Opinion ID: 399147
Heading Depth: 3
Heading Rank: 1

Heading: Material False or Misleading Statements

Text: 11 False or misleading statements are actionable only if material. Facts are considered material if there is a substantial likelihood that a reasonable shareholder would consider them important when making an investment decision. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976); Little v. Valley Nat. Bank of Arizona, 650 F.2d 218, 222 (9th Cir. 1981); United States v. Margala, 662 F.2d 622, 626 (9th Cir. 1981). The district court found that plaintiffs' allegations of material misstatements lacked any factual basis. We disagree. 12
13 Plaintiffs allege that the reference to the Perret Report in the Tender Offer was misleading in that it (1) incorrectly stated that the Perret Report had estimated the fair market value for the lands and future income for oil and gas producing royalties to be $6,380,970.00, (2) incorrectly stated that Santa Fe had no reason to believe the Perret Report was materially inaccurate, and (3) failed to disclose the true purpose of the report. 8 14 The full report by itself creates a genuine issue of material fact whether the reference in the Tender Offer was materially misleading. A reasonable investor might have viewed the appraisal differently had he known that the report in its cover pages expressly stated, This report is not intended to establish a value for (Cameron Meadows) nor does it establish a basis for the sale or purchase of the corporate stock. Further, plaintiffs offered evidence indicating that Arnold had expressly directed Perret to prepare a conservative document, 9 and that a separate evaluation prepared for Santa Fe indicated total future net revenues from oil and gas production of $61,814,286.00. Considered in the light most favorable to plaintiffs, this evidence raises a genuine issue of material fact whether the reference to the Perret Report in the Tender Offer was materially misleading. 15
16 Plaintiffs allege Santa Fe failed to disclose (1) that prior to or during the tender offer Arnold had been promised a retainer by Santa Fe for his efforts in promoting the tender offer, and (2) that Santa Fe had drafted letters sent out over Arnold's signature encouraging acceptance of the offer. 17 The district court found that the evidence was uncontroverted that Santa Fe did not agree or promise to retain Arnold in exchange for his support of the tender offer. This finding was based on Arnold's deposition 10 and the affidavit of one of Santa Fe's officers. Plaintiffs presented sufficient contrary evidence to create a genuine issue. 18 Plaintiffs offered evidence that (1) Arnold was given a retainer at double his old salary; (2) the agreement went into effect immediately after the tender offer was closed; (3) the offer was not a surprise to Arnold, who in fact set the salary; (4) a memo by a Santa Fe officer characterized the retainer as a continuation; (5) Arnold's level of cooperation during the tender offer was extraordinary; (6) a consultant to Santa Fe involved in the negotiations reported to Santa Fe that Arnold would expect a two to three year retainer; (7) the consultant included such expectation in his summary of finders' fees sent to Santa Fe; (8) Santa Fe therefore had reason to believe Arnold did have such an expectation. 19 With respect to the failure to disclose that Santa Fe had drafted Arnold's letters promoting the tender offer, the district court found that (1) the letters were not false or misleading; (2) the decision as to the use and final wording of each letter was Arnold's; and (3) plaintiffs had presented no evidence to support a claim that the admitted fact of cooperative letter writing was material. We disagree. The letters were misleading for the very reason that they did not disclose that they were almost verbatim copies of drafts proposed by Santa Fe. As evidence of the materiality of this fact, plaintiffs offered Mary Bell's testimony to the effect that she would have acted differently had she known of the cooperative relationship between Arnold and Santa Fe. Other tendering shareholders testified to the same effect. That Arnold could exercise judgment as to the final wording of each letter does not render the fact of cooperative letter writing immaterial. 20 Any significant relationship between Arnold and Santa Fe was material to an evaluation of his and the other directors' positive recommendations, which presumably were material to an evaluation of the tender offer itself.