501 U.S. 1083 (1991)
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 wholly owned subsidiary of FABI.1 VBI owned 85 percent of the Bank's shares, with the remaining 15 percent held by approximately 2,000 minority shareholders.2 FABI hired the investment banking firm of Keefe, Bruyette & Woods (KBW) to opine on the appropriate price for the minority shares.3 Based on market quotations and unverified information from FABI, KBW advised the Bank's executive committee that $42 per share would be a fair price.4 The executive committee approved the merger proposal at that price, and the full board followed suit.5
Although Virginia law required only that the merger proposal be submitted to a vote at a shareholders' meeting preceded by circulation of a statement of information, the directors solicited proxies for voting on the proposal at the annual meeting set for April 21, 1987.6 In the solicitation, the directors urged adoption of the proposal and stated they had approved the plan because it provided an opportunity for the minority shareholders to achieve a high value for their shares, which they elsewhere described as a fair price.7
Respondent Sandberg, a minority shareholder who did not provide the requested proxy, filed suit in the United States District Court for the Eastern District of Virginia against VBI, FABI, and the Bank's directors.8 She alleged violations of section 14(a) and Rule 14a-9.9 She also alleged breaches of fiduciary duties under state law.10 Sandberg claimed the directors did not believe the $42 price was high or the merger terms fair but recommended the merger only to retain their board seats.11 At trial, the jury returned verdicts for Sandberg on both counts and awarded her $18 per share after finding she would have received $60 if the stock had been valued adequately.12
While Sandberg's case was pending, other minority shareholders including respondent Weinstein filed a similar action in the United States District Court for the District of Columbia.13 That case was transferred to the Eastern District of Virginia.14 After Sandberg's trial, the Weinstein respondents obtained summary judgment on liability through collateral estoppel.15 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 and that the respondents could maintain their action even though their votes had not been needed to effectuate the merger.16 The Supreme Court granted certiorari.17
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?18
Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 prohibit proxy solicitations containing materially false or misleading statements.19 A fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.20 Statements of directors' reasons or beliefs are factual in two senses: they assert that the directors hold the stated belief and that the belief rests on supporting facts about the subject matter.21 Such statements are actionable when knowingly false, even if phrased in conclusory terms like high value or fair price, because they can be proven or disproven through corporate records, minutes, and circumstantial evidence of underlying valuations without inviting the speculative claims addressed in Blue Chip Stamps v. Manor Drug Stores.22
Yes.
The directors stated in the proxy solicitation that the plan of merger provided an opportunity for the Bank's public shareholders to achieve a high value for their shares and described the price elsewhere as fair.23 The jury found after trial that the directors did not believe the $42 price was high or the merger terms fair.24 Instead the directors recommended the merger because they believed they had no alternative if they wished to remain on the board.25 Evidence at trial showed that a book-value calculation reflecting appreciated real-estate holdings eliminated any premium over book value.26 The evidence also showed that the market was closed and dominated by FABI.27 The evidence further showed that the Bank's going-concern value exceeded $60 per share.28 These facts establish that the statement was knowingly false both as to the directors' actual belief and as to the subject matter of value.29 The facts satisfy the materiality standard because a reasonable shareholder would consider the directors' true reasons and the accuracy of the valuation important in deciding how to vote.30
The evidence consisted of corporate records and objective valuation data outside any plaintiff's control.31 This evidence eliminated the risk of hypothetical or manufactured claims.32 The statement therefore constituted a materially misleading representation under Rule 14a-9 even though it was couched in qualitative terms.33
Statements couched in conclusory or qualitative terms purporting to explain directors' reasons for recommending corporate action can be materially misleading within the meaning of Rule 14a-9 when they are knowingly false as to both the directors' belief and the underlying subject matter.34 The statements remain actionable under the statute.35
Related opinions on this issue
Justice Scalia concurred in the judgment and in all but Part II of the opinion.36 He read the specific proxy statement at issue as asserting separately both the fact of the directors' opinion and the factual accuracy of the reasons given for that opinion.37 These are all facts that support and that are obviously introduced for the purpose of supporting the factual truth of the because clause, that is, that the proposal gives shareholders a high value.
Scalia therefore concluded that normal principles governing misrepresentation of fact applied rather than any special rule for pure opinions.38 He also noted his view that the implied private action should be kept narrow because it was never expressly enacted by Congress.39
Whether causation of damages compensable under section 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?40
Causation under the implied private right of action for section 14(a) violations requires proof that the proxy solicitation was an essential link in the accomplishment of the transaction, meaning the solicitation obtained proxies necessary and sufficient to authorize the corporate action under law or bylaw.41 Recognition of any implied private right must rest on congressional intent, and the scope of the action should not expand beyond that intent.42 Theories relying on a desire to avoid minority shareholder ill will or to obtain ratification that would bar state-law challenges do not satisfy the essential-link requirement when minority votes are not legally required to authorize the transaction.43
No.
The minority shareholders held only 15 percent of the Bank's shares.44 Virginia law required only submission of the merger proposal to a shareholders' meeting preceded by an information statement.45 It did not require minority approval to authorize the merger.46 The first causation theory, that FABI and VBI would not have proceeded without minority proxies to avoid bad shareholder or public relations, depends on hypothetical inferences about directors' timidity.47 That theory would invite precisely the speculative, protracted litigation that Blue Chip Stamps sought to avoid.48 The second theory, that the proxy solicitation satisfied Virginia Code section 13.1-691(A) ratification requirements and thereby barred a state-law conflict-of-interest challenge, fails because inadequate disclosure prevented the minority votes from effecting valid ratification under state law.49 No state remedy was lost.50 Neither theory supplies the essential link required by Mills v. Electric Auto-Lite Co. between the solicitation and votes legally necessary to authorize the transaction.51
Extending the private action to shareholders whose votes are not required would enlarge the class of plaintiffs beyond the scope Congress intended.52 That extension would rest on policy considerations insufficient to overcome the absence of statutory authorization.53
Causation of damages compensable under section 14(a) cannot 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.54 The private right of action does not extend to such shareholders.55
Related opinions on this issue
Joined by Justice Marshall
Justice Stevens, joined by Justice Marshall, concurred in Parts I and II but dissented from Part III.56 He emphasized that the jury had found the merger unfair, strengthening the case for a remedy compared with Mills where the transaction was fair.57 The case before us today involves a merger that has been found by a jury to be unfair, not fair.58
The interest in providing a remedy to the injured minority shareholders therefore is stronger, not weaker, than in Mills.59 Stevens would hold that once management chooses to solicit proxies from minority shareholders for legal or practical reasons, the solicitation becomes an essential link in the accomplishment of the transaction. He argued that corporate officers should not be permitted to avoid the constraints of section 14(a) simply because the law or bylaws did not require minority votes.60
Stevens would therefore affirm the judgment of the Court of Appeals.61
Joined by Justices Marshall, Blackmun, And Stevens
Justice Kennedy, joined by Justices Marshall, Blackmun, and Stevens, concurred in Parts I and II but dissented from Part III.62 He maintained that nonvoting causation theories are consistent with Mills and supported by the record.63 Evidence showed FABI sought a friendly transaction with a price high enough that any reasonable shareholder would accept it and that management was concerned about loss of community support and adverse perception.64
The prior failed Maryland freeze-out demonstrated that boards could reject proposals when independent advice revealed unfairness.65 Kennedy concluded that the proxy statement remained an essential link in completing the transaction even though minority shareholders lacked sufficient votes to defeat it, because full disclosure could have prompted withdrawal or revision of the proposal.