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|
Argued April 22-23, 1964
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
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.
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.
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
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.
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...
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