the merger was not the only way the board of directors could protect it from a postmerger condemnation for conflict of interest. Congress was discreet about the capacity of a private, self-help right of action under § 14(a), and lacking unmistakable congressional intent to give a private remedy permitting such an expansive theory of causation, the likelihood of theoretical assertions must supersede the minority rights in this sort of fact situation. Reversed.
Discussion. Regardless of this case’s extensive analysis of the actionablility per se of statements of belief, intention, orjudgment by a corporation’s board of directors given the necessary component of causality, the Court explicitlyengaged the inquiry of ifscienter was a requiredcomponent of liability under S 14(a) of the Securities Exchange Act. TSC Industries, Inc. v. Norway, Inc., 426 U.S. 438, 444 n.7 (1976), inquires if scienter is a required component of a private claim for 14(a) misrepresentation. Regardless of the fact that lack of causation is not grounds for a federal claim, the Court was considerate of the presence of state law remedies that is not reliant on the missing link between the detriment to minority shareholders and the proxy solicitation , an example of which is appraisal.