Smykla v. Molinaroli

Dist. Ct. did not err in dismissing plaintiffs-shareholders’ claim under section 14(a) of Securities Exchange Act (SEA), alleging that defendants (corporation, its senior executive officers and members of board of directors) breached fiduciary duties by issuing proxy statement that contained materially misleading statements and omissions regarding proposed merger that altered total mix of information to plaintiffs and other shareholders. Record showed that defendants hired two financial advisors that opined in proxy that proposed merger was “fair” to shareholders. Proxy also stated that market price for plaintiffs’ shares could change, such that shareholders could not be sure of value of consideration they would receive from merger, and that plaintiffs should seek tax advice. Shareholders eventually voted to approve merger, and plaintiffs thereafter sued defendants under SEA, alleging that defendants wrongfully structured merger that resulted in shareholders being taxed without providing sufficient disclosures. Dist. Ct. could properly dismiss complaint due to belief that plaintiffs had failed to explain why any statements in proxy were misleading, especially where proxy disclosed detailed terms of merger, as well as facts used to form defendants’ opinions and scope of their inquiry. Ct. of Appeals rejected plaintiffs’ contention that failure of defendants to disclose alternative way to structure merger that would have potentially avoided negative tax consequences for shareholders qualified as material omission.