Document: 501 U.S. 1083 111 S.Ct. 2749 115 L.Ed.2d 929 VIRGINIA BANKSHARES, INC., et al., Petitionersv.Doris I. SANDBERG al. No. 89-1448. Argued Oct. 9, 1990. Decided June 27, 1991. Syllabus As part of a proposed "freeze-out" merger, in which First American Bank Virginia (Bank) would be merged into petitioner Bankshares, Inc. (VBI), wholly owned subsidiary (FABI), the Bank's executive committee and board approved price $42 share for minority stockholders, who lose their interests after merger. Although law required only that merger proposal submitted to vote at shareholders' meeting, preceded by circulation an informational statement shareholders, directors nevertheless solicited proxies voting on proposal. Their solicitation urged proposal's adoption stated plan had been because its opportunity shareholders receive "high" value stock. Respondent Sandberg did not give her proxy filed suit District Court was approved, seeking damages from petitioners for, inter alia, soliciting means materially false or misleading statements violation § 14(a) Securities Exchange Act 1934 Security Commission's Rule 14(a)-9. Among other things, she alleged believed they no alternative but recommend if wished remain board. At trial, obtained jury instruction, based language Mills v. Electric Auto-Lite Co., 396 375, 385, 90 616, 622, 24 593, could prevail without showing own reliance misstatements, so long as were material "essential link" process. She awarded amount equal difference between offered stock's true value. The remaining respondents prevailed separate action raising similar claims. Appeals affirmed, holding certain solicitation, including one regarding value, misleading, maintain even though votes needed effectuate Held: 1. Knowingly reasons, opinion, belief, conclusory form, may actionable under misstatements fact within meaning Pp. 1090-1098. (a) Such are per se inactionable 14(a). A belief corporate about recommended course action, explanation reasons recommending it, significant, since there is substantial likelihood reasonable shareholder consider it important deciding how vote. See TSC Industries, Northway, Inc., 426 438, 449, 96 2126, 2132, 48 757. 1090-1091. (b) Statements opinions, beliefs "with respect . fact[s]" Rule. Blue Chip Stamps Manor Drug Stores, 421 723, 95 1917, 44 539, does support petitioners' position such should placed outside Rule's scope policy grounds. There, right bring 10(b) limited actual stock buyers sellers risk nuisance litigation, would-be manufacture claims hypothetical unconstrained independent evidence. In contrast, directors' recommendations factual do act given hold subject matter reason expressed. Thus, matters record documentation, can supported attacked objective evidence plaintiff's control. Conclusory terms commercial context also reasonably understood rest basis. Provable facts either furnish good make judgment count against it. And expressions judgments with knowledge truth falsity just like more definite defended through orthodox evidentiary Here, presented assets potential level operation prove beliefs. However, director's disbelief undisclosed motivation, standing alone, insufficient basis sustain action. 1091-1096. (c) discloses offending statement's limits liability inconsistency obvious neutralizes conclusion's capacity influence shareholder. here fell short compelling find facial materiality neutralized. 1096-1098. 2. Respondents cannot show causation compensable 1099-1108. Allowing whose bylaw authorize implied private pursuant J.I. Case Co. Borak, 377 426, 84 1555, 12 423, extend Borak actions beyond ambit supra, held transaction when links legally proposed. serious obstacle expansion manifestation, legislative history, congressional intent recognize cause broad respondents. Any violating federal statute must ultimately provide remedy, Touche Ross & Redington, 442 560, 575, 99 2479, 2488-2489, 61 82 breadth once recognized not, general matter, grow congressionally intended. Nonetheless, faced claim equality rounding out this look where outer lie. supra. 1099-1105. Respondents' theory rejected link existed essential VBI FABI, order avoid stockholders' ill will, have unwilling proceed approval manifested proxies. case threats speculative procedural intractability inherent linked desire cosmetic Causation turn inferences what thought done approval. issues hazy, litigation protracted, resolution unreliable. 1105-1106. rely state bars tainted conflict interest, if, ratified disclosure conflict. Because indication resulted any loss, need resolve question whether provides remedy results shareholder's loss remedy. 1106-1108. 891 F.2d 1112, (CA4 1989) reversed. SOUTER, J., delivered opinion Court, Part I REHNQUIST, C.J., WHITE, MARSHALL, BLACKMUN, O'CONNOR, SCALIA, KENNEDY, JJ., joined, II Parts III IV joined. concurring judgment. STEVENS, dissenting part, Stephen M. Shapiro, petitioners. Joseph Hassett, Michael R. Dreeben S.E.C. Federal Deposit Ins. Corp., amici curiae, respondents, special leave Court. Justice SOUTER 1 Section 1934, Stat. 895, 15 U.S.C. 78n(a), authorizes Commission adopt rules proxies, prohibits violation.1 423 (1964), we first breach implemented SEC 14a-9, statements.2 2 questions before us couched qualitative purporting explain shown member class solicitation. We knowingly failed demonstrate equitable lacking. 3 * December 1986, bank company, began eventually FABI. 85% shares, 15% being hands some 2,000 shareholders. FABI hired investment banking firm Keefe, Bruyette Woods (KBW) appropriate shares holders, result Based market quotations unverified information KBW gave fair price, full followed suit. 4 meeting annual set April 21, 1987.3 achieve elsewhere described "fair" 5 most requested, respondent sought United States Eastern VBI, Bank. pleaded two counts, breaching fiduciary duties owed law. Under count, alleged, among high fair, invoked Court's 593 (1970), obtain instruction 6 jury's verdicts both finding violations 14a-9 all defendants directors. $18 share, having found received $60 valued adequately. 7 While Sandberg's pending, allegations brought Columbia several Weinstein, who, Sandberg, withheld his proxy. This transferred Virginia. After tried, Weinstein successfully collateral estoppel get summary liability. 8 On appeal, Fourth Circuit affirmed judgments, purposes Rule, 1112 (1989).4 granted certiorari importance presented. 495 ----, 110 1921, 109 285 (1990). 9 Act, "The Plan Merger has Board Directors public shares." App. Pet. Cert. 53a. Petitioners argue incorporating indefinite unverifiable declaration never sufficient enable readers draw own, conclusions. A. 10 actionability belief. definition purports express consciously speaker's mind, interpret verdict made opinions expressed, confine our discussion made.5 That significant raises question. requirement discussed length 757 (1976), "if vote." Id., S.Ct., 2132. think room deny take importance. Shareholders know usually expertness far exceeding normal investor's resources, perceived superiority magnified further common customarily obliges them exercise interest. Cf. Day Avery, 179 U.S.App.D.C. 63, 71, 548 1018, 1026 (1976) (action misrepresentation). Naturally, then, owner request will recommend, specific urging stockholders embrace B 11 But, assuming materiality, remains fall strictures invite wasteful amorphous readily provable realm proof reason, cite authority 539 (1975), sound grounds placing agree instructive, illustrating line manageable facts, read supporting position. issue plaintiffs entitled seek relief prohibiting manipulation deception purchase sale securities, contrary rules. expanding include those deceptive sales practices taking sell buy not. observed sue compensation identify number bought sold calculate limit ensuing recovery. 734, 1924-1925. Recognizing merely investors, however, exposed courts anchor demonstrable fact, resting instead "subjective hypothesis" he purchased. 734-735, Hindsight's natural temptation hypothesize boldness compounded prolong discovery, undocumented personal assertion resist settlement trial. premises policy, added textual analysis precedent, deflected threat vexatious over "many rather hazy historical depended almost entirely oral testimony." 743, 1929. 13 Attacks carry threats. senses: neither sense disproof implicate concerns expressed Stamps. root Reasons are, characteristically minutes themselves, circumstantial bearing underlie claimed honesty recommendation point becomes especially clear go valuations dollars cents. 14 It answer argue, do, quoted predicated cents, focused "indefinite unverifiable" term, much merger's shareholders.6 objection ignores justifies accurate, absence renders misleading. judgment, uttered statements, process substantiates underlying justifications tends disprove existence. addressing analogous misrepresentation, court 1018 example, partner "worse off" solely impending misrepresentation. 70-72, 1025-1027. Vulcan Metals Simmons Mfg. 248 F. 853, 856 (CA2 1918) (L. Hand, J.) ("An fact. When parties situated buyer upon expression seller's excuse one"); W. Keeton, D. Dobbs, Owen, Prosser Keeton Law Torts 109, pp. 760-762 (5th ed. 1984). case, "high," assets, levels operation, substantiated above, below, less figure, assessed accordance methods valuation. adduced proving reasons. Whereas offering premium above book indicated calculation figure appreciated real estate holdings eliminated premium. significance showed conceded closed, thin dominated omitted statement. There was, indeed, "going concern" excess stock, another disclosed. However been, open attack garden-variety evidence, control nor ready manufacture, undue open-ended uncontrollable allowing recovery allegation call "high." 16 comports marked nearest prior approach here, U.S., 454-55, 2135. sure, reversed plaintiff sued description "substantial current values." But case's undisputed adjective "substantial" necessary law, remand trial assumed 458-460, 463-464, 2136-2138, 2139. 17 14(a), permitted misleadingly incomplete, terms. reaching conclusion considered sort exemplified misstate mislead (e.g., shares). former respect, misstatement psychological says. alluded observing "the certainly justified believing believe interest but, rather, voted e.g., retaining seats board." F.2d, 1121. 18 arises, disbelief, absent expressly impliedly asserted something matter. mere suffice nothing proven reverse reason. 19 hand, rare motivation defective naked admission incompetent character, unusual very often stand substantially narrow requiring declared subject. 20 motive demonstration confined skeptical spoke "impurities" "unclean heart." Stedman Storer, 308 F.Supp. 881, 887 (SDNY 1969) (dealing 10(b)). This, think, cross draw. liability, recognized, actual, hypothetical, otherwise nonexistent enquiry alone threaten strike suits attrition discovery discourage. therefore satisfy element established C 21 Petitioners' fall-back assumes same relationship II-B-1, citing Radol Thomas, 534 1302, 1315, 1316 (SD Ohio 1982), instances fails disclose justification judicial relief, is, themselves. 22 argument rests so. always edge simply joinder others true, discredit obviously drops nil. Since deceptiveness well (i.e., enough investor vote, see 2132), perfectly ground insofar publishing accurate render proposition too unimportant 23 every mixture neutralize deceptive. If financial analyst spot tension other, whatever so, follow. Gerstle Gamble-Skogmo, 478 1281, 1297 1973) ("[I]t overtones might picked up sensitive antennae analysts"). Milkovich Lorain Journal 497 2695, 2708, (1990) (a defamatory assessment accurately presented). statement, all, inform, challenge reader's critical wits. Only exhaust fail materiality. Suffice say instant claim, explanatory said keep following mention least admitted testimony, expectation doing proposal, 281-82.7 although speak factually describing higher than prices recent sales, closed None these disclosures anything half-truth, shows invoke arguably worse. exceeded controverted, seen already, conceded, reflecting appreciation portfolio. Finally, going concern $42. sum, immateriality accuracy. 25 second us, left n. 7, demonstrated giving rise claim.8 itself address requisites causation, such, define eligible holding, available class, acquired greater clarity concept Mills, addressed sufficiency responsible complaint. 26 majority stockholder controlled half corporation's two-thirds approve obtained, carried, 379, 619. arose plaintiffs' burden traceable defect "a decisive effect voting." 622. avoided morass individualized relied swing Instead, acts tenor causal calling accomplishment transaction." Ibid. essential, contrasted by-law proposed, day decide causation. 7. 27 Mills' proffering theories test.9 They first, solicitation's omissions. reasoning, connection depend bad relations, character stem enforceable parties' relationship, party's apprehension other. 28 alternative, statutory approval, condition saving voidability resulting directors, Jack Beddow, favor while serving director Brief 43-44, 45-46. Va.Code 13.1-691(A) (1989), three avenues insulate later conflict, ratification disclosure, corporation. theory, use purpose obtaining bar commencing proceedings declare void.10 29 proffered each establishing chain link," presents sequence, consequence, would, adopted, expand initial authorization prompting unnecessary. 30 Assessing legitimacy extension calls application fundamental principles governing recognition statute, focus opinion. rule emerged years came down (1979). From corollary follows 31 present obstacle, manifestation (or plaintiffs) respondents' entail. blush, seem otherwise, ignore intent. Its adverted object "protection investors" animating Congress' "necessary," 432, 1559-1560, House Senate Committee Reports, id., 431-32, 1559-1560. Borak's probe squarely rights distinct substantive objects legislation, characterized "implication" modestly Act's "exclusively provision affording access forum." Bivens Six Unknown Fed. Narcotics Agents, 403 388, 403, 4, 91 1999, 2008, 619 (1971) (Harlan, judgment) (internal quotation marks omitted). generally L. Loss, Fundamentals Regulation (2d. 1988). Ross, 568, 578, 2490. enquiring specifically became later, Cort Ash, 422 78, 2087-2088, still, accorded primacy considerations bear decision dealing 17(a) explained "central inquiry Congress intended create, implication, action." 575-576, 2489. 32 Looking text history mindful heightened reveals little help toward understanding right. According report, meant promote "free exercise" rights, H.R.Rep. 1383, 73d Cong., 2d Sess., (1934), protect "[f]air suffrage," 13, abuses solicitations concealed report called "real nature" settled subsequent votes, S.Rep. 792, (1934). reports, itself, message investors misinformation rendered unwitting agents self-inflicted damage, reticent indications protection self-help response reticence be, course, enforced effectively sake beneficiaries participation litigants. force inferred depends degree Congress, trouble inferring urgency deter provided §§ 9(e), 16(b) 18(a) Act. 78i(e), 78p(b) 78r(a).11 33 silence thus cognizable necessarily insurmountable barrier. effort originally "conclusive guidance" 737, 1926, earlier proper plea expansion. accepted legal structure developed intent, contours frozen absolutely demonstrably inequitable comparable previously recognized. Faced looked face pleas place footing 34 example worth recalling preface consequences recognizing justify requisite causality garner support. recalled raised practical recovery, 10b-5, seller occurred, foresaw expanded "hazy" inviting self-serving suits, protracted chance pretrial 742-743, 1928-1929. These apparent 35 unneeded subsequently dissatisfied virtual license allege managerial timidity doomed ostensible induced opposing diffidence probably depositions usual preclude credibility come Reliable seldom exist. understand prudence making few plans endorsement, quest recollections conversations odds official pronouncements, hopes ex post facto guesses heat stood Given choice, reject prospects, one.12 36 necessity derived requirements postmerger seeks function attacking step barring resort available, whenever enforcement suggestions counsel FDIC forfeit state-law appraisal transaction, cf. Swanson Consumers 475 516, 520-521 (CA7 1973), deterred enjoining damaging misrepresents injunction properly issued. Healey Catalyst Recovery Pennsylvania, 616 641, 647-648 (CA3 1980); Alabama Farm Bureau Mutual Casualty Fidelity Life 606 602, 614 (CA5 1979), cert. denied, 449 820, 101 77, 66 (1980). predicate exists 13.1-691(A)(2) sets conditions insulated void account Beddow's 37 require lost remedies, loss. appears case. Assuming soundness characterization indicate favorable invulnerable (1989). disclosed, inadequate ratify connect harm irredressable law.13 Nor misled entertaining upset until time bringing run out.14 38 39 ordered. 40 41 "In Directors, shares" produce knew that. honestly otherwise. accept offers value" Directors' genuine quite different—except offer 42 this. sentence word "opinion" refers actions, leads psychic thicket. Sometimes actually represents opinions—and event apply situation here. my view, fairly affirming separately accuracy assertedly based. reads follows: 43 Had "because estimation opportunity, etc." forth written, asserts acted particular correct. interpretation immediately paid 30% [last traded announcement proposal]. [T]he holders approximately 26% earned $24,767,000 year ended 31, 1986. ." 53a-54a. support—and introduced supporting—the "because" clause, i.e., gives "high value." 45 proceed, therefore, misrepresentation apply. 46 disallowance (in II-B-2) modern torts, authorities cited plain. 1918); 1984), ante, 1094. problem departing tort regard, enacted Thompson Thompson, 484 174, 190-192, 108 513, 521-523, 98 512 (1988) (SCALIA, judgment), hence (within bounds rationality) faithful task. 47 concur join except II. 49 whom MARSHALL joins, part. 50 substance reasoning III. 51 constitute defense corporation alleging accomplished using fairness according stage litigation. 52 say: 53 "There supplement requirement, Appeals, voting. Where injury redress proves materials, transaction. test impracticalities determining many affected, and, resolving doubts designed protect, ensuring able informed choice consulted transactions. Union Pac. Chicago N.W.R. 226 400, 411 (D.C.N.D.Ill.1964); 962 (2d 1961); 2929-2930 (Supp.1969)." 384-385, 54 Harlan writing then appended footnote: 55 "We management controls minority. Even situation, finds solicit sufficiently related Laurenzano Einbender, 264 356 (D.C.E.D.N.Y.1966). 56 today involves unfair, fair. providing injured stronger, weaker, Mills. avoiding controversy Moreover, taken cases. Accordingly, constitutes unwarranted rationale conclude necessary—whether "legal reasons"—to "was statements. bylaws officers, decided constraints statute. affirm Appeals. 57 STEVENS join, 58 am agreement views establish With dissent 59 Review complicated distinction explicit stages Petitioners, effect, though, So preserved review here.* 60 presumption rejecting demonstrating took brief, panel address, possibility nonvoting allow Before addressed. 62 severe places possible precedents appeals. flow shift causes occurred (1964). Ante, 1102-1105. 63 acknowledge caution creating inquiry. ----. cases become securities laws, enforce meaningful unless eliminate altogether. phrases light "policy lie." 1104-1105; (1975). 64 acceptance non-voting "extend Mills." 1102. purport footnote indicates, applied past years. 1119, (1983). 65 To extent considers avowed aim emphasis fears "speculative intractability." 1105. guerrilla warfare restrict well-established adopted guide, charged laws forewarned unresolved concerning likely answered defendants. seems assume, reserving question, bears percent theory. (FABI) (VBI) retained option back reaction concerned conditioned 463, decided. extent, "minority" proved suspect. Minority identified hoc ought nondisclosure entire process, period cast. 67 presumes management's suggests unfair comply duties, fear concluding injure reputation business, Of dominates prefer embarrassment cancel taken. For purposes, same: forward avoided. create categories. 68 Our rested impracticality attempting determine thousands misrepresentations omission violate "there (1976). defeat enactment proposal; 69 If, argument, applies holds merit formulation eliminates difficulty proof. lacks factors weigh 70 argues "turn 'hazy' process." 1105 (citing Stamps, 1928-1929 (1975)). fit event. requires universe adequate made. Indeed, inevitable invited compare been. intractable. balance, convinced supports elimination caused halted down. difficulties disproving anything, assist managing circumstance direct difficult. Basic Levinson, 485 224, 245, 978, 990-991, 194 (discussing presumptions law). 71 whatsoever limiting protecting numerical strength permit One 14(a)'s "chief 'the investors.' " Those lack disclosure. casting ballots withdrawal proposals, minority's block adverse consequences, negotiation increase price. deliberative practicalities 72 point. withdrawn revised record, remand, infra, 1120, meets nonspeculative 73 wanted "friendly transaction" viewed "so it." 99. Management "no community, important." 109. push 192. "human involved nature," attempted "show [it was] fair." 347. 74 pursued realized inadequacy testimony notes "opposing boldness," 1105, examination type acceptable determination lead Discussion "how PR afloat" prevent reac[tion]/ perception," 454, unpopular 75 identical attempt freeze Maryland subsidiary. well, FABI's subsidiary's adviser concluded inadequate. 297, 319. refused proceed; despite inability outvote pressed deal. 76 again retain KBW. sat boards Bank, discouraged hiring adviser, experience repeated advice. testified Further, facilitated representation 77 yet completion Robert Altman Chairman Drewer met Notes produced suggested Drewer, objections postponing advice persuaded him cautionary measures. information, kept privilege. privilege ruling five occasion admissibility 78 Though demonstrates plausible damage sustained serious. Professor Loss summarized cases," 79 "minority better unfavorable modify reconsider [Schlick Penn-Dixie Cement 507 374, 384 1974),] listed New York Stock Exchange, advanced additional considerations: (1) informed; (2) 'a rapacious controlling management' want 'hang dirty linen thereby expose action—in future takeovers.' 1119-1120 (footnote 80 plausible; likely, completing management. 81 avoids deprived difficult, whole governance. orders law." 1108. conflicts incorporates proposition. definitions same, know, Virginia's requirement. ability events, voidable off lower positioned institution definitive kind. Here again, knowing happened "resolv[e] protect" "effectuate transactions." 83 that: "It shall unlawful person, mails instrumentality interstate commerce facility national exchange contravention regulations prescribe name consent security (other exempted security) registered section 781 title." 78n(a). relevant "No regulation containing which, circumstances made, omits therein CFR 240.14a-9 Insurance Corporation (FDIC) administers enforces activities federally insured regulated banks. 12(i) l(i). An 335.206 (1991), essentially 14a-9. Amici Curiae 5. chosen antifraud 240.14c-6 78n(c). refusal certify Consequently, ruled liable share. 1119. 444, 2130, reserved scienter reserve still. wrong construing tantamount transactions group Santa Fe Green, 430 462, 479, 97 1292, 1304, 480 (1977), '[c]orporations creatures commit funds that, responsibilities govern internal affairs corporation,' quoting 66, 84, 2080, 2091, impose responsibility transaction's "fairness" concern, presupposes integrity preserve. Craftmatic Litigation Kraftsow, 890 628, 639 1989). dissuade omissions arguing accuse themselves duty. Subjection raise duty self-accusation; refrain obligated carried deceive. Berg 254 198, 205, 796 489, 496 (1986) ("Once purported ., obligation portray accurately"). below. appeals court, availability sue. 1120-1121 suffices below passed presented, Stevens Department Treasury, 500 1562, 1567, --- ---- (1991); Cohen Cowles Media 2513, 2517, particularly believe, 'in evolving uncertainty,' St. Louis Praprotnick, 112, 120, 915, 922, 107 (plurality opinion), Newport Fact Concerts, 453 247, 256, 2748, 2749, (1981), administration 120-121, 922-923. Citing Schlick 382-383 1974), characterize proferred examples so-called "sue facts" "shame theories. 41; Reply 8. "A 'sue fact' general, decision. decision' institute representative derivative Gelb, 10b-5 Fe—Herein Sue Facts, Shame Other Matters, 87 W.Va.L.Rev. 189, (1985), Borden, "Sue Fact" Mandates Disclosure Avoid State Courts, '82, 201, 204-205 (1982). Note, Liability Private Actions Proxy Violations, Yale L.J. 107, 116 (1970) causation). "Shame "shamed" abandoning Schlick, 384. 197. district grounded consummating See, 1; 426. provisions 13.1-718(A), (D), (E) (1989) compelled submission 13.1-718(E), issuance 13.1-718(D). sufficed information. obligation, required. disclaimed date, past, 577, 2489-2490, hurdle facing litigant urges enlarge reached parting company point, KENNEDY emphasizes proceeded freeze-out events renewal comment. generally, tractable emphasizing confronting expected characteristic adopted. defined differently standard cases, denial Respondents, suggest remedies avail clear, courts; "[s]tatutory now exclusive merger," 32a; Adams Distributing 184 Va. 134, S.E.2d 244 (1945), 327 788, 807, L.Ed. 1014 (1946), "dissenting mergers solitary them," "Va.Code 6.1-43 excludes 13.1-730 [the statute]." 31a, 32a. way. one. asked instructions 83, 92. close requested: fourth Count Ms. conduct proximately plaintiff. proximate factor causing probable consequence omission. element, defendants' damage. you contributing suffered." 424. reliance, Instruction 29, "establish statement." continued, manner problematic, provide: "If material, relation ". instructed 426-427. objected 435.

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