Court Opinion

ID: 9535565
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:50:54.408259+00
Date Added: 2024-06-11T13:33:16.875715
License: Public Domain

OPINION
MATTHEWS, Justice.
The question in this case is whether shareholder proxies were obtained through materially misleading representations. The superior court held the solicitation in question to be proper and dismissed the complaint below. We disagree and reverse.
Cook Inlet Region, Inc., is an Alaska business corporation formed under AS 10.05. It is designated under the Alaska Native Claims Settlement Act, 43 U.S.C. §§ 1601-1628 (Supp.1978) to receive benefits as a regional corporation. Cook Inlet has approximately six thousand shareholders, each owning one hundred shares of common stock.
In anticipation of the 1977 annual shareholders’ meeting at which a new board of directors was to be elected, appellee Ward, a shareholder of Cook Inlet, prepared and mailed two separate requests for proxies to fellow shareholders. The first proxy request, which produced a minimum of 153 proxies, is not challenged here. The second proxy solicitation, which was sent to all shareholders, produced a far greater number of proxies.1 The statements made by Ward in the materials accompanying the second solicitation are the subject of this appeal.
Cook Inlet, alleging that Ward had procured the proxies by the use of materially false and misleading statements in the second solicitation, filed suit to enjoin Ward from voting the proxies which he obtained. A preliminary injunction was granted which ordered that the validated proxies be voted but segregated and that the existing board of directors remain in office pending the outcome of the trial on the merits. At the trial, after Cook Inlet presented its case, Ward moved for an involuntary dismissal under Civil Rule 41(b). The superior court granted the motion and entered judgment declaring that the proxies were valid and that the votes cast pursuant to them were to be given effect.
Cook Inlet decided not to appeal the superior court’s ruling. Appellants, who would have been elected to the board were it not for the voting of Ward’s proxies, moved to intervene pursuant to rule 24(a), Alaska Rules of Civil Procedure, in order to prosecute an appeal. The superior court denied the motion. We granted appellants’ petition for review and held that the trial court erred in not granting the motion to intervene. Brown v. Cook Inlet Region, Inc., 569 P.2d 1321 (Alaska 1977).
Ward’s second proxy solicitation began with a cartoon depicting a crowd of Cook Inlet shareholders telling management, “Hey! We want our money NOW.” It continued in part as follows:
We own Cook Inlet Region Inc. not the leaders and Lawyers.
If we each want a big chunk of Land then let’s give it to ourselves “NOW” not 20 years from Now. We the stockholders own the Land not the leaders and Lawyers.
It has been estimated that just the coal reserves owned by us is worth over 2 Billion Dollars. I say “so what” how does that help us. If we were to go ahead and sell just the coal for its estimated value that would be over Three hundred thousand dollars “Look at this number $300,-000.00” for every man, woman, and child owner of Cook Inlet Region Inc.

Our leaders and Lawyers say invest, so what do we the owners of Cook Inlet Region Inc. have after 5 years. We have a piece of white man paper that says we have millions of dollars, yes Millions of dollars of warehouses, Lawyer fees, several old Hotels, “which you can’t even sleep in without lots of money,” more *249Lawyer fees, a great Big Multi-Million dollar white man office building where our leaders can spend our money in comfort AND who knows what else our money is spent on.
I say lets get out of white man business, sell All this stuff and invest the money with the people. This would mean THOUSANDS of dollars for each and every one of us NOW not 20 years from now.
We the stockholders own Cook Inlet Region Inc., and we own all the cash and all the minerals and all the land NOT the leaders and Lawyers.
Appellants contend that the following portions of Ward’s solicitation were materially false or misleading:
1. The statement that the corporation could presently give each shareholder “a big chunk of land.”
2. The statement that the corporation could sell coal reserves and receive $300,-000.00 for each shareholder, with the implication that this could be accomplished in the reasonably near future.
3. The statement that thousands of dollars in cash could be distributed to each shareholder if the real estate investments of the corporation were liquidated.
The trial court concluded in its ultimate finding of fact that the solicitation material complained of was neither untrue nor misleading, and that it “expresses solely a philosophical difference between plaintiff and defendant.” However, the trial court found that as of the trial date Cook Inlet owned surface rights to only 56 acres of land and approximately 7,000 acres of mineral rights, representing less than 1% of what it eventually would receive under the Alaska Native Claims Settlement Act. The court further noted that it was uncertain when future conveyances would be made. The court found that if all the investments presently owned by Cook Inlet were sold, $6,000,000, or less would be realized and that Cook Inlet does not “have any present ability to distribute big chunks of land, or thousands of dollars, to each of its shareholders.”
Since Cook Inlet is expressly exempted from the federal Securities Act of 1933 and the Securities Exchange Act of 1934,2 Alaska law governs this case. When Ward requested the proxies there existed no Alaska statute prohibiting false statements in proxy solicitations. .AS 45.55.139, which became effective shortly after the solicitation in this case, provides:
Reports of corporations. A copy of all annual reports, proxies, consents or authorizations, proxy statements and other materials relating to proxy solicitations distributed, published or made available by any person to at least 30 Alaska resident shareholders of a corporation which has total assets exceeding $1,000,000 and a class of equity security held of record by 500 or more persons and which is exempted from the registration requirements of § 70 of this chapter by § 138 of this chapter, shall be filed with the administrator concurrently with its distribution to shareholders.
AS 45.55.160 which now applies to proxy statements filed under § 139 prohibits materially false solicitations:
Misleading filings. It is unlawful for a person, in a document filed with the administrator or in a proceeding under this chapter, to make or cause to be made an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading.
The common law also requires that proxy solicitations be free from materially false or misleading statements.3 The decision of the court below accepts this principle, and *250none of the parties disagree. The fraud rule promulgated by the Securities and Exchange Commission contains no different substantive command:
(a) No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.4
Since the SEC fraud rule and the common law both prohibit material falsehoods, authorities construing the SEC rule are a useful guide in determining when a misstatement is material under Alaska common law.5 Federal authorities have established that a misrepresentation is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.6 Subjective proof that one or more shareholders actually granted a proxy because of a falsehood is not required; only the objective standard encompassed in the definition of materiality need be met:
Where there has been a finding of materiality, a shareholder has made a sufficient showing of causal relationship between the violation and the injury for which he seeks redress if, as here, he proves that the proxy solicitation itself, rather than the particular defect in the solicitation materials, was an essential link in the accomplishment of the transaction.7
In this ease the court below found that Cook Inlet did not have large amounts of land or assets which it could distribute to shareholders. Ward represented that it did. Moreover, the solicitation plainly implies that coal reserves could presently be sold and sums of money on the order of magnitude of $300,000 realized for distribution to each shareholder. Although Cook Inlet will receive lands containing large amounts of coal, it had not obtained title to them as of the trial. No one can predict when, if ever, the coal can be economically mined. Assuming that extraction is economically feasible, it will take a long period of time, and 70% of the revenues from such a venture must be distributed among all 12 regional corporations organized under the Alaska Native Claims Settlement Act.8 There is no present prospect of selling the coal reserves for a current price which might result in anything approaching $300,000 to each shareholder.
The trial court found that the proxy solicitation representations were not materially misleading, but, instead expressed “solely a philosophical difference between plaintiff and defendant.” We find this conclusion to be clearly erroneous. While the trial court did not expressly state the standard of ma*251teriality which it applied in reaching that conclusion the proper standard is the objective one described above: a misleading or false statement “is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” T.S.C. Industries, Inc. v. Northway, Inc., 426 U.S. 438, 499, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757, 766 (1976).
*250(b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.
*251Applying this standard of materiality in this case, we think it beyond argument that the misrepresented ability of Cook Inlet to distribute money or land to shareholders on the scale expressed in the solicitation would be likely to influence shareholders to grant proxies to Ward. There are very few people who, as owners of a small percentage of a large corporation, would not consent to a change in corporate management if doing so would result in immediate personal wealth. Since we find Ward’s proxy solicitations to be materially false as a matter of law, no further evidence need be received by the trial court on the question.
The judgment is reversed and the case is remanded for a determination of what further relief, if any, may now be appropriate.

. Ultimately, Ward obtained approximately 1,100 proxies from both solicitations. Eight hundred of these were validated.

. The exemption is set forth in 43 U.S.C. § 1625 (Supp.1978).

. In re R. Hoe & Co., Inc., 14 Misc.2d 500, 137 N.Y.S.2d 142 (1954); Kaufman v. Schoenburg, 33 Del.Ch. 211, 91 A.2d 786 (1952); Empire So. Gas Co. v. Gray, 29 Del.Ch. 95, 46 A.2d 741 (1946); Wyatt v. Armstrong, 186 Misc. 216, 59 N.Y.S.2d 502 (1946); In re Scheuer, 59 N.Y. S.2d 500 (Sup.1942).

. 17 C.F.R. § 240.14a-9 (1978).

. See Loss, The SEC Proxy Rules and State Law, 73 Harv.L.Rev. 1249, 1264-65 (1960); Comment, Standards of Disclosure in Proxy Solicitation of Unlisted Securities, 1960 Duke L.J. 623, 635-36.

. T.S.C. Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757, 765 (1976). Common law concepts of materiality are not in essence different. See Restatement (Second) of Torts § 538(2):
The matter is material if
(a) a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question; or

. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 385, 90 S.Ct. 616, 622, 24 L.Ed.2d 593, 602 (1970); see also Union Pac. R.R. Co. v. Chicago & N. W., Ry. Co., 226 F.Supp. 400, 411 (N.D.Ill.1964); In re Scheuer, Sup., 59 N.Y.S.2d 500 (1942).

. 43 U.S.C. § 1606(i) (Supp.1978).