*1 CO. v. ELECTRIC AUTO-LITE MILLS et al. et al. January 20, 1970 Argued 1969 Decided No. 64. November *2 Arnold I. Shure argued the cause for petitioners. With him on the briefs were Robert Sprecher, A. Edward N. Gadsby, and Mozart G. Ratner. Jenner, Jr., respondents.
Albert E. the cause for argued Solovy Jerold S. and John G. him on the brief were With Stifier. Wallace, Griswold, General Lawrence G.
Solicitor Ferber, Loomis, Jr., Eisen- Meyer A. David Philip amicus curiae. berg for the filed a brief United States of the opinion delivered the Mr. Harlan Justice Court. aspect of the requires case us to consider a basic
This
14 (a)
implied private right
violation
action
1934,1 recognized
Act of
Exchange
Securities
Borak,
in J. I. Case Co. v.
I were shareholders of the Electric Auto- Petitioners into Company merged Lite until when it was They Linotype Company. brought suit Mergenthaler on the before the at which the day meeting shareholders’ on the place against Auto-Lite, vote was to take merger, company, and third American Mergenthaler, Manu- complaint facturing Company, sought Inc. an by injunction voting manage- Auto-Lite’s against proxies allegedly ment of all obtained means an proxy solicitation; however, it did not misleading seek restraining order, and the temporary voting went ahead day. following Several as scheduled months later amended, (a). 1 48 U. S. C. 78n Stat. § seeking to have complaint, filed an amended petitioners relief as other to obtain such and set aside merger proper. might is the complaint, which II of the amended
In Count jurisdiction predicated us,2 count before only They 78aa. 15 U. S. C. Act, of the 1934 §27 on the Auto- sent out proxy statement alleged that in favor votes shareholders’ Lite to solicit management 14 (a) of § in violation misleading, was merger of the (17 CFR 14a-9 thereunder. and Rule of the Act SEC merger recited that before 240.14a-9.) Petitioners outstanding shares of the owned over Merganthaler 50% in control had been stock, Auto-Lite common Manufacturing American for two years. Auto-Lite outstanding shares one-third of turn owned about con- voting had years been and for two Mergenthaler, Peti- of Auto-Lite. through it, Mergenthaler and, trol of of these circumstances charged light tioners told Auto- in that it statement was recom- of directors Lite their board shareholders informing without also approval mended of the nominees directors were them that all of Auto-Lite’s and dom- were under the “control Mergenthaler Petitioners asserted Mergenthaler.” ination of derivatively both complain alleged violation this representatives on and as behalf Auto-Lite *4 minority of all class its shareholders. summary with judgment motion for petitioners’
On the District Court for the Northern respect II, to Count of of Illinois ruled as a matter law that District was, of the light defect statement claimed made, in which the statement was a ma- circumstances concluded, The District Court from its terial omission. it opinion, of the had to hold a hear- reading Borak counts, petitioners alleged fraud In the other two common-law ultra vires under Ohio merger and that was law.
ing on the issue whether there was “a causal connection between the there finding has been a violation of requirements (a) disclosure alleged and the injury plaintiffs” to the before it could consider what appropriate. remedies would be (Unreported opinion February 1966.) dated
After holding such a hearing, the court found that under the terms of the merger agreement, an affirmative vote of two-thirds the Auto-Lite required shares was approval for of the merger, and that respondent companies owned and controlled about of the out- 54% shares. standing to obtain Therefore, authorization the merger, respondents had to secure the approval of a substantial number of the minority At shareholders. the stockholders’ meeting, approximately 950,000 shares, out of 1,160,000 shares outstanding, were voted in favor merger. This 317,000 included by votes obtained proxy from the minority shareholders, votes that were “necessary indispensable and approval to the merger.” The District Court concluded that a causal relationship had thus been and shown, granted it an interlocutory judgment favor of on the of liability, issue referring case a to master con- of appropriate sideration (Unreported relief. findings Sept. conclusions dated 26, 1967; opinion reported at Supp. (1967)). F. The District Court made the required certification 28 U. (b), respondents S. C. took an inter- appeal locutory to the of Appeals Court for the Seventh Circuit.3 That court affirmed the District con- Court’s cross-appealed Petitioners from an order entered the District days summary judgment favor, deleting Court two after its in their judgment from provisions conclusion of law that “[u]nder (b) Exchange of Section 29 the Securities ofAct through effectuated a violation of Section 14 of the Act is void.” apparently purpose avoiding any This deletion was made for the question prejudice relief, on open which remained for con- *5 deficient, materially proxy that statement was elusion the court of The question reversed on causation. but the a that, sought if an had been acknowledged injunction “correc- meeting, the stockholders’ sufficient time before 403 F. appropriate.” have been tive measures would was (1968). However, since this suit had to preventive action, too the courts brought late for omis- misleading determine “whether the statement a proxies,” as the of sufficient sion caused submission the liability determination of under prerequisite to a “by preponder- If the respondents show, Act. could re- have probabilities, merger ance of that would the had proxy vote even if statement ceived sufficient found,” in the respect petitioners not been Id., 436. be to no of kind. at any entitled relief cor- Appeals acknowledged of that this test Court responds to the fraud test common-law whether However, on the injured party misrepresentation. relied “[rjeliance of in- that rightly concluding thousands dividuals, scarcely inquired {id., can into” here, 10), n. the court ruled the issue was to be deter- that by proof merger. mined of the fairness of the terms respondents' If merit and merger could show had minority shareholders, was fair court trial justified would be that a number concluding sufficient had approved shareholders would have In deficiency there been no in the statement. respondents judgment that case would be entitled their favor. Claiming Appeals has construed Court this Court’s in a frus- decision Borak manner policy private trates the statute’s enforcement through in this litigation, sought then review light disposition respondents’ the master. of its sideration Appeals no need to the Court had appeal, consider cross-appeal. *6 (1969), certiorari, 394 U. S. granted
Court. We should that of this basic issue believing resolution postponed and not litigation made at this of the stage Appeals’ of decision.4 until after a trial under the Court II Borak, from (a) stemmed As we stressed “[fjair is an corporate suffrage congressional belief every equity attach to secu- important right that should 1383, Rep. No. rity bought public exchange.” on a H. R. intended to provision 73d 2d The was Cong., Sess., 13. promote free of of stock- voting rights “the exercise with proxies would be solicited by ensuring holders” of the “explanation to the of the real nature stockholder sought.” vote is authority for which to cast his questions Id., see Rep. Cong., Sess., 12; 2d 14; 792, No. below, by permitting The S.,U. at 431. decision finding all to be foreclosed on the basis of a liability to be fair, was would allow the stockholders to the only legal challenge at least where the bypassed, meet- retrospective for relief after the merger is suit judicial appraisal merger’s has been held. A of ing for actual and informed merits could be substituted of vote the stockholders.
4 Respondents review ask this Court to the conclusion the lower proxy respect. was in a material courts that statement naturally question petition did Petitioners raise this their certiorari, respondents cross-petition. for and filed no Since reversal question Appeals’ ruling on this would not dictate the Court judgment, affirmance of that court’s which remanded the case peti causation, proceedings to determine but rather elimination question thereunder, rights we will not consider the these tioners’ Ry. Exp. Co., v. American United States 265 U. S. circumstances. Langnes Green, (1931); (1924); v. U. S. Morley Maryland Co., Cas. 185, 191-192 Constr. Co. 300 U. S. Gressman, (1937); Supreme Court Practice R. & E. Stern (4th ed. redress private from would be to insulate result relating to category proxy an entire violations —those merger. Even matters other than the terms if solicitation, in a outrageous misrepresentations transaction, they did not relate the terms (a). no cause of under Particu- give rise to action if larly over enforcement actions Securi- carried a result would Exchange itself, ties Commission ensuring congressional purpose subvert full *7 fair to disclosure shareholders. the of the
Further, recognition merger fairness complete a defense would confront small shareholders with an additional to chal- making obstacle a successful lenge proposal a a through to recommended defective proxy be they statement. The risk that would unable corporation’s to rebut the evidence of fairness of the action, thus proposal, and to establish their cause discourage bound to from be such shareholders private “provides of the proxy enforcement rules that supplement to necessary Commission action.” J. I. Borak, Case atS., Co. v. 377 U. 432.5 Appeals’ may ruling negated Court that “causation” by proof merger of the fairness of the rests on dubious also assumption. justification presuming no behavioral There is willing any every corporation accept shareholders yet every put them; pre and fair offer before such a sumption implicit Appeals. opinion of the That is Court gave might adduce, court no indication of what evidence merger proposal respondents once had was established equitable, in order to show that the shareholders would neverthe rejected misleading. if less have it solicitation had not been would, Proof of actual reliance thousands of individuals as the acknowledged, feasible, Jennings Marsh, & court not be see It. H. (2d Regulation, 1968); and Materials 1001 ed. Securities Cases particularly reliance on nondisclosure of a fact is a difficult matter (2d Loss, Regulation prove, to define or see L. ed. Securities objective therefore, proposal of the practice, In fairness a frustration of the congressional policy Such is required by in the or anything wording statute opinion (a) in our in the Borak declares case. Section proxies it “unlawful” to solicit of Com- contravention mission rules, prohibits Rule 14a-9 SEC solicita- tions false or “containing any statement which ... is with misleading respect any fact, material or which omits to state any necessary material fact order to make the statements therein not false or mislead- ing materially . . . .” of a solicitation that is Use itself law, is a violation of as the Court of Appeals recognized stating injunctive relief would be available to if remedy sought defect prior Borak, to the' stockholders’ which meeting. came to this on a complaint, Court dismissal inquiry Court limited its to whether a violation of (a) gives rise to “a federal cause of action for rescission or damages,” S., Referring 377 U. at 428. to the argument by petitioners made there the merger “that only can be dissolved if it was fraudulent non-bene- ficial, upon issues which the material would not *8 bear,” relationship the Court stated: “Rut of the causal proxy the material and the are of merger questions fact trial, to be resolved at We therefore do not here. Id., point present discuss this further.” 431. the a specifically case there has been directed to the hearing problem. causation before the is question Court whether the facts found on the basis of that hearing in petitioners’ action, sufficient law to establish cause of they and we conclude that are. seemingly liability. But, in be determinative of view of the
many might prefer other factors that lead shareholders their cur larger, enterprise, position of owners of a combined it is rent to that conjecture proposal pure to assume that the fairness will Hotel, Wirtz v. Motel always be determinative of their vote. Cf. Union, Employees & Club 492, U. 508 state- or omission misstatement Where the found “material,” as it was ment shown to be has been indubitably em- itself here, that determination to be of such a char- defect was a conclusion that bodies important have been considered might acter that it process of de- shareholder who was a reasonable This, the defect requirement how to vote.6 ciding voting process propensity to affect significant have a 14a-9, Rule and it express terms of is found that a cause purpose, ensuring adequately serves defect by proof so of action cannot be established for which unrelated to the transaction trivial, so of the defect or im- approval sought, is that correction liability position pro- would not further the interests by 14 (a). tected supplement requirement,
There is no need to this of Appeals, requirement proof did the Court with a Park, Inc., (C. List Fashion Cf. v. 340 F. A. 2d Cir. 1965); Corp. Talley Industries, Inc., Time General 403 F. 2d (C. 1968); (Second) A. 2d Cir. Restatement of Torts (2) (a) (Tent. 1964); Loss, Draft No. 2 L. Securities Regulation (2d 1961); id., (Supp. ed. at 3534 case, misleading aspect
In this where the of the solicitation part involved failure to reveal a conflict of on serious interest directors, Appeals the Court' concluded that the crucial question determining materiality minority was “whether the sufficiently relationship shareholders were alerted to the board’s adversary guard.” 2d, their on An to be their 403 F. at 434. adequate relationship disclosure of this would have warned give scrutiny stockholders to more careful to the terms of the merger they might entirely than to one recommended an dis- Thus, interested board. the failure to make such a disclosure was law,” thwarting found to be material defect “as a matter of aims, regardless informed decision at which the statute of whether the terms were such that a reasonable stockholder *9 approved analysis. would have more careful transaction after Industries, Inc., See Swanson v. also American Consumer 415 F. 2d (C. 1969). 1326 A. 7th Cir.
385 actually effect on of whether the defect had a decisive finding Where there has been a of mate voting. showing a shareholder has made sufficient riality, relationship injury between the causal violation and he if, here, proves for which he seeks redress particular proxy itself, solicitation rather than materials, in the solicitation was an link defect essential accomplishment objec in the transaction. This the impracticalities determining tive test will avoid many votes were affected, and, resolving how doubts in favor of -those the statute is to designed protect, will policy congressional effectuate the ensuring shareholders are able to make an informed choice when they corporate consulted on transactions. Union Cf. Co., Chicago R. Co. v. & N. Supp. Pac. W. R. 226 F. (D. 411 2 400, 1964); C. N. D. Ill. L. Loss, Securities id., Regulation (2d 962 n. ed. 1961); 5 at 2929-2930 (Supp. 1969).7 need We not decide this case causation could be whether management
shown where the number of controls sufficient approve any shares to the transaction without votes from the minority. management situation, Even in if it finds necessary legal practical proxies from reasons to solicit minority shareholders, at least one court held that has sufficiently satisfy might solicitation related to the requirement, Einbender, Laurenza.no v. 264 F. causation see (D. 1966); Supp. 356 E. N. Y. Swanson v. American Con C. D. cf. Industries, Inc., (C. 1326, sumer Cir. F. 1331-1332 A. 7th Eagle 1969); Horvath, 341, (D. Supp. v. 241 F. D. N. Y. C. S. 1965); Globus, Jaroff, (D. Supp. 378, Inc. v. 271 F. C. S. D. 1967); Comment, Enforce N. Y. Shareholders’ Derivative Suit Right Against Corporate of Action Directors Under SEC Rule 10b-5, 114 U. Pa. Hoover L. Rev. But see Allen, (D. 1965); Supp. 213, 231-232 C. S. N. Y. F. D. (D. Co., D. Supp. Barnett v. Anaconda 238 F. 770-774 C. S. Industries, Inc., 1965); Supp. Banner N. Y. Robbins v. 285 F. (D. 1966). generally Loss, Securities 762-763 C. D. N. Y. See L. Regulation (Supp.
386
III their have established that Our conclusion of approval necessary proxies that by showing case materially mis- of a means obtained merger the were form of the about implies nothing leading solicitation in Borak held may entitled. We they be relief to which were “to be the courts a violation upon finding necessary make remedies as are such provide alert to specifically purpose,” noting congressional the effective prospective limited to are not to be remedies that such retrospective In devising 434. S., 377 relief. U. federal courts proxy rules, the the relief for of violation govern same factors that consider the should any illegality or fraud. similar granted the relief may the fairness of the terms factor important One of relief will include set- Possible forms merger. equitable relief, or other merger granting ting aside in noted, nothing Appeals the Court of below but, as statutory “requires the court to unscramble policy merely violation oc- corporate transaction because a remedy 2d, selecting at 436. curred.” F. “ exercise 'the discretion which lower courts should sound ” keeping guides equity/ the determinations courts as “the instrument for nice equity mind the role of public interest adjustment and reconciliation between the private competing private needs as well as between Bowles, Co. v. Hecht claims.” U. S. Haven, Meredith
(1944), from v. Winter quoting U. (b)
We do not read which Act,8 declares made violation of the Act or rule there- contracts (b) provides pertinent part: “Every Section contract made any provision chapter any regula of this or rule or in violation (1) regards rights any thereunder . . . shall be void tion as any person who, provision, rule, regulation, in violation of of” the violator rights regards as under “void ... interest, requiring successors knowing merger agreement simply because be set aside establishes language contract. This is a “void” the contract enforcing from precluded is guilty party *11 it does not but party,9 an innocent unwilling against nullity, is a the contract the conclusion compel party in a innocent even rights no enforceable creating read courts have The lower federal of the violation. Company counterparts Holding has (b), 29 which § Act, and the Invest Company Investment Act, merely Act,10 rendering the contract ment Advisers as g., e. party. See, of the innocent option at the voidable 783, McLendon, 2d 792 Corp. Greater Iowa v. 378 F. Air Royal Properties, Inc. v. (C. 1967); A. 8th Cir. 210, Bankers 9th (C. 1962); 2d 213 A. Cir. Smith, 312 F. Corp., 784, & Cas. Co. v. Bellanca 288 F. 2d 787 Life Abrams, Kaminsky v. 281 F. 1961); 7th Cir. (C. A. Maher v. (D. 1968); C. D. N. Y. Supp. 501, 507 S. Beane, Inc., 133, 138-139 Supp. J. R. Williston & 280 F. Brown, Green v. 276 F. (D. 1967); C. D. N. Y. cf. S. on (D. 1967), C. D. N. Y. remanded Supp. 753, 757 (C. 1968) 398 2d 1006 A. 2d Cir. other F. grounds, Act). Loss, supra, also (Investment Company See any contract, (2) regards made . . . such as shall have any being contract, rights person who, party to such shall not acquired any right knowledge of the thereunder with actual have making of such contract was facts reason of which the ... any provision, rule, regulation ...” violation (b). U. S. C. §78cc Inc., Plan, Christ National 2d See Eastside Church 391 F. v. Groesbeck, cf. Goldstein (C. 1968); 357, 362-363 A. 5th Cir. (C. 422, 2d Cir. F. A. (b), Utility Holding Company Act of Public See §26 (b); Company Act of 79z Investment 15 U. S. C. Stat. § (b); Investment (b), 846, 15 U. 80a-46 54 Stat. S. C. § §47 (b). (b), 856, 15 U. S. 80b-15 1940, 215 54 Stat. C. Advisers Act of § inter- id., 3866. This 1969); 6 (Supp. at 2925-2926 interests of The pretation eminently is sensible. right him the sufficiently protected by giving victim he where has as void regard to the contract rescind; to possibility only create right not invoked that advanc- necessarily hardships him or others without to ing statutory policy of disclosure. curiae, points amicus out that States, as United peti- minority shareholders, representatives parties merger agreement to the
tioners are (b) statutory under enjoy right thus do not de- they do have a Furthermore, set it aside.11 while party Auto-Lite’s status as rivative invoke relief should to the a determination what agreement, hinge in Auto-Lite’s name must on whether granted would be the best interests setting aside in the short, of the shareholders as a whole. context *12 one, (b) as this leaves the matter of a suit such specific relief be under Borak where it would without statutory only language merger should be set aside —the equity concludes, circumstances, if a court of from all the equitable that it would be to do so. Cf. SEC v. National Securities, Inc., 453, 456, 393 U. S.
Monetary will, possibility. relief of course, also be a in the Where the defect solicitation relates to the the merger, terms the district court might specific appropriately accounting order an to ensure that the the represented shareholders receive value that was as to On the other coming hand, where, here, them. the 11If petitioners proxies had submitted their own in favor of merger response solicitation, to the unlawful as it does not they appear did, language (b) give them, of 29 would seem to parties transaction, as innocent that to rescind their proxies. petitioners’ But it is clear this where combined case,, holdings only shares, that such rescission would not affect merger. the authorization of the aspect did relate to the solicitation monetary merger,
terms of the relief be afforded might only to the shareholders if the a re- merger resulted potential duction of the of their hold- earnings earnings short, only ings. damages should be recoverable they to the extent can be If commingling shown. of the of the operations companies assets merged impossible makes it from injury establish direct merger, might predicated relief on a determination fairness terms of the at the time it was approved. These questions, course, are decision by instance first the District Court on remand, singling and our out of some of the possibilities is not intended to exclude others.
IV relief Although question of must further await in the proceedings District our Court, conclusion that petitioners have their established cause of action indi- Appeals cates that Court of should have affirmed partial on summary judgment of liability.12 issue The result would not only have been that respondents, rather than petitioners, would have borne costs of the appeal, also, think, but we would have been to an expenses entitled interim award of litigation and reasonable fees. attorneys’ Highway Cf. Truck Cohen, Drivers 107 v. (D. Supp. Local F. C. E. We agree position D. Pa. with the taken amicus, petitioners, the United States as *13 who petitioners, have established a violation the by corporation securities laws their and its officials, 12 Appeals might judgment The Court of have modified the Court the District to the that it issue of extent referred the relief (b). a under to master Fed. Civ. Proc. Rule 53 The Court of Appeals’ opinion appro indicates doubt whether the referral was 2d, priate, 403 F. at 436. This issue is not before us. 390 or its survivor corporation
should be reimbursed establishing for the costs of violation.13 for an express statutory authorization absence 14 (a) in a suit under does attorneys’ § award fees type. in of this preclude not such an award cases profits for short-swing suit stockholders to recover corporation (b) Act, § their under 16 of the 1934 Appeals Court of for the Circuit has awarded Second attorneys’ despite any provision fees the lack of for theory corporation them in 16 “on the (b), attorney’s which has received the benefit of the services pay should the reasonable value thereof.” Smolowe v. Corp., Delendo 2d (C. 136 E. A. Cir. (e) The court held that inclusion in Congress’ §§ (a) provisions of the Act of express recovery for in attorneys’ types fees certain other of suits14 “does not impinge [upon] the result we reach the absence of statute, merely for those sections enforce an additional penalty Ibid. against wrongdoer.” agree
We with the specific Second Circuit provisions (e) (a) and 18 §§ should be read denying power the courts the to award counsel fees question We believe that of reimbursement for these ex penses sufficiently relationship has close to the determination (a) what appro constitutes cause of action under it is priate for urges decision at this time. The United States the Court petitioners consider also whether recoup will be entitled to expenses reasonably litigation question incurred further on the urged relief. expenses We are to hold that should be reim regardless bursed ultimately of whether successful obtaining significant However, question relief. of reimburse expenses ment future should be resolved in the first instance by the lower courts after litigated issue of relief has been a record has been concerning established the need for a further express award. juncture. We no view on the matter at this provisions deal, respectively, These manipulation with of secu rity prices and with statements in documents filed with (e), (a). Commission. See 15 U. C. 78r §§ *14 when circum- of the Act in suits under other sections more than appropriate, any make such an award stances liabili- private those express creation sections action implied right an possibility negates ties of the 1934 provisions remedial (a). § under Act, of the Lanham different from those Act are far have been which 1117, § 15 U. S. C. 35, 439, § 60 Stat. in a suit attorneys’ award of fees preclude held to an Corp. v. Fleischmann infringement. for trademark Co., (1967). Con- Brewing Maier 386 U. Since detailed the “meticulously Lanham had gress Act that his valid plaintiff proves who remedies available to a in Fleischmann Court infringed,” trademark has been were provisions remedial express concluded that power to intended “to mark boundaries the Act.” arising relief in cases under monetary award infer fairly contrast, we cannot S., By 386 U. 721. purpose of 1934 a Act Exchange from the Securities reme- power appropriate to grant circumscribe courts’ Ratner, 118 U. S. Bakery Workers Union dies. Cf. (1964). 274-275, App. D. C. 335 F. for private recovery provision makes no The Act of “void- the declaration (a), other than violation faced task, with the (b), leaving in 29 the courts ness” Borak, private whether deciding this Court The courts must implied. of action should be special circumstances determine whether similarly attorneys’ fees, an award justify that would exist other than expenses litigation reasonable including statutory costs.15 attorneys’ rule is that American the general
While costs, both ordinarily recoverable fees are to this developed exceptions have Congress courts overriding in which considerations rule for situations Burden Attorney’s Shall the Ultimate Note, Fees: Where Cf. 1216, 1229 and n. 68 Lie?, 20 L. Rev. Vand. *15 primary judge- A recovery.16 need for a indicate the expenses where a to award exception has been created usually suit, on successfully maintained a plaintiff has others class, group a of behalf of that benefits a Corp. v. Fleischmann same See manner himself. Co., Brewing To allow S., Maier at 718-719. 386 U. plaintiff’s full from the efforts others to obtain benefit expenses to the contributing equally litigation without unjustly plaintiff’s would be to enrich the others at the expense. presents This suit such a The dis situation. of solicitations was a “de semination on J. I. Case practiced group,” ceit the stockholders as a Borak, Co. expenses v. 377 and S.,U. petitioners’ lawsuit have been for the benefit incurred of the corporation and the other shareholders. yet
The produced, fact this suit has not and may produce, monetary recovery never from which the paid fees could preclude does not an award based on this rationale. Although cases recog- earliest nizing a to reimbursement litigation involved produced had preserved a “common fund” for the benefit group, of a nothing these cases indicates that actually suit must bring money into the court as prerequisite power the court’s to order reimburse- ment of expenses.17 foundation for the “[T]he historic
16Many
argued
commentators
have
for
thoroughgoing
a more
g.,
e.
See,
abandonment
of the rule.
Ehrenzweig,
Reimbursement
Society,
Counsel Fees
the Great
54
(1966);
Calif. L.
792
Rev.
Kuenzel,
Attorney’s
Why
Fee:
Litigation?
Not a
Cost
49 Iowa
75 (1963);
L.
McCormick,
Rev.
Counsel Fees and Other
Expenses
Litigation
as an
of Damages,
Element
15 Minn. L. Rev.
(1931);
Stoebuck, Counsel Fees Included in
A Logical
Costs:
Development,
supra,
(1966);
38 U.
Colo. L.
Note,
Rev.
n. 15.
Greenough,
See Trustees v.
Other cases have further from the traditional doctrine, permit metes and bounds to reimburse- ment in cases where the litigation has conferred a sub- Homstein, The Counsel Fee Suits, Stockholder’s Derivative Col. L. Rev. original
Even in “fund” Court, recognized case in this it was equity power to award fees was not restricted to the ability provide court’s to reimbursement from the fund itself: “It very would be hard plaintiff] away on successful to turn him [the any only unjust him, without allowance .... It would not give parties participate but it would to the other entitled to advantage. the benefits of fund an unfair He for has worked himself; them as well for and if he cannot be reimbursed out they itself, ought of the fund proportion to contribute due their expenses fairly which he has incurred. To make them a equitable charge upon way securing the fund is the most Greenough, Trustees S., contribution.” 105 U. at 532. class, stantial benefit on the members of an ascertainable jurisdiction subject where the over the matter court’s operate the suit possible makes an award that will spread the This de- proportionately costs them. among velopment pronounced has been in shareholders’ most derivative where have actions, increasingly the courts recognized by that the expenses incurred one shareholder in the corporate of a right vindication action can be spread among all through shareholders an award against the corporation, regardless money whether an actual recovery has been corporation’s obtained in the favor.18 For example, awards have been sustained in suits stockholders complaining corporation that shares of their had been issued wrongfully inadequate an considera- A tion.19 successful suit of this type, resulting can- cellation of the shares, not bring does a fund into court or add to the assets of the corporation, but it does benefit the holders of the remaining shares enhancing their value. Similarly, holders of voting trust certifi- cates have been allowed reimbursement of their expenses from corporation they where succeeded in terminating the voting trust and obtaining for all certificate holders the to vote their shares.20 these cases there 18See, *17 g., e. Holthusen v. Mfg. Co., Edward G. Budd 55 Supp. F. (D. 945 Floor, Bunswick v. 1944); C. E. D. Pa. 91, 116 Utah 208 (1949); P. 2d 948 22, cases n. generally cited Hornstein, See infra. Legal Therapeutics: “Salvage” Factor in Awards, Counsel Fee 69 658, Harv. L. (1956); Rev. 669-679 Recovery Smith, of Plain Attorney’s tiff’s in Corporate Fees Litigation, 40 L. A. Bar Bull. (1964). 15 19 Hartman v. Mining Milling Oatman Gold Co., & 476, 22 Ariz. (1921); Greenough 198 P. 717 v. Coeur Co., D’Alenes Lead 52 599, Idaho Refining (1932); 18 P. 2d cf. Riverside Oil & 288 Co. Lynch, v. 198,243 114 (1925). Okla. P. 967 20 Allen v. Bank, Chase Nat. 180 259, Misc. 40 N. Y. 2dS. 245 (Sup. Allen 1943), sequel Ct. Bank, v. Chase Nat. 178 Misc. 536, 35 N. Y. 2d (Sup. 958 Ct.
395 the court’s only in the sense that fund” was a “common defendant corporation as nominal jurisdiction over all of the share- possible against made it to assess fees corporation.21 against an award through holders benefit conferred is many instances of these only by if monetary terms, in expression capable of of the shares increase market value estimating the However, an litigation. to the successful attributable courts have acknowledged number of lower increasing may receive a “substantial benefit” corporation that a of counsel suit, justifying an award from a derivative pecuniary of whether the benefit is fees, regardless Coopera- case is Bosch v. Meeker A leading nature.22 Assn., Light Power 101 2d tive & 362, 257 Minn. N. W. was reimbursed for (1960), 423 which a stockholder judicial declaration that expenses obtaining his 21 “Fund in Note, of Counsel Fees Out of a Cf. Allowance 634, Jersey Rutgers Experience, 17 L. Rev. The New Court”: (1963). 22 Wolfson, (C. 537, 2d 540 2d Cir. See Schechtman v. 244 F. A. Co., 497, 2d 14 Cal. v. Hartman Ranch App. 193 Cal. Grant 1957); Servel, Inc., 483, 154 A. Treves (1961); v. 38 Del. Ch. Rptr. 531 Gamble, 504, 154 Saks v. 1959); Del. Ch. (Del. Sup. 38 188 Ct. 2d Hue, Nin (1958); Yap Ki Tuk Tsen 43 Haw. v. Wah Yen A. 2d 767 Berger Society, 378, 111 Amana 387, (1958); 253 Iowa 37, 42 v. Light Cooperative (1962).; Bosch v. Meeker 753, 2d 758 N. W. (1960); Assn., 2d 423 Power 362, 101 W. & 257 Minn. N. Property Corp., App. Eisenberg 353, 2d v. Central Zone Div. per curiam, 3 N. Y. (Sup. 1956), aff’d S. 2d 840 Ct. N. Y. Corp., Phillip-Jones Foundation v. Martin (1957); 143 N. 2d 516 E. Abrams 1954); v. (Sup. Ct. 729, 127 N. Y. S. 2d App. Div. (Sup. Realty Corp., 2d 808 Ct. 25, 93 N. Y. S. Textile 197 Misc. Long Park, Inc. Referee); (op. of 1949); 97 S. 2d 492 N. Y. Co., Div. Brunswick Theatres App. Trenton-New curiam, per Y.N. (Sup. 1948), aff’d 2d 482 Ct. N. Y. S. supra, 18; Suits: Shareholder (1949); Smith, n. 87 N. E. 2d Award, L. 13 Stan. Unnecessary Fee Pecuniary for Counsel Benefit Rev. 146 *18 directors was corporation’s of certain of the
election Minnesota Court of stated: Supreme invalid. The results in a sub- “Where an action a stockholder recover he should corporation benefit to a stantial bene- . substantial expenses. his costs and . . [A] technical its must be more than something fit accomplishes a result consequence and be one that be or an abuse which would prevents which corrects the cor- prejudicial and interests of rights enjoyment protection or poration affect Id., an essential to the stockholder’s interest.” 366-367, 2d, at N. W. at 426-427. many particularly under where the (a), suits
violation does not relate to the terms of the transaction may proxies solicited, impossible for which are it monetary assign Nevertheless, value to the benefit. placed by Congress importance the stress on the of fair corporate suffrage and informed leads to the conclusion statutory that, vindicating policy, petitioners have corporation rendered a substantial service to the and its Ratner, Bakery shareholders. Cf. Workers Union v. App. U. D. C. 269, 274, F.
Whether in showing successful a need for relief significant may be a factor determining whether a further award should later be made. But regardless private the relief granted, stockholders’ actions of this corporate sort “involve therapeutics,”23 and furnish benefit to all by providing important shareholders an means enforcement of the To proxy statute.24 award attorneys’ plaintiff fees a suit to who has suc- in establishing ceeded of action cause is not to saddle party expenses the unsuccessful with the impose but to 23Murphy Light Co., Supp. 567, v. North American & Power 33 F (D. C. S. D. N. Y. supra, Homstein, Cf. n. 662-663. *19 and that from them that has benefited on the class them brought had it suit. had to them pay have judg- conclude that reasons we foregoing For the be vacated Appeals should ment of the Court proceed- court further remanded to that the case opinion. with this ings consistent
It is so ordered. dissenting part concurring Black, Justice Mr. part. III II and of the Parts substantially agree I with have these stockholders opinion holding Court’s (a) §of the Securities proved a violation sufficiently re- are thus entitled to Act of 1934 and Exchange a result they suffered as damages have cover whatever perhaps to an corporate statements, I do not itself. aside of the equitable setting holding appears to be agree, however, to what prosecute lawyers hire Part who IV stockholders attorneys’ fees can recover their claims in such case pro- so agreement of a contractual in the absence valid creating explicit or an statute viding creators, not interpreters, recovery. The courts recovery if there a need for to recover and is legal rights policies of the Act fees to effectuate the attorneys’ be met my judgment need involved, here should Court. this by Congress,