UNITED STATES SUPREME COURT DECISIONS ON-LINE

Rule 14a-9, promulgated under § 14(a) of the Securities Exchange Act of 1934, provides that no proxy solicitation shall be made "which . . . is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading." The dispute in this case centers on the acquisition of petitioner TSC Industries (TSC) by petitioner National Industries (National). National purchased 34% of TSC's voting securities from TSC's founder and principal shareholder and his family. The founder and his son promptly resigned from TSC's board of directors, and five National nominees were placed on the board, including National's president and executive vice-president, who subsequently became, respectively, chairman of the board and chairman of TSC's executive committee. Thereafter, the TSC board approved a proposal to liquidate and sell all of TSC's assets to National by exchanging TSC common and preferred stock for National preferred stock and warrants to purchase National common stock. TSC and National then issued a joint proxy statement to their shareholders recommending approval of the proposal. The proxy solicitation was successful, TSC was placed in liquidation and dissolution, and the exchange of shares was effected. Respondent, a TSC shareholder, brought this action for damages, restitution, and other relief against TSC and National, claiming that their joint proxy statement was incomplete and materially misleading in violation of § 14(a) and Rule 14a-9 in that it omitted material facts relating to the degree of National's control over TSC (i.e., it failed to disclose the positions in TSC held by National's president and executive vice-president, and reports filed with the Securities and Exchange Commission by National and TSC indicating that National "may be deemed a parent' of TSC") and the favorability of the proposed acquisition to TSC shareholders (i.e., it failed to disclose certain unfavorable information about the proposal contained in a letter from an investment banking firm whose earlier favorable opinion of the clubjuris

Page 426 U. S. 439

proposal was reported in the proxy statement, and also recent substantial purchases of National's common stock, suggestive of manipulation, by National and a mutual fund). The District Court denied respondent's motion for summary judgment, but the Court of Appeals reversed, holding that the claimed omissions of fact were material as a matter of law, and defining material facts as "all facts which a reasonable shareholder might consider important."

Held:

1. The general standard of materiality best comporting with Rule 14a-9's policies is not the standard applied by the Court of Appeals, but is as follows: an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. This standard is fully consistent with the general description of materiality as a requirement that "the defect have a significant propensity to affect the voting process." Mills v. Electric Auto-Lite Co., 396 U. S. 375, 396 U. S. 384. 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. Pp. 426 U. S. 444-449.

2. The issue of materiality is a mixed question of law and fact, involving as it does the application of a legal standard to a particular set of facts, and only if the established omissions are "so obviously important to an investor that reasonable minds cannot differ on the question of materiality" is the ultimate issue of materiality appropriately resolved "as a matter of law" by summary judgment. P. 426 U. S. 450.

3. Under the standard set forth in ¦ 1, supra, none of the omissions claimed to have been in violation of Rule 14a-9 in this case were, so far as the record reveals, materially misleading as a matter of law, and hence respondent was not entitled to summary judgment. Pp. 426 U. S. 450-463.

512 F.2d 324, reversed and remanded.

MARSHALL, J., delivered the opinion of the Court, in which all Members joined except STEVENS, J., who took no part in the consideration or decision of the case. clubjuris

Page 426 U. S. 440