377 U.S. 426 (1964), 402, J. I Case Co. v. Borak

Docket Nº:No. 402
Citation:377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423
Party Name:J. I Case Co. v. Borak
Case Date:June 08, 1964
Court:United States Supreme Court

Page 426

377 U.S. 426 (1964)

84 S.Ct. 1555, 12 L.Ed.2d 423

J. I Case Co.

v.

Borak

No. 402

United States Supreme Court

June 8, 1964

Argued April 22-23, 1964

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Syllabus

Respondent, stockholder of petitioner company, brought a civil action in federal court for deprivation of his and other stockholders' preemptive rights by reason of a merger involving the company, allegedly effected through use of a false and misleading proxy statement. The complaint has two counts, one based on diversity and claiming a breach of directors' fiduciary duty to stockholders and the other alleging a violation of § 14(a) of the Securities Exchange Act of 1934. The District Court held that, in a private suit, it could grant only declaratory relief under § 27 of the Act as to the second count, and that a state statute requiring security for expenses in derivative actions applied to everything but that part of Count 2 seeking a declaratory judgment. The Court of Appeals reversed, holding that the state law was inapplicable and that the District Court had power to grant remedial relief.

Held:

1. Private suits are permissible under § 27 for violation of §14(a) for both derivative and direct causes. Pp. 430-431.

2. Federal courts will provide the remedies required to carry out the congressional purpose of protecting federal rights. Pp. 433-435.

(a) Remedies are not limited to prospective or declaratory relief, but the overriding federal law controls the measure of redress. P. 434.

(b) The character of the right remains federal, although state law questions must also be decided. P. 434.

(c) The determination of a remedy in this case must await trial on the merits. P. 435.

317 F.2d 838, affirmed.

Page 427

CLARK, J., lead opinion

MR. JUSTICE CLARK delivered the opinion of the Court.

This is a civil action brought by respondent, a stockholder of petitioner J. I. Case Company, charging deprivation of the preemptive rights of respondent and other shareholders by reason by a merger between Case and the American Tractor Corporation. It is alleged that the merger was effected through the circulation of a false and misleading proxy statement by those proposing the merger. The complaint was in two counts, the first based on diversity and claiming a breach of the directors' fiduciary duty to the stockholders. The second count alleged a violation of § 14(a)1 of the Securities Exchange Act of 1934 with reference to the proxy solicitation material. The trial court held that as to this court it had no power to redress the alleged violations of the Act, but was limited solely to the granting of declaratory

Page 428

relief thereon under § 27 of the Act.2 The Court held Wis.Stat., 1961, § [84 S.Ct. 1558] 180.405(4), which requires posting security for expenses in derivative actions, applicable to both counts, except that portion of Count 2 requesting declaratory relief. It ordered the respondent to furnish a bond in the amount of $75,000 thereunder and, upon his failure to do so, dismissed the complaint, save that part of Count 2 seeking a declaratory judgment. On interlocutory appeal, the Court of Appeals reversed on both counts, holding that the District Court had the power to grant remedial relief and that the Wisconsin statute was not applicable. 317 F.2d 838. We granted certiorari. 375 U.S. 901. We consider only 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 which was authorized pursuant to the use of a proxy statement alleged to contain false and misleading statements violative of § 14(a) of the Act. This being the sole question raised by petitioners in their petition for certiorari, we will not consider other questions subsequently presented.

Page 429

See Supreme Court Rule 40(1)(d)(2);3 Local 1976, United Brotherhood of Carpenters v. Labor Board, 357 U.S. 93, 96 (1958); Irvine v. California, 347 U.S. 128, 129-130 (1954).

I

Respondent, the owner of 2,000 shares of common stock of Case acquired prior to the merger, brought this suit based on diversity jurisdiction seeking the enjoin a proposed merger between Case and the American Tractor Corporation (ATC) on various 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 injunction was denied, and the merger was thereafter consummated. Subsequently, successive amended complaints were filed, and the case was heard on the aforesaid two-count complaint. The claims pertinent to the asserted violation of the Securities Exchange Act were predicated on diversity jurisdiction as well as on § 27 of the Act. They alleged: that petitioners, or their predecessors, solicited or permitted their names to be used in the solicitation of proxies of Case stockholders for use at a special stockholders' meeting at which the proposed merger with ATC was to be voted upon; that the proxy solicitation material so circulated was false and misleading in violation of § 14(a) of the Act and Rule 14a-9 which the Commission had promulgated thereunder;4

Page 430

that the merger was [84 S.Ct. 1559] approved at the meeting by a small margin of votes, and was thereafter consummated; that the merger would not have been approved but for the false and misleading statements in the proxy solicitation material; and that Case stockholders were damaged thereby. The respondent sought judgment holding the merger void and damages for himself and all other stockholders similarly situated, as well as such further relief "as equity shall require." The District Court ruled that the Wisconsin security for expenses statute did not apply to Count 2, since it arose under federal law. However, the court found that its jurisdiction was limited to declaratory relief in a private, as opposed to a government, suit alleging violation of § 14(a) of the Act. Since the additional equitable relief and damages prayed for by the respondent would therefore be available only under state law, it ruled those claims subject to the security for expenses statute. After setting the amount of security at $75,000, and upon the representation of counsel that the security would not be posted, the court dismissed the complaint, save that portion of Count 2 seeking a declaration that the proxy solicitation material was false and misleading and that the proxies and, hence, the merger were void.

II

It appears clear that private parties have a right under § 27 to bring suit for violation of § 14(a) of the

Page 431

Act. Indeed, this section specifically grants the appropriate District Courts jurisdiction over "all suits in equity and actions at law brought to enforce any liability or duty created" under the Act. The petitioners make no concessions, however, emphasizing that Congress made no specific reference to a private right of action in § 14(a); that, in any event, the right would not extend to derivative suits, and should be limited to prospective relief only. In addition, some of the petitioners argue that the merger can be dissolved only if it was fraudulent or nonbeneficial, issues upon which the proxy material would not bear. But the causal relationship of the proxy material and the merger are questions of fact to be resolved at trial, not here. We therefore do not discuss this point further.

III

...

To continue reading

FREE SIGN UP
1144 practice notes
  • 316 F.Supp. 151 (D.Del. 1970), Civ. A. 3795, Jacobs v. Tenney
    • United States
    • Federal Cases United States District Courts 3th Circuit District of Delaware
    • August 13, 1970
    ...erroneous. This case is based in part on the violation of the Securities Act of '34. The Supreme Court held in J. I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964) that federal courts were empowered to provide the remedies required to carry out the congressional purpo......
  • 353 F.Supp. 1264 (N.D.Ohio 1972), Civ. C-71-15, Golob v. Nauman Vandervoort, Inc.
    • United States
    • Federal Cases United States District Courts 6th Circuit Northern District of Ohio
    • May 17, 1972
    ...See Rule 10b-5 and the case law construction thereof. Barnett v. Anaconda Co., 238 F.Supp. 766 (S.D.N.Y.1965); J. I. Case Co. v. Borak, 377 U.S. 426, 433, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964); Moscarelli v. A. L. Stamm, 288 F.Supp. 453 (E.D.N.Y.1968); Deckert v. Independence Shares, 311 U.S......
  • 36 B.R. 683 (Bkrtcy.N.D.Ill. 1984), 83 A 2661, In re Haas
    • United States
    • Federal Cases United States Bankruptcy Courts Seventh Circuit
    • January 19, 1984
    ...692, 695 (2d Cir.1966); Calumet Industries, Inc. v. MacClure, 464 F.Supp. 19, 28 (N.D.Ill.1978); See generally J.I. Case Co. v. Borak, 377 U.S. 426, 431-33, 84 S.Ct. 1555, 1559-60, 12 L.Ed.2d 423 Defendants' suggestion of mootness, as it pertains to both counts of Plaintiff's complaint, pre......
  • 360 F.Supp. 366 (S.D.N.Y. 1973), 110, In re Caesars Palace Securities Litigation
    • United States
    • Federal Cases United States District Courts 2nd Circuit Southern District of New York
    • May 23, 1973
    ...this matter. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970), citing J. I. Case Co. v. Borak, 377 U.S. 426, 431, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). In addition, although no specific allegations of corporate action taken in connection with the p......
  • Free signup to view additional results
1078 cases
  • 316 F.Supp. 151 (D.Del. 1970), Civ. A. 3795, Jacobs v. Tenney
    • United States
    • Federal Cases United States District Courts 3th Circuit District of Delaware
    • August 13, 1970
    ...erroneous. This case is based in part on the violation of the Securities Act of '34. The Supreme Court held in J. I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964) that federal courts were empowered to provide the remedies required to carry out the congressional purpo......
  • 353 F.Supp. 1264 (N.D.Ohio 1972), Civ. C-71-15, Golob v. Nauman Vandervoort, Inc.
    • United States
    • Federal Cases United States District Courts 6th Circuit Northern District of Ohio
    • May 17, 1972
    ...See Rule 10b-5 and the case law construction thereof. Barnett v. Anaconda Co., 238 F.Supp. 766 (S.D.N.Y.1965); J. I. Case Co. v. Borak, 377 U.S. 426, 433, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964); Moscarelli v. A. L. Stamm, 288 F.Supp. 453 (E.D.N.Y.1968); Deckert v. Independence Shares, 311 U.S......
  • 36 B.R. 683 (Bkrtcy.N.D.Ill. 1984), 83 A 2661, In re Haas
    • United States
    • Federal Cases United States Bankruptcy Courts Seventh Circuit
    • January 19, 1984
    ...692, 695 (2d Cir.1966); Calumet Industries, Inc. v. MacClure, 464 F.Supp. 19, 28 (N.D.Ill.1978); See generally J.I. Case Co. v. Borak, 377 U.S. 426, 431-33, 84 S.Ct. 1555, 1559-60, 12 L.Ed.2d 423 Defendants' suggestion of mootness, as it pertains to both counts of Plaintiff's complaint, pre......
  • 360 F.Supp. 366 (S.D.N.Y. 1973), 110, In re Caesars Palace Securities Litigation
    • United States
    • Federal Cases United States District Courts 2nd Circuit Southern District of New York
    • May 23, 1973
    ...this matter. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970), citing J. I. Case Co. v. Borak, 377 U.S. 426, 431, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). In addition, although no specific allegations of corporate action taken in connection with the p......
  • Free signup to view additional results
8 firm's commentaries
  • Class Certification In Securities Fraud Actions: A View From The Second Circuit
    • United States
    • Mondaq United States
    • December 8, 2011
    ...a right in light of Congress' intent to supplement Commission action of the Commission with private enforcement. J. I. Case Co. v. Borak, 377 U.S. 426, 432 (1964). However, the Second Circuit placed limits on this private right of action under Rule 10b-5 by limiting the class of plaintiffs ......
  • New York City Bar Association Committee On Securities Litigation: Report on the Possible Impact of Halliburton II on Securities Class Action Litigation
    • United States
    • JD Supra United States
    • June 6, 2014
    ...Inc. v. Berner, 472 U.S. 299, 310 (1985); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730 (1975); J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964); Randall v. Loftsgaarden, 478 U.S. 647, 664 (1986). 272 Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct. 761, 778 ......
  • Emulex: Limits on the Authority of the Courts
    • United States
    • JD Supra United States
    • May 1, 2019
    ...noting that under Exchange Act Section 14(a) there is an implied cause of action. That was recognized by the Court in J. I. Case v. Borak, 377 U.S. 426 (1964)(holding that where a proxy statement was materially misleading – a fact that would not be apparent to the SEC until after the merger......
  • Emulex: Limits on the Authority of the Courts
    • United States
    • LexBlog United States
    • May 1, 2019
    ...noting that under Exchange Act Section 14(a) there is an implied cause of action. That was recognized by the Court in J. I. Case v. Borak, 377 U.S. 426 (1964)(holding that where a proxy statement was materially misleading – a fact that would not be apparent to the SEC until after the merger......
  • Free signup to view additional results
49 books & journal articles
  • Toward a just measure of repose: the statute of limitations for securities fraud.
    • United States
    • William and Mary Law Review Vol. 52 Nbr. 5, April 2011
    • April 1, 2011
    ...647, 664 (1986) (noting "the deterrent value of private rights of action" under the securities laws); J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964) ("Private enforcement ... provides a necessary supplement to [SEC] action."). (21.) Ernst & Ernst v. Hochfelder, 425......
  • The balance among corporate criminal liability, private civil suits, and regulatory enforcement.
    • United States
    • American Criminal Law Review Vol. 46 Nbr. 4, September - September 2009
    • September 22, 2009
    ...(2009) was promulgated in 1942 pursuant to section 10(b) of the Securities Exchange Act of 1934. (68.) See J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964) (stating that private enforcement of the securities laws "provides a necessary supplement to Commission action"). In 1971, th......
  • Corporate democracy from say on pay to say on politics.
    • United States
    • Constitutional Commentary Vol. 30 Nbr. 2, June - June 2015
    • June 22, 2015
    ...2015). (10.) Dodd-Frank Section 951(a)(2); Exchange Act Section 14A(a)(2); 15 U.S.C. [section] 78n-1(a)(2). (11.) J. I. Case Co. v. Borak, 377 U.S. 426, 431 (1964) ("The section stemmed from the congressional belief that '[f]air corporate suffrage is an important right that should atta......
  • Legislating preemption.
    • United States
    • William and Mary Law Review Vol. 53 Nbr. 1, October 2011
    • October 1, 2011
    ...costs of decision making to other branches of government. See Rodriguez, supra note 64, at 218. (182.) See infra Part II.B.1. (183.) 377 U.S. 426 (1964). (184.) See Erwin Chemerinsky, Ending the Parity Debate, 71 B.U.L. REV. 593, 597 (1991) ("The Warren Court generally expanded the sco......
  • Free signup to view additional results
9 provisions
  • Part II
    • United States
    • Federal Register June 18, 2009
    • June 10, 2009
    ...H.R. Rep. No. 1383, 73d Cong., 2d Sess., 13. See also Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381 (1970); J. I. Case Co. v. Borak, 377 U.S. 426, 431 (1964). \24\ S. Rep. No. 792, 73d Cong., 2d Sess., 12 (1934). \25\ H.R. Rep. No. 1383, 73d Cong., 2d Sess., 14 (1934). The same report ......
  • Part V
    • United States
    • Federal Register August 03, 2007
    • July 27, 2007
    ...Auto-Lite Co., 396 U.S. 375, 381 (1970), quoting H.R. Rep. No. 1383, 73d Cong., 2d Sess., at 13 (1934). See also J. I. Case Co. v. Borak, 377 U.S. 426, 431 (1964). \9\ S. Rep. No. 792, 73d Cong., 2d Sess., at 12 (1934). \10\ H.R. Rep. No. 1383, 73d Cong., 2d Sess., at 14 (1934). The same re......
  • Securities: Company proxy materials; shareholder proposals,
    • United States
    • Federal Register August 03, 2007
    • July 27, 2007
    ...Auto-Lite Co., 396 U.S. 375, 381 (1970), quoting H.R. Rep. No. 1383, 73d Cong., 2d Sess., at 13 (1934). See also J. I. Case Co. v. Borak, 377 U.S. 426, 431 (1964). \9\ S. Rep. No. 792, 73d Cong., 2d Sess., at 12 (1934). \10\ H.R. Rep. No. 1383, 73d Cong., 2d Sess., at 14 (1934). The same re......
  • Universal Proxy
    • United States
    • Federal Register November 10, 2016
    • November 10, 2016
    ...H. R. Rep. No. 73-1383, 2d Sess., at 13 (1934). See also Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 381 (1970); J. I. Case Co. v. Borak, 377 U.S. 426, 431 (1964). The congressional report accompanying the Exchange Act further indicated that ``inasmuch as only the exchanges make it possible......
  • Free signup to view additional results