Source: http://www.chanrobles.com/usa/us_supremecourt/377/426/case.php
Timestamp: 2019-11-21 13:11:46
Document Index: 188753475

Matched Legal Cases: ['§ 14', '§ 27', '§ 180', '§ 27', '§ 14', '§ 27', '§ 14', '§ 27', '§ 14']

This is a civil action brought by respondent, a stockholder of petitioner J. I. Case Company, charging deprivation of the preemptive rights of respondent and other shareholders by reason by a merger between Case and the American Tractor Corporation. It is alleged that the merger was effected through the circulation of a false and misleading proxy statement by those proposing the merger. The complaint was in two counts, the first based on diversity and claiming a breach of the directors' fiduciary duty to the stockholders. The second count alleged a violation of § 14(a) [Footnote 1] of the Securities Exchange Act of 1934 with reference to the proxy solicitation material. The trial court held that as to this court it had no power to redress the alleged violations of the Act, but was limited solely to the granting of declaratory chanroblesvirtualawlibrary
relief thereon under § 27 of the Act. [Footnote 2] The Court held Wis.Stat., 1961, § 180.405(4), which requires posting security for expenses in derivative actions, applicable to both counts, except that portion of Count 2 requesting declaratory relief. It ordered the respondent to furnish a bond in the amount of $75,000 thereunder and, upon his failure to do so, dismissed the complaint, save that part of Count 2 seeking a declaratory judgment. On interlocutory appeal, the Court of Appeals reversed on both counts, holding that the District Court had the power to grant remedial relief and that the Wisconsin statute was not applicable. 317 F.2d 838. We granted certiorari. 375 U.S. 901. We consider only the question of whether § 27 of the Act authorizes a federal cause of action for rescission or damages to a corporate stockholder with respect to a consummated merger which was authorized pursuant to the use of a proxy statement alleged to contain false and misleading statements violative of § 14(a) of the Act. This being the sole question raised by petitioners in their petition for certiorari, we will not consider other questions subsequently presented. chanroblesvirtualawlibrary
Respondent, the owner of 2,000 shares of common stock of Case acquired prior to the merger, brought this suit based on diversity jurisdiction seeking the enjoin a proposed merger between Case and the American Tractor Corporation (ATC) on various grounds, including breach of the fiduciary duties of the Case directors, self-dealing among the management of Case and ATC and misrepresentations contained in the material circulated to obtain proxies. The injunction was denied, and the merger was thereafter consummated. Subsequently, successive amended complaints were filed, and the case was heard on the aforesaid two-count complaint. The claims pertinent to the asserted violation of the Securities Exchange Act were predicated on diversity jurisdiction as well as on § 27 of the Act. They alleged: that petitioners, or their predecessors, solicited or permitted their names to be used in the solicitation of proxies of Case stockholders for use at a special stockholders' meeting at which the proposed merger with ATC was to be voted upon; that the proxy solicitation material so circulated was false and misleading in violation of § 14(a) of the Act and Rule 14a-9 which the Commission had promulgated thereunder; [Footnote 4] chanroblesvirtualawlibrary
It appears clear that private parties have a right under § 27 to bring suit for violation of § 14(a) of the chanroblesvirtualawlibrary
S.Rep.No.792, 73d Cong., 2d Sess., 12. These broad remedial purposes are evidenced in the language of chanroblesvirtualawlibrary
The injury which a stockholder suffers from corporate action pursuant to a deceptive proxy solicitation ordinarily flows from the damage done the corporation, rather than from the damage inflicted directly upon the stockholder. The damage suffered results not from the deceit practiced on him alone, but rather from the deceit practiced on the stockholders as a group. To hold that derivative actions are not within the sweep of the section would therefore be tantamount to a denial of private relief. Private enforcement of the proxy rules provides a necessary supplement to Commission action. As in antitrust treble damage litigation, the possibility of civil damages or injunctive relief serves as a most effective weapon in the enforcement of the proxy requirements. The Commission advises that it examines over 2,000 proxy statements annually, and each of them must necessarily be expedited. Time does not permit an independent examination of the facts set out in the proxy material, and this results in the Commission's acceptance of the representations contained therein at their face value unless contrary to other material on file with it. Indeed, on the allegations of respondent's complaint, the proxy material failed to disclose alleged unlawful market manipulation of the stock of ATC, and this unlawful manipulation chanroblesvirtualawlibrary
Moreover, if federal jurisdiction were limited to the granting of declaratory relief, victims of deceptive proxy statements would be obliged to go into state courts for remedial relief. And if the law of the State happened chanroblesvirtualawlibrary