430 U.S. 462
SYNOPSIS: Petitioner majority stockholder appealed a decision of the United States Court of Appeals for the Second Circuit, which held respondents' complaint alleged a claim under S.E.C. Rule 10b-5, 17 C.F.R. § 240.10b-5, because it charged, in connection with a Delaware short-form merger, that petitioner committed a breach of its fiduciary duty to deal fairly with minority shareholders by effecting a merger without a justifiable business purpose.
Petitioner acquired 95 percent of corporate stock and carried out a short-form merger under Delaware corporation law. Respondent minority stockholders sued, alleging petitioner's actions violated federal law because they employed a device, scheme, or artifice to defraud and engaged in an act, practice, or course of business that operated as a fraud or deceit in connection with the purchase of a security in violation of S.E.C. Rule 10b-5. The appellate court found respondents stated a cause of action upon which relief could be granted because S.E.C. Rule 10b-5 reached breaches of fiduciary duty by a majority against minority shareholders without any charge of misrepresentation or lack of disclosure.
The Court reversed, holding that the merger, if carried out as respondents' alleged in their complaint, was neither deceptive nor manipulative and, therefore, did not violate federal law.
The Court found the short-form merger was carried out in full compliance with Delaware law and did not involve manipulation or deception as those terms were used in § 10b of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j.
OUTCOME: The Court reversed the judgment.
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