Opinion ID: 2598489
Heading Depth: 3
Heading Rank: 3

Heading: Shareholders' Claims

Text: The shareholders first assert that the trial court erred by applying the wrong legal standard to their proxy solicitation claims. Specifically, they claim, Judge Collins imposed a scienter requirement and refused to impose liability because she found that management did not intend to deceive the shareholders. Huna Totem does not dispute that it would be improper to require scienter in determining materiality but insists that Judge Collins applied the correct materiality standard and did not require scienter. The record supports Huna Totem's position. The shareholders base their scienter argument on several comments in the court's oral and written rulings in which Judge Collins expressed her view that the legal dispute in the present case was not the result of bad people or bad motives. In her oral decision, for example, Judge Collins prefaced a remark about the shareholders' request for declaratory and injunctive relief with the observation that there was an absence of fraud and intent to deceive. When discussing the evidence concerning false and misleading proxy materials in her subsequent written findings, Judge Collins made the same point, stressing that, [a]s stated in [the] oral findings, the court is convinced that there was no intent by the directors of Huna Totem Corporation to mislead shareholders about the Settlement Trust. But as Huna Totem correctly points out, the challenged comments concerning the corporation's lack of intent or bad faith did not address Judge Collins's application of the Brown v. Ward materiality test. Rather, when read against the background of the decision as a whole, these comments reflect little more than the court's desire to mend the relationship between Huna Totem and its shareholders, which the court described as having degenerated into finger pointing and name calling during the trial. Indeed, in her oral findings, Judge Collins expressly described her remarks on scienter as comments preliminary to her decision: Before I enter my oral findings, ... I think it's important that I make some preliminary observations about the case and about the persons involved in the case. Many disputes come before the court where the parties ... attempt to portray the opposing party as bad people with bad motives. This case is no different. Those kinds of allegations have been made. I am convinced that this case does not involve bad people or bad motives[.] And although the court returned to this theme at several points in its oral and written findings, it directed its comments not to the issue of materiality, but to the tenor of argument and discussion between the [parties]. In contrast, when addressing the issue of materiality, Judge Collins described and applied Brown v. Ward 's objective reasonable shareholder test with pinpoint accuracy, never mentioning or hinting at any consideration of motives or scienter. The shareholders nonetheless insist that the court directly link[ed] its decision against them to their failure to prove scienter. In support of this claim, they point to one particular sentence toward the end of the oral findings, in which Judge Collins observed: Given the absence of fraud and intent to deceive and the other factors I've mentioned here today, I believe it would be unfair and unjust to grant the declaratory and injunctive relief sought by the plaintiffs. But the shareholders overstate the significance of this reference to scienter. For it had nothing to do with the superior court's application of Brown v. Ward 's objective materiality test; instead, by its own terms, the comment focused exclusively on Judge Collins's alternative basis for ruling: as we have described above, the judge's alternative ruling addressed the remedies requested in the lawsuit, concluding that they would be inappropriate even if the plaintiffs had proved a material misrepresentation. As Judge Collins correctly recognized, the plaintiffs' request for equitable remedies necessarily raised equitable issues on which scienter had direct bearing. In context, then, Judge Collins's comment simply confirms her understanding and correct application of Brown v. Ward 's objective test of materiality. We thus find no merit in the shareholders' claims that Judge Collins wrongly imposed a scienter requirement in deciding the issue of materiality.
In addition to claiming that the trial court applied the wrong legal test of materiality, the shareholders maintain that the proxy materials are materially false and misleading under the right standard. As previously noted, [13] after hearing the testimony at trial and reviewing the various documents shareholders had received regarding the trust, Judge Collins determined that, while some of the documents were ambiguous, their ambiguities were not material. Specifically, Judge Collins found that Huna Totem's July 1994 proxy solicitation gave shareholders a complete and accurate picture of the periodic review process: [T]he proxy statement and the full text of the settlement trust that was submitted to the shareholders is neither overly simplified [n]or unclear. Given the broad distribution and ready availability of this information, the court concluded, [t]he total mix of materials submitted to the Huna Totem shareholders was essentially accurate if to some degree overly simplified; and in the court's view, any ambiguities or omissions in the May 1994 preliminary information packet or in the directors' post-solicitation oral presentations were immaterial under Brown v. Ward 's objective test, which defines a misleading or false statement as `material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.' [14] In propounding a contrary view on appeal, the shareholders concentrate primarily on the incompleteness of the preliminary information distributed in May 1994, insisting that the confusion generated by this information sowed a lasting seed of ambiguity that violated the clear statement rule and Huna Totem's duties of disclosure, completeness and candor; omitted facts so obviously important to individual shareholders as to be material as a matter of law; and should therefore be resolved in favor of the shareholders under ordinary rules of contract interpretation. But the shareholders' narrow focus on the trial court's finding of an ambiguity in Huna Totem's preliminary information impermissibly views that information in isolation, mistakenly disregarding the need to decide the materiality of a particular omission in light of the totality of available information. For as we have already observed, the Alaska Securities Act expressly requires us to determine the materiality of a statement's omissions contextually, rather than in isolation, by considering whether the statement omit[s] to state a material fact necessary in order to make the statement[] made, in the light of the circumstances under which [it is] made, not misleading. [15] Or as Judge Collins more simply phrased it, the pertinent inquiry here was whether  [t]he total mix of materials submitted to the Huna Totem shareholders was essentially accurate. (Emphasis added.) Here, no matter how sketchy the corporation's initial description of its proposed settlement trust might seem, the uncontroverted facts establish that Huna Totem's preliminary packet of information was labeled as a brief introduction to the proposed settlement trust; it expressly warned the shareholders of its own incompleteness and promised more information to follow. Keeping this promise, Huna Totem delivered the proxy solicitation itselfthe most crucial documentwhich provided each shareholder a complete and accurate summary of the proposed trust's review process, as well as a copy of the entire settlement trust document. Applying Brown v. Ward 's objective test to the total mix of available information, as the securities act requires, we conclude, as Judge Collins did, that a reasonable shareholder considering the information actually provided would not have been likely to find the information omitted from Huna Totem's preliminary packet and post-solicitation oral communications to be important in deciding how to vote. [16] We thus affirm the superior court's materiality ruling. [17]
Finally, the shareholders argue that Judge Collins erred in her alternative ruling rejecting as inequitable their proposed remedies of declaratory relief, injunctive relief, and nominal damages. Because the superior court issued its alternative ruling on the assumption that Huna Totem's proxy materials might ultimately be found to be materially misleadingan eventuality that has not materializedwe need not consider the superior court's alternative ground for decision.