The Court determines that plaintiffs have produced no evidence to link the reported embezzlement by and replacement of Mr. Darwaish with the matters proposed by the proxy statement. Therefore, the omission of these facts from the proxy statement does not render the proxy statement false or misleading, nor does it constitute a violation of federal securities laws.
In TSC Industries v. Northway, Inc., 426 U.S. 438, 449, 96 S. Ct. 2126, 48 L. Ed. 2d 757 (1976), the Supreme Court set forth the general standard of materiality. An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. The misstatement or omission must have a significant propensity to affect the voting process. It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote, but contemplates a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the reasonable shareholder's deliberations.
The overriding purpose of the materiality requirement is protection of the investor by providing him with otherwise unobtainable information without which an informed decision cannot be made. Boyertown Burial Casket Company v. Amedco, Inc., 407 F. Supp. 811 (E.D. Pa. 1976). An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. Such a standard contemplates a showing of substantial likelihood that, under all circumstances, omitted facts would have significantly altered the total mix of information made available. Telvest, Inc. v. Wisconsin Real Estate Investment Trust, 489 F. Supp. 250 (D.C. Wisc. 1980).
In the instant case, the Court determines that the omitted facts do not meet the test of materiality as set forth above. The Court does not believe that there is a substantial likelihood that a reasonable investor would have viewed any omitted fact or any alleged misstatement as having significantly altered the total mix information made available. Rather, the proxy statement contained all relevant material information which a reasonable stockholder would need in order to make a reasoned decision whether to vote for the merger. There are no omitted facts or misstated facts that a reasonable shareholder would consider important in deciding how to vote. The Court does not believe that there is a substantial likelihood that any allegedly omitted fact or misstatement would have assumed actual significance in a reasonable shareholder's deliberations. The alleged omissions and misstatements are not material, and the right of the shareholders to a fair and accurate disclosure has been fulfilled.
Having determined that plaintiffs' claims have not met the materiality test, the gravamen of plaintiffs' remaining claims concern the fairness of the price offered for the Class A shares and an alleged breach of fiduciary duty. In Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S. Ct. 1292, 51 L. Ed. 2d 480 (1977), the Supreme Court held that breach of a fiduciary duty, without any deception, misrepresentation, or nondisclosure, does not state a cause of action under federal securities laws. The Court held that such conduct, consisting mainly of corporate mismanagement and involving no misrepresentation or failure to disclose, could not fairly be viewed as "manipulative or deceptive" within the meaning of the statute and thus fell outside the scope of the provision. Id. at 473-74. Therefore, because plaintiffs have failed to state a claim under the federal securities laws, the motion to dismiss must be granted.
Even had plaintiffs' claims met the test for materiality on the allegations of misrepresentation and omission, for the reasons set forth in the April 17, 1985, Memorandum Opinion in Berg v. First American Bankshares, Inc., Civil Action No. 83-3887 (D.D.C.), plaintiffs' federal claims would fail because plaintiffs' reliance can be neither proved nor presumed.
Based upon the foregoing, and for the reasons discussed in the Opinion in Berg, defendants' motion to dismiss must be granted. An Order consistent with this Memorandum Opinion will be issued this date.
NORMA HOLLOWAY JOHNSON
UNITED STATES DISTRICT JUDGE
DATED: June 26, 1985
ORDER - June 26, 1985, Filed
Upon consideration of the motion of the defendants to dismiss or for summary judgment, the supporting and opposing memoranda, the entire record herein, and consistent with the Memorandum Opinion in this case of even date, as well as the Memorandum Opinion of this Court of April 17, 1985, in the related case of Berg v. First American Bankshares, Inc., Civil Action No. 83-3887 (D.D.C), it is this 26th day of June, 1985,
1. That defendants' motion to dismiss for failure to state a claim be, and it hereby is, granted; and
2. That this case be, and it hereby is, dismissed.
NORMA HOLLOWAY JOHNSON
UNITED STATES DISTRICT JUDGE
© 1992-2004 VersusLaw Inc.