Document: 430 U.S. 462 97 S.Ct. 1292 51 L.Ed.2d 480 SANTA FE INDUSTRIES, INC., et al., Petitioners,v.S. William GREEN al. No. 75-1753. Argued Jan. 18-19, 1977. Decided March 23, Syllabus Delaware's 'short-form merger' statute enables a parent company owning at least 90% of the stock subsidiary to merge with upon approval company's board directors, and make cash payments for minority shareholders' shares. Though advance notice or consent shareholders is not required, they must be notified within 10 days merger's effective date, any dissatisfied shareholder may petition Delaware Court Chancery payment fair value his shares as determined by court-appointed appraiser subject court review. Pursuant that statutory procedure petitioner Santa Fe Industries, which had acquired 95% control another (Kirby), after obtaining independent appraisals Kirby's assets submitting them financial data banking firm appraise Kirby stock's market value, decided offer stockholders $150 per share, was more than firm's appraisal. The were day merger became advised their right obtain an appraisal if price, given information statement containing relevant about Kirby, its assets, Respondents, who objected merger, instead pursuing remedy, brought this action in District seeking set aside recover stock, claimed $772 share. Respondents alleged been fraudulently appraised effort freeze out inadequate violation § 10(b) Securities Exchange Act 1934, makes it 'unlawful person . (t)o use employ manipulative deceptive device contrivance contravention (Securities Commission rules),' Rule 10b-5 issued thereunder, which, addition nondisclosure misrepresentation, prohibits 'artifice defraud' act 'which operates would operate fraud deceit.' dismissed complaint failure, respect two aspects on respondents' case deemed rest, state claim relief could granted: (1) With regard actionable inhered allegedly gross undervaluation shares, concluded 'full disclosure made, transactions eliminating interests are beyond purview 10b-5,' respondents did allege misrepresentation case. (2) undertaken without prior shareholders, solely eliminate from therefore lacked justifiable business purpose, override corporation law provisions, do require purpose short-form merger. Appeals reversed. While disagreeing lower court's conclusions (1), supra, reached 'breaches fiduciary duty majority against charge lack disclosure,' complaint, taken whole, stated cause under Rule. Held: 1. Only conduct involving manipulation deception 10b-5. 'When speaks so specifically terms deception, when history reflects no expansive intent, (the is) quite unwilling extend scope .,' Ernst & v. Hochfelder, 425 185, 214, 96 1375, 1391, 47 668. Pp. 471-474. 2. carried neither nor violate furnished all decide whether accept price offered reject seek court, cases relied breaches held violative 10b-5, included some element inappropriate here where there none. Manipulation 'virtually term art used connection securities markets,' Ernst, 199, 1384, referring practices intended mislead investors artificially affecting activities, none involved here. 474-477. 3. A holding bring wide variety corporate traditionally left regulation. Absent clear indication congressional should reluctant federalize substantial portion corporations deals securities, particularly established policies regulation overridden. Cf. Cort Ash, 422 66, 78, 84, 95 2080, 2087, 2090, 45 26; Piper Chris-Craft Inc., 1, 41, 926, 124. 477-480. 533 F.2d 1283, reversed remanded. R. Glendon, New York City, petitioners. Sidney Bender, respondents. Mr. Justice WHITE delivered opinion Court. 1 issue involves reach coverage 1934 10b-51 thereunder context transaction stockholder interest. 2 * In 1936, Inc. (Santa Fe), 60% Lumber Corp. corporation. Through series purchases over succeeding years, increased 95%; purchase prices during period 1968-1973 ranged $65 $92.50 share.2 1974, wishing acquire 100% ownership availed itself 253 Corporation Law, known statute. Section permits subsidiary, parent's stockholders. does of, to, However, decree ordering surviving pay him review court. Del.Code Ann., Tit. 8, §§ 253, 262 (1975 ed. Supp.1976). 3 obtained physical land, timber, buildings, machinery oil, gas, mineral interests. These appraisals, together other information, submitted Morgan Stanley Co. (Morgan Stanley), investment retained stock. $320 million (amounting $640 each 500,000 shares); valued $125 Under 4 provisions fully complied with.3 They also received containing, concluding 5 but pursue remedy Chancery.4 Instead, federal behalf stockholders, what amended asserted that, based revealed sent worth share.5 further took place stockholders; appropriate difference between 'conceded pro rata assets,' App. 103a, share 'freez(e) wholly price,' id., 100a; Fe, knowing 'fraudulent appraisal' $25 above 'in order lull into erroneously believing was) generous.' Id., 103a. This course 'a because defendants employed 'device, scheme, artifice engaged 'act, practice deceit person, sale security." Ibid.6 assertedly participated accessory although assets. 6 failure granted. 391 F.Supp. 849 (SDNY 1975). As understood rested distinct grounds. First, violated sole company, lacking shareholders. Second, low valuation placed cash-exchange said rejecting first ground recovery, reasoned required contemplated removed these independently placing purpose. 7 observed minimum 'basing figure assets.' 853. Accepting purposes motion dismiss, noted asset appraisal, along Stanley's time law. It thought 'complaint fail(ed) omission, misstatement fraudulent have impeded shareholder's judgment offer.' 854. failed dismissed.7 8 divided Second Circuit 1283 (1976). agreed double aspect case: first, 10b-5; second, 'without disclose facts, constitutes 10b-5' accomplished 1285. case, disturb Court's conclusion material stock; declined rule suffice second however, disagreed Appeals' view plainly misrepresentations nondisclosures necessary action; disclosure.' 1287.8 went hold Rule: 9 'We alleges charges, has committed breach deal fairly effecting justifible thus having opportunity apply injunctive relief, proposed paid substantially reflected Information Statement.' 1291. See 1289.9 We granted certiorari challenging importance administration laws. 429 814, 54, 50 74 reverse. II 11 rules)'; promulgated SEC 10(b), prohibits, deceit.'10 below construed 'fraud' adverting several decisions contexts related 1933, 15 U.S.C. 77a seq.11 approach interpretation inconsistent last Term 668 12 deciding states 'we turn language '(t)he starting point every construction itself." 197, S.Ct., 1383, quoting Blue Chip Stamps Manor Drug Stores, 421 723, 756, 1917, 1935, 44 539 (1975) (Powell, J., concurring). lie mere negligence, began principle '(a)scertainment intent standard liability created particular section (1933 1934) Acts rest primarily section,' U.S., 200, then focused words 'manipulative deceptive' conjunction 'device contrivance." 1383. same 13 To extent rely ambit transaction, rejected Ernest, 'add gloss operative different commonly accepted meaning.' But, held, 14 'Rule adopted pursuant authority Exchange) 10(b). rulemaking power administrative agency charged Rather, "the adopt regulations carry effect will Congress expressed statute." (The Rule) cannot exceed 10(b).' 212-214, 1390-1391.12 gives meant prohibit deception. Nor we cited evidence legislative support departure statute.13 ..' 1390. Thus part only can viewed meaning III 16 our either 17 indicated, comes us premise disclose. finding Court, undisturbed Appeals, 'omission' 'misstatement' accompanying On basis provided, Chancery. Their choice presented, base decision.14 18 find inapposite below, deception.15 Those forcefully reflect '(s) read flexibly, technicallyand restrictively' provides plaintiff 'suffer(s) injury result touching (or purchase) Superintendent Insurance Bankers Life Cas. Co., 404 6, 12-13, 92 165, 169, 30 128 (1971). But proposition, urged here, nondisclosure, violates 19 readily apparent 'manipulative' 'Manipulation' markets.' 1384. refers generally practices, such wash sales, matched orders, rigged prices, activity. See, e. g., Act, 78i (prohibiting specific practices); 195, 199 n. 21, 205, 1382, 1386; 43, 950 (Rule 10b-6, 'an antimanipulative provision designed protect orderlines distributions stock' 'to prevent stimulative trading issuer own create unnatural unwarranted appearance activity'); A. Bromberg, Law: Fraud 7.3 (1975); L. Loss, Regulation 1541-1570 (2d 1961); 3755-3763 (Supp.1969). 10(b)'s general prohibition technical sense activity consistent fundamental "to substitute philosophy full caveat emptor .." Affiliated Ute Citizens United States, 406 128, 151, 1456, 1471, 31 741 (1972), Capital Gains Research Bureau, 375 180, 186, 84 275, 279, 237 (1963). Indeed, usually essential success scheme. 1565. No doubt range ingenious devices might manipulate prices. think chosen 'term art' instances mismanagement this, essence treated unfairly fiduciary. IV 20 is, think, 'sufficiently context' dispositive 201, 1385; even not, additional considerations weigh heavily permitting complaint. expressly provide private violations Although recognized implied circumstances, 9, antifraud 'unnecessary ensure fulfillment Congress' purposes' adopting Act. 949. J. I. Case Borka, 377 426, 431-433, 1555, 423 (1964). earlier, page, repeatedly described 'fundamental purpose' implementing 'philosophy disclosure'; once occurred, fairness most tangential concern Mills Electric Auto-Lite 396 375, 381-385, 90 616, 620-622, 24 593 (1970). 80, 26 (1975), recognize serve 'at best legislation. 21 factor determining circumstances 'whether 'the (is) one relegated ." piper 40, 949, 2087. Legislature supplied undervalued Supra, 465-466. Of course, existence state-law question similar Piper, conclude 'it entirely instance relegate respondent others situation whatever law.' 2091; 22 reasoning behind easily contained. difficult imagine how distinguish, fraud, stockholder's unfair device, long-form tender offer, liquidation, achieve result; indeed distinguish abuses going types self-dealing secutiries. posing 'danger vexatious litigation widely expanded class plaintiffs 740, 1927, extension laws overlap possibly interfere Federal courts applying 'federal principle' expected depart standards uniformity system.16 supra: 'Corporations creatures law, commit funds directors understanding except requires certain responsibilities govern internal affairs corporation.' 2091 (emphasis added). 23 adhere position 'Congress regulate constitute mismanagement.' 12, 169. There well need uniform mergers challenged those judicial 'cover universe.'17 reversed, remanded proceedings opinion. 25 So ordered. BRENNAN dissents affirm reasons concurring opinions (CA2 1976). part. 27 Like STEVENS, I refrain joining Part I, too, unnecessary decision instant and, indeed, exacerbating concerns my 761, 1937, 215, join remainder judgment. 28 29 For Blackmun dissenting 639,1 dissent 53, 955, 124 (1977), believe both incorrectly decided. foresee danger extending holdings cases. Moreover, entire discussion Accordingly, Parts II, add emphasis fact controlling owed (a) complete (b) entitled receive shares.2 facts 78j, part: 'It shall unlawful directly indirectly, means instrumentality interstate commerce mails, facility national exchange '(b) employ, security registered registered, rules prescribe public interest protection investors.' CFR 240.10b-5 (1976), provides: 'Employment devices. commerce, mails exchange, '(a) defraud, untrue omit statements light misleading, '(c) engage act, practice, security.' 33a (merger statement, considered parties complaint). controlled through owned Natural Resources, July 31, following way. new corporation, Forest Products, organized cash, transferred Fe's (see 2, supra) Products merged Rpoducts subsidiary. August petitioned withdrew September next commenced lawsuit. calculated follows: 'The $311,000,000 ($622 share) land alone, defendants' thereof $320,000,000 $9,000,000 book added yields 102a. diversity pendent jurisdiction claim. found absence citizenship defendant refused exercise 849, 855 alternative injuries causally shareholder: 'Assuming arguendo adequate disclosure, demonstrate causal plaintiffs' damages. Plaintiffs cancellation plan. From outset, it.' F.Supp., 855. thus: 'Whether made crucial inquiry since constituted determines lay bare real motives. If valid brazen way mitigates conduct.' 1292. affirmed, dismissal Stanley. it, participating duty; evaluation compilation report thereto. contained 'no allegation 10b-5(2).' Ibid. supra. quoted passages pepper Litton, 308 295, 311, 60 238, 245, 247, L.Ed. 281 (1939) (where upheld disallowance bankruptcy obligation stockholders), Story, Equity Jurisprudence 187 (1853); passage Story's treatise Moore Crawford, 130 122, 447, 448, 32 878 (1889) (a suit compel execution deed constructive trust), 194, 284, (1963) (Investment Advisers 1940 'fraud client,' adviser's clients recommendations). statute, references 'equitable' premised recognition Investment establish advisers. 191-192, 282-283, 284. sought enjoin was, fact, nondisclosure. adhering stronger strongly Commission. (rejecting interpretations Amicus curiae). By contrast, apparently 'going private' eliminates Release 5567 (Feb. 1975), CCH Fed.Sec.L.Rep. $80,104 (proposing Rules 13e-3A 13e-3B dealing transactions, six sections including stating 'has rules'). Because concerned intimate Commission's promulgate Ernst: 'Neither changes explicitly legislation.' 202, 1385. reference Senate Report merely 'aimed demonstrated fulfill useful function.' S.Rep.No.792, 73d Cong., 2d Sess., (1934). principal argument clauses (c) argue clause major contention give though notice. Brief 27. indicate acted differently enjoined proceeding unfairness Thus, TSC Northway, 426 438, 2126, 48 757 alleged. (1972) (misstatements bank employees maker less value); 167, (1971) ('seller (of bonds) duped seller, proceeds'). (injunction adviser large number Courts misconduct E. Schoenbaum Firstbrook, 405 220 1968) (en banc), cert. denied, 395 906, 89 1747, 219 (1969) (majority 'were guilty deceiving' stockholders); Drachman Harvey, 453 722, 733, 736, 737 1972) banc) 'indistinguishable' Cement Corp., 507 374 1974), 976, 1976, 467 (scheme terms, misrepresentation); Pappas Moss, 393 865, 869 (CA3 ('if 'deception' present 10b-5), viewing 'independent' standing defrauded entity,' passed resolution authorizing Shell Hensley, 819, 825 (CA5 1970) (derivative alleging officers misleading proxy materials reports deceive regarding bogus employment contract conceal improper president excessive prices); Rekant Desser, 872, 882 (as scheme Treasury promissory note grossly consideration, deceived making affirmative corporation's annual failling file year). Recent Cases, Harv.L.Rev. 1926 (1976) (stating appellate before Marshel AFW Fabric 1277 (CA2), vacated determination mootness, 881, 228, 162 'had permitted nondisclosure') (footnote omitted). example, States 'valid elimination whereas Compare Bryan Brock Blevins 490 563 (CA5), 419 844, 77, 42 72 (1974) arranged 15% Georgia statute) Stauffer Standard Brands, 41 Del.Ch. 7, A.2d 78 (1962) (Delaware allows remedy). interpreted impose stricter States. Cary, Federalism Corporate Reflections Upon Delaware, 83 Yale L.J. 663, 700 Professor Cary argues vigorously comprehensive standards, urges 'frontal' attack rather He writes: seems anomalous jig-saw kind dispute acts presently written.' Note, Going Private, 903 application traditional doctrines substantive problems raised mergers). Eason General Motors Acceptance 654 (CA7 1973), 416 960, 94 1979, 40 312. motivation matter indifference retain consummated.

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