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Virginia Bankshares, Inc. v. Sandberg (89-1448), 501 U.S. 1083 (1991)
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NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Lumber Co., 200 U.S. 321, 337.

Syllabus

VIRGINIA BANKSHARES, INC., et al. v. SANDBERG, et al.

certiorari to the united states court of appeals for the fourth circuit

No. 89-1448. Argued October 9, 1990 — Decided June 27, 1991

As part of a proposed "freeze-out" merger, in which First American Bank of Virginia (Bank) would be merged into petitioner Virginia Bankshares, Inc. (VBI), a wholly owned subsidiary of petitioner First American Bankshares, Inc. (FABI), the Bank's executive committee and board approved a price of $42 a share for the minority stockholders, who would lose their interests in the Bank after the merger. Although Virginia law required only that the merger proposal be submitted to a vote at a shareholders' meeting, preceded by a circulation of an informational statement to the shareholders, petitioner Bank directors nevertheless solicited proxies for voting on the proposal. Their solicitation urged the proposal's adoption and stated that the plan had been approved because of its opportunity for the minority shareholders to receive a "high" value for their stock. Respondent Sandberg did not give her proxy and filed suit in District Court after the merger was approved, seeking damages from petitioners for, inter alia, soliciting proxies by means of materially false or misleading statements in violation of 14(a) of the Securities Exchange Act of 1934 and the Security and Exchange Commission's Rule 14(a)-9. Among other things, she alleged that the directors believed they had no alternative but to recommend the merger if they wished to remain on the board. At trial, she obtained a jury instruction, based on language in Mills v. Electric Auto-Lite Co., 396 U.S. 375, 385, that she could prevail without showing her own reliance on the alleged misstatements, so long as they were material and the proxy solicitation was an "essential link" in the merger process. She was awarded an amount equal to the difference between the offered price and her stock's true value. The remaining respondents prevailed in a separate action raising similar claims. The Court of Appeals affirmed, holding that certain statements in the proxy solicitation, including the one regarding the stock's value, were materially misleading, and that respondents could maintain the action even though their votes had not been needed to effectuate the merger.

Held:

1. Knowingly false statements of reasons, opinion, or belief, even though conclusory in form, may be actionable under 14(a) as misstatements of material fact within the meaning of Rule 14(a)-9. Pp. 4-13.

(a) Such statements are not per se inactionable under 14(a). A statement of belief by corporate directors about a recommended course of action, or an explanation of their reasons for recommending it, may be materially significant, since there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. See TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449. Pp. 5-6.

(b) Statements of reasons, opinions, or beliefs are statements "with respect to . . . material fact[s]" within the meaning of the Rule. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, does not support petitioners' position that such statements should be placed outside the Rule's scope on policy grounds. There, the right to bring suit under 10(b) of the Act was limited to actual stock buyers and sellers because of the risk of nuisance litigation, in which would-be sellers and buyers would manufacture claims of hypothetical action, unconstrained by independent evidence. In contrast, reasons for directors' recommendations or statements of belief are factual as statements that the directors do act for the reasons given or hold the belief stated and as statements about the subject matter of the reason or belief expressed. Thus, they are matters of corporate record subject to documentation, which can be supported or attacked by objective evidence outside a plaintiff's control. Conclusory terms in a commercial context are also reasonably understood to rest on a factual basis. Provable facts either furnish good reasons to make the conclusory judgment or count against it. And expressions of such judgments can be stated with knowledge of truth or falsity just like more definite statements and defended or attacked through the orthodox evidentiary process. Here, respondents presented facts about the Bank's assets and its actual and potential level of operation to prove that the directors' statement was misleading about the stock's value and a false expression of the directors' beliefs. However, a director's disbelief or undisclosed motivation, standing alone, is an insufficient basis to sustain a 14(a) action. Pp. 5-11.

(c) The fact that proxy material discloses an offending statement's factual basis limits liability for misstatements only if the inconsistency is so obvious that it neutralizes the misleading conclusion's capacity to influence the reasonable shareholder. The evidence here fell short of compelling the jury to find the misleading statement's facial materiality neutralized. Pp. 11-13.

2. Respondents cannot show causation of damages compensable under 14(a). Pp. 13-22.

(a) Allowing shareholders whose votes are not required by law or corporate bylaw to authorize a corporate action subject to a proxy solicitation to bring an implied private action pursuant to J. I. Case Co. v. Borak, 377 U.S. 426, would extend the scope of Borak actions beyond the ambit of Mills v. Electric Auto-Lite Co., supra, which held that a proxy solicitation is an "essential link" to a transaction when it links a directors' proposal with the votes legally required to authorize the action proposed. And it is a serious obstacle to the expansion of the Borak right that there is no manifestation, in either the Act or its legislative history, of congressional intent to recognize a cause of action as broad as that proposed by respondents. Any private right of action for violating a federal statute must ultimately rest on congressional intent to provide a private remedy, Touche Ross & Co. v. Redington, 442 U.S. 560, 575, and the breadth of the right once recognized should not, as a general matter, grow beyond the scope congressionally intended. Nonetheless, when faced with a claim for equality in rounding out the scope of an implied private action, this Court should look to policy reasons for deciding where the outer limits of the right should lie. See Blue Chip Stamps v. Manor Drug Stores, supra. Pp. 13-19.

(b) Respondents' theory is rejected that a link existed and was essential because VBI and FABI, in order to avoid the minority stockholders' ill will, would have been unwilling to proceed with the merger without the approval manifested by the proxies. As was the case in Blue Chip Stamps v. Manor Drug Stores, supra, threats of speculative claims and procedural intractability are inherent in a theory linked through the directors' desire for a cosmetic vote. Causation would turn on inferences about what the directors would have thought and done without the minority shareholder approval. The issues would be hazy, their litigation protracted, and their resolution unreliable. Pp. 19-21.

(c) Respondents cannot rely on the theory that the proxy statement was an essential link in this case because it was part of a means to avoid suit under a Virginia state law that bars a shareholder from seeking to avoid a transaction tainted by a director's conflict of interest, if, inter alia, the minority shareholders ratified the transaction after disclosure of the material facts of the transaction and the conflict. Because there is no indication in the law or facts of this case that the proxy solicitation resulted in any such loss, this Court need not resolve the question whether 14(a) provides a federal remedy when a false or misleading proxy statement results in a shareholder's loss of a state remedy. Pp. 21-23.

891 F. 2d 1112, reversed.

Souter, J., delivered the opinion of the Court, in Part I of which Rehnquist, C. J., and White, Marshall, Blackmun, O'Connor, Scalia, and Kennedy, JJ., joined, in Part II of which Rehnquist, C. J., and White, Marshall, Blackmun, O'Connor, and Kennedy, JJ., joined, and in Parts III and IV of which Rehnquist, C. J., and White, O'Connor, and Scalia, JJ., joined. Scalia, J., filed an opinion concurring in part and concurring in the judgment. Stevens, J., filed an opinion concurring in part and dissenting in part, in which Marshall, J., joined. Kennedy, J., filed an opinion concurring in part and dissenting in part, in which Marshall, Blackmun, and Stevens, JJ., joined.