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Timestamp: 2019-12-14 04:43:38
Document Index: 21798528

Matched Legal Cases: ['§ 1292', '§ 14', '§ 29', '§ 29', '§ 14', '§ 35', '§ 1117', '§ 14', '§ 29', '§ 14']

MILLS V. ELECTRIC AUTO-LITE CO., 396 U. S. 375 - Volume 396 - 1970 - Full Text - US Supreme Court Center - USSC Cases - Nolo
US Supreme Court Center > Volume 396 > MILLS V. ELECTRIC AUTO-LITE CO., 396 U. S. 375 (1970) > Full Text
MILLS V. ELECTRIC AUTO-LITE CO., 396 U. S. 375 (1970)
On petitioners' motion for summary judgment with respect to Count II, the District Court for the Northern District of Illinois ruled as a matter of law that the claimed defect in the proxy statement was, in light of the circumstances in which the statement was made, a material omission. The District Court concluded, from its reading of the Borak opinion, that it had to hold a hearing
The District Court made the certification required by 28 U.S.C. § 1292(b), and respondents took an interlocutory appeal to the Court of Appeals for the Seventh Circuit. [Footnote 3] That court affirmed the District Court's conclusion
Claiming that the Court of Appeals has construed this Court's decision in Borak in a manner that frustrates the statute's policy of enforcement through private litigation, the petitioners then sought review in this
Court. We granted certiorari, 394 U.S. 971 (1969), believing that resolution of this basic issue should be made at this stage of the litigation, and not postponed until after a trial under the Court of Appeals' decision. [Footnote 4]
As we stressed in Borak, § 14(a) stemmed from a congressional belief that "[f]air corporate suffrage is an important right that should attach to every equity security bought on a public exchange." H.R.Rep. No. 1383, 73d Cong., 2d Sess., 13. The provision was intended to promote "the free exercise of the voting rights of stockholders" by ensuring that proxies would be solicited with "explanation to the stockholder of the real nature of the questions for which authority to cast his vote is sought." Id. at 14; S.Rep. No. 72, 73d Cong., 2d Sess., 12; see 377 U.S. at 377 U. S. 431. The decision below, by permitting all liability to be foreclosed on the basis of a finding that the merger was fair, would allow the stockholders to be bypassed, at least where the only legal challenge to the merger is a suit for retrospective relief after the meeting has been held. A judicial appraisal of the merger's merits could be substituted for the actual and informed vote of the stockholders.
Further, recognition of the fairness of the merger as a complete defense would confront small shareholders with an additional obstacle to making a successful challenge to a proposal recommended through a defective proxy statement. The risk that they would be unable to rebut the corporation's evidence of the fairness of the proposal, and thus to establish their cause of action, would be bound to discourage such shareholders from the private enforcement of the proxy rules that "provides a necessary supplement to Commission action." J. I. Case Co. v. Borak, 377 U.S. at 377 U. S. 432. [Footnote 5]
Id. at 377 U. S. 431. In the present case, there has been a hearing specifically directed to the causation problem. The question before the Court is whether the facts found on the basis of that hearing are sufficient in law to establish petitioners' cause of action, and we conclude that they are.
of whether the defect actually had a decisive effect on the voting. Where there has been a finding of materiality, a shareholder has made a sufficient showing of causal relationship between the violation and the injury for which he seeks redress if, as here, he proves that the proxy solicitation itself, rather than the particular defect in the solicitation materials, was an essential link in the accomplishment of the transaction. This objective test will avoid the impracticalities of determining how many votes were affected, and, by resolving doubts in favor of those the statute is designed to protect, will effectuate the congressional policy of ensuring that the shareholders are able to make an informed choice when they are consulted on corporate transactions. Cf. Union Pac. R. Co. v. Chicago & N.W. R. Co., 226 F.Supp. 400, 411 (D.C.N.D. Ill. 1364); 2 L. Loss, Securities Regulation 962 n. 411 (2d ed.1961); 5 id. at 2929-2930 (Supp. 1969). [Footnote 7]
We do not read § 29(b) of the Act, [Footnote 8] which declares contracts made in violation of the Act or a rule thereunder
"void . . . as regards the rights of" the violator and knowing successors in interest, as requiring that the merger be set aside simply because the merger agreement is a "void" contract. This language establishes that the guilty party is precluded from enforcing the contract against an unwilling innocent party, [Footnote 9] but it does not compel the conclusion that the contract is a nullity, creating no enforceable rights even in a party innocent of the violation. The lower federal courts have read § 29(b), which has counterparts in the Holding Company Act, the Investment Company Act, and the Investment Advisers Act, [Footnote 10] as rendering the contract merely voidable at the option of the innocent party. See, e.g., Greater Iowa Corp. v. McLendon, 378 F.2d 783, 792 (C.A. 8th Cir.1967); Royal Air Properties, Inc. v. Smith, 312 F.2d 210, 213 (C.A. 9th Cir.1962); Bankers Life & Cas. Co. v. Bellanca Corp., 288 F.2d 784, 787 (C.A. 7th Cir.1961); Kaminsky v. Abrams, 281 F.Supp. 501, 507 (D.C.S.D.N.Y.1968); Maher v. J. R. Williston & Beane, Inc., 280 F.Supp. 133, 138-139 (D.C.S.D.N.Y.1967); cf. Green v. Brown, 276 F.Supp. 753, 757 (D.C.S.D.N.Y.1967), remanded on other grounds, 98 F.2d 1006 (C.A.2d Cir.1968) (Investment Company Act). See also 5 Loss, supra,
at 2925-2926 (Supp. 1969); 6 id. at 3866. This interpretation is eminently sensible. The interests of the victim are sufficiently protected by giving him the right to rescind; to regard the contract as void where he has not invoked that right would only create the possibility of hardships to him or others without necessarily advancing the statutory policy of disclosure.
Although the question of relief must await further proceedings in the District Court, our conclusion that petitioners have established their cause of action indicates that the Court of Appeals should have affirmed the partial summary judgment on the issue of liability. [Footnote 12] The result would have been not only that respondents, rather than petitioners, would have borne the costs of the appeal, but also, we think, that petitioners would have been entitled to an interim award of litigation expenses and reasonable attorneys' fees. Cf. Highway Truck Drivers Local 107 v. Cohen, 220 F.Supp. 735 (D.C.E.D.Pa.1963). We agree with the position taken by petitioners, and by the United States as amicus, that petitioners, who have established a violation of the securities laws by their corporation and its officials,
should be reimbursed by the corporation or its survivor for the costs of establishing the violation. [Footnote 13]
in suits under other sections of the Act when circumstances make such an award appropriate, any more than the express creation by those sections of private liabilities negates the possibility of an implied right of action under § 14(a). The remedial provisions of the 1934 Act are far different from those of the Lanham Act, § 35, 60 Stat. 439, 15 U.S.C. § 1117, which have been held to preclude an award of attorneys' fees in a suit for trademark infringement. Fleischmann Corp. v. Maier Brewing Co., 386 U. S. 714 (1967). Since Congress, in the Lanham Act, had "meticulously detailed the remedies available to a plaintiff who proves that his valid trademark has been infringed," the Court in Fleischmann concluded that the express remedial provisions were intended "to mark the boundaries of the power to award monetary relief in cases arising under the Act." 386 U.S. at 386 U. S. 719, 386 U. S. 721. By contrast, we cannot fairly infer from the Securities Exchange Act of 1934 a purpose to circumscribe the courts' power to grant appropriate remedies. Cf. Bakery Workers Union v. Ratner, 118 U.S.App.D.C. 269, 274-275, 335 F.2d 691, 696-697 (1964). The Act makes no provision for private recovery for a violation of § 14(a), other than the declaration of "voidness" in § 29(b), leaving the courts with the task, faced by this Court in Borak, of deciding whether a private right of action should be implied. The courts must similarly determine whether the special circumstances exist that would justify an award of attorneys' fees, including reasonable expenses of litigation other than statutory costs. [Footnote 15]
indicate the need for such a recovery. [Footnote 16] A primary judge-created exception has been to award expenses where a plaintiff has successfully maintained a suit, usually on behalf of a class, that benefits a group of others in the same manner as himself. See Fleischmann Corp. v. Maier Brewing Co., 386 U.S. at 386 U. S. 718-719. To allow the others to obtain full benefit from the plaintiff's efforts without contributing equally to the litigation expenses would be to enrich the others unjustly at the plaintiff's expense. This suit presents such a situation. The dissemination of misleading proxy solicitations was a "deceit practiced on the stockholders as a group," J. I. Case Co. v. Borak, 377 U.S. at 377 U. S. 432, and the expenses of petitioners' lawsuit have been incurred for the benefit of the corporation and the other shareholders.
benefit on the members of an ascertainable class, and where the court' jurisdiction over the subject matter of the suit makes possible an award that will operate to spread the costs proportionately among them. 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 shareholders through an award against the corporation, regardless of whether an actual money recovery has been obtained in the corporation's favor. [Footnote 18] For example, awards have been sustained in suits by stockholders complaining that shares of their corporation had been issued wrongfully for an inadequate consideration. [Footnote 19] A successful suit of this type, resulting in cancellation of the shares, does not bring a fund into court or add to the assets of the corporation, but it does benefit the holders of the remaining shares by enhancing their value. Similarly, holders of voting trust certificates have been allowed reimbursement of their expenses from the corporation where they succeeded in terminating the voting trust and obtaining for all certificate holders the right to vote their shares. [Footnote 20] In these cases, there
was a "common fund" only in the sense that the court's jurisdiction over the corporation as nominal defendant made it possible to assess fees against all of the shareholders through an award against the corporation. [Footnote 21]
In many of these instances, the benefit conferred is capable of expression in monetary terms, if only by estimating the increase in market value of the shares attributable to the successful litigation. However, an increasing number of lower courts have acknowledged that a corporation may receive a "substantial benefit" from a derivative suit, justifying an award of counsel fee, regardless of whether the benefit is pecuniary in nature. [Footnote 22] A leading case is Bosch v. Meeker Cooperative Light & Power Assn., 257 Minn. 362, 101 N.W.2d 423 (1960), in which a stockholder was reimbursed for his expenses in obtaining a judicial declaration that the
In many suits under § 14(a), particularly where the violation does not relate to the terms of the transaction for which proxies are solicited, it may be impossible to assign monetary value to the benefit. Nevertheless, the stress placed by Congress on the importance of fair and informed corporate suffrage leads to the conclusion that, in vindicating the statutory policy, petitioners have rendered a substantial service to the corporation and its shareholders. Cf. Bakery Workers Union v. Ratner, 118 U.S.App.D.C. 269, 274, 335 F.2d 691, 696 (1964). Whether petitioners are successful in showing a need for significant relief may be a factor in determining whether a further award should later be made. But regardless of the relief granted, private stockholders' actions of this sort "involve corporate therapeutics," [Footnote 23] and furnish a benefit to all shareholders by providing an important means of enforcement of the proxy statute. [Footnote 24] To award attorneys' fees in such a suit to a plaintiff who has succeeded in establishing a cause of action is not to saddle the unsuccessful party with the expenses, but to impose
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