*1 Tfil appeals a court of dication order to remedy Moreover, Marvyn decreed effect a below.8 GOULD, Executor the Estate possibility irreparable harm to Sun Rogasner, al., J. Donald et process permitted the administrative Appellants in No. 75-1338.
run its course is not in issue here.9 v. AMERICAN-HAWAIIAN STEAMSHIP legal Additional issues may arise on al., Cross-Appellants et COMPANY the remand administrative law in No. 75-1339. rights no judge, and to review will be lost 75-1338 Nos. and 75-1339. if must litigate first by Sun the issue of damages before administrative United States Court Appeals, Judicial agency.10 economy, the interest Third Circuit. rule, underlying finality will be better 3, Argued Oct. 1975. postponing served review until April Decided 1976. damages adjudicated. has been amount
II. Board seeks its dismissal as a case, in this
party-respondent contending is that of a judge,
that its role not that of adversary.11 we are juris Since without the petition,
diction entertain may we that motion
only deny without prejudice to right Board’s reassert the motion if a petition
valid review is later filed.
Accordingly, petition to review will without prejudice
be dismissed for want of and the
jurisdiction, motion of the Board prejudice. without
will be denied
States,
8. See Brown Shoe
v.
Co.
United
ages,
issue,
the Board’s decision on that
wheth-
U.S.
82 S.Ct.
8 L.Ed.2d
against Sun,
implicitly
er in favor of Sun or
will
(1962).
prior
incorporate
judgment
its
on Sun’s liabili-
ty.
point
final,
At that
will be
States,
9. See Isbrandtsen Co. v. United
petition
Sun
then
this Court to review
App.D.C.
211 F.2d
order, raising
liability
such a final
both the
(1954).
ceeded, against American-Hawaiian Steam- (herein Company ship American-Hawaiian), Carriers, Bulk (herein National Inc. Nation- Bulk), Industries, Litton (herein al Inc. Lit- ton) and Monroe Corporation International Plan (herein Monroe), Retirement Trust Industries, (herein McLean In- Inc. dustries) and R. J. Tobacco Com- (herein pany Reynolds), and Malcolm P. McLean, McLean, Clara L. Joseph T. Casey, Deane, Disque Hirs, D. Edward A. Hal A. Kroeger, Daniel Ludwig, K. James K. McLean, James T. Murff Beverly R. Wilson, Jr., all of the individual defendants being directors of McLean Industries. The were based upon actions the alleged viola- 10(b) of sections of the Secu- Exchange rities Act of 15 U.S.C.A. 78n(a) 78j(b) and and Rules 10b-5 and §§ promulgated by 14a-9 the Securities and thereunder, Exchange Commission respec- *5 Kohn, E. Harold Pa., Philadelphia, for tively, 17 C.F.R. 240.10b-5 and 240.14a- §§ appellants. 9, alleged as as well breaches of fiduciary duties, primarily in connection with the so- Cutler, Felice R. Cutler, Cutler & Los proxies by McLean licitation Industries Cal., for Angeles, Joseph T. Casey. approval shareholders’ its Foster, E. Beverly Hills, Cal., Charles Reynolds, merger into which was consum- Industries, Litton Inc. and Monroe Interna- May or shortly mated thereaft- Corporation tional Retirement Plan Trust. district court fully er. The discussed the of the case and the MARIS, legal questions facts Before VAN DUSEN and HUNTER, opinions filed, in a series of respec- involved Judges. Circuit 10, 1970, tively, on November F.Supp.
MARIS, Judge. Circuit 795; September 981; 331 F.Supp. This is a 475; consolidated class action for June F.R.D. December damages brought 853; in the United F.Supp. 17,1973, States Dis August 771; trict Court for the 28, 1974; District of Delaware. June F.Supp. and December two Originally, instituted, actions were one 163. We need merely Rogasner1 (Civil J. Donald summarize, therefore, Action No. opinion in this 3707) and the other by I. David Pincus facts relevant the determination of the (Civil 3722), Action No. both of them on presented appeal. issues behalf and all others simi situated. In larly Rogasner action, THE FACTS Mary McCord and McCord, S. Charles T. Jr. subsequently intervened as plaintiffs. corpo- McLean Industries was a Delaware On 27,1970, February engaged primarily the district which was in the court ordered ration Rogasner case be cargo shipping maintained as a business. It appears that July On class action. prior Reynolds, two to its into McLean 10,632,000 actions were consolidated the district Industries shares of common purposes. all outstanding actions were following of which stock brought, and the pro- consolidated action amounts were held the defendants: Gould, Rogasner subsequently executor, Marvyn plaintiff. died and his was substituted
American-Hawaiian Litton Hal A. Malcolm Edward James Disque D. Deane Beverly ft. James Clara Monroe National Bulk L. McLean K. T. Kroeger A. Hirs P. McLean Murff McLean Wilson, Jr. 3,609,473 6,763,646 1,000,000 539,920 113,203 965.000 150.000 250.000 40,550 85,000 4.000 6.000 63.5% 33.9% 0.4% 5.0% 1.4% 9.4% 0.8% 9.1% 1.1% 2.4% Reynolds 6/8ths them representatives amount January agreement would effecting such a either $50 tender 20-year a warrant common stock was reached for each he to all McLean 7% consolidation. in cash or a Reynolds with a opened Reynolds debenture common purchase whereby Reynolds $47.50. discussions with share $40 A tentative a share of Industries principal Ludwig, view held Bulk, American-Ha- National representing although Ludwig, directors of Casey Casey, himself, waiian, Kroeger Industries, held no McLean stock Monroe, assured Litton and representing vice-presi was a corporation.2 senior op- McLean that would Malcolm Litton and a member dent of of the Invest but merger, stated that would pose Ludwig of Monroe. was ment Committee only accept per share in cash for Bulk, owner of principal National February, Industries stock. In late McLean Industries, Inc., which in Berkshire owned withdrew its offer because of un- Reynolds of the stock American- turn owned 90% legislation pending tax then favorable Kroeger was chairman of the Hawaiian. Congress. of directors of American-Hawaiian. board were resumed in March be- Negotiations partner Lazard Freres & Deane representatives Malcolm McLean and tween Lazard), (herein McLean Industries’ fi Co. statutory merger Reynolds for Malcolm advisor. McLean nancial Reynolds and a ten- McLean Industries into chief officer of executive president agreement was reached under which tative James Industries. McLean and give exchange for each sister, brother re McLean were Clara stock, of McLean Industries common share of Malcolm McLean. spectively, Reynolds preferred share of a new one American-Hawaiian, Bulk, Lit- National *6 $2.25, with an annual dividend of stock acquired Monroe had McLean ton and their redemption and and liquidation price of $50 stock in connection with financ- Industries privilege into one and one-half a conversion arrangements into In- ing which McLean upon stock of common payment shares had in entered a subsidi- dustries with $22.00. Litton and in 1967 ary corporation with a jointly Litton and by 20,1969,
owned Bulk. directors National March the board of On arrangements These In- Lazard enabled McLean McLean Industries received from expand con- operations its valuing Reynolds dustries in order to the opinion an new compete share, the shipping preferred stock at industry per vertible $50 improved light price methods the that date of higher and costs. on market on based agreements, however, The terms the the common pro- per Reynolds share for $42.375 opin- that McLean considering Industries the Lazard vided could not After stock. under- merge company with another of the being fully without the informed and ion Bulk, of Litton and Kroeger, consent In National prior standing Monroe. that, American-Hawaiian, Malcolm McLean determined Litton and Monroe competitive, per to remain insisted order McLean Indus- receive $50 would must undertake a tries further their McLean Industries expansion in cash for share He believed that stock, Industries board program. consolidation the McLean voted Reynolds provide large unanimously approve merger. Di- Kroeger of additional working capital Ludwig, Casey amount rectors borrowing capacity Accordingly, voting. needed. A state- draft present Ludwig appear by stock It does had some owned Ameri- 2. benefi- Industries common an 1,203,363 interest shares of McLe- and National cial Bulk. can-Hawaiian soliciting which necessary approval Ludwig, Kroeger ment did not presented was ap- attend, May shareholders on 13th immediately prior to and meeting the board proved meeting. the shareholders’ The seven di- purpose voting for the present ap- voted rectors to reaffirm their merger was called for May proposed merger. proval of At the meeting followed, 1969. merger approved was the shareholders following vote: 25, 1969, Litton and March National On date, merger, Bulk required Litton, financing agreements. On the executed a consent which Industries Monroe, to obtain written National their consent to the under the 1964 agreements McLean Industries Bulk, Ameri- giving same Voting Voting against Not voting merger in favor of merger Common Preferred Preferred 2,114,531 3 8,332,239 185,230 First 90,877 52,336 3,712 Cumulative 3,130 1,341 and Kroeger signed agree- can-Hawaiian obligated Reyn- ments with by Litton, Monroe, The held stock National purchase their McLean olds to Industries Bulk, American-Hawaiian Kroeger per share, stock $50 common in favor of the merger. voted Thereafter stock in favor of merger.
voted their merger was consummated. The share- statement, pages in length, The holders who appraisal demanded of their April was issued and mailed to accepted per shares later share for their McLean Industries shareholders on holdings. May 15, 1969, On following com- 15th, accompanied April by a two-page cov- of trading mencement on the New York ering letter Malcolm McLean. The Exchange, price market Stock and letter proposal described the Reynolds preferred new stock was $41.75 merger, stating that for the the Litton and per share. Bulk interests National were to receive $50 Rogasner suit was filed on May in cash and that share those per interests as sought It injunction against family as the McLean well interests —all merger, damages. Later, after together representing 64% of the McLean approved, had been complaint common Industries stock outstanding Rogasner suit was request amended to (slightly less than the necessary two-thirds) merger be set aside. Still later to vote for agreed merger. —had in the consolidated action with- included prices market of Reyn- prayer to set aside drew and McLean Industries olds stock from to damages sought. and limited the relief first through quarter of 1969 and other information. relevant Attached to the *7 seen, While, complaint the as we was the Agreement Plan and of 10(b) of alleged 14(a) violations sections and Merger. Exchange of the Act of Securities price Reynolds The market of common Act), (herein the 78j(b) U.S.C.A. and §§ $40,125 declined to by stock had April 78n(a), and Rules 10b-5 and 14a-9 of the 12th May On Lazard issued an updat- 1969. promulgated Regulations by the Securities to McLean opinion ed valuing, Industries as Exchange Act, and Commission under the date, the new preferred of that Regulations), (herein the 17 C.F.R. 240.- §§ per share, but stating stock at also 240.14a-9, 10b-5 and as well as of breaches continued to consider duties, Lazard the fiduciary terms of the judgment now before merger fair. updated This the Lazard appeal re- adjudication us on involves an of the by was reviewed the board of port directors claim for plaintiffs’ damages under section Industries special of McLean at a meeting, 14(a) Act4 of the and Rule 14a-9 of the 223,136 3. The holders of (a) shares of any person, by common It shall be unlawful for appraisal demanded stock of their shares. by any mails or use of the means or the instrumentality of interstate commerce or of 14(a) 4. Section of the Act is as follows: McLean, Casey, Ludwig Kroeger for district court which the only,5 Regulations approving the as directors a false knowingly broadest of claims. the as regarded statement, having not all of whom thus plaintiffs that the proxy court held The 14(a) Act Rule their claims based section of the sufficiently established violated Regulations liable fiduciary 14a-9(a) under federal the were held duties of breach damages that Casey by plaintiffs had claimed suffered the plaintiffs The for the law. of the fiduciary for violations. duty obtain The court as result had a federal summary payments judgment against cash the six the same plaintiffs denied the who, defendants had directors as some “non-involved” the court out, however, pointed found, not court were shown to have been aware The received. obligations falsity of fiduciary the statement. The court federal while Act, judgment against these were only summary also denied created Reynolds, Act and other than corporate that the defendants regulated area treatment was not there remained unresolved holding in that equal claim at F.Supp. agency authority upon do questions area. responsibility here. The ruling court which their under section question not 14(a) necessarily predicated. of the Act Act was imposed 14(a) that section agreed duty (1971). fiduciary not to F.Supp. a federal materially misleading or false approve a Ludwig Casey, Kroeger Defendants held, correctly The court proxy statement. reopen summary vacate and moved however, merely since this claim was liability as to judgment of them. In an plaintiffs’ contention that duplicative December filed opinion directly 14(a) by violated section Casey had district negli- court stated that statement, such defective approving appropriate culpa- standard of gence considered. We ac separately need liability establish an bility to individual’s our cordingly restrict consideration for a damages violation of section for under damages claim plaintiffs’ Act, 14a-9(a) Regu- Rule 14a-9(a) 14(a) of Act and Rule decided, lations, standard, the court Regulations upon based the defective to the four sum- applicable defendants was circulated them. materials liable as well as to the remain- found marily liability first had not then plaintiffs’ summary motion for whose ing defendants denied. Following April the later Thereafter on been determined. approved of certain of the a settle- submission defendants’ district court interrogatories, the answers to district ment of all claims Litton, granted plaintiffs’ renewed mo- except all the defendants against summary judgment against Reyn- Casey. paid tion The amount Monroe and olds, Industries, $4,000,000. as By agreement successor settlement being of a materially the issuer defective trial parties proceeded case statement, against jury Malcolm court without a as to the defend- ía) subject regula- any facility to this No solicitation exchange of a national securities otherwise, any proxy be made means of or in contravention of such rules shall statement, proxy, meeting notice regulations form of pre- as the Commission communication, oral, written or con- necessary appropriate scribe or other which, taining the time public protection or for interest of inves- *8 light under which of the circumstances tors, permit or to the use to solicit of his made, misleading respect false with is or it any proxy is name or consent to solicit or au- fact, any or which omits to state material to respect any security (other in of thorization necessary in any fact order to make material exempted security) registered pursu- than an not false or mislead- therein statements 78/ of this title.” ant to section U.S.C.A. any necessary correct in ing to statement or 78n(a). § respect with to any communication earlier 14a-9(a) Regulations of the Rule as fol- 5. proxy of for the same meet- solicitation lows: subject ing matter which has false become or misleading misleading.” 240.14a-9(a). statements. 17 C.F.R. § “False or ants, Litton, Monroe Casey, who are certain McLean Industries shareholders re- cross-appellants here. Litton and Mon- cash while ceived others received were held liable violations of section in the merger. roe securities Litton and Mon- 14(a) Act 14a-9(a) of the and Rule of the roe also contend that the court erred through Casey, the acts of Regulations, who applying principles holding agency in agent to be their held matters rele- was them liable for the dissemination of the merger. Casey to had already vant Defendant Casey urges ap- statement. individually liable held by summary been the court erred in peal finding him as we have judgment, seen. The court con- liable on motion for summary judgment cluded applying negligence as the standard liability 14(a) for the under section (1) proxy statement accu- failed 14a-9(a) Rule Act and of the Regulations rately apprise to the McLean Industries nonmanagement director. three All de- pertaining of material facts urge fendants that the court erred in find- disparate treatment afforded various plaintiffs ing that had sustained actual under the the shareholders terms and, event, damages, in the method merger; by which determined the amount of those full and accurate (2) that disclosure damages and the shareholders to which plaintiffs have resulted in the shar plaintiffs were awarded. The on their premium so-called received ing assert appeal that the district court erred in defendants”6 and “favored refusal find that the proxy its (3) the defendants should bear the additional contained material misrepresen- uncertainty as to or not whether risk tations, in its determination of the amount great- would have obtained a plaintiffs damages sustained plaintiffs for their consideration McLean Indus- er in its refusal award prejudgment inter- had had the benefit of a stock tries est. accurate statement. fully THE DEFICIENCIES IN THE equi “under considerations of The court PROXY MATERIALS accordingly held three ty” defendants damages and assessed the dam liable adjudication Basic of the defend- $2,431,083.53.7 ages A final judgment liability ants’ in this case was the determi- for this amount in entered favor of the was nation the district court that the proxy against class and plaintiffs’ three de statement submitted to the McLean Indus- Litton, Monroe Casey. fendants It was prior tries shareholders the vote on the final appeals that the from materially deficient in violation us were now before taken. 14a-9(a) of the Act and Rule Regulations. The court on motion THE OF THE CONTENTIONS PARTIES summary judgment found that appeal, On the defendants’ Casey, falsely Litton, Litton stated that Mon- urge Monroe Bulk, the district court roe, American-Hawaiian National determining that the erred state- agreed merger, to vote for the Kroeger ment contained misstatements and omis- statement failed to disclose that material to explain why sions power National Bulk had a veto Litton and employed figure 7. 6. district this term This without based on the distribution to intent, we, derogatory as do proportionate refer five share of the Litton, Monroe, defendants, Bulk, per premium National $8.25 share which the court Kroeger, American-Hawaiian who were of- defendants Litton and Monroe had found re- holdings computing amount, for their fered a consideration In ceived. the court from offered the paid different other sharehold- who the shareholders had been included However, appraisal ers. five gave these defendants were un- of their $45 on shares by having doubtedly $4,000,000 favored a choice of consid- for the no received credit prior agreements least to their eration at in settlement from the other defend- Reynolds of March *9 ants. 770 important voting able as to his shareholder and that
over
clear, however,
conflicting
Judge
inter
seems
as
disclosed the
It
inadequately
decision.
Ludwig
Kroe
Casey,
convincingly pointed
out in
Friendly
directors
Gerstle
ests of
Inc.,
1281,
Gamble-Skogmo,
dual role of Malcolm McLean
478 F.2d
ger and
v.
fa
Reynolds for both the
(2d Cir.1973),
negotiating
that this statement
1301-1302
and the other sharehold
to establish a definition
vored
not intended
each
a
held that in
instance
materiality,
being
ers. The
that not
the issue before
disclosure to the share
Moreover,
accurate
full and
the court cited with
court.
was material
their determination
holders
approval
two
opinions of
apparent
not,
merger.
on the
votes
While
as
Circuit,
Appeals for the
Second
Court
respect,8 contesting
one
the un
except in
Inc.,
462,
Park,
457,
340 F.2d
v. Fashion
List
upon
holding
facts
derlying
denied,
811,
23,
382 U.S.
86
15
cert.
S.Ct.
court,
based,
by
found
as
defendant-
(1965),
Corp.
and General
L.Ed.2d
Time
strongly urge that
the court’s
appellants
Industries,
Talley
159,
403 F.2d
v.
materiality
was erroneous
determination
denied, 393
(1968), cert.
U.S.
S.Ct.
event,
that, in
it was
error to make
(1969),
a
L.Ed.2d 570
which set
by summary judg
determination
a
such
narrower standard for determin
somewhat
trial.
ment before
case,
materiality.
Judge
In the Gerstle
ing
1302):
(p.
Friendly said
Co.,
v.
In Mills
Electric Auto-Lite
that,
in a
“We think
context such
S.Ct.
this,
(1970),
‘might
have been’ standard men-
Supreme
Court
L.Ed.2d
Mr. Justice Harlan sets
tioned
some-
said:
threshold;
low a
fact
very
what too
the misstatement or omission
“Where
negligence
liability
suffices to invoke
statement has been
shown
a
for
realistic standard of
‘material,’
argues
materi-
here,
itas was found to be
be
next
ality.
Justice Harlan’s
sentence
indubitably
itself
em-
that determination
Mills,
the defect must ‘have a signifi-
a conclusion that the defect was of
bodies
to affect the
propensity
voting proc-
might
that it
cant
character
have been
such a
ess,'
U.S. at
at
S.Ct.
important by a reasonable
[24
considered
(emphasis
in original),
process
was in the
L.Ed.2d
who
602]
shareholder
right
closer to the
flavor.
comes
While
requirement
how to vote. This
deciding
‘might’ and
between
difference
significant propen-
defect
that the
is
may
gossamer,
seem
the former
‘would’
found
voting process
affect the
is
sity to
how-
possibility,
of mere
suggestive
14a-9,
too
terms of Rule
and it
express
in the
is taken
unlikely. When account
ever
purpose
serves
of ensur-
adequately
imposed,
be
heavy damages
action cannot be es-
ing that
cause
tending
probability
toward
trivial,
a standard
proof
a defect so
tablished
is
possibility
toward mere
than
rather
for
or
unrelated
transaction
so
appropriate.”
more
approval
sought, that
correction
imposition
liability
defect or
Ap
taken
the Court of
view thus
not further
interests protected
ap
Second Circuit has been
peals
14(a).”
by §
Circuit,
followed
the Fifth
proved
Co.,
Brewing
face the first sentence of this state-
v. Pearl
489 F.2d
On its
Smallwood
603-604,
appear
lay
ment would
down
a broad
(1974)
mixed
of law and fact and the
alleged
agreement
The
to vote
(a)
subsidiary fact issues cannot ordinarily be
by summary judgment.
decided
But if the
alleged by
first fact
falsified, misrepresented
facts
or withheld
been false was the statement which
have
obviously important
are so
to the sharehold
both
statement and
appeared
er’s decision that reasonable minds cannot
covering letter
the five favored
question
on the
differ
of materiality and
agreed
to vote for the
underlying
facts and the inferences to
held,
The district court
consid-
merger.
be drawn from those facts are free from
to interrogatories
of the answers
eration
controversy,
question
becomes one of
depositions before it on the second mo-
law which
appropriately be
decided
judgment,
summary
that this state-
Johns Hopkins Uni
summary judgment.
or,
if
false
even
assumed to be
ment was
versity Hutton,
422 F.2d
(4th
accurate,
technically
misleading.
ap-
It
cert.
Cir.1970),
94 S.Ct.
agreements Reynolds
pears
1622, 40 L.Ed.2d
(1974).
Here the dis
purchase
itself to
the McLean Indus-
bound
trict court decided four of the six issues of
stock of the five favored shareholders
tries
materiality by summary judgment uphold
per
share
cash
the latter voted
ing materiality in all four instances. One
merger.
stock in favor of
remaining
issues was decided after
agreements
obli-
expressly
written
did
trial not to be a material defect and the
However, Casey,
them so to vote.
who
gate
appears
other
not to have been pressed at
Monroe,
for Litton
negotiating
trial
was not
decided
the court. We
McLean,
through
by dep-
Malcolm
testified
turn then to consider the action of the court
McLean and
could
osition
on these issues in the light of the applicable
assumed
would do so.
we
rules as
have stated them.
theAt
outset it should be noted that
satisfied that
the district
We are
which was
fact
doubtless of the greatest
err in holding
summary
did not
interest
shareholders in considering
that the statements that the five
U.S. 820,
granted,
if a reasonable shareholder
consider the
important
misstatement
omission
rev’d,
to his vot-
(1975),
(1976).- U.S.-,
L.Ed.2d
ing
Northway
decision see
Inc. v. TSC Indus-
48 L.Ed.2d
96 S.Ct.
tries,
(7th Cir.1975),
329-332
*11
that the favored share-
could have believed
agreed
had
to vote for the
shareholders
they
it even if
not vote for
or,
least,
would
the
holders
false
mislead-
merger were
to do so.
by agreement
not bound
were
defendant-appellees urge that the
ing. The
Therefore,
argument,
runs the
court
the
legal obligation
a
imply
did not
statements
deciding
summary
erred
understanding
an
in a
merely
vote but
to
mate-
proxy
false statement
the
that
to
sense that
intended
colloquial
they
broad
had
the favored shareholders
that
rials
agree that
the record
cannot
so. We
do
a mate-
merger,
vote for the
was
to
agreed
finding.
such a
For in the
support
would
in violation of section
misstatement
rial
in the
it is
context
statements
light of their
14a-9(a)
Act and Rule
14(a) of
“have
were
agreed”
the words
that
clear
Regulations.
meaning
have their normal
to
intended
legally binding obliga-
having assumed
unpersuasive.
contention
findWe
they
were
And even
intended
tion.
evidence of need for addi-
there was
While
import only nonbinding
to
the draftsmen
expansion of the business
capital for
tional
intention,
understanding or
the statements
finding
made no such
ei-
court
district
thereby have been rendered so am-
would
trial.
summary judgment or after
ther
misleading
moreover,
be almost as
as to
that the
biguous
significant,
most
is
It
totally
as if
had been
did not
covering
letter
shareholders
remains
in this re-
question
The
as whether
Industries’ need
false.
stress
way.
were
The shareholders
properly
held on sum-
forceful
gard
the statements
merger
was critical
to be material.
not told
mary judgment
were
success of the business
future
court concluded that
The district
And,
of their investment.
preservation
respect
with
to the five favored
statements
misses the whole
argument
finally,
having agreed to vote for the
shareholders
not
do
case.
of this
thrust
agree.
material and we
To
merger were
in the
the deficiencies
contend
body
group
of shareholders that a
tell the
respect
influenced them
materials
had agreed
five shareholders
to vote for
voting
against
merger,
but
their
whose votes when
merger
added
that,
though they might
even
rather
interests who were
those of the McLean
merger, they
misled as to
were
favored the
merger would constitute
promoting
voting
of their
effectiveness
potential
required
major-
two-thirds
very close to the
purposes
thereby
bargaining
power for
opposition
indicate that
was
ity, was to
opportunity
to use the
deprived of
certainly doomed to defeat and such
almost
voting
negative
their
as
possibility
surely discourage
would
careful
a statement
seeking
lever in
a modifica-
negotiating
plan
of the merits of the
consideration
merger agreement
would
voting
even
on it at all. More-
merger and
to themselves.
In this
favorable
more
over,
it could be considered as one of
since
the five
the false
regard
why the five shareholders were
reasons
agreed
had
to vote for
favored
special treatment it
tend
being given
highly
was
material since if
a shareholder
his consideration
to mislead
very nearly
two-thirds
it indicated
true
special
for such
treatment and
need
merg-
were committed to the
the shares
its fairness.
plaintiffs could fair-
this fact the
From
er.
suggested
that the evidence before
practically
po-
It
no
ly assume
urgency
that the
indicated
merger by
the district
to block the
power
tential
need of McLean Industries for addi-
regard
In this context we do not
votes.
borrowing
capital
capacity
Einbender,
in or-
tional
important could not question ble minds differ on the not think reasonable minds could differ materiality. was, therefore, It we of its materiality. The district court to their could be issue which determined summa- accordingly holding by did not err in so ry judgment, summary judgment. (c) The conflict interest of Casey, (b) The omission of reference to the Ludwig Kroeger *12 power veto assert and the district to We turn the next relied matter on on summary found that plaintiffs, from the omission statement failed proxy to adequately dis of any materials reference proxy to the conflicting interests close of three power which was held Litton and veto Industries directors, the McLean Casey, Bulk over merger plans of National McLean Ludwig Kroeger. and The facts which seen, As we agreements have Industries. places were disclosed various in McLean Industries had to subscribed and proxy covering letter are provided 1964 and 1967 that McLean in Bulk, American-Hawaiian, that National could not enter any merger Industries into Litton, and Kroeger receiving Monroe consolidation with corporation another per in cash share for their McLean $50 prior written without consent of Litton stock, Industries while the other common Bulk. National On March were receiving Reynolds pre shareholders to the issuance of prior proxy state stock, Kroeger that ferred was a director ment, such written were given, consents American-Hawaiian and himself a share clearing way However, the merger. holder who receive cash rather than fact that Litton and National Bulk had stock, Ludwig president that prin power veto over the merger prior to Bulk, of National Ca cipal shareholder that 25, 1969 was March not disclosed in the vice-president sey was a senior of Litton this, materials and proxy the court found on three were directors of McLean and all summary judgment, was a material omis Industries, and that the McLean Industries which violated sion of the Act directors unanimously approved board 14a-9(a) Rule Regulations. In merger recommended that holding by summary judgment, so we think approve quite also it. It shareholders district court erred. proxy When the had that if reasonable shareholder clear was issued the material veto power of Lit to in mind he these facts would have all particular ton National Bulk over this Kroeger, Ludwig that conclude longer existed, no having giv been Industries, in had, of McLean as directors up by the consents en executed on March conflicted with those of terests was, therefore, 1969. It then of histori corporation of that other than shareholders only. Nonetheless, interest cal the fact Monroe, Bulk, Litton, National American- it had given been up by these two Kroeger. This fact of con Hawaiian and might have been considered as their flicting part interests on was obvious
an additional reason in support of the fair to the interest other share ly of material special ness treatment accorded them considering their on the votes in their affiliates holders merger. in the It expressly was nowhere merger and it stated be well reasonable shareholder regarded statement or letter. The court knowledge have of it as in material summary judgment his consideration the facts to held fairness of the But, merger. if anything, conflicting it would rise interests were merely giving provided an additional in documents as have reason to con so buried not to consti adequate the treatment of the favored share disclosure to the sider tute an share fair and as such say we cannot that failure adequately holders to dis- holders appear the negotiations to have consisted a material constituted conflicts close transmitting Reynolds than statements.10 more little defect nonnegotiable paid demand their defendant-appellants argue, on the stock, in cash for their to which per share hand, the facts which were stat other Reynolds Negotiations acceded. demand parts in various documents did ed sense appear the normal word adequate disclosure constitute on by carried been Malcolm McLean conflicting interests directors of the three shareholders, behalf of the only other question. While we find ourselves one, he was Reynolds whom whom Judge accord Mansfield’s general with give agreed exchange securities in Crandall, v. Richland stock, an exchange in which he him- (S.D.N.Y.1967),that “cor along participated with others. We self required address their porations are compelled to conclude the fact that are were children in stockholders actually negotiated Malcolm bear in mind Judge we also kindergarten”, conflicting interests in the for- admonition Gerstle Gamble Friendly’s is not agreement mulation so F.2d Skogmo, *13 been appropriate as to have for deter- clear who, Judge quoting after Mansfield’s 1973), summary judgment mination and that statement, that “it not said sufficient in making the court erred such a district picked have been up overtones that determination. sensitive antennae of by the investment present many In the case analysts”. the Reynolds (e) The value of the the upon which defendant-ap statements stock preferred rely through are scattered pellants argue the state- proxy that The lengthy buried in proxy rather the state were letter defective in that ment and There is nowhere a giving ment. statement cause a to that shareholder believe emphasis conflicts interest similar preferred stock Reynolds convertible the given to the board’s approval to that per to receive was worth was $50 which he agreement.11 that merger We conclude equivalent was thus the exact share court did not in holding district err on sum share- which the favored cash judgment mary proxy that materials were to receive for their shares. holders materially respect. were deficient in this proxy the statement emphasize They (d) position Malcolm McLean’s negotiating and letter that had ad- Lazard statement that, corporation opinion, in their vised The district court also held on sum the merger were fair and the terms mary judgment the proxy materials shareholders, class of equitable each materially were deficient in failing to dis failed urge proxy that the statement close that Malcolm McLean negotiated the upon data which the Lazard disclose agreement merger for both the favored de was based. conclusion remaining and the fendants shareholders. undisputed The facts indicated that Mal in the opinion referred to Lazard The was McLean the sole negotiator colm was 1969. issued March Reynolds. speak He did indeed very for both stating general terms After shareholders favored and those consideration, who including were to into taken factors Reynolds securities only. receive In Reynolds common value the market shareholders, the favored however, date, case expressed opinion on that stock Industries, Co., v. Electric Auto-Lite American Consumer 10. See Mills v. 403 Swanson F.2d Cir.1969); (7th Mills 1968), F.2d 1330 (7th vacated on other Cir. Co., (7th remanded, Auto-Lite v. Electric grounds 90 S.Ct. grounds on other and re- 1968); vacated (1970); Beatty Bright, v. 24 L.Ed.2d manded, 90 S.Ct. L.Ed.2d (S.D.Iowa 1970). F.Supp. 174-175 Beatty Bright, (1970); 1970). (S.D.Iowa proposed the terms favored shareholders would not be tax- transactions, to the McLean Industries equitable free whereas it anticipa- fair was exchange and that was in merg- ted stock in the shareholders of McLean tax-free for other McLean In- best interest Industries. er would Reynolds stock shareholders. It was conceded market value dustries declined, pension Monroe as a fund would not be on May Lazard having subject to tax. The district court conclud- election, sup- issued a before the date however, ed, that it summary could not on which, course, was not opinion, plemental material, hold this previously issued mentioned though technically even a misstatement as statement, opin- to the effect in their Monroe since Monroe held a comparative- exchange ion, Industries number of shares and a reasonable ly small Reyn- of their shares for the might well have shareholder known that a stock would still be fair and preferred olds fund not pension taxable. For this the shareholders. The district equitable and because reason information as to the not, we, regard nor do as a did mate- situation of the other tax shareholders was failure of the proxy state- omission rial it, court, before the district not we think the fact to disclose the market ment adjudicate rightly, declined this issue on common stock was value judgment and it summary apparently was in reaching Lazard its conclu- considered at trial. pressed market value was only one of sion. factors considered and it many was a fact LIABILITY OF DEFENDANTS every plaintiff had ready access in The determination reports. Moreover, district court market that it summary judgment, which we up- controlling factor in the Lazard evalu- not a *14 held, proxy that the statement covering from the apparent conclusion ation were materially deficient in two re- letter supplemental in the opinion. reached spects, support is sufficient to its conclusion Contrary to the contention of the documents were those or mis- “false the proxy statement plaintiffs, made no leading respect any with material fact” any probable estimated or val reference meaning of Rule 14a-9(a) within the securities. Pointing ue for and, therefore, Regulations in violation of predictions generally that valuation are out Act, 14(a) of the regardless of frequently and are permitted not con alleged deficiencies in the whether examples themselves to be of mis sidered respects statement three other proxy leading statements12 the district court held held to be subject we have to fact- an inclusion of admonition that shares also material finding were deficiencies yet as unissued not be worth of stock However, violated the statute. since necessary not be and could not must, event, in any the case remanded material to a been reasonable share proceedings in the district further court for F.Supp. (1973). holder. 362 With opinion, stated later in this reasons for we agree. this conclusion advised, if so will be free to plaintiffs, adjudication alleged final de- pursue to aspect (f) The tax-free which we have held were not ripe fects postponed The issue which the court summary judgment. On the issue of liabili- remains, the trial on the merits was whether it however, until question as to ty, materially false for the materials holding the district court erred in whether state, did, purchase as Casey, Litton and Monroe re- defendants Industries shares by Reynolds from damages 14(a) in under section sponsible Climax, Inc., Kohn v. American Metal (S.D.N.Y.1973); F.Supp. Union Pacific 12. See Cir.); Chicago Ry., North & Western R.R. v. (1972); (N.D.Ill.1964); 93 S.Ct. L.Ed.2d 126 17 C.F.R. 408-409 Company Litigation, 240.14a-9, In re Brown Securities (a). note § liability materially proxy determining deficient under section use of soliciting proxies letter in statement Act. shareholders. McLean Industries
from
urges
Casey
that the district
Defendant
we now turn. We consider
quéstion
To this
liability
his
determining
erred
court
Casey.
liability
defendant
first
doing
judgment,
event
summary
summary judg-
second motion
on the
so
(a) Casey
on the
having
to do so
after
declined
ment
seen, was one of
as we have
Casey,
motion, and in not
the ba-
explicating
first
He
Industries.
of McLean
directors
liability until
the determination of
sis for
vice-president of Litton and a
was a senior
after
year
than
that determination
more
the Investment Committee of
member
He
made.
further
that the
urges
been
had
he sat
Indus
on the McLean
Monroe
in applying
negli-
erred
the law of
court
representing their interests as
board
tries
liability rath-
to the determination of
gence
mean,
This
not
does
shareholders.
narrower
than the
scienter.
standard of
er
he was
course,
responsible
as a
latter,
argues,
he
should have been
to act
the interests of all the
director
least in the case of an outside
applied,
On the
he was re
contrary,
shareholders.
nonmanagement
director such
himself.
his
fellow directors for
sponsible
partici
of the board in which he
actions
no
see
error in the court’s ac
We
as for
acts
failures
as well
his own
pated
determining
liability on sum
Casey’s
At the
meeting
act.13
board
at which he
since
mary judgment
upon
all the facts
approve merger Casey
voted to
saw and
appeared
was based
from the docu
which it
a draft
approved
ments,
to interrogatories
depo
answers
issued. He knew that
subsequently
undisput
the court
before
and were
sitions
therein that Litton and Monroe
circumstances,
liability
Under
ed.
vote
for the
agreed
became,
those
Casey under
facts
as the
he
in a
specifically
In fact
testified
false.
said, a matter of
law. Nor was
13, 1970 that nei
January
filed
deposition
having
court’s
determined
prejudiced
he,
nor
Litton
Monroe had ever made
ther
on the
liability
second motion for sum
his
course,
agreement.
he knew
Of
such
after
mary judgment
having declined
of interest. He denied that
his own conflict
it on the
first. For between
determine
*15
in
proxy
statement
its final
he saw
inter
and second motions answers to
first
letter,
covering
or Malcolm McLean’s
form
had come in which resolved to
rogatories
appear
any
not
that he made
it does
but
disputed
satisfaction
issues
court’s
that
to see
deficiencies
effort
prevented
had
the earlier determina
which
or,
least,
he did see
at
which he
which
draft
tion.
were corrected. The court held
approved,
expli
did
court err in not
Nor
any event he would have known
in
that
for holding Casey
its reasons
to be
cating
in
final form
proxy
its
that
time
some
after it had made
until
it,
had
liable
if he
read which it was his
was false
The
fol
explication
court’s
that decision.
as member of the board of
duty to do
directly
objections
and
resulted from
was issuing
which
the document to lowed
directors
other
Casey and
raised in
defendants
proxies.
the shareholders’
The court which
solicit
decision,
modify
the earlier
that under these circumstances
a motion
concluded
arriving
at that decision the
namely,
liable for the
false
that
Casey
materially
misleading
statement,
an
proxy
applied
as also
incorrect standard.
and
court
and
Kroeger
Ludwig.
opinion
The court’s
held
its
that the
later
The
provided
upon
application
negligence
was based
its
of
conclusion
of
standard
law
negligence
determining liability
14(a).
law of
as the standard for
under section
Industries,
Piper
Inc.,
910,
231,
Chris-Craft
Inc. v.
Aircraft
94
414 U.S.
S.Ct.
777
Act of
as
that
this standard
Securities
amended
suggest
does
Casey
77k,
the court
its first
15
of
U.S.C.A.
which deals
applied
§
Act
was not
holding
liable and we think it
him
liability for
registration
with civil
false
decision
apply
then
it.
In its
the court did
Each
(section 14(a)
that
section
clear
statements.
Casey, Kroeger
that
is said
decision
implemented
14a-9(a)
Rule
and section
earlier
issued a
Ludwig had
11) proscribes
type
of
or lack of
disclosure
misrepresented
concerning
facts
it,
e.,
which
or
or
misleading
i.
false
statements
knowledge and
they had firsthand
facts,
which
of material
each enu-
omissions
liable.
In the later
made them
specific classes of
who
merates
individuals
fully
applicable
which
discussed
opinion
liability for failure
the re-
to meet
bear
stated
liability
it was
Moreover,
standard
standard
quired
disclosure.
scienter,
rather than
the court
negligence
single specific
involves
documents
each
basis
the same factual
for Ca-
reiterated
primary
importance
are
in two
which
at
liability,
least as to
two materi-
sey’s
regulation,
areas of securities
fundamental
have held the court
which we
defects
al
of securities
the exercise of the
sales
exist. We are unable to
found to
rightly
voting power.
section
Since
shareholders’
genuine
suffered
discover
clearly
Act
11 of the Securities
establishes
disadvantage
procedure
from
followed.
negligence
determining
as the test for
lia-
parallel
bility, the
between the two sections
Casey strongly argues
Defendant
strongly support adoption
negli-
proper
liability
standard
to be
14(a).
the standard
section
gence as
under
nonmanagement
an
di
outside
applied
was,
lack
rector,
as he
is a
of good
such
All of
courts
have discussed the
or,
least,
negli
scienter rather than
faith
so far as the
question,
reported decisions
seen,
we
As
district court
gence.
indicate, have favored applying the rule of
negligence
appropriate
to be
stan
held
determining
negligence as the criterion for
14(a)
agree.
and we
under section
dard
liability
14(a).
under section
Gerstle v.
urged in the district court that
defendant
Gamble-Skogmo,
1300-
F.2d
Act,
10(b)
U.S.C.A.
section
1973);
Thomson,
(2d Cir.
Berman v.
provides
analogy
un
78j(b),
§
F.Supp.
(N.D.Ill.1975);
Norte
the courts have
section
held that
der
Huffines,
1109-
F.Supp.
Co. v.
&
shown. That
must be
section and
scienter
(S.D.N.Y.1968),
part,
aff’d
pertinent
Regulations,
17 C.F.R.
Rule 10b-5
1969),
F.2d 1189
240.10b-5,
implements it
make un
§
Co.,
&
v. Norte
Muscat
manipulative
deceptive
devices
lawful
(1970);
779
with
determining
the consent of his
secondary
superior
liabili
applicable
Litton.
facts, among others,
violation
in securities
cases. Rochez
ty
These
bear out the
Brothers,
(Rochez II),
v.
Casey repre-
Inc.
Rhoades
527
court’s conclusion that
district
(1975).17 The court
the interests of
886
observed
Litton and Monroe
F.2d
sented
McLean
enacting
20(a)
section
in
Industries board and would
Congress
on the
finding
secondary
support
that Litton
Monroe
liability
to limit
to those
tended
power
Casey
to control
suffi-
participating
possessed
in the
culpably
persons
ciently
stamp
creating
“controlling per-
them as
liability. The lia
wrongdoing
under the
and Monroe
sons”
Act.
bility of Litton
for the acts of
accordingly
upheld
cannot be
Casey
on the
negligence
Casey’s
imputed
cannot be
theory
utilized
the district
agency
court.
and Monroe
reason solely
Litton
of their
him,
relationship to
however.
Rochez
See
alternatively
The
contend
plaintiffs
II,
p.
Moreover,
885.
supra,
though
even
Monroe are liable
Casey’s
Litton and
persons
were
controlling Casey, within
14(a) violation as “controlling per
section
meaning of
20(a),
section
Litton and
20(a)
under section
sons”
Act or as
Monroe can still
liability
defeat
if they can
and abettors. Congress
his aiders
has not
the statutory
establish
defense that
as it is
“control”
used in
defined
section
good
faith and did not culpably
acted
20(a). The
and Exchange
Securities
Com
in the
14(a)
violation of
participate
section
has defined it broadly
pos
mission
as “the
directly
indirectly
or
inducing Casey’s
session, directly
indirectly,
power
respect
of the statute with
violations
direct or cause the direction of
the man
”
and letter.
In the
proxy statement
view
agement
policies
person
of a
.
.
.
court took of the
the district
case this de-
240.12b-2(f). The
17 C.F.R.
courts have
§
not available to
fense was
them.
as to
gone so far
define “control” as “influ
of actual
ence short
direction.” Myzel v.
urge
The
also
that Litton
Fields,
(8th
386 F.2d
1967),
Cir.
were
Monroe
aiders and
abettors in
denied,
88 S.Ct.
19 Casey’s
are,
wrongdoing
therefore,
lia
(1968); quoted
approval
L.Ed.2d
with
14(a).
with him under section
ble
To sus
MacArthur,
Richardson
charge
would have
tain
(10th
1971).
41 — 42
Cir.
proving
the doing
the burden
of a
act, the
wrongful
alleged aiders’ and abet
Monroe, it
concluded,
must
Litton
knowledge of it and their knowing
tors’
“controlling persons”
Casey
as to
un-
participation
wrongdoing.
substantial
construction
given
der the liberal
which is
Brothers,
(Rochez
Rochez
Inc. v. Rhoades
controlling persons requirement
(3d
1975);
F.2d
II), 527
Cir.
Re
20(a) by the courts and
the Securi-
876(b) (1939);
of Torts
ALI
§
Exchange Commission and in
ties and
1419(b) (Oct. 1,
Code §
Fed. Securities
district court’s
light of the
conclusion that
Draft).
agent of Litton
Casey was the
and Monroe
purposes of
Industries
determination
the district
and the
solicitation
court,
dissemi-
upheld,
which we have
Casey
Casey was the
nation.
Litton executive
negligently
perform
failed to
his duty un
charged
monitoring
the Litton rela-
wrongful
der section
establishes the
with McLean
tionship
Industries. He took
required
knowledge
act.
of the act has
responsibility
over this
after John
Cogan
B.
as a “general
been defined
awareness [on
resigned
Litton and
as a
left
McLean Indus-
part of the aider and
that his
abettor]
director
October of
tries
1967. In 1968
part
activity
an overall
role
a McLean
became
Industries director
improper
Coffey,
...”
SEC v.
Corp.,
Zweig
v. Hearst
grounds,
F.2d
other
modified on
781 not controlling persons they contend suffered an under section out of Monroe as a result of merger. loss pocket as aiders and abettors or as both 20(a) or Litton and Monroe will be defendants Act, 28(a) Section 15 U.S. entitled, respect charge being 78bb, provides that person per “no §C.A. can, establish, controlling persons, they if maintain a suit damages un mitted good noneulpability faith and defense provisions of this title shall recover der available to them under is section which in amount a total excess of his . may add that in 20(a). We view of damages on account of the act com actual required to proof establish burden applies of.” This limitation to suits plained abettor, of aider and we relationship damages recover for the viola brought discussed, it would seem most unlikely, have 14(a) Act, they since of section should unsuccessful implication that sect provided are establishing Litton’s and Monroe’s liability speaks while the Act in terms But ion.20 20(a), that they could have under damages dichotomy is be “actual” any greater establishing success their punitive damages21 actual tween theory they on the liability aiders loss, to out of pocket is not limited recovery practical For as a and abettors. matter it the value of one’s invest a diminution quite to be appear likely would possible include loss of a ment, may but produced to evidence establish and to de- benefit, an addition to the value of or profit liability on each feat of these theories wholly unless loss investment22 one’s be identical. Borak, would In J. v. I. Case Co. speculative.23 426, 1555, 1561, 435, 84 12 S.Ct. U.S.
377
423,
(1964),
Supreme
429
Court
L.Ed.2d
DAMAGES
suit,
it clear that in a civil
such as the
made
consider, finally, the award of
We
dam-
us,
brought
which is
to redress a
before
one
the district
ages
made
court. At the
Act the
of section
violation
consideration we note that the
of our
outset
power
grant
have the
all
courts
“federal
”
stipulated in the district court
necessary remedial relief
.
.
.
they would
contend that the shares
urge that
deci
subsequent
defendants
stock
re-
preferred
Court Mills v. Electric Auto-
sion
their
exchange for
McLean Indus-
375,
Co.,
616,
ceived
396 U.S.
90
24
S.Ct.
Lite
had an
ap-
stock
intrinsic or
(1970),
tries common
limited the ruling
593
L.Ed.2d
value that
market
was less than the
praised
agree.
case. We do not
Judge
Borak
As
appraised market
or
value of the
intrinsic
out in
Friendly pointed
Gerstle v. Gamble-
Industries common stock or that
Inc.,
1281,
(2d
F.2d
478
1304
Skogmo,
Cir.
earnings
earnings
potential were
1973),
Mills decision should be
read “as
those of that stock. Thus
do
commanding
less than
the lower courts to do their
Borak,
426, 432,
denied,
J.
Co. v.
(8th
1967),
377 U.S.
84
I. Case
718,
cert.
Cir.
390
748-749
1559-60,
423,
1555,
(1964).
12
427
951,
1043,
S.Ct.
L.Ed.2d
(1968);
88 S.Ct.
such us. Since the loss awarded, from the the amount by the other interest on plaintiffs suffered was not of judgment. to the date appraised shared the holders of the date interest in a suit prejudgment they shares we think must be The award excluded 14(a) of done, of section the Act computation. from this is the violation When district court eligible the number of shares held the discretion by the is within 2,798,690 is reduced exercised accordance with to be which is Corp. shareholders, Litton, Monroe, v. Hazeltine Re 29. The Radio favored See Zenith Bulk, Inc., search, National American-Hawaiian and Kroe- 2,304,000 (1971); ger, per Snowden v. D.C. $8.25 held shares. At share L.Ed.2d U.S.App.D.C. 204, premium $19,008,000. System, a total received Transit 10,632,000, Dividing (1971); v. First the total number Schaefer National of out- F.2d Lincolnwood, standing stock, $19,- shares of 1192-1193 common into Bank of (N. dismissed, 008,000 appeal gives premium per D.Ill.1970), $1.7878 out- 1972); standing (7th share. Restatement Torts Cir. award of would have of fairness.31 Here the withdrawn from principles is made to redress the venture not been damages violation this consummat- promptly payment “premium” of the Act of the circulation ed large stockholders, since their favor- deficient materially vote essential to secure the able two- award is not made make the letter. required approv- stockholder vote thirds whole for funds to merger. al entitled at legally time no abuse of We find the court’s merger. view, my In the above-described evidence in its denial of in prejudgment discretion issues, to create sufficient fact terest. of which in Casey’s resolution favor at a could have trial resulted in a determination court’s order The district entered October any misrepresentations and omissions final and its entered (a) (c) in parts majori- described 3, 1975 will be February vacated and the not opinion were material. See ty Lauren- will be remanded that court for cause Einbender, zano v. F.2d 5-6 proceedings further inconsistent with 1971) Casey . should have the opportunity opinion. that, matter, practical as a prove voted, defendants” would have “favored DUSEN, Judge (concurring Circuit VAN vote, fully intended to for the dissenting): Even accepting event. the conclu- materials were mislead- sion dissent from I the conclu respectfully legally there was no ing binding because majority under opinion sions reached merger, to vote for the obligation dis- 771-773, (c) pages at 773-774 (a) pages at between the actual facts and parity 775-777, they af because pages (a) insignificant facts misstated holding1 that court’s district firm the misstatement therefore immaterial. defendant, Casey, is liable as a individual Einbender, supra. Laurenzano v. In *23 See judgment despite summary on of law matter addition, I men believe reasonable could Mc Malcolm affidavit the uncontradicted adequacy on the of the disclosure of differ 85a), deposition related tes (80a-83a, Lean and that that the various conflicts issue (see, 694a), timony example, and exhibits determined as a not be matter of should (see, 627a). at example, DX-82 information is The relevant contained law. pages first few the proxy materi- Casey I that was entitled to a believe and, as we stated in Kohn v. als American trial, evidence the above since reasona- Climax, 255, (3d 458 F.2d 267 Cir. Metal (1) therefrom indicate ble inferences , 1972) latitude in this “reasonable area is Company needed 300 million to the McLean if is not to nit-picking become important dollars order to 500 million continue game.” name of the business, container compete shipping common stock (2) hearing would have record at a motion Where per far less than $40.00 been worth share discloses summary judgment issues of promptly See, supplied g., had not credit fact, required. trial is e. Adickes a (3) Co., 144, enterprise, 1598, that no other 90 to this & S.Ct. v. Kress (1970); credit was available. Fur- v. Pittsburgh source of such L.Ed.2d 142 Smith 26 870, Co., entitled to ther, Supply (3d show at a trial 464 F.2d 874 Casey Gage Prosser, (1939); 885(3) appears Law of Torts 304-305 1. I note the district court § 1971). (4th ed. applied adopted liberal the more test of materiality majority explicitly rejected Lehman, 368 v. U.S. 82 31. See Blau pages at v. 770-771. Gould American-Ha- (1962); 7 L.Ed.2d 411 S.Ct. Co., Steamship 319 802 waiian Co., Inc., 524 Duralite F.2d Thomas v. Corp. Talley (D.Del.1970); see General Time v. Frank, 1975); (3d v.Wolf Cir. Industries, 1968). F.2d Cir. Cir.), (5th (1973). L.Ed.2d that, Miller, permitted to show under 1972); Wright & Federal the cir- case, (1973). particularly Civil of this & Procedure: cumstances those § Practice of over one million dol- in the first sentence of this dissent Where noted involved, this surely principle he paragraph, is should would have reason- lars ably not be overlooked. considered these misstatements insignificant. omissions to be material favorable to Finally, because Ca- join I sey, including respects, Judge the evidence described in In all other Mar- dissent characteristically opinion, sentence of this and the infer- is’ excellent al- first view though, my above, ences from such evidence could be under very stated necessary in his defense to the not be pertinent reach damage contention negligence, he is liable for I do not issue at pages 781-784 and the prejudg- Casey can be held to have believe been ment interest issue at pages 784-785 of law, negligent as matter determined the majority opinion. pages majority opinion 775- stage at this only
777. The evidence Casey issue is that read negligence form in draft
proxy statement failed to view, my evidence,
correct it. In alone,
standing is not a sufficient basis for Casey, who neither a
holding lawyer nor director, by summary inside liable proce- ASSOCIATES, INC., LINMARK and Wil- Casey dure. I believe was entitled to a Mellman, Plaintiffs-Appellees, liam by a fact finder after trial decision on the issues needed to factual determine whether The TOWNSHIP OF WILLINGBORO position in his reasonable director Daly, Defendants-Appellants. to, Gerald objecting in not negligent referring counsel, or Litton’s to Monroe’s the possible 75-1448. No. omissions, including failure adequately to States Court of Appeals, United interest, reveal conflicts of in the proxy Circuit. Third materials. no proof
There is was con- Argued Oct. sciously alleged aware misstatements April 28, 1976. Decided and omissions or of materiality. *24 question critical is whether he should have
noticed and corrected defects. But the quite
defects themselves are technical. The relating alleged
defect agreement hinges
vote reading language of the connoting materials as a legally bind-
ing obligation to vote for the merger on the
part of Litton and Monroe. Similarly, the majority opinion
thrust of the with respect alleged
to the disclosure of the conflicts of
interest is that Casey should have realized the relevant facts were presented sufficiently prominent form and that the
disclosure therefore inadequate. As a
non-lawyer director, and an outside
might easily be excused for not having his finely
antennae so tuned to semantic and event,
formal “defects.” In he should