The opinion of the court was delivered by: MCGLYNN
This case arises out of the merger of defendant Union Fidelity Corporation (Union) and defendant Filmways, Inc. (Filmways). Count I of the two count amended complaint charges that the joint proxy statement prepared by the defendants to solicit shareholder approval of the merger violated Section 14(a) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78(n)(a), and Rule 14a-9, 17 C.F.R. § 240.14a-9, promulgated thereunder. Count II charges the defendants with having breached certain common law fiduciary duties owed to plaintiffs and other minority shareholders of Union. The jurisdiction of this court is invoked pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78 aa, and the principles of pendent jurisdiction.
The defendants have filed a motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). In connection with that motion defendants have filed, inter alia, a copy of the proxy statement in question. Since I have not excluded consideration of the proxy I must treat this motion as one for summary judgment. Fed. R. Civ. P. 12(b). See Prettner v. Aston, 339 F. Supp. 273 (D.Del. 1972). Accordingly, I must decide whether there is a "genuine issue as to any material fact" which would preclude entry of judgment against the plaintiffs. Fed. R. Civ. P. 56. See Kubik v. Goldfield, 479 F.2d 472 (3rd Cir. 1973).
Plaintiffs in this case were shareholders of defendant Union prior to the merger of Union and Filmways. Under the terms of the merger holders of Union common stock would be entitled to receive 1.18 shares of Filmways common stock in exchange for each of their shares of Union stock. Defendants are Union, a Pennsylvania Insurance holding company, Filmways, a diversified Delaware corporation, and the members of their boards of directors. At the time of the issuance of the joint proxy statement Filmways owned approximately 62% of Union common stock. On February 3, 1978, meetings of the shareholders of Union and Filmways were held simultaneously and the merger was approved. Thereafter the plaintiffs filed this suit, which is now limited to a claim for damages, seeking to represent a class consisting of "all owners of Union's common stock, other than defendants, as of the close of business on December 28, 1977, who were entitled to vote at the special meeting of the stockholders of Union on February 3, 1978, with respect to the merger whereby Union became a wholly owned subsidiary of Filmways."
The substance of plaintiffs' allegations in Count I of the complaint is that the proxy statement issued in connection with the merger was misleading because it omitted to state material facts in violation of Section 14(a) of the Exchange Act and Rule 14(a)-9 promulgated thereunder. Section 14(a) of the Exchange Act provides:
"It shall be unlawful for any person, by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of a national securities exchange or otherwise, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered pursuant to section 78l of this title."
Rule 14a-9, 17 C.F.R. § 240.14a-9, promulgated by the Securities and Exchange Commission, provides:
"(a) No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, 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 or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.
"(b) The fact that a proxy statement, form of proxy or other soliciting material has been filed with or examined by the Commission shall not be deemed a finding by the Commission that such material is accurate or complete or not false or misleading, or that the Commission has passed upon the merits of or approved any statement contained therein or any matter to be acted upon by security holders. No representation contrary to the foregoing shall be made."
Defendants in their motion assert that the alleged omissions are not material, and therefore, because materiality is an essential element of a § 14(a) cause of action, the case should not proceed to trial. Materiality is a mixed question of law and fact and as such is not usually an appropriate issue for resolution by summary judgment. Gould v. American-Hawaiian S.S. Co., 535 F.2d 761 (3rd Cir. 1976). On the other hand it has been recognized that summary disposition of materiality questions is proper under certain circumstances.
[If] the facts falsified, misrepresented or withheld are so obviously important to the shareholder's decision that reasonable minds cannot differ on the question of materiality and the underlying facts and the inferences to be drawn from those facts are free from controversy, the question becomes one of law which may appropriately be decided by summary judgment.
Id. at 771 citing Johns Hopkins University v. Hutton, 422 F.2d 1124, 1129 (4th Cir. 1970) cert. denied 416 U.S. 916, 40 L. Ed. 2d 118, 94 S. Ct. 1622, 94 S. Ct. 1623 (1974). I will, therefore, examine each of plaintiffs' contentions to determine whether there can be a reasonable difference of opinion on materiality.