Opinion ID: 588840
Heading Depth: 2
Heading Rank: 1

Heading: The Applicability of the Virginia Bankshares Analytical Framework

Text: 31 Defendants acknowledge that Virginia Bankshares arose under § 14(a), while this case arises under § 13(e). They contend, however, that the Virginia Bankshares analysis of causation applies. They support this contention by citing Howing I, in which, relying on the fact that § 13(e) was patterned after § 14(a) and parallels its language, this court concluded that, just as one exists under § 14(a), an implied private right of action exists under § 13(e). The Defendants argue, therefore, that the Supreme Court's § 14(a) causation analysis applies to private actions arising under § 13(e). 32 The Plaintiffs contend that the Virginia Bankshares analytical framework does not apply to § 13(e) claims. They contend that, because Rule 13e-3 imposes special disclosure obligations that are absent under Rule 14a-9, the dangers of speculative, hazy factual issues that concerned the Supreme Court in Virginia Bankshares do not arise under § 13(e). They further contend that the raw power of the majority shareholder to approve the transaction--the very power whose abuse created the need for § 13(e) and its unique disclosure requirements--renders the Virginia Bankshares analysis of causation inappropriate. If Virginia Bankshares means that the causation requirement can never be established when the minority shareholders lack sufficient votes to block the transaction, they argue, then the private right of action under § 13(e) would provide only an illusory sort of protection--protection that is unavailable in the archetype of the situations that § 13(e) governs. 33 If we interpreted Virginia Bankshares as holding that minority shareholders who lack sufficient votes to block a transaction can never establish causation of damages, then we would agree with the Plaintiffs. It would make little sense to hold that the protection of an implied private right of action exists under § 13(e), but that causation can never be established in the case where minority shareholders, who lack sufficient votes to block the transaction, have their greatest need for such protection. We do not, as is explained infra, interpret Virginia Bankshares so broadly. 34 Several authorities do appear to have assigned to the Virginia Bankshares holding, with respect to causation of damages, such a broad interpretation. 5 This overestimation of the scope of the holding in Virginia Bankshares is understandable. Justice Souter's majority opinion at one point frames the issue before the Court in broad terms: The second issue before us ... is whether causation of damages compensable through the implied private right of action under § 14(a) can be demonstrated by a member of a class of minority shareholders whose votes are not required by law or corporate bylaw to authorize the transaction giving rise to the claim. Virginia Bankshares, 501 U.S. at ----, 111 S.Ct. at 2761, 115 L.Ed.2d at 949. 35 The Court, however, did not actually decide the broad question that it framed. It rejected only the narrow Schlick theory. The Court's express refusal to address the merits of the loss-of-state-law-remedy theory is inconsistent with the broader interpretation of the opinion. If minority shareholders who lack sufficient votes to block a transaction could never establish causation, as the Nationwide Defendants contend, it would have made no sense for the Court expressly to refuse to address the merits of the loss-of-state-law-remedy theory. That theory, and indeed, any other the Virginia Bankshares plaintiffs could offer, would be without merit. 36 Thus, we interpret Virginia Bankshares more narrowly than do the Defendants. Our narrower interpretation, however, undercuts the Plaintiffs' argument that the Virginia Bankshares § 14(a) analytical framework should not apply at all to claims under § 13(e). Given our rejection of the Defendants' contention that Virginia Bankshares requires rejection of all nonvoting theories of causation, the Plaintiffs' complaint that the § 13(e) private action provides only an illusory sort of protection collapses. Because we conclude that nonvoting theories of causation can support a § 13(e) claim, minority shareholders with insufficient votes to block a transaction have protection. 37 While we cannot derive a general standard of causation from Virginia Bankshares, we can apply the Court's analysis. The Court stated that: 38 where a legal structure of private statutory rights has developed without clear indications of congressional intent, the contours of that structure need not be frozen absolutely.... Faced ... with ... a claim for equality in rounding out the scope of an implied private statutory right of action, we look[ ] to policy reasons for deciding where the outer limits of the right should lie. 39 Virginia Bankshares, 501 U.S. at ----, 111 S.Ct. at 2764, 115 L.Ed.2d at 953. The Court then subjected the plaintiffs' Schlick theory of causation to such a policy analysis and rejected it, concluding that the likelihood of speculative claims and procedural intractability made the adoption of that theory unwise. 40