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Va. Bankshares v. Sandberg - 501 U.S. 1083, 111 S. Ct. 2749 (1991)


Since liability under the Securities Exchange Act of 1934, 15 U.S.C.S. § 78n(a), must rest not only on deceptiveness but materiality as well, publishing accurate facts in a proxy statement can render a misleading proposition too unimportant to ground liability. But not every mixture with the true will neutralize the deceptive. If it would take a financial analyst to spot the tension between the one and the other, whatever is misleading will remain materially so, and liability should follow. The point of a proxy statement, after all, should be to inform, not to challenge the reader's critical wits. Only when the inconsistency would exhaust the misleading conclusion's capacity to influence the reasonable shareholder would an action fail on the element of materiality.


As part of a proposed "freeze-out" merger, wherein First American Bank of Virginia (Bank) would be merged into petitioner Virginia Bankshares, Inc. (VBI), a wholly owned subsidiary of First American Bankshares, Inc. (FABI), the Bank's executive committee and board approved a price of $ 42 a share for the minority stockholders, who would lose their interests in the Bank after the merger. Although Virginia law required only that the merger proposal be submitted to a vote at a shareholders' meeting, preceded by a circulation of an informational statement to the shareholders, petitioner Bank directors nevertheless solicited proxies for voting on the proposal. Their solicitation urged the proposal's adoption and stated that the plan had been approved because of its opportunity for the minority shareholders to receive a "high" value for their stock. Respondent Sandberg did not give her proxy and filed suit in district court after the merger was approved, seeking damages from petitioners for soliciting proxies by means of materially false or misleading statements in violation of § 14(a) of the Securities Exchange Act of 1934 and the Security and Exchange Commission's Rule 14a-9. Among other things, she alleged that the directors believed they had no alternative but to recommend the merger if they wished to remain on the board. The district court found in favor of respondents and awarded damages. The appellate court affirmed holding that certain statements in the proxy solicitation were materially misleading. 


Did the lower courts err in awarding Sandberg damages?




The Court held that although the knowingly false statements made could have been actionable, albeit in conclusory form, respondent Sandberg failed to demonstrate the equitable basis required to extend the private action pursuant to 15 U.S.C.S. § 78n(a) to her.

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