Court Opinion

ID: 9462663
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:46:41.850175+00
Date Added: 2024-06-11T17:37:42.347167
License: Public Domain

MOORE, Circuit Judge
(dissenting):
I most strongly dissent from the use of their powers by two judges of one of the eleven judicial Circuits to override and nullify not only the corporate laws of Delaware with respect to short-form corporate mergers, but also, in effect, comparable laws in an additional thirty-seven States.1
By their opinion, the majority has found a fraudulent scheme, and hence a violation of Rule 10b-5, where none exists. They have established an irrebuttable presumption that use of the short-form merger law amounts to a fraud per se. They have added a clause to the Delaware statute— not placed there by the State’s legislature— that a short-form merger must have a “justifiable corporate purpose”. They have manufactured evil intent and attributed it to individuals who were merely following the lawful edicts of Delaware, to the point of characterizing as “full of cunning and guile”, and “so sophisticated as almost to *1300defy belief”, corporate actions of the utmost simplicity and patent reasonableness in today’s economy and securities market.
My agreement with the majority starts and stops on the first page of its opinion. The case is “important, [and] interesting”; it is not “complicated”. Although legal issues are frequently clothed in dark and light shades of gray, the case at bar is a study in the stark contrast of black and white. The majority’s conjury in holding that this case presents a violation of Section 10(b) of the Securities and Exchange Act and Rule 10b-5 promulgated thereunder2 is totally without factual anchor, and I cannot refrain at the outset from objecting to the frailty of their factual foundation, which is truly of the character of bricks without straw and an omission that warrants immediate correction.
1. THE FACTS
The facts are not in dispute, and should be stated for the record in their particulars.
The sovereign state of Delaware in its legislative wisdom enacted a statute, which gives to corporations chartered under its laws, the privilege of merging parent and subsidiary under strictly limited circumstances, namely, ownership by the parent of at least 90% (here approximately 95%) of the stock of a subsidiary. Delaware General Corporation Law (DCL) § 253. The statute provides for the payment of cash to the minority stockholders or, in the event that any such stockholder is dissatisfied with the cash offer, he may seek an appraisal in the Delaware Court of Chancery to establish the stock’s value. DCL §§ 253(d), 262. In any such proceeding the stockholder would be able to adduce whatever proof he might believe to be supportive of his theory of true value.
The statute, referred to as the “short-form” merger proceeding, contains no provision for advance notice of the merger to be given to the minority (10% or less); only approval by the parent’s directors and stockholders is required. Notice of the merger, however, has to be given within 10 days of its effective date, and within 50 days thereafter (following an initial demand within 20 days on the surviving corporation) appraisal, if desired, must be sought. DCL § 253(d).
Prior to the merger at issue, some 95% of the stock of Kirby Lumber Corporation (Kirby) was owned by Santa Fe Natural Resources, Inc. (Resources) which in turn is wholly-owned by Santa Fe Industries, Inc. (Santa Fe).
Plaintiffs are in the 5% (approximately) minority group of Kirby.
To take advantage of § 253 of the Delaware Corporation Law another Delaware corporation, Forest Products, Inc. (FPI) was organized which acquired from Resources its Kirby stock (95%) and on July 31, 1974 Kirby and FPI were merged.
Some time prior to the merger (February 19, 1974) defendants3 had obtained from Appraisal Associates a written appraisal of the land (exclusive of minerals), timber, buildings and machinery of Kirby as having a market value of $320,000,000. Such an appraisal of physical assets mathematically would have amounted to a book value of the outstanding shares of Kirby of $722.
Subsequently, defendants, seeking a fair market value appraisal of the Kirby stock as of June 24, 1974 obtained from Morgan Stanley & Co. a stock valuation of $125 per share. This figure was given with knowledge of Appraisal Associates’ valuation of Kirby’s physical assets of $320,000,000.
After the merger, as provided by Delaware law, DCL § 253(b), namely, “within 10 days after the effective date of the merger”, notice of the merger was given to the minority stockholders that they had a right to receive $150 per share in cash or to seek *1301an appraisal of the value of their shares as provided by Delaware law. DCL § 253(d).
Accompanying the notice was a statement (some 57 pages of the Appendix) which, in addition to setting forth extensive financial data, included: (1) the Morgan Stanley stock value based largely upon the price ranges for the Kirby stock freely traded on the market; (2) the Appraisal Associates’ appraisal of physical assets of $320,-000,000; and (3) an appraisal by Riggs and Associates of Kirby’s oil, gas and mineral property interests.
On August 21, 1974 plaintiffs elected to pursue the Delaware law remedy of demanding an appraisal. Thereafter, they changed their minds and on September 9, 1974 withdrew this demand. The next day they filed their complaint in the federal court seeking to bring their claim within Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C § 78j(b)) and Rule 10b-5, 17 C.F.R. 240, 10b-5. Their original complaint was based primarily on the claim that defendants sought to acquire the minority’s stock at a “grossly undervalued price” which constituted in plaintiffs’ opinion a “manipulative and deceptive device” amounting to a violation of Rule 10b-5 and “a breach of fiduciary obligation owed to Kirby and its minority stockholders.” (Compl. par. 9) An amended complaint added a claim of diversity jurisdiction over the defendants.
At this point it is essential to underscore what was not involved in the merger. There was no failure to comply with state law. There was no failure to disclose by the defendants. On the contrary, all of plaintiffs’ assertions of stock value derived from the report circulated by the defendants to the minority shareholders. Similarly, there was no misrepresentation of fact or law made to the minority.
II. FEDERAL LAW
The purpose of § 10(b) of the Act, and Rule 10b-5 promulgated thereunder, is the elimination of fraudulent practices in the securities industry. These are anti-fraud provisions and the existence of fraud is the key to their application.4
It states the obvious to say that the essence of fraud is deliberate deception or concealment which is calculated to deprive the victim of some right or to obtain, by deceptive means, an impermissible advantage over him.5 It was to eliminate such deception and concealment that the federal securities laws imposed a duty to disclose on those with inside information. Similarly, it has been to eliminate deception and concealment, i. e., to eliminate fraud, that the courts have stringently enforced this duty, imposing liability whenever a defendant fails to disclose his actions, his position, or his knowledge.
The majority cites numerous cases en route to its holding that failure to disclose is no longer a prerequisite for liability under Rule 10b-5 — that, in fact, liability under the anti-fraud provisions of 10b-5 will attach in the complete absence of any deception or misrepresentation, in short, in the complete absence of fraud altogether. This is an untenable hypothesis, and one which is totally disproved by even a cursory review of the decisions in the area. I pro*1302pose to review the leading cases in order to dispel at once any rumors that 10b-5 no longer concerns itself with fraud, but instead extends to every corporate transaction viewed with displeasure by the courts.
In 1964 in Ruckle v. Roto Amer. Corp., 339 F.2d 24 (2d Cir. 1964), the directors of the corporation approved the issuance of stock to its president for an inadequate consideration. It was alleged that information material to the exercise of informed judgment had been withheld from the directors — a clear instance of fraud.
The same year this Court decided O’Neill v. Maytag, 339 F.2d 764 (2d Cir. 1964), in which we said: “There can be no serious claim of deceit, withheld information or misstatement of material fact in this case”; the opinion went on to say that, where a complaint alleges a breach of the general fiduciary duty existing among corporate officers, directors and shareholders, “no cause of action is stated under Rule 10b-5 unless there is an allegation of facts amounting to deception.” 339 F.2d at 767, 768.
SEC v. Capital Gains Research Bureau, 375 U.S. 180, 84 S.Ct. 275, 11 L.Ed.2d 237 (1964), is cited by the majority but in fact is more supportive of the dissent. Capital Gains, it should be noted at the outset, was not a 10b-5 case; it involved the unique duties and responsibility of investment ad-visors to their clients. The entire case was concerned with non-disclosure — specifically, with the failure of the defendant-investment advisor to apprise his clients of his self-interest in their transactions. The defendant’s practice had been to buy a stock shortly before recommending it in a newsletter to his clients, and thereafter to sell it (usually within two weeks of the dissemination of the newsletter). The Supreme Court interpreted his legal and equitable duty not as a duty to refrain from trading himself (an act not prohibited by state law) but as a duty to disclose whatever interest he in fact had. It was not the existence of self-interest or of the defendant’s action in furtherance thereof which went afoul of federal securities law; it was his concealment of those facts.
Three years later this Court decided Vine v. Beneficial Finance Co., 374 F.2d 627 (2d Cir.), cert. denied, 389 U.S. 970, 88 S.Ct. 463, 19 L.Ed.2d 460 (1967). Implicitly acknowledging the validity of short-form mergers,6 the Court struck down a fraudulent sale of certain stock shares at an inflated price on the ground that the scheme presented “a classic case of deception”. 374 F.2d at 635. Ruling on the applicability of the federal securities laws to corporate mergers, the Court held:
“What must be shown is that there was deception which misled the Class A stockholders . . . .” 374 F.2d at 635. (emphasis supplied)
In 1968 came Schoenbaum v. Firstbrook, 405 F.2d 215 (2d Cir. 1968), a case much relied upon by appellants, heard by an en banc Court. This case in many respects was a counterpart of SEC v. Texas Gulf Sulphur, 401 F.2d 833 (2d Cir. 1968) (en banc). In Schoenbaum, Aquitaine, which controlled Banff Oil, had knowledge of an important oil discovery by Banff. Without disclosing this fact, Aquitaine caused Banff to issue to it 500,000 shares of Banff at $1.35 a share. After the public announcement of the discovery, Banff stock sold as high as $18 a share. There was more than sufficient indicia of fraudulent non-disclosure to justify denial of a summary judgment motion.
In 1971 the Supreme Court decided Supt. of Insurance v. Bankers Life and Cas. Co., 404 U.S. 6, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971), on appeal from this Circuit. The fraud there was most flagrant. One Begole and a group agreed to buy for themselves all of Manhattan Casualty Company’s stock from Bankers Life for $5,000,000 and conspired with others to pay for the stock, not with their own funds but, once they had *1303obtained the stock, out of Manhattan’s own assets. A more fraudulent scheme would be difficult to imagine.
In 1972 came both Drachman v. Harvey, 453 F.2d 722 (2d Cir. 1972) (en banc) and Popkin v. Bishop, 464 F.2d 714 (2d Cir. 1972). The Court in Drachman found that as the result of a conspiracy, whereby the Harveys had sold their controlling interest in Harvey Aluminum to Martin Marietta at handsome premium for themselves and they had caused Harvey Aluminum to redeem its convertible bonds to preserve Martin Marietta’s stock control of Harvey Aluminum, there was fraud within the scope of § 10(b) and Rule 10b-5.
Popkin presented a somewhat different situation. It was largely to enjoin a merger on the ground that the exchange ratio of the respective stocks was unfair. This Court reviewed the many cases in this field, noting that “Emphasis on improper self-dealing did not eliminate non-disclosure as a key issue in Rule 10b-5 cases”, 464 F.2d at 719, and concluding that “when there has been such disclosure of a merger’s terms, it seems unwise to invoke federal injunctive power, particularly since doing so might well encourage resort to the federal courts by any shareholder dissatisfied with a corporate merger”. Id. at 720. But, even assuming the federal courts are anxious to reach out for this sort of business, to do so at the cost of nullifying the corporate laws of many states respecting mergers of comparatively fractional amounts of outstanding stock should cause some restraint in enacting such judicial legislation.
Other circuits have found conspiracy and deception as basic in bringing cases within the statute and Rule. See Dasho v. Susquehanna Corporation, 380 F.2d 262 (7th Cir. 1967) and Shell v. Hensley, 430 F.2d 819 (5th Cir. 1970). And of particular interest because it was decided in a federal court in Delaware is Voege v. American Sumatra Tobacco Corporation, 241 F.Supp. 369 (U.S. D.C., Delaware, 1965). It, too, was a “merger” case. On the merger, $17 a share was offered; the plaintiff refused the offer and demanded an appraisal but, in so doing, did not know that as part of the merger it was planned to sell off a part of Sumatra’s physical assets (land) which would alone bring in more than $17 a share. The Court, noting that the defendants — for purposes of their motion to dismiss — conceded that their misleading statements amounted to a scheme to defraud under Rule 10b-5, held that the plaintiff could be regarded as a “seller” within the meaning of the Rule. Appraisal was held to be an insufficient remedy because of plaintiff’s ignorance of the fraud at the time she demanded the appraisal. 241 F.Supp. at 375.
The District Court in this Circuit recently considered the permissibility of corporate mergers for purposes of enforcing federal securities law. In Levine v. Biddle Sawyer, 383 F.Supp. 618 (S.D.N.Y.1974), which involved a short-form merger, the Court denied defendant’s motion for judgment on the pleadings on the ground that the facts presented a “scheme of deceit and concealment”. 383 F.Supp. at 622.
Still more recently, in Kaufman v. Lawrence, 386 F.Supp. 12 (S.D.N.Y.1974), aff’d per curiam, 514 F.2d 283 (1975), the District Court refused to grant a preliminary injunction to halt a long-form corporate merger on the grounds that material omission had not been shown, and that the case was not one involving “any hidden or secret action by an outside group to take over control of the company”. 386 F.Supp. at 17. The Court concluded pertinently:
While Sections 10(b) and 14(e) must be read flexibly, and not technically or restrictively, * * * there is nothing invalid per se in a corporate effort to free itself from federal regulations, provided the means and the methods used to effectuate that objective are allowable under the law. Nor has the federal securities law placed profit-making or shrewd business tactics designed to benefit insiders, without more, beyond the pale. Those laws in respect of their design and interpretive reach, as I understand them, include the provisions relied on here, and are satisfied if a full and fair disclosure is made, so that the decision of the holders *1304of WRG stock to accept or refuse the exchange offer can be said to have been freely based upon adequate information.
A public company going “private” may indeed raise serious questions concerning protection of the public interest. There is, however, no foundation on the record before me from which the ramifications of that interest within the reach of the federal securities laws might conceivably be explored. . . . Ibid, (citations omitted)
Non-disclosure for purposes of deliberate concealment or misrepresentation is the essence of fraud, and synonymous with liability under Section 10(b) and Rule 10b-5. Against this setting the facts at bar are startling for the picture of unquestionable non-liability under Rule 10b-5 which they present. To reiterate, the defendants — pursuant to a duly enacted state law — effected a merger of a parent corporation and its 95%-owned subsidiary. This transaction is expressly sanctioned by statute, and all statutory requirements were complied with. Complete disclosure regarding valuation of shares was made. There was no attempt to hide the merger, or to misrepresent the minority’s right to object and demand appraisal. On the contrary, the minority were expressly informed of their right to do so.
To conclude that this series of events presents a scenario of fraud is a patent distortion of that term. This case presents no claim of fraud at all, and appending the label of “fraud” to plaintiffs’ complaint or the majority’s opinion does not change the fact one iota. The facts adduced here are wholly unrelated to any cause of action under Section 10 and Rule 10b-5, and legal legerdemain cannot render them otherwise.
III. STATE LAW
The majority concedes that when it speaks of fraud, it does not mean “fraud” at all, but rather a breach of fiduciary duty. Majority opinion at 1291, 1296. Under the law, breach of fiduciary duty and commission of fraud are wholly different from one another, as was recognized by this Court in O’Neill v. Maytag, supra, at 339 F.2d 767:
While the essence of these [fiduciary] duties in some circumstances is honest disclosure, the allegations in the instant case are typical of situations in which deception may be immaterial to a breach of duties imposed under common law principles.
The majority’s insistence on extending federal securities anti-fraud provisions beyond the bounds of fraud and into the realms of fiduciary duty is disturbing enough. Accompanied, as it is, by their erroneous finding of a breach of such duty, and by the astonishing and impermissible establishment of a federal common law of corporations — as ill-founded as it is improper — disconcertion must give way to alarm.
There is no question that it is within the proper power of the State to enact statutes regulating corporation mergers. Corporations are creatures of the State. They are created under State law; they are empowered by State statute; and they are regulated by the legislative mandates of the State which has sanctioned their existence. Every State in the Union has comprehensive general business or corporation codes which attest to the exercise of the States’ proper responsibilities over the formation of corporate entities and the regulation of corporate activities.
Exercising its unquestionable right to determine the statutory rights and duties of parent and subsidiary corporations chartered under its laws, Delaware has permitted subsidiaries to dispense with what would be the mere formality of a shareholder vote on merger in those circumstances in which the parent already owns an overwhelming majority of the subsidiary’s shares. Delaware law does not require that the merger be pursuant to any corporate purpose more limited than the general corporate purposes contained in the corporate charter, which set the boundaries beyond which the corporation will be said to act ultra vires. The short-form merger statute is not a procedure designed to effect certain business outcomes; it is the articulation of certain substantive rights which are given to majority and minority shareholders in *1305the State of Delaware7 — respecting the parent corporation, a right to expedite a merger which is already assured by the parent’s overwhelming majority ownership of the subsidiary; respecting the minority, a protective “right to object and demand appraisal”. Coyne v. Park & Tilford Distillers Corp., 38 Del.Ch. 514, 520, 154 A.2d 893, 896 (Del.1959).
The majority misses the point entirely when it comments, as the justification for sidestepping Delaware law, that “Where Rule 10b-5 properly extends it will be applied regardless of any cause of action that may exist under state law” (citing Vine v. Beneficial Finance Co. supra). Majority opinion at 1286. “Cause of action” means “judicial remedy,” not statutory right or compliance with state law, and the Vine Court stated the rule correctly when it held that
[W]e do not regard the existence of a state remedy as negating the federal right. Vine v. Beneficial Finance Co., 374 F.2d at 635-6 (emphasis supplied)
The substantive rights created by § 253 have been explicitly upheld as a valid regulation of Delaware corporations. The Delaware courts have also explicitly rejected the notion that the exercise of rights accorded by § 253 is itself a breach of duty or a perpetration of fraud. Focusing on the plaintiff’s charges of fraud in connection with the statutory merger under § 253, the Supreme Court of Delaware ruled, in the leading case on the subject:
The complaint, of course, contains allegations of oppressive treatment of the minority by the parent corporation, and a prayer that the merger be set aside. But it is plain that the real relief sought is the recovery of the monetary value of plaintiff’s shares — relief for which the statutory appraisal provisions provided an adequate remedy. The Vice Chancellor held that in the circumstances of this case that remedy was exclusive. His analysis was thorough and well-considered, and we agree with it. .
[It is argued that] the appraisal remedy under our statutes should not be held to be exclusive.
The answer to this is that the exception above quoted refers generally to all mergers, and is nothing but a reaffirmation of the ever-present power of equity to deal with illegality or fraud. But it has no bearing here. No illegality or overreaching is shown. The dispute reduces to nothing but a difference of opinion as to value. Indeed it is difficult to imagine a case under the short merger statute in which there could be such actual fraud as would entitle the minority to set aside the merger. . . This power of the parent corporation to eliminate the minority is a complete answer to plaintiff’s charge of a breach of trust against the directors of the [merged subsidiary]. . . . Stauffer v. Standard Brands, Inc., 41 Del.Ch. 7, 187 A.2d 78, 80 (1962).8 (emphasis supplied)
This holding accords with the Delaware common law respecting the equitable duty of fiduciaries which, like the statutory law of corporations, lies within the province of the States. Under Delaware law, it is not a per se breach of the duty owed the cestui for the fiduciary to deal in trust property; in other words, self-dealing is not, by definition, a prohibited activity. Where, for example, the fiduciary has certain already-existing rights to acquire the property of the cestui, and where those rights are exercised openly and without deception, no violation of the trust results and a court of equity will not enjoin the acquisition.9 On the contrary, where legal rights attend the parties to a fiduciary relationship, a court of equity will enforce those rights and will not permit a plaintiff to eschew legal rights and duties under the guise of invoking the *1306court’s equitable jurisdiction.10 This is, of course, only an expression of the historic maxim and controlling principle that “Equity follows the law”.11
To place the plaintiffs’ allegations in this case into sharp focus, I would turn for a moment to plaintiffs’ complaint. Emerging from plaintiffs’ extravagant characterization of defendants’ conduct as an “unconscionable self-deal” (3) a “FLAGRANT SELF-DEAL WHICH OPERATED AS A FRAUDULENT DEVICE”, “a fraudulent overreaching” (16), an “unconscionable taking without compensation” (19) and a “secret squeeze-out” (31),12 plaintiffs’ claims stand out in bold relief: (1) the merger was “Without any notice or disclosure whatsoever to the minority stockholders of Kirby” (Br. p. 4) and (2) the price of $150 offered was grossly below the $772 value of each share based on plaintiffs’ theory of dividing the physical assets proportionately among the stockholders. It is on these grounds that the plaintiffs seek equitable intervention by the courts to effect a rescission of the merger.
As must be plain by this point, neither of plaintiffs’ two claims warrants such relief. With respect to prior notice, plaintiffs were entitled to none by law — a not unreasonable provision in light of the fact that, under § 253, the 10% minority shareholder is entitled to fair value of his shares, and not to any opportunity to thwart the will of the overwhelming majority.13 The parent corporation breached no fiduciary duty by exercising its statutory option to acquire the subsidiary without notice. The minority shareholders had no right to prevent such acquisition, or to challenge its legality on statutory grounds. Moreover, the minority shareholders had no right to demand from an equity court an affirmative right to notice in abrogation of the legal rights of the parent corporation created by statute and recognized at common law and equity by the Delaware Courts.
With respect to the alleged undervaluation of plaintiffs’ shares, Delaware law gives the dissenting shareholder a right to object, and affords him the legal remedy of appraisal. This is held to be both adequate and exclusive under § 253;14 equitable relief absent fraudulent deception or concealment, is unavailable.15 It is important to stress that the discrepancy in claimed value of the Kirby stock does not ipso facto bespeak fraud. Although they refer to going-concern value (but without supporting proof), plaintiffs’ asserted value appears to be based on the assumption that the Kirby physical assets could be liquidated at the appraisal price and the proceeds divided up amongst the stockholders. However, there is nothing in the record to indicate that Kirby had any intention to liquidate and go out of business or that plaintiffs as holders of 143 shares had any power to compel liquidation. Moreover, under Delaware law a dissenting shareholder cannot recover in appraisal proceedings the “liquidation value” of his shares (i. e., a sum equal to his aliquot share in the value of corporate assets); he is entitled only to “the intrinsic value of [his] shares determined on a going concern basis”. Application of Delaware Racing Ass’n, 213 A.2d 203, 209 (Del.1965). (emphasis supplied)
*1307By their complaint plaintiffs have utterly failed to assert any cognizable breach of fiduciary duty; any injury entitling them to equitable relief; any fact whatsoever indicating impermissible overreaching or deception by the defendants. There has been total compliance with state law, complete disclosure of valuation data, and total availability to plaintiffs of Delaware’s appraisal procedures. Significantly, all of plaintiffs’ assertions of stock value derive from the report circulated by the defendants to the minority shareholders.
IV. THE MAJORITY’S HOLDING
Notwithstanding all of the above, the majority has purported to find a violation of law that warrants equitable intercession. The majority’s theory is that there was a breach of fiduciary duty to the minority because the merger did not have a “justifiable corporate purpose”. This purported fiduciary standard is completely untenable; further comment on it will be made infra. First and foremost, however, the point must be made that, in taking cognizance of plaintiffs’ claim, the majority has not provided a remedy to correct a fraud; rather it has extended to these plaintiffs an independent, substantive right totally unrelated to the anti-fraud scheme of the federal securities laws and in complete derogation of a valid state rule regulating corporate activity.16 Indeed, the majority appears to have ignored the Supreme Court’s decision in Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1939), which put an end to federal common law and forbade the federal courts from formulating their own “better rule.”17
Reaching back to Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865 (1842), the majority has obviously rejected the valid state standards of Delaware defining fiduciary duty, and the valid state laws regulating the powers of state-created corporate bodies. The majority has tossed these off as so much obiter dicta and independently pursued a “better rule”, altering the rights of parent corporations and minority shareholders in order to suit the majority’s pleasure. The majority’s use of the term “fraud” is no more than a smokescreen; there is no factual foundation presented by the plaintiffs which indicates any fraud in this case. Moreover, under Delaware law, the short-form merger statute is part and parcel of the charter of every Delaware corporation, and of the contract between every such corporation and each of its shareholders.18 The majority thus is redrafting corporate charters and private contracts at the same time as it is putting a torch to the teachings of Erie. In effect, the majority has decided that equity will not follow the law, it will rewrite it.
*1308Their choice for a federal fiduciary standard respecting corporations is the best possible indication of the error of the majority’s holding. “Justifiable corporate purpose”, as it is used in the majority opinion, is a totally amorphous standard which, although it is nowhere defined in the majority opinion, is nevertheless so inapposite as applied to short-form mergers that it cannot withstand even superficial scrutiny.
The short-form merger procedure permits a corporation to retreat from the public marketplace of securities trading and assume the status of a private company. “Going private”, as the process has been popularly labeled, is being more and more frequently resorted to in today’s recession economy. The benefits to a corporation are varied. Freedom from worry about the impact of corporate decisions on stock prices; ability to take greater business risks than those sanctioned by federal securities agencies; a switch to more conservative accounting, resulting in lower taxes; the savings which result from no longer having to prepare, print and issue the myriad of documents required under federal and state disclosure laws; the removal of a pressure to pay dividends at the expense of long-term capital development or speculative capital investment — these are some of the advantages which may enure to a corporation “going private”.19 It is essential to underscore that all of the above-stated advantages accrue from the very act of eliminating the 10% shareholders who confer public status on the corporation. To say that such action is not a “valid business reason” (plaintiffs’ complaint) or a “justifiable corporate purpose” (the majority holding) is to completely misapprehend the impact of the shift in status from publicly held corporation to private company. Benefit to the parent company is not incompatible with the notion of “justifiable corporate purpose”; it is a legitimate part of it. As one commentator has noted:
The selfish motivation is often adverted to in connection with going private, but one wonders why that should be. Are only those corporate transactions to be favored which are not motivated by greed? Must we seek to do public good in order to avoid regulatory sanctions? The questions answer themselves. To observe that greed is a compelling motivation is merely to observe that we live in a free-enterprise society.20
It should be obvious that minority shareholders are as similarly motivated as the majority owners, and that their concern is not the purported damage to the public of “going private” transactions — the likelihood of which I seriously doubt — but rather, the equally selfish desire to avoid taking a loss while “playing the market”. Such a desire, I submit, is a wholly inadequate justification for according to the 10% a veto power over the will of the 90%. Even our political system does not require 100% consensus before the majority will may be implemented; in fact, such a thought would be completely inimical to the values inherent in our democratic philosophy.
It should be recognized that, in a transaction such as the short-form merger at issue here, the parent corporation does not acquire any practical power or control over corporate management that it did not already have as a 90% owner. To the degree that the majority condemns “self-aggrandizement” as an effort to acquire control for self-benefit, then the merger per se results in no increased aggrandizement at all:
If the evil in going private is perfecting or ensuring control, it would follow that there would be no wrong when the proponents of the transaction already have an impregnable hold on control. . . ,21
Whatever “justifiable corporate purpose” may mean, it should be obvious from the above that, as utilized by the majority, it is a completely irrational concept that bears no reasonable relationship to the realities of *1309short-form mergers in the actual business world.
I cannot believe that the majority has chosen to exceed the bounds of its jurisdiction under federal law in order to espouse so frail a concept, and I am more convinced than ever of the wisdom which the Supreme Court showed in compelling the federal judiciary to refrain from the business of rewriting state law by judicial fiat.
V. THE CONCURRENCE
Judge Mansfield in his concurring opinion falls into the same error as is so obvious in the majority opinion, namely, that “a short-form merger consummated without any legitimate purpose and without any advance notice to the minority public stockholders, resulting in harm to the latter, violates Rule 10b-5.” In short, any use of the Delaware statute is fraud per se, tantamount to a “device, scheme or artifice to defraud” and a course of business conduct that operates “as a fraud or deceit”.
Particularly disturbing is the unfounded hypothesis that the merger was intended to take improper advantage of market conditions by the deliberate tender to plaintiffs of a grossly inadequate price for their shares. Plaintiffs themselves do not go so far by way of allegation.
Judge Mansfield in footnote 4 argues the inadequacy of an appraisal proceeding in fixing a fair market price and straightaway concludes that a federal court “would be required to determine a fair buy-out price” —the very determination which the Delaware law provides. On such a hearing the same items of proof would undoubtedly be offered: purchases and sales of Kirby stock by willing purchasers and sellers on or off public trading markets over a period of time; annual earnings per share in years good and bad; price/earnings ratios; projected earnings; and the physical asset value, as appraised, of $320,000,000.22 The trial would have become a battle of experts, financial, accounting and physical property appraisers, but with the judicial system of Delaware available for this purpose it would not have lacked due process. Where there are disputes between parties as to fair values the courts not infrequently become the final arbiters, but the courts of the Second Circuit should not appropriate unto themselves the exclusive right and competence to engage in such determinations.
In summary, in my opinion, both majority and concurring opinions depart widely from the Congressional purpose in enacting Section 10(b), from our own decisions thereunder and from the Supreme Court’s interpretation thereof — thus far.
I would affirm the District Court’s dismissal of plaintiffs’ complaint.

. The following States have short-form merger statutes (the percentage of the subsidiary’s stock which must be owned by the parent appears in parenthesis after each State):
Nebraska (80%)
* * *
Arkansas (90%)
Colorado (90%)
Connecticut (90%)
Delaware (90%)
Florida (90%)
Georgia (90%)
Hawaii (90%)
Iowa (90%)
Kansas (90%)
Kentucky (90%)
Louisiana (90%)
Maine (90%)
Maryland (90%)
Massachusetts (90%)
Michigan (90%)
Nevada (90%)
New Jersey (90%)
Ohio (90%)
Oregon (90%)
Pennsylvania (90%)
Rhode Island (90%)
Tennessee (90%)
Texas (90%)
Utah (90%)
Virginia (90%)
West Virginia (90%)
Wisconsin (90%)
* * *
Indiana (95%)
Mississippi (95%)
Montana (95%)
New Mexico (95%)
New York (95%)
North Dakota (95%)
South Carolina (95%)
Vermont (95%)
Washington (95%)
* * *
Illinois (99%)

. Section 10(b) prohibits only those manipulative or deceptive devices “in contravention of such rules and regulations as the Commission may prescribe”. A condition precedent to a violation of Section 10(b) is therefore the violation of the appropriate SEC rule, namely, 10b-5. See n. 4, infra.

. Defendants, unless otherwise specified, will refer to the Santa Fe defendants, excluding Morgan Stanley & Co.

. Rule 10b-5, which gives exclusive effect to Section 10(b), is entitled “Employment of manipulative and deceptive devices”, and declares it to be unlawful for any person,
“(a) to employ any device, scheme, or artifice to defraud,
(b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” (emphasis added)
Subsection (b) is inapplicable here because no claim is made that there were any untrue statements or omissions in the vast amount of information given to the minority stockholders. Plaintiffs’ claims must, therefore, rest upon defendants’ use of the Delaware statute as a “device * * * to defraud” (subsection (a)) or an “act * * * which [operated] as a fraud or deceit * *

. See, e. g., Black’s Law Dictionary (4th Ed. 1951) at 788-789; Ballentine’s Law Dictionary (3d Ed. 1969) at 496-497.

. “Thus, once the conditions for a short-form merger had been achieved, appellant’s rights in his stock were frozen. He had and still has only the options of exchanging his stock for $3.29 a share, pursuant to appellee’s offer, or pursuing his right of appraisal, which would also result in cash from appellee.” 374 F.2d at 634. (emphasis supplied)

. This was the Court’s express holding in Coyne v. Park & Tilford Distillers Corp., 38 Del.Ch. 514, 154 A.2d 893 (Del.1959).

. See also, Carl Marks & Co. v. Universal City Studios, Inc., 233 A.2d 63 (Del.1967).

. See, e. g., In re Thomas, 311 A.2d 112, 114 (Del.1973); Equitable Trust v. Gallagher, 34 Del.Ch. 249, 102 A.2d 538, 545 (1954).

. See, In re Markel, 254 A.2d 236 (Del.1969); Richard Paul, Inc. v. Union Improvement Co., 33 Del.Ch. 113, 91 A.2d 49 (1952); Wise v. Delaware Steeplechase & Race Ass’n., 28 Del.Ch. 532, 45 A.2d 547 (1945).

. See, generally, 27 Am.Jur.2d Equity §§ 118, 124; 30 C.J.S. Equity § 103; 13 Atlantic Rptr. Digest, Equity § 62; 30 A.L.R.2d 925; 9 A.L. R.2d 295.

. It should be noted that all of these taken together are insufficient as a matter of law to satisfy the pleading requirements of F.R.C.P. 9(b) which mandates that allegations of fraud be supported by factual particulars.

. See, Borden, “Going Private — Old Tort, New Tort, or No Tort?”, 49 N.Y.U.L.R. 987 (Dec. 1974) (hereinafter “Borden”) at 1031, n. 194, for an illuminating evaluation of minority shareholders’ prerogative to overrule the majority’s will in connection with corporate mergers.

. Stauffer v. Standard Brands Inc., supra, at 187 A.2d 80.

. Ibid.

. When it is remembered that some three-quarters of the States have statutes similar to the Delaware short-form merger law, the magnitude of the majority’s holding may be readily appreciated. See n. 1, supra.

. The Third Circuit, specifically referring to the law governing fiduciary duty, said as much in the well-known diversity suit of Zahn v. Transamerica Corp., 162 F.2d 36, 42 (3d Cir. 1947):
“In our opinion . . the law of Kentucky imposes upon the directors of a corporation or upon those who are in charge of its affairs . . the same fiduciary relationship in respect to the corporation and to its stockholders as is imposed generally by the laws of Kentucky’s sister States or which was imposed by federal law prior to Erie R. Co. v. Tompkins." (citation omitted; emphasis supplied)
See, also, O’Neill v. Maytag, 339 F.2d 764, 767 (2d Cir. 1964), wherein we held that:
“Between principal and agent and among corporate officers, directors and shareholders, state law has created duties which exist independently of the sale of stock. While the essence of these duties in some circumstances is honest disclosure, the allegations in the instant case are typical of situations in which deception [under Rule 10b-5] may be immaterial to a breach of duties imposed under common law principles." (emphasis supplied)
That the federal courts’ rules, in fact, may not necessarily be “better” is exemplified by the federal test for fiduciary duty adopted by the majority here. See this dissent, infra at pp. 1307-1309.

. Voege v. American Sumatra Tobacco Corp., 241 F.Supp. 369 (D.Del.1965); Greene v. Schenley Industries, 281 A.2d 30, 35, 36 (Del.Ct.Ch.1971).

. For an excellent discussion of the phenomenon and its impetus, see Borden at 1006-1018.

. Borden, at 1013 (footnote omitted).

. Ibid, at 1031, n. 194.

. Public financial information makes available the fact that many stocks publicly traded sell at prices only a fraction of their book value, whereas others sell at prices far in excess thereof.