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Supreme Court of the United States
April 22-23, 1964, Argued ; June 8, 1964, Decided
[*427] [***424] [**1557] 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 [***425] deprivation of the pre-emptive rights of respondent and other shareholders by reason of 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 count it had no power to redress the alleged violations of the Act but was limited solely to the granting of declaratory [*428] relief thereon under § 27 of the [****4] Act. 2 [****6] [**1558] The court held Wis. Stat., 1961, § 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. [*429] See Supreme [****5] Court Rule 40 (1)(d)(2); 3 Local 1976, United Brotherhood [***426] of Carpenters v. Labor Board, 357 U.S. 93, 96 (1958); Irvine v. California, 347 U.S. 128, 129-130 (1954).
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 to 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 [****7] 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 [*430] that the merger was [**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 [****8] 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.
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377 U.S. 426 *; 84 S. Ct. 1555 **; 12 L. Ed. 2d 423 ***; 1964 U.S. LEXIS 2352 ****
J. I. CASE CO. ET AL. v. BORAK
Prior History: [****1] CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT.
Disposition: 317 F.2d 838, affirmed.
proxy, merger, solicitation, stockholders, false and misleading, proxy statement, federal court, declaratory, effective, questions, damages
Mergers & Acquisitions Law, Takeovers & Tender Offers, Securities Law, Postoffering & Secondary Distributions, Proxies, General Overview, Civil Procedure, Subject Matter Jurisdiction, Jurisdiction Over Actions, Exclusive Jurisdiction, Federal Jurisdiction, Jurisdiction, Express Liabilities, Misleading Statements, Business & Corporate Compliance, Regulators, US Securities & Exchange Commission, Necessity for Regulation, Governments, Legislation, Statutory Remedies & Rights, Constitutional Law, The Judiciary, Civil Liability Considerations, Preservation of Remedies & Rights