Document: 396 U.S. 375 90 S.Ct. 616 24 L.Ed.2d 593 Elmer E. MILLS and Louis Susman, Petitioners,v.The ELECTRIC AUTO—LITE COMPANY et al. No. 64. Argued Nov. 13, 1969. Decided Jan. 20, 1970. [Syllabus from pages 375-376 intentionally omitted] Arnold I. Shure, Chicago, Ill., for petitioners. Robert A. Sprecher, Edward N. Gadsby, Boston, Mozart G. Ratner, Washington, D.C., on the brief. Albert Jenner, Jr., respondents. Mr. Justice HARLAN delivered opinion of Court. 1 This case requires us to consider a basic aspect implied private right action violation § 14(a) Securities Exchange Act 1934,1 recognized by this Court in J. Case Co. v. Borak, 377 426, 84 1555, 12 423 (1964). As Borak asserted wrong is that corporate merger was accomplished through use proxy statement materially false or misleading. The question with which we deal what causal relationship must be shown between such establish cause based Act. 2 * Petitioners were shareholders Electric Auto-Lite Company until 1963, when it merged into Mergenthaler Linotype Company. They brought suit day before shareholders' meeting at vote take place against Auto-Lite, Mergenthaler, third company, American Manufacturing Company, Inc. complaint sought an injunction voting Auto-Lite's management all proxies obtained means allegedly misleading solicitation; however, did not seek temporary restraining order, went ahead as scheduled following day. Several months later petitioners filed amended complaint, seeking have set aside obtain other relief might proper. 3 In Count II only count us,2 predicated jurisdiction 27 1934 Act, 15 U.S.C. 78aa. alleged sent out solicit votes favor misleading, SEC Rule 14a—9 thereunder. (17 CFR 240.14a 9.) recited owned over 50% outstanding shares common stock, had been control two years. turn about one-third years and, it, Auto-Lite. charged light these circumstances told their board directors recommended approval without also informing them 11 nominees under 'control domination Mergenthaler.' complain both derivatively behalf representatives class its minority shareholders. 4 On petitioners' motion summary judgment respect II, District Northern Illinois ruled matter law claimed defect was, made, material omission. concluded, reading opinion, hold hearing issue whether there 'a connection finding has disclosure requirements injury plaintiffs' could remedies would appropriate. (Unreported dated February 14, 1966.) 5 After holding hearing, court found terms agreement, affirmative two-thirds required merger, respondent companies controlled 54% shares. Therefore, authorization respondents secure substantial number At stockholders' meeting, approximately 950,000 shares, 1,160,000 outstanding, voted merger. included 317,000 shareholders, 'necessary indispensable merger.' concluded thus shown, granted interlocutory liability, referring master consideration appropriate relief. findings conclusions Sept. 26, 1967; reported 281 F.Supp. 826 (1967)). 6 made certification 28 1292(b), took appeal Appeals Seventh Circuit.3 That affirmed Court's conclusion deficient, but reversed causation. acknowledged that, if sufficient time 'corrective measures appropriate.' 403 F.2d 429, 435 (1968). However, since too late preventive action, courts determine 'whether omission caused submission proxies,' prerequisite determination liability If show, 'by preponderance probabilities, received even found,' entitled no any kind. Id., 436. 7 test corresponds common-law fraud injured party relied misrepresentation. rightly concluding '(r)eliance thousands individuals, here, can scarcely inquired into' (id., 436 n. 10), determined proof fairness show merit fair trial justified approved deficiency statement. favor. 8 Claiming construed decision manner frustrates statute's policy enforcement litigation, then review We certiorari, 394 971, 89 1470, 22 752 (1969), believing resolution should stage litigation postponed after Appeals' decision.4 9 stressed stemmed congressional belief '(f) air suffrage important attach every equity security bought public exchange.' H.R.Rep.No.1383, 73d Cong., 2d Sess., 13. provision intended promote 'the free exercise rights ensuring solicited 'explanation stockholder real nature questions authority cast his sought.' Id. 14; S.Rep.No.792, 12; see U.S., 431, 1559. below, permitting foreclosed basis fair, allow stockholders by-passed, least where legal challenge retrospective held. A judicial appraisal merger's merits substituted actual informed stockholders. 10 result insulate redress entire category violations—those relating matters than Even outrageous misrepresentations solicitation, they relate transaction, give rise 14(a). Particularly carried actions Commission itself, subvert purpose full Further, recognition complete defense confront small additional obstacle making successful proposal defective risk unable rebut corporation's evidence proposal, bound discourage rules 'provides necessary supplement action.' 432, 1560.5 Such frustration anything wording statute our case. Section declares 'unlawful' contravention rules, prohibits solicitations 'containing fact, omits state fact order make statements therein *.' Use solicitation itself law, stating injunctive available remedy prior meeting. came dismissal limited inquiry gives federal rescission damages,' 428, 1558. Referring argument 'that dissolved fraudulent non-beneficial, issues upon bear,' stated: 'But are resolved trial, here. therefore do discuss point further.' present specifically directed causation problem. facts conclude are. 13 Where misstatement 'material,' indubitably embodies character considered reasonable shareholder who process deciding how vote.6 requirement significant propensity affect express 14a—9, adequately serves cannot established so trivial, unrelated transaction sought, correction imposition further interests protected 14 There need requirement, Appeals, actually decisive effect voting. materiality, showing he seeks if, proves rather particular materials, essential link accomplishment transaction. objective will avoid impracticalities determining many affected, resolving doubts those designed protect, effectuate able choice consulted transactions. Cf. Union Pac. R. Chicago & N.W.R. Co., 226 400, 411 (D.C.N.D.Ill.1964); L. Loss, Regulation 962 (2d ed. 1961); id., 2929—2930 (Supp.1969).7 III Our implies nothing form may entitled. held 'to alert provide effective purpose,' noting prospective 433, 434, 1560. devising same factors govern similar illegality fraud. One factor Possible forms include setting granting equitable relief, but, below noted, statutory 'requires unscramble merely because occurred.' F.2d, selecting lower "the sound discretion guides determinations equity," keeping mind role instrument nice adjustment reconciliation interest needs well competing claims.' Hecht Bowles, 321 321, 329—330, 64 587, 591—592, 88 L.Ed. 754 (1944), quoting Meredith Winter Haven, 320 228, 235, 7, 11, (1943). 16 read 29(b) Act,8 contracts rule thereunder 'void regards of' violator knowing successors interest, requiring simply agreement 'void' contract. language establishes guilty precluded enforcing contract unwilling innocent party,9 does compel nullity, creating enforceable violation. 29(b), counterparts Holding Investment Advisers Act,10 rendering voidable option party. See, e.g., Greater Iowa Corp. McLendon, 378 783, 792 (C.A.8th Cir. 1967); Royal Air Properties, Smith, 312 210, 213 (C.A.9th 1962); Bankers Life Cas. Bellanca Corp., 288 784, 787 (C.A.7th Kaminsky Abrams, 501, 507 (D.C.S.D.N.Y.1968); Maher Williston Beane, Inc., 280 133, 138—139 (D.C.S.D.N.Y.1967); cf. Green Brown, 276 753, 757 (D.C.S.D.N.Y.1967), remanded grounds, 398 1006 (C.A.2d 1968) (Investment Act). See supra, 2925—2926 (Supp.1969); 3866. interpretation eminently sensible. victim sufficiently giving him rescind; regard void invoked create possibility hardships others necessarily advancing disclosure. 17 United States, amicus curiae, points parties enjoy aside.11 Furthermore, while derivative invoke status name hinge best whole. short, context one, leaves specific language—the concludes, circumstances, so. National Securities, 393 453, 456, 463—464, 564, 566, 570, 21 668 (1969). 18 Monetary will, course, possibility. relates district appropriately accounting ensure receive value represented coming them. hand, where, monetary afforded resulted reduction earnings potential holdings. damages recoverable extent shown. commingling assets operations makes impossible direct approved. These questions, first instance remand, singling some possibilities exclude others. IV 19 Although await proceedings Court, indicates partial liability.12 respondents, petitioners, borne costs appeal, also, think, interim award expenses attorneys' fees. Highway Truck Drivers Helpers Local 107 Cohen, 220 735 (D.C.E.D.Pa.1963). agree position taken States amicus, securities laws corporation officials, reimbursed survivor establishing violation.13 20 absence fees preclude cases type. recover short-swing profits 16(b) Second Circuit awarded despite lack 16(b), 'on theory benefit attorney's services pay thereof.' Smolowe Delendo 136 231, 241, 148 A.L.R. 300 1943). Congress' inclusion §§ 9(e) 18(a) provisions recovery certain types suits14 'does impinge (upon) reach statute, sections enforce penalty wrongdoer.' Ibid. denying power counsel suits appropriate, more creation liabilities negates remedial far different Lanham 35, 60 Stat. 439, 1117, trademark infringement. Fleischmann Distilling Maier Brewing 386 714, 87 1404, 475 (1967). Since Congress 'meticulously detailed plaintiff valid infringed,' mark boundaries arising Act.' 719, 721, 1408, 1409. By contrast fairly infer circumscribe courts' grant remedies. Bakery Workers 118 U.S.App.D.C. 269, 274—275, 335 691, 696—697 declaration 'voidness' leaving task, faced implied. similarly special exist justify fees, including costs.15 While general ordinarily costs, developed exceptions situations overriding considerations indicate recovery.16 primary judge-created exception successfully maintained suit, usually class, benefits group himself. 718—719, 1407. To plaintiff's efforts contributing equally enrich unjustly expense. presents situation. dissemination 'deceit practiced group,' 1560, lawsuit incurred 23 yet produced, never produce, paid rationale. earliest recognizing reimbursement involved produced preserved 'common fund' group, bring money court's expenses.17 '(T)he foundation historic practice conventional taxable part original chancellor situation.' Sprague Ticonic Nat. Bank, 307 161, 166, 59 777, 780, 83 1184 (1939). upheld though she sued her own success stare decisis entitling defendant. court, forced contribute reimbursing defendant's recoveries come. observed avowed fund, were, decree—hardly touch(es) doing justice beneficiaries litigation.' 167, 780. Other departed traditional metes bounds doctrine, permit conferred members ascertainable subject possible operate spread proportionately among development most pronounced, actions, increasingly one vindication corporation, regardless favor.18 For example, awards sustained complaining issued wrongfully inadequate consideration.19 type, resulting cancellation fund add holders remaining enhancing value. Similarly, trust certificates allowed succeeded terminating obtaining certificate shares.20 sense nominal defendant assess corporation.21 25 instances capable expression terms, estimating increase market attributable litigation. increasing 'substantial benefit' justifying pecuniary nature.22 leading Bosch Meeker Cooperative Light Power Assn., 257 Minn. 362, 101 N.W.2d (1960), election invalid. Supreme Minnesota 26 'Where results expenses. (A) something technical consequence accomplishes corrects prevents abuse prejudicial enjoyment protection stockholder's interest.' 366 367, 425—427. 14(a), particularly solicited, assign benefit. Nevertheless, stress placed importance leads vindicating policy, rendered service Confectionery 274, 696 Whether made. But granted, sort 'involve therapeutics,'23 furnish providing statute.24 saddle unsuccessful impose benefited suit. foregoing reasons vacated consistent opinion. 29 It ordered. 30 Judgment court. 31 BLACK, concurring dissenting part. 32 I substantially Parts proved whatever suffered statements, perhaps itself. agree, appears Part hire lawyers prosecute claims contractual explicit recovery. interpreters, creators, policies here involved, my met Congress, 48 895, amended, 78n(a). counts, ultra vires Ohio law. cross-appealed entered days favor, deleting '(u)nder 1934, effectuated void.' deletion apparently avoiding prejudice remained open master. disposition respondents' cross-appeal. Respondents ask respect. naturally raise petition cross-petition. reversal ruling dictate affirmance judgment, causation, elimination thereunder, circumstances. Ry. Exp. 265 425, 435, 44 560, 563, 68 1087 (1924); Langnes Green, 282 531, 535—539, 51 243, 245—246, 75 520 (1931); Morley Constr. Maryland 185, 191 192, 57 325, 327—328, 81 (1937); Stern Gressman, Practice 314, 315 (4th 1969). 'causation' negated rests dubious behavioral assumption. justification presuming willing accept offer put them; presumption implicit Appeals. gave indication adduce, once equitable, nevertheless rejected Proof reliance individuals would, acknowledged, feasible, Jennings H. Marsh, Regulation, Cases Materials 1001 1968); nondisclosure difficult define prove, 1766 1961). practice, therefore, seemingly determinative liability. But, view lead prefer current owners larger, combined enterprise, pure conjecture assume always vote. Wirtz Hotel, Motel Club Employees Union, 391 492, 508, 1743, 1752, 763 List Fashion Park, 340 457, 462, A.L.R.3d 782 1965); General Time Talley Industries, 159, 162 Restatement (Second) Torts 538(2)(a) (Tent.Draft 10, 1964); 917 3534 (Supp.1969). case, failure reveal serious conflict directors, crucial materiality alerted board's adversary guard.' 434. An adequate warned careful scrutiny entirely distinterested board. Thus, 'as law,' thwarting aims, analysis. Swanson Consumer 415 1326 decide controls approve minority. situation, finds practical related satisfy Laurenzano Einbender, 264 356 (D.C.E.D.N.Y.1966); 1326, 1331—1332 1969); Eagle Horvath, 241 341, 344 (D.C.S.D.N.Y.1965); Globus, Jaroff, 271 378, 381 Comment, Shareholders' Derivative Suit Enforce Corporate Right Action Against Directors Under 10b—5, 114 U.Pa.L.Rev. 578, 582 (1966). Hoover Allen, 213, 231—232 Barnett Anaconda 238 766, 770—774 Robbins Banner 285 758, 762—763 (D.C.S.D.N.Y.1966). generally L.Loss, 2933—2938 (Supp. provides pertinent part: 'Every chapter regulation shall (1) person who, provision, rule, regulation, contract, (2) being acquired knowledge reason 78cc(b). Eastside Church Christ Plan, 357, 362—363 (C.A.5th Goldstein Groesbeck, 142 422, 426—427 1944). Public Utility 1935, 26(b), 49 836, 79z(b); 1940, 47(b), 54 846, 80a—46(b); 215(b), 856, 80b—15(b). submitted response unlawful appear did, seem them, rescind proxies. clear holdings 600 modified referred Fed.Rule Civ.Proc. 53(b). doubt referral us. believe close constitutes time. urges recoup reasonably urged ultimately future litigated record concerning award. juncture. deal, respectively, manipulation prices documents Commission. 78i(e), 78r(a). Note, Attorney's Fees: Shall Ultimate Burden Lie?, Vand.L.Rev. 1216, 1229 Many commentators argued thoroughgoing abandonment rule. Ehrenzweig, Reimbursement Counsel Fees Great Society, Calif.L.Rev. (1966); Kuenzel, Fee: Why Not Cost Litigation? L.Rev. (1963); McCormick, Expenses Litigation Element Damages, Minn.L.Rev. 619 Stoebuck, Included Costs: Logical Development, 38 U.Colo.L.Rev. 202 15. Trustees Greenough, 105 527, 531—537, 1157 (1882); Central R.R. Banking Pettus, 113 116, 387, 915 (1885); Hornstein, Fee Stockholder's Suits, 39 Col.L.Rev. 784 'fund' restricted ability itself: 'It very hard (the plaintiff) away allowance *. unjust him, participate unfair advantage. He worked himself; ought due proportion incurred. charge way securing contribution.' 532, 1157. Holthusen Budd Mfg. 55 945 (D.C.E.D.Pa.1944); Runswick Floor, 116 Utah 91, 208 P.2d 948 (1949); cited 22, infra. Legal Therapeutics: 'Salvage' Factor Awards, 69 Harv.L.Rev. 658, 669—679 (1956); Recovery Plaintiff's Litigation, 40 L.A.Bar Bull. Hartman Oatman Gold Mining Milling Ariz. 476, 198 P. 717 (1921); Greenough Coeur D'Alenes Lead 52 Idaho 599, (1932); Riverside Oil Refining Lynch, Okl. 198, 243 967 (1925). Allen Chase 180 Misc. 259, N.Y.S.2d 245 (Sup.Ct.1943), sequel 178 536, 35 958 (Sup.Ct.1942). Allowance Out 'Fund Court': New Jersey Experience, Rutgers 634, 638—643 (1963). Schechtman Wolfson, 244 537, 540 1957); Grant Ranch 193 Cal.App.2d 497, Cal.Rptr. 531 (1961); Treves Servel, Del.Ch. 483, 154 A.2d 188 (1959); Saks Gamble, 504, 767 (1958); Yap Wah Yen Ki Tuk Tsen Nin Hue, 43 Haw. 37, 42 Berger Amana 253 111 758 (1962); (1960); Eisenberg Zone Property App.Div.2d 353, 149 840 (Sup.Ct.1956), aff'd per curiam, N.Y.2d 729, 163 968, 143 N.E.2d 516 (1957); Martin Foundation Phillip-Jones 283 App.Div. 127 649 (Sup.Ct.1954); Abrams Textile Realty 197 25, 93 808 (Sup.Ct.1949); 97 492 (op. Referee); Long Trenton-New Brunswick Theatres 274 988, 482, 487 (Sup.Ct.1948), 299 N.Y. 718, 126 18; Shareholder Suits: Pecuniary Benefit Unnecessary Award, Stan.L.Rev. 146 (1960). Murphy North 33 567, 570 (D.C.S.D.N.Y.1940). 18, 659, 662—663.

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