derivative suits

Respondent owned 2,000 shares of common stock of J. I. Case Company acquired prior to the merger. He brought a civil action based on diversity jurisdiction. Respondent sought to enjoin a proposed merger between Case and the American Tractor Corporation on grounds including breach of the fiduciary duties of the Case directors, self-dealing among the management of Case and ATC, and misrepresentations contained in the material circulated to obtain proxies. The complaint was in two counts. The first count was based on diversity and claimed a breach of the directors' fiduciary duty to the stockholders. The second count alleged a violation of § 14(a) of the Securities Exchange Act of 1934 with reference to the proxy solicitation material. The injunction was denied and the merger was consummated. Successive amended complaints were filed. The case was heard on the two-count complaint. The allegations included that petitioners solicited proxies for a special stockholders’ meeting at which the merger was to be voted upon. The proxy solicitation material was false and misleading in violation of § 14(a) and Rule 14a-9. The merger was approved by a small margin of votes and would not have been approved but for the false and misleading statements. Case stockholders were damaged thereby. The District Court held that as to the federal count it had no power to redress the alleged violations of the Act but was limited solely to the granting of declaratory relief thereon under § 27 of the Act. The court held the Wisconsin security for expenses statute applicable to both counts except the declaratory portion of Count 2. It ordered respondent to furnish a bond in the amount of $75,000. Upon his failure to do so, the court dismissed the complaint save that part of Count 2 seeking a declaratory judgment. On interlocutory appeal the Court of Appeals reversed on both counts. It held that the District Court had the power to grant remedial relief and that the Wisconsin statute was not applicable. The Supreme Court granted certiorari limited to the question of whether § 27 of the Act authorizes a federal cause of action for rescission or damages to a corporate stockholder with respect to a consummated merger authorized pursuant to a proxy statement alleged to contain false and misleading statements violative of § 14(a) of the Act.