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

Heading: The Schlick Theory

Text: 26 Unlike the Court in Mills, the Virginia Bankshares Court had before it the claims of minority shareholders whose votes were not necessary for the authorization of the transaction. In the Virginia Bankshares decision, the majority rejected the first of the minority shareholders' two theories of causation. 3 The first theory, similar to one adopted by the Second Circuit in Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374 (2d Cir.1974), was that the directors' desire to avoid minority shareholders' ill will by use of a misleading proxy solicitation should provide the causal nexus between the proxy statement and the merger. (Hereinafter, the Schlick theory). The theory draws support from the premise that, in the face of an unfavorable minority shareholder vote, a board of directors might well choose not to go forward with a transaction--even though the majority shareholder had the raw voting power to authorize the transaction. The Court rejected this theory because it would give rise to speculative claims and procedural intractability. Causation would turn on inferences about what the corporate directors would have thought and done without the minority shareholder approval unneeded to authorize action. Virginia Bankshares, 501 U.S. at ----, 111 S.Ct. at 2764-65, 115 L.Ed.2d at 953-54.