Opinion ID: 588840
Heading Depth: 3
Heading Rank: 2

Heading: Application of the Loss-of-State-Law-Remedy Theory to the

Text: Facts of This Case 56 Given our conclusion that the loss of a state-law remedy provides an acceptable theory of causation supportive of a § 13(e) action, we must next decide if, in fact, the Plaintiffs have supported their theory of causation. Under Ohio law, the minority stockholders could have sought appraisal if they had voted against the transaction or had not voted, and then selected appraisal within the statutorily prescribed ten-day time limitation. See Ohio Rev.Code § 1701.85. The Nationwide Defendants, however, argue that the record actually refutes these Plaintiffs' claims of causation. 57 The Defendants base their argument upon the contents of the proxy solicitation and the statements attributed to two of the class Plaintiffs. They claim that, far from misleading the minority shareholders, the proxy solicitation disclosed the pendency of the Efros litigation, which was later consolidated with this case. They further note that the proxy solicitation contained a Summary of Steps in Dissenting Shareholder Procedure, which explained how to obtain appraisal. Finally, they note that a named Plaintiff, McLellan, admitted he was aware that under Ohio law with respect to the merger that [he] had appraisal rights as a stockholder of Nationwide Corporation and that he decided not to pursue those appraisal rights even though [he] believed that the $42.50 merger price was inadequate. Additionally, the Defendants note that Mr. Hirsch, managing partner of the Howing Company, admitted that he was aware of Howing's appraisal rights, but elected not to pursue them because he was told that there was already a litigation started as a class action suit, and he concluded that there was no point in going after appraisal rights. Thus, the Nationwide Defendants argue, the named Plaintiffs were not misled by the material omissions; they thought the merger price inadequate, but consciously chose to forego their appraisal remedy. 58 We cannot accept the Defendants' argument. In Mills, the Court discussed a requirement of proof of whether a defect in the proxy solicitation actually had a decisive effect on the voting. The Court held: 59 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. 60 Mills, 396 U.S. at 385, 90 S.Ct. at 622. Similarly, to paraphrase the Court, where there has been a finding of materiality, a shareholder has made a sufficient showing of causal relationship between a violation of § 13(e) and the loss of his state-law remedy if, as here, he proves that the proxy solicitation was an essential link in the chain of events that deprived him of his state-law remedy. 61 Application of the Mills presumption in this case provides a strong incentive for issuers to comply with § 13(e) and accords with probable shareholder responses had there been full and fair disclosure. The Plaintiffs' decisions with respect to appraisal might well have been different had they received the full and fair disclosure to which they were entitled. Although McLellan, and Hirsch of the Howing Company, admit that a strategic decision led them to forego their appraisal remedies and instead pursue this litigation, the Plaintiffs note that, had the Nationwide Defendants provided the information required by Rule 13e-3, an appraisal remedy would have been more attractive. Without the information required by Rule 13e-3, the appraisal remedy is less meaningful. As Justice Kennedy indicated in his dissent in Virginia Bankshares, minority shareholders will be in a better position to protect their interests with full disclosure. Virginia Bankshares, 501 U.S. at ----, 111 S.Ct. at 2772, 115 L.Ed.2d at 963 (quoting L. Loss, Fundamentals of Securities Regulation 1119-20 (1983)). These interests include the shareholders' interest in arriving at a fair price through an appraisal action. 62 Rule 13e-3 and § 13(e) embrace Congress' philosophy of full and fair disclosure of all material information in freeze-out transactions. Absent such disclosure, the value of a state-law appraisal remedy declines precipitously. The goal of § 13(e) and Rule 13e-3 is to provide shareholders with all of the information they need to make informed decisions with respect to their investments. Faced with a vote on a proposed merger, and a ten-day window in which they had to exercise or forsake the appraisal remedy, the minority shareholder-Plaintiffs had their greatest need for such disclosure. The Nationwide Defendants' failure to provide such disclosure forced the Plaintiffs to make these pressing, important decisions in an atmosphere of ignorance and confusion. 63 We hold that, based upon the loss of their appraisal remedy, the Plaintiffs have established causation supportive of their § 13(e) claim.