Mills v. Electric Auto-Lite Co. case brief

Mills v. Electric Auto-Lite Co. case brief summary
396 U.S. 375

PROCEDURAL POSTURE: Certiorari was granted to review a judgment of the United States Court of Appeals for the Seventh Circuit in a suit brought by petitioners to enjoin a merger based upon a materially misleading proxy solicitation, which failed to inform petitioners about a conflict of interest with their directors and the merging company, in violation of § 14(a) of the Securities Exchange Act of 1934 (Act), 15 U.S.C.S. § 78n(a), and SEC Rule 14a-9.

OVERVIEW: 

-Petitioner shareholders filed suit against respondent company to enjoin a merger with a third company. -Petitioners asserted that respondent distributed a misleading proxy solicitation informing petitioners that the board of directors recommended approval of the merger, without also informing them about a conflict of interest of the directors with the merging third company, in violation of § 14(a) of the Securities Exchange Act of 1934 (Act), 15 U.S.C.S. § 78n(a), and SEC Rule 14a-9. 

-Petitioners filed a motion for summary judgment, which was granted but reversed on appeal. 

-Petitioners were granted certiorari to review the issue of causation for a private right of action. 

-The Court vacated judgment for petitioners and remanded the case, because the conflict of interest was a materially misleading aspect of the proxy solicitation. 

HOLDING:

The Court held that where there was a finding of materiality, petitioners made a sufficient showing of causal relationship between the violation and injury to seek redress, so long as it was proven that the proxy solicitation itself, rather than the particular defect in the solicitation materials, was an essential link in accomplishment of the transaction.

RULES:
A material misstatement or omission in a proxy statement is all that is required to maintain an action under Section: 14(a).

OUTCOME: The Court vacated judgment in favor of petitioner shareholders and remanded the case for further proceedings.
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