VIRGINIA BANKSHARES, INC. v. SANDBERG,
501 U.S. 1083 (1991)
As part of a proposed "freeze-out"
merger, in which First American Bank of Virginia (Bank)
would be merged into petitioner Virginia Bankshares, Inc.
(VBI), a wholly owned subsidiary of petitioner First American
Bankshares, Inc. (FABI), the Bank's executive committee
and board approved a price of $42 a share for the minority
stockholders, who would lose their interests in the Bank
after the merger. Although Virginia law required only
that the merger proposal be submitted to a vote at a shareholders'
meeting, preceded by a circulation of an informational
statement to the shareholders, petitioner Bank directors
nevertheless solicited proxies for voting on the proposal.
Their solicitation urged the proposal's adoption and stated
that the plan had been approved because of its opportunity
for the minority shareholders to receive a "high"
value for their stock. Respondent Sandberg did not give
her proxy and filed suit in District Court after the merger
was approved, seeking damages from petitioners for, inter
alia, soliciting proxies by means of materially false
or misleading statements in violation of 14 (a) of the
Securities Exchange Act of 1934 and the Security and Exchange
Commission's Rule 14a-9. Among other things, she alleged
that the directors believed they had no alternative but
to recommend the merger if they wished to remain on the
board. At trial, she obtained a jury instruction, based
on language in Mills v. Electric Auto-Lite Co., 396 U.S.
375, 385 , that she could prevail without showing her
own reliance on the alleged misstatements, so long as
they were material and the proxy solicitation was an "essential
link" in the merger process. She was awarded an amount
equal to the difference between the offered price and
her stock's true value. The remaining respondents prevailed
in a separate action raising similar claims. The Court
of Appeals affirmed, holding that certain statements in
the proxy solicitation, including the one regarding the
stock's value, were materially misleading, and that respondents
could maintain the action even though their votes had
not been needed to effectuate the merger.
Held:
1. Knowingly false statements of reasons,
opinion, or belief, even though conclusory in form, may
be actionable under 14 (a) as misstatements of material
fact within the meaning of Rule 14a-9. Pp. 1090-1098.
[501 U.S. 1083, 1084]
(a) Such statements are not per se inactionable
under 14 (a). A statement of belief by corporate directors
about a recommended course of action, or an explanation
of their reasons for recommending it, may be materially
significant, since there is a substantial likelihood that
a reasonable shareholder would consider it important in
deciding how to vote. See TSC Industries, Inc. v. Northway,
Inc., 426 U.S. 438, 449 . Pp. 1090-1091.
(b) Statements of reasons, opinions, or
beliefs are statements "with respect to . . . material
fact[s]" within the meaning of the Rule. Blue Chip
Stamps v. Manor Drug Stores, 421 U.S. 723 , does not support
petitioners' position that such statements should be placed
outside the Rule's scope on policy grounds. There, the
right to bring suit under 10 (b) of the Act was limited
to actual stock buyers and sellers because of the risk
of nuisance litigation, in which would-be sellers and
buyers would manufacture claims of hypothetical action,
unconstrained by independent evidence. In contrast, reasons
for directors' recommendations or statements of belief
are factual as statements that the directors do act for
the reasons given or hold the belief stated and as statements
about the subject matter of the reason or belief expressed.
Thus, they are matters of corporate record subject to
documentation, which can be supported or attacked by objective
evidence outside a plaintiff's control. Conclusory terms
in a commercial context are also reasonably understood
to rest on a factual basis. Provable facts either furnish
good reasons to make the conclusory judgment or count
against it. And expressions of such judgments can be stated
with knowledge of truth or falsity just like more definite
statements and defended or attacked through the orthodox
evidentiary process. Here, respondents presented facts
about the Bank's assets and its actual and potential level
of operation to prove that the directors' statement was
misleading about the stock's value and a false explanation
of the directors' beliefs. However, a director's disbelief
or undisclosed motivation, standing alone, is an insufficient
basis to sustain a 14 (a) action. Pp. 1091-1096.
(c) The fact that proxy material discloses
an offending statement's factual basis limits liability
for misstatements only if the inconsistency is so obvious
that it neutralizes the misleading conclusion's capacity
to influence the reasonable shareholder. The evidence
here fell short of compelling the jury to find the misleading
statement's facial materiality neutralized. Pp. 1096-1098.
2. Respondents cannot show causation of
damages compensable under 14 (a). Pp. 1099-1108.
(a) Allowing shareholders whose votes are
not required by law or corporate bylaw to authorize a
corporate action subject to a proxy solicitation to bring
an implied private action pursuant to J. I. Case Co. v.
Borak, 377 U.S. 426 , would extend the scope of Borak
actions beyond [501 U.S. 1083, 1085] the ambit of Mills
v. Electric Auto-Lite Co., supra, which held that a proxy
solicitation is an "essential link" to a transaction
when it links a directors' proposal with the votes legally
required to authorize the action proposed. And it is a
serious obstacle to the expansion of the Borak right that
there is no manifestation, in either the Act or its legislative
history, of congressional intent to recognize a cause
of action as broad as that proposed by respondents. Any
private right of action for violating a federal statute
must ultimately rest on congressional intent to provide
a private remedy, Touche Ross & Co. v. Redington,
442 U.S. 560, 575 , and the breadth of the right once
recognized should not, as a general matter, grow beyond
the scope congressionally intended. Nonetheless, when
faced with a claim for equality in rounding out the scope
of an implied private action, this Court should look to
policy reasons for deciding where the outer limits of
the right should lie. See Blue Chip Stamps v. Manor Drug
Stores, supra. Pp. 1099-1105.
(b) Respondents' theory is rejected that
a link existed and was essential because VBI and FABI,
in order to avoid the minority stockholders' ill will,
would have been unwilling to proceed with the merger without
the approval manifested by the proxies. As was the case
in Blue Chip Stamps v. Manor Drug Stores, supra, threats
of speculative claims and procedural intractability are
inherent in a theory linked through the directors' desire
for a cosmetic vote. Causation would turn on inferences
about what the directors would have thought and done without
the minority shareholder approval. The issues would be
hazy, their litigation protracted, and their resolution
unreliable. Pp. 1105-1106.
(c) Respondents cannot rely on the theory
that the proxy statement was an essential link in this
case because it was part of a means to avoid suit under
a Virginia state law that bars a shareholder from seeking
to avoid a transaction tainted by a director's conflict
of interest, if, inter alia, the minority shareholders
ratified the transaction after disclosure of the material
facts of the transaction and the conflict. Because there
is no indication in the law or facts of this case that
the proxy solicitation resulted in any such loss, this
Court need not resolve the question whether 14(a) provides
a federal remedy when a false or misleading proxy statement
results in a shareholder's loss of a state remedy. Pp.
1106-1108.
891 F.2d 1112, reversed.
SOUTER, J., delivered the opinion of the Court, in Part
I of which REHNQUIST, C.J., and WHITE, MARSHALL, BLACKMUN,
O'CONNOR, SCALIA, and KENNEDY, JJ., joined, in Part II
of which REHNQUIST, C.J., and WHITE, MARSHALL, BLACKMUN,
O'CONNOR, and KENNEDY, JJ., joined, and in Parts III and
IV of which REHNQUIST, C.J., and WHITE, O'CONNOR, [501
U.S. 1083, 1086] and SCALIA, JJ., joined. SCALIA, J.,
filed an opinion concurring in part and concurring in
the judgment, post, p. 1108. STEVENS, J., filed an opinion
concurring in part and dissenting in part, in which MARSHALL,
J., joined, post, p. 1110. KENNEDY, J., filed an opinion
concurring in part and dissenting in part, in which MARSHALL,
BLACKMUN, and STEVENS, JJ., joined, post, p. 1112.
Stephen M. Shapiro argued the cause for
petitioners. With him on the briefs were Andrew L. Frey,
Kenneth S. Geller, John S. Stump, and Lewis T. Booker.
Joseph M. Hassett argued the cause for respondents.
With him on the brief were John C. Keeney, Jr., and George
H. Mernick III.
Michael R. Dreeben argued the cause for
the Securities and Exchange Commission et al. as amici
curiae urging affirmance. With him on the brief were Acting
Solicitor General Bryson, Deputy Solicitor General Shapiro,
James R. Doty, Paul Gonson, Jacob H. Stillman, Joseph
A. Franco, Alfred J. T. Byrne, and Colleen B. Bombardier.
*
[ Footnote * ] Briefs of amici curiae urging reversal
were filed for the American Bankers Association et al.
by John J. Gill III, Michael F. Crotty, Charles L. Marinaccio,
and Richard M. Whiting; and for the American Corporate
Counsel Association et al. by Nancy A. Nord.
JUSTICE SOUTER delivered the opinion of
the Court.
Section 14 (a) of the Securities Exchange
Act of 1934, 48 Stat. 895, 15 U.S.C. 78n(a), authorizes
the Securities and Exchange Commission (SEC) to adopt
rules for the solicitation of proxies, and prohibits their
violation. 1 In J. I. Case Co. v. Borak, 377 U.S. 426
(1964), we first recognized an [501 U.S. 1083, 1087] implied
private right of action for the breach of 14 (a) as implemented
by SEC Rule 14a-9, which prohibits the solicitation of
proxies by means of materially false or misleading statements.
2
The questions before us are whether a statement
couched in conclusory or qualitative terms purporting
to explain directors' reasons for recommending certain
corporate action can be materially misleading within the
meaning of Rule 14a-9, and whether causation of damages
compensable under 14 (a) can be shown by a member of a
class of minority shareholders whose votes are not required
by law or corporate bylaw to authorize the corporate action
subject to the proxy solicitation. We hold that knowingly
false statements of reasons may be actionable even though
conclusory in form, but that respondents have failed to
demonstrate the equitable basis required to extend the
14 (a) private action to such shareholders when any indication
of congressional intent to do so is lacking.
I
In December 1986, First American Bankshares, Inc. (FABI),
a bank holding company, began a "freeze-out"
merger, in which the First American Bank of Virginia (Bank)
eventually merged into Virginia Bankshares, Inc. (VBI),
a [501 U.S. 1083, 1088] wholly owned subsidiary of FABI.
VBI owned 85% of the Bank's shares, the remaining 15%
being in the hands of some 2,000 minority shareholders.
FABI hired the investment banking firm of Keefe, Bruyette
& Woods (KBW) to give an opinion on the appropriate
price for shares of the minority holders, who would lose
their interests in the Bank as a result of the merger.
Based on market quotations and unverified information
from FABI, KBW gave the Bank's executive committee an
opinion that $42 a share would be a fair price for the
minority stock. The executive committee approved the merger
proposal at that price, and the full board followed suit.
Although Virginia law required only that
such a merger proposal be submitted to a vote at a shareholders'
meeting, and that the meeting be preceded by circulation
of a statement of information to the shareholders, the
directors nevertheless solicited proxies for voting on
the proposal at the annual meeting set for April 21, 1987.
3 In their solicitation, the directors urged the proposal's
adoption and stated they had approved the plan because
of its opportunity for the minority shareholders to achieve
a "high" value, which they elsewhere described
as a "fair" price, for their stock.
Although most minority shareholders gave
the proxies requested, respondent Sandberg did not, and
after approval of the merger she sought damages in the
United States District Court for the Eastern District
of Virginia from VBI, FABI, and the directors of the Bank.
She pleaded two counts, one for soliciting proxies in
violation of 14 (a) and Rule 14a-9, and the other for
breaching fiduciary duties owed to the minority shareholders
under state law. Under the first count, Sandberg alleged,
among other things, that the directors had not believed
that the price offered was high or that the terms [501
U.S. 1083, 1089] of the merger were fair, but had recommended
the merger only because they believed they had no alternative
if they wished to remain on the board. At trial, Sandberg
invoked language from this Court's opinion in Mills v.
Electric Auto-Lite Co., 396 U.S. 375, 385 (1970), to obtain
an instruction that the jury could find for her without
a showing of her own reliance on the alleged misstatements,
so long as they were material and the proxy solicitation
was an "essential link" in the merger process.
The jury's verdicts were for Sandberg on
both counts, after finding violations of Rule 14a-9 by
all defendants and a breach of fiduciary duties by the
Bank's directors. The jury awarded Sandberg $18 a share,
having found that she would have received $60 if her stock
had been valued adequately.
While Sandberg's case was pending, a separate
action on similar allegations was brought against petitioners
in the United States District Court for the District of
Columbia by several other minority shareholders including
respondent Weinstein, who, like Sandberg, had withheld
his proxy. This case was transferred to the Eastern District
of Virginia. After Sandberg's action had been tried, the
Weinstein respondents successfully pleaded collateral
estoppel to get summary judgment on liability.
On appeal, the United States Court of Appeals
for the Fourth Circuit affirmed the judgments, holding
that certain statements in the proxy solicitation were
materially misleading for purposes of the Rule, and that
respondents could maintain their action even though their
votes had not been needed to effectuate the merger. 891
F.2d 1112 (1989). 4 We granted certiorari because of the
importance of the issues presented. 495 U.S. 903 (1990).
[501 U.S. 1083, 1090]
II
The Court of Appeals affirmed petitioners' liability for
two statements found to have been materially misleading
in violation of 14 (a) of the Act, one of which was that
"The Plan of Merger has been approved by the Board
of Directors because it provides an opportunity for the
Bank's public shareholders to achieve a high value for
their shares." App. to Pet. for Cert. 53a. Petitioners
argue that statements of opinion or belief incorporating
indefinite and unverifiable expressions cannot be actionable
as misstatements of material fact within the meaning of
Rule 14a-9, and that such a declaration of opinion or
belief should never be actionable when placed in a proxy
solicitation incorporating statements of fact sufficient
to enable readers to draw their own, independent conclusions.
A
We consider first the actionability per se of statements
of reasons, opinion, or belief. Because such a statement
by definition purports to express what is consciously
on the speaker's mind, we interpret the jury verdict as
finding that the directors' statements of belief and opinion
were made with knowledge that the directors did not hold
the beliefs or opinions expressed, and we confine our
discussion to statements so made. 5 That such statements
may be materially significant raises no serious question.
The meaning of the materiality requirement for liability
under 14 (a) was discussed at some length in TSC Industries,
Inc. v. Northway, Inc., 426 U.S. 438 (1976), where we
held a fact to be material "if there is a substantial
likelihood that a reasonable shareholder would consider
it important in deciding how to vote." Id., at 449.
We think there is no room to deny that a statement of
belief by corporate directors about a recommended course
of action, or an explanation of their reasons for recommending
[501 U.S. 1083, 1091] it, can take on just that importance.
Shareholders know that directors usually have knowledge
and expertness far exceeding the normal investor's resources,
and the directors' perceived superiority is magnified
even further by the common knowledge that state law customarily
obliges them to exercise their judgment in the shareholders'
interest. Cf. Day v. Avery, 179 U.S. App. D.C. 63, 71,
548 F.2d 1018, 1026 (1976) (action for misrepresentation).
Naturally, then, the shareowner faced with a proxy request
will think it important to know the directors' beliefs
about the course they recommend and their specific reasons
for urging the stockholders to embrace it.
B
1
But, assuming materiality, the question remains whether
statements of reasons, opinions, or beliefs are statements
"with respect to . . . material fact[s]" so
as to fall within the strictures of the Rule. Petitioners
argue that we would invite wasteful litigation of amorphous
issues outside the readily provable realm of fact if we
were to recognize liability here on proof that the directors
did not recommend the merger for the stated reason, and
they cite the authority of Blue Chip Stamps v. Manor Drug
Stores, 421 U.S. 723 (1975), in urging us to recognize
sound policy grounds for placing such statements outside
the scope of the Rule.
We agree that Blue Chip Stamps is instructive,
as illustrating a line between what is and is not manageable
in the litigation of facts, but do not read it as supporting
petitioners' position. The issue in Blue Chip Stamps was
the scope of the class of plaintiffs entitled to seek
relief under an implied private cause of action for violating
10 (b) of the Act, prohibiting manipulation and deception
in the purchase or sale of certain securities, contrary
to Commission rules. This Court held against expanding
the class from actual buyers and sellers to include those
who rely on deceptive sales practices by taking no action,
either to sell what they own or [501 U.S. 1083, 1092]
to buy what they do not. We observed that actual sellers
and buyers who sue for compensation must identify a specific
number of shares bought or sold in order to calculate
and limit any ensuing recovery. Id., at 734. Recognizing
liability to merely would-be investors, however, would
have exposed the courts to litigation unconstrained by
any such anchor in demonstrable fact, resting instead
on a plaintiff's "subjective hypothesis" about
the number of shares he would have sold or purchased.
Id., at 734-735. Hindsight's natural temptation to hypothesize
boldness would have magnified the risk of nuisance litigation,
which would have been compounded both by the opportunity
to prolong discovery and by the capacity of claims resting
on undocumented personal assertion to resist any resolution
short of settlement or trial. Such were the premises of
policy, added to those of textual analysis and precedent,
on which Blue Chip Stamps deflected the threat of vexatious
litigation over "many rather hazy issues of historical
fact the proof of which depended almost entirely on oral
testimony." Id., at 743.
Attacks on the truth of directors' statements
of reasons or belief, however, need carry no such threats.
Such statements are factual in two senses: as statements
that the directors do act for the reasons given or hold
the belief stated and as statements about the subject
matter of the reason or belief expressed. In neither sense
does the proof or disproof of such statements implicate
the concerns expressed in Blue Chip Stamps. The root of
those concerns was a plaintiff's capacity to manufacture
claims of hypothetical action, unconstrained by independent
evidence. Reasons for directors' recommendations or statements
of belief are, in contrast, characteristically matters
of corporate record subject to documentation, to be supported
or attacked by evidence of historical fact outside a plaintiff's
control. Such evidence would include not only corporate
minutes and other statements of the directors themselves,
but circumstantial evidence bearing on the facts that
would reasonably underlie [501 U.S. 1083, 1093] the reasons
claimed and the honesty of any statement that those reasons
are the basis for a recommendation or other action, a
point that becomes especially clear when the reasons or
beliefs go to valuations in dollars and cents.
It is no answer to argue, as petitioners
do, that the quoted statement on which liability was predicated
did not express a reason in dollars and cents, but focused
instead on the "indefinite and unverifiable"
term, "high" value, much like the similar claim
that the merger's terms were "fair" to shareholders.
6 The objection ignores the fact that such conclusory
terms in a commercial context are reasonably understood
to rest on a factual basis that justifies them as accurate,
the absence of which renders them misleading. Provable
facts either furnish good reasons to make a conclusory
commercial judgment, or they count against it, and expressions
of such judgments can be uttered with knowledge of truth
or falsity just like more definite statements, and defended
or attacked through the orthodox evidentiary process that
either substantiates their underlying justifications or
tends to disprove their existence. In addressing the analogous
issue in an action for misrepresentation, the court in
Day v. Avery, 179 U.S. App. D.C. 63, 548 F.2d 1018 (1976),
[501 U.S. 1083, 1094] for example, held that a statement
by the executive committee of a law firm that no partner
would be any "worse off" solely because of an
impending merger could be found to be a material misrepresentation.
Id., at 70-72, 548 F.2d, at 1025-1027. Cf. Vulcan Metals
Co. v. Simmons Mfg. Co., 248 F. 853, 856 (CA2 1918) (L.
Hand, J.) ("An opinion is a fact. . . . When the
parties are so situated that the buyer may reasonably
rely upon the expression of the seller's opinion, it is
no excuse to give a false one"); W. Keeton, D. Dobbs,
R. Keeton, & D. Owen, Prosser and Keeton on Law of
Torts 109, pp. 760-762 (5th ed. 1984). In this case, whether
$42 was "high," and the proposal "fair"
to the minority shareholders, depended on whether provable
facts about the Bank's assets, and about actual and potential
levels of operation, substantiated a value that was above,
below, or more or less at the $42 figure, when assessed
in accordance with recognized methods of valuation.
Respondents adduced evidence for just such
facts in proving that the statement was misleading about
its subject matter and a false expression of the directors'
reasons. Whereas the proxy statement described the $42
price as offering a premium above both book value and
market price, the evidence indicated that a calculation
of the book figure based on the appreciated value of the
Bank's real estate holdings eliminated any such premium.
The evidence on the significance of market price showed
that KBW had conceded that the market was closed, thin,
and dominated by FABI, facts omitted from the statement.
There was, indeed, evidence of a "going concern"
value for the Bank in excess of $60 per share of common
stock, another fact never disclosed. However conclusory
the directors' statement may have been, then, it was open
to attack by garden-variety evidence, subject neither
to a plaintiff's control nor ready manufacture, and there
was no undue risk of open-ended liability or uncontrollable
litigation in allowing respondents the opportunity [501
U.S. 1083, 1095] for recovery on the allegation that it
was misleading to call $42 "high."
This analysis comports with the holding
that marked our nearest prior approach to the issue faced
here, in TSC Industries, 426 U.S., at 454 -455. There,
to be sure, we reversed summary judgment for a Borak plaintiff
who had sued on a description of proposed compensation
for minority shareholders as offering a "substantial
premium over current market values." But we held
only that on the case's undisputed facts the conclusory
adjective "substantial" was not materially misleading
as a necessary matter of law, and our remand for trial
assumed that such a description could be both materially
misleading within the meaning of Rule 14a-9 and actionable
under 14 (a). See TSC Industries, supra, at 458-460, 463-464.
2
Under 14 (a), then, a plaintiff is permitted to prove
a specific statement of reason knowingly false or misleadingly
incomplete, even when stated in conclusory terms. In reaching
this conclusion we have considered statements of reasons
of the sort exemplified here, which misstate the speaker's
reasons and also mislead about the stated subject matter
(e. g., the value of the shares). A statement of belief
may be open to objection only in the former respect, however,
solely as a misstatement of the psychological fact of
the speaker's belief in what he says. In this case, for
example, the Court of Appeals alluded to just such limited
falsity in observing that "the jury was certainly
justified in believing that the directors did not believe
a merger at $42 per share was in the minority stockholders'
interest but, rather, that they voted as they did for
other reasons, e. g., retaining their seats on the board."
891 F.2d, at 1121.
The question arises, then, whether disbelief,
or undisclosed belief or motivation, standing alone, should
be a sufficient basis to sustain an action under 14 (a),
absent proof by the sort of objective evidence described
above that the [501 U.S. 1083, 1096] statement also expressly
or impliedly asserted something false or misleading about
its subject matter. We think that proof of mere disbelief
or belief undisclosed should not suffice for liability
under 14 (a), and if nothing more had been required or
proven in this case, we would reverse for that reason.
On the one hand, it would be rare to find
a case with evidence solely of disbelief or undisclosed
motivation without further proof that the statement was
defective as to its subject matter. While we certainly
would not hold a director's naked admission of disbelief
incompetent evidence of a proxy statement's false or misleading
character, such an unusual admission will not very often
stand alone, and we do not substantially narrow the cause
of action by requiring a plaintiff to demonstrate something
false or misleading in what the statement expressly or
impliedly declared about its subject.
On the other hand, to recognize liability
on mere disbelief or undisclosed motive without any demonstration
that the proxy statement was false or misleading about
its subject would authorize 14 (a) litigation confined
solely to what one skeptical court spoke of as the "impurities"
of a director's "unclean heart." Stedman v.
Storer, 308 F. Supp. 881, 887 (SDNY 1969) (dealing with
10 (b)). This, we think, would cross the line that Blue
Chip Stamps sought to draw. While it is true that the
liability, if recognized, would rest on an actual, not
hypothetical, psychological fact, the temptation to rest
an otherwise nonexistent 14 (a) action on psychological
enquiry alone would threaten just the sort of strike suits
and attrition by discovery that Blue Chip Stamps sought
to discourage. We therefore hold disbelief or undisclosed
motivation, standing alone, insufficient to satisfy the
element of fact that must be established under 14 (a).
C
Petitioners' fall-back position assumes the same relationship
between a conclusory judgment and its underlying facts
[501 U.S. 1083, 1097] that we described in Part II-B-1,
supra. Thus, citing Radol v. Thomas, 534 F. Supp. 1302,
1315, 1316 (SD Ohio 1982), petitioners argue that even
if conclusory statements of reason or belief can be actionable
under 14 (a), we should confine liability to instances
where the proxy material fails to disclose the offending
statement's factual basis. There would be no justification
for holding the shareholders entitled to judicial relief,
that is, when they were given evidence that a stated reason
for a proxy recommendation was misleading and an opportunity
to draw that conclusion themselves.
The answer to this argument rests on the
difference between a merely misleading statement and one
that is materially so. While a misleading statement will
not always lose its deceptive edge simply by joinder with
others that are true, the true statements may discredit
the other one so obviously that the risk of real deception
drops to nil. Since liability under 14 (a) must rest not
only on deceptiveness but materiality as well (i. e.,
it has to be significant enough to be important to a reasonable
investor deciding how to vote, see TSC Industries, 426
U.S., at 449 ), petitioners are on perfectly firm ground
insofar as they argue that publishing accurate facts in
a proxy statement can render a misleading proposition
too unimportant to ground liability.
But not every mixture with the true will
neutralize the deceptive. If it would take a financial
analyst to spot the tension between the one and the other,
whatever is misleading will remain materially so, and
liability should follow. Gerstle v. Gamble-Skogmo, Inc.,
478 F.2d 1281, 1297 (CA2 1973) ("[I]t is not sufficient
that overtones might have been picked up by the sensitive
antennae of investment analysts"). Cf. Milkovich
v. Lorain Journal Co., 497 U.S. 1, 18 -19 (1990) (a defamatory
assessment of facts can be actionable even if the facts
underlying the assessment are accurately presented). The
point of a proxy statement, after all, should be to inform,
not to challenge the reader's critical wits. Only when
the inconsistency would exhaust the misleading conclusion's
[501 U.S. 1083, 1098] capacity to influence the reasonable
shareholder would a 14 (a) action fail on the element
of materiality.
Suffice it to say that the evidence invoked
by petitioners in the instant case fell short of compelling
the jury to find the facial materiality of the misleading
statement neutralized. The directors claim, for example,
to have made an explanatory disclosure of further reasons
for their recommendation when they said they would keep
their seats following the merger, but they failed to mention
what at least one of them admitted in testimony, that
they would have had no expectation of doing so without
supporting the proposal, App. 281-282. 7 And although
the proxy statement did speak factually about the merger
price in describing it as higher than share prices in
recent sales, it failed even to mention the closed market
dominated by FABI. None of these disclosures that the
directors point to was, then, anything more than a half-truth,
and the record shows that another fact statement they
invoke was arguably even worse. The claim that the merger
price exceeded book value was controverted, as we have
seen already, by evidence of a higher book value than
the directors conceded, reflecting appreciation in the
Bank's real estate portfolio. Finally, the solicitation
omitted any mention of the Bank's value as a going concern
at more than $60 a share, as against the merger price
of $42. There was, in sum, no more of a compelling case
for the statement's immateriality than for its accuracy.
[501 U.S. 1083, 1099]
III
The second issue before us, left open in Mills v. Electric
Auto-Lite Co., 396 U.S., at 385 , n. 7, is whether causation
of damages compensable through the implied private right
of action under 14 (a) can be demonstrated by a member
of a class of minority shareholders whose votes are not
required by law or corporate bylaw to authorize the transaction
giving rise to the claim. 8 J. I. Case Co. v. Borak, 377
U.S. 426 (1964), did not itself address the requisites
of causation, as such, or define the class of plaintiffs
eligible to sue under 14 (a). But its general holding,
that a private cause of action was available to some shareholder
class, acquired greater clarity with a more definite concept
of causation in Mills, where we addressed the sufficiency
of proof that misstatements in a proxy solicitation were
responsible for damages claimed from the merger subject
to complaint.
Although a majority stockholder in Mills
controlled just over half the corporation's shares, a
two-thirds vote was needed to approve the merger proposal.
After proxies had been obtained, and the merger had carried,
minority shareholders brought a Borak action. Mills, 396
U.S., at 379 . The question arose whether the plaintiffs'
burden to demonstrate causation of their damages traceable
to the 14 (a) violation required proof that the defect
in the proxy solicitation had had "a decisive effect
on the voting." Id., at 385. The Mills Court avoided
the evidentiary morass that would have [501 U.S. 1083,
1100] followed from requiring individualized proof that
enough minority shareholders had relied upon the misstatements
to swing the vote. Instead, it held that causation of
damages by a material proxy misstatement could be established
by showing that minority proxies necessary and sufficient
to authorize the corporate acts had been given in accordance
with the tenor of the solicitation, and the Court described
such a causal relationship by calling the proxy solicitation
an "essential link in the accomplishment of the transaction."
Ibid. In the case before it, the Court found the solicitation
essential, as contrasted with one addressed to a class
of minority shareholders without votes required by law
or bylaw to authorize the action proposed, and left it
for another day to decide whether such a minority shareholder
could demonstrate causation. Id., at 385, n. 7.
In this case, respondents address Mills'
open question by proffering two theories that the proxy
solicitation addressed to them was an "essential
link" under the Mills causation test. 9 They argue,
first, that a link existed and was essential simply because
VBI and FABI would have been unwilling to proceed with
the merger without the approval manifested by the minority
shareholders' proxies, which would not have been obtained
without the solicitation's express misstatements [501
U.S. 1083, 1101] and misleading omissions. On this reasoning,
the causal connection would depend on a desire to avoid
bad shareholder or public relations, and the essential
character of the causal link would stem not from the enforceable
terms of the parties' corporate relationship, but from
one party's apprehension of the ill will of the other.
In the alternative, respondents argue that
the proxy statement was an essential link between the
directors' proposal and the merger because it was the
means to satisfy a state statutory requirement of minority
shareholder approval, as a condition for saving the merger
from voidability resulting from a conflict of interest
on the part of one of the Bank's directors, Jack Beddow,
who voted in favor of the merger while also serving as
a director of FABI. Brief for Respondents 43-44, 45-46.
Under the terms of Va. Code Ann. 13.1-691 (A) (1989),
minority approval after disclosure of the material facts
about the transaction and the director's interest was
one of three avenues to insulate the merger from later
attack for conflict, the two others being ratification
by the Bank's directors after like disclosure and proof
that the merger was fair to the corporation. On this theory,
causation would depend on the use of the proxy statement
for the purpose of obtaining votes sufficient to bar a
minority shareholder from commencing proceedings to declare
the merger void. 10 [501 U.S. 1083, 1102]
Although respondents have proffered each
of these theories as establishing a chain of causal connection
in which the proxy statement is claimed to have been an
"essential link," neither theory presents the
proxy solicitation as essential in the sense of Mills'
causal sequence, in which the solicitation links a directors'
proposal with the votes legally required to authorize
the action proposed. As a consequence, each theory would,
if adopted, extend the scope of Borak actions beyond the
ambit of Mills and expand the class of plaintiffs entitled
to bring Borak actions to include shareholders whose initial
authorization of the transaction prompting the proxy solicitation
is unnecessary.
Assessing the legitimacy of any such extension
or expansion calls for the application of some fundamental
principles governing recognition of a right of action
implied by a federal statute, the first of which was not,
in fact, the considered focus of the Borak opinion. The
rule that has emerged in the years since Borak and Mills
came down is that recognition of any private right of
action for violating a federal statute must ultimately
rest on congressional intent to provide a private remedy,
Touche Ross & Co. v. Redington, 442 U.S. 560, 575
(1979). From this the corollary follows that the breadth
of the right once recognized should not, as a general
matter, grow beyond the scope congressionally intended.
This rule and corollary present respondents
with a serious obstacle, for we can find no manifestation
of intent to recognize a cause of action (or class of
plaintiffs) as broad as respondents' theory of causation
would entail. At first blush, it might seem otherwise,
for the Borak Court certainly did not ignore the matter
of intent. Its opinion adverted to the statutory object
of "protection of investors" as animating Congress'
intent to provide judicial relief where "necessary,"
377 U.S., at 432 , and it quoted evidence for that intent
from House and Senate Committee Reports, id., at 431-432.
[501 U.S. 1083, 1103] Borak's probe of the congressional
mind, however, never focused squarely on private rights
of action, as distinct from the substantive objects of
the legislation, and one Member of the Borak Court later
characterized the "implication" of the private
right of action as resting modestly on the Act's "`exclusively
procedural provision' affording access to a federal forum."
Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S.
388, 403 , n. 4 (1971) (Harlan, J., concurring in judgment)
(internal quotation marks omitted). See generally L. Loss,
Fundamentals of Securities Regulation 929 (2d ed. 1988).
See also Touche Ross, supra, at 568, 578. In fact, the
importance of enquiring specifically into intent to authorize
a private cause of action became clear only later, see
Cort v. Ash, 422 U.S., at 78 , and only later still, in
Touche Ross, was this intent accorded primacy among the
considerations that might be thought to bear on any decision
to recognize a private remedy. There, in dealing with
a claimed private right under 17 (a) of the Act, we explained
that the "central inquiry remains whether Congress
intended to create, either expressly or by implication,
a private cause of action." 442 U.S., at 575 -576.
Looking to the Act's text and legislative
history mindful of this heightened concern reveals little
that would help toward understanding the intended scope
of any private right. According to the House Report, Congress
meant to promote the "free exercise" of stockholders'
voting rights, H. R. Rep. No. 1383, 73d Cong., 2d Sess.,
14 (1934), and protect "[f]air corporate suffrage,"
id., at 13, from abuses exemplified by proxy solicitations
that concealed what the Senate Report called the "real
nature" of the issues to be settled by the subsequent
votes, S. Rep. No. 792, 73d Cong., 2d Sess., 12 (1934).
While it is true that these Reports, like the language
of the Act itself, carry the clear message that Congress
meant to protect investors from misinformation that rendered
them unwitting agents of self-inflicted damage, it is
just as true that Congress was reticent with indications
of [501 U.S. 1083, 1104] how far this protection might
depend on self-help by private action. The response to
this reticence may be, of course, to claim that 14 (a)
cannot be enforced effectively for the sake of its intended
beneficiaries without their participation as private litigants.
Borak, supra, at 432. But the force of this argument for
inferred congressional intent depends on the degree of
need perceived by Congress, and we would have trouble
inferring any congressional urgency to depend on implied
private actions to deter violations of 14 (a), when Congress
expressly provided private rights of action in 9 (e),
16 (b), and 18 (a) of the same Act. See 15 U.S.C. 78i(e),
78p(b), and 78r(a). 11
The congressional silence that is thus a
serious obstacle to the expansion of cognizable Borak
causation is not, however, a necessarily insurmountable
barrier. This is not the first effort in recent years
to expand the scope of an action originally inferred from
the Act without "conclusive guidance" from Congress,
see Blue Chip Stamps v. Manor Drug Stores, 421 U.S., at
737 , and we may look to that earlier case for the proper
response to such a plea for expansion. There, we accepted
the proposition that where a legal structure of private
statutory rights has developed without clear indications
of congressional intent, the contours of that structure
need not be frozen absolutely when the result would be
demonstrably inequitable to a class of would-be plaintiffs
with claims comparable to those previously recognized.
Faced in that case with such a claim for equality in rounding
out the scope of an implied private statutory right of
action, we looked to policy reasons for deciding where
the outer limits of [501 U.S. 1083, 1105] the right should
lie. We may do no less here, in the face of respondents'
pleas for a private remedy to place them on the same footing
as shareholders with votes necessary for initial corporate
action.
A
Blue Chip Stamps set an example worth recalling as a preface
to specific policy analysis of the consequences of recognizing
respondents' first theory, that a desire to avoid minority
shareholders' ill will should suffice to justify recognizing
the requisite causality of a proxy statement needed to
garner that minority support. It will be recalled that
in Blue Chip Stamps we raised concerns about the practical
consequences of allowing recovery, under 10 (b) of the
Act and Rule 10b-5, on evidence of what a merely hypothetical
buyer or seller might have done on a set of facts that
never occurred, and foresaw that any such expanded liability
would turn on "hazy" issues inviting self-serving
testimony, strike suits, and protracted discovery, with
little chance of reasonable resolution by pretrial process.
Id., at 742-743. These were good reasons to deny recognition
to such claims in the absence of any apparent contrary
congressional intent.
The same threats of speculative claims and
procedural intractability are inherent in respondents'
theory of causation linked through the directors' desire
for a cosmetic vote. Causation would turn on inferences
about what the corporate directors would have thought
and done without the minority shareholder approval unneeded
to authorize action. A subsequently dissatisfied minority
shareholder would have virtual license to allege that
managerial timidity would have doomed corporate action
but for the ostensible approval induced by a misleading
statement, and opposing claims of hypothetical diffidence
and hypothetical boldness on the part of directors would
probably provide enough depositions in the usual case
to preclude any judicial resolution short of the credibility
judgments that can only come after trial. Reliable evidence
would seldom exist. Directors would understand [501 U.S.
1083, 1106] the prudence of making a few statements about
plans to proceed even without minority endorsement, and
discovery would be a quest for recollections of oral conversations
at odds with the official pronouncements, in hopes of
finding support for ex post facto guesses about how much
heat the directors would have stood in the absence of
minority approval. The issues would be hazy, their litigation
protracted, and their resolution unreliable. Given a choice,
we would reject any theory of causation that raised such
prospects, and we reject this one. 12
B
The theory of causal necessity derived from the requirements
of Virginia law dealing with postmerger ratification seeks
to identify the essential character of the proxy solicitation
from its function in obtaining the minority approval that
would preclude a minority suit attacking the merger. Since
the link is said to be a step in the process of barring
a class of shareholders from resort to a state remedy
otherwise available, this theory of causation rests upon
the proposition of policy that 14 (a) should provide a
federal remedy whenever a false or misleading proxy statement
results in the loss under state law of a shareholder plaintiff's
state remedy for [501 U.S. 1083, 1107] the enforcement
of a state right. Respondents agree with the suggestions
of counsel for the SEC and FDIC that causation be recognized,
for example, when a minority shareholder has been induced
by a misleading proxy statement to forfeit a state-law
right to an appraisal remedy by voting to approve a transaction,
cf. Swanson v. American Consumers Industries, Inc., 475
F.2d 516, 520-521 (CA7 1973), or when such a shareholder
has been deterred from obtaining an order enjoining a
damaging transaction by a proxy solicitation that misrepresents
the facts on which an injunction could properly have been
issued. Cf. Healey v. Catalyst Recovery of Pennsylvania,
Inc., 616 F.2d 641, 647-648 (CA3 1980); Alabama Farm Bureau
Mutual Casualty Co. v. American Fidelity Life Ins. Co.,
606 F.2d 602, 614 (CA5 1979), cert. denied, 449 U.S. 820
(1980). Respondents claim that in this case a predicate
for recognizing just such a causal link exists in Va.
Code Ann. 13.1-691 (A)(2) (1989), which sets the conditions
under which the merger may be insulated from suit by a
minority shareholder seeking to void it on account of
Beddow's conflict.
This case does not, however, require us
to decide whether 14(a) provides a cause of action for
lost state remedies, since there is no indication in the
law or facts before us that the proxy solicitation resulted
in any such loss. The contrary appears to be the case.
Assuming the soundness of respondents' characterization
of the proxy statement as materially misleading, the very
terms of the Virginia statute indicate that a favorable
minority vote induced by the solicitation would not suffice
to render the merger invulnerable to later attack on the
ground of the conflict. The statute bars a shareholder
from seeking to avoid a transaction tainted by a director's
conflict if, inter alia, the minority shareholders ratified
the transaction following disclosure of the material facts
of the transaction and the conflict. Va. Code Ann. [501
U.S. 1083, 1108] 13.1-691(A)(2) (1989). Assuming that
the material facts about the merger and Beddow's interests
were not accurately disclosed, the minority votes were
inadequate to ratify the merger under state law, and there
was no loss of state remedy to connect the proxy solicitation
with harm to minority shareholders irredressable under
state law. 13 Nor is there a claim here that the statement
misled respondents into entertaining a false belief that
they had no chance to upset the merger until the time
for bringing suit had run out. 14
IV
The judgment of the Court of Appeals is reversed.
It is so ordered.
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