J. I. Case Co. v. Borak

377 U.S. 426, 84 S. Ct. 1555 (1964)



The purpose of § 14 (a) of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78n(a), is to prevent management or others from obtaining authorization for corporate action by means of deceptive or inadequate disclosure in proxy solicitation. Its broad remedial purposes are evidenced in the language of the section which makes it unlawful for any person to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security registered on any national securities exchange in contravention of such rules and regulations as the Securities and Exchange Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. While the language makes no specific reference to a private right of action, among its chief purposes is "the protection of investors," which certainly implies the availability of judicial relief where necessary to achieve that result.


Respondent shareholder had alleged deprivation of his and other shareholders' pre-emptive rights by a merger allegedly effected by circulation of a false and misleading proxy statement in violation of § 14(a) of the Securities Exchange Act of 1934. In a stockholder's action challenging the merger of petitioner corporation with another corporation, the District Court dismissed, on the ground that it could grant only declaratory relief, that part of the complaint which sought damages and equitable relief for a violation of 14(a) of the Securities Exchange Act by the use of allegedly false material in the solicitation of proxies for the special stockholders' meeting at which the corporate merger was approved. The Court of Appeals reversed on the ground that the District Court had power to grant remedial relief. On certiorari, the Supreme Court affirmed. 


Does § 27 of the Securities Exchange Act of 1934 authorize 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 in violation of § 14 of the same Act?




Federal courts have power to grant all necessary remedial relief in a suit for violation of 14(a). The judgment was affirmed because a federal cause of action was authorized for rescission or damages to a corporate stockholder. Here, respondent had suffered from petitioner's consummated merger, which was allegedly effected pursuant to the use of a proxy statement containing false and misleading statements.

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