The position of defendants is that the merger orchestrated by SCR, Inc. was assured of approval from the moment of its inception. Since SCR, Inc. was an 80% Shareholder of CRSI, Healey, being only a 20% Shareholder, was powerless to prevent the merger which resulted in the sale of his shares. Therefore, defendants conclude that there is no causal connection between any misrepresentations or omissions and plaintiff's alleged loss since he did not have the option of declining to sell. Presumably, no matter how much information plaintiff might have possessed, the course of events could not be altered. Adoption of such a position would insulate fraudulent conduct directed toward minority shareholders such as plaintiff from the strictures of Section 10(b). The minority shareholder plaintiff would then be relegated to whatever other remedies are available. In the case Sub judice plaintiff's alternate remedy would be appraisal under Texas Law to recover the fair value of his shares.
It is important to note at the outset that the reach of Section 10(b) is sufficiently broad to encompass breaches of corporate fiduciary duty accompanied by fraud. Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S. Ct. 1292, 51 L. Ed. 2d 480 (1977); Goldberg v. Meridor, 567 F.2d 209 (2d Cir. 1977); Sec. and Exchange Commission v. Penn Central Co., 450 F. Supp. 908 (E.D.Pa.1978). Santa Fe and its progeny authoritatively reestablish that in connection with a merger Section 10(b) is designed to "Ensures that shareholder approval is fairly sought and freely given." Popkin v. Bishop, 464 F.2d 714, 720 (2d Cir. 1972). Once there has been full disclosure, however, the wisdom or fairness of the transaction does not implicate federal law.
Recognizing that deceptive or manipulative conduct by defendants in connection with the merger in controversy can form the basis for a violation of Section 10(b), this Court now turns to the specific contention of defendants that the necessary Section 10(b) element of causation is absent.
The position of defendants is substantially based on a footnote in the Santa Fe case where the Supreme Court stated: "(B )Ut respondents do not indicate how they might have acted differently had they had prior notice of the merger." 430 U.S. at 474, 97 S. Ct. at 1301. It is important to bear in mind, however, that the Court in Santa Fe recognized that under Delaware Law the merger could not have been enjoined because appraisal was the exclusive state law remedy. While disputing its ultimate success on the merits, neither of the parties in the instant case contends the opportunity for plaintiff to obtain injunctive relief was not available under state law. In fact, plaintiff testified that unavailability of the requested information about SCR, Inc. was precisely the reason he did not pursue injunctive relief in an attempt to block the merger. The availability of an injunctive action under state law constitutes a sufficient basis for distinguishing the Santa Fe footnote. See Goldberg, supra at 220.
Additionally, defendants had the opportunity to argue lack of causation to the jury and did so vigorously. The jury was specifically charged that plaintiff needed to prove that he suffered damages as a proximate result of alleged misleading statements or omissions and that the misleading statement or omission played a substantial part in bringing about or causing the damage suffered by him. The jury was further charged, substantially in accord with defendants' proposed jury instruction number 2, that a material fact could only be one which a reasonable man would attach importance to in determining his choice of action in the transaction in question. T.S.C. Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S. Ct. 2126, 48 L. Ed. 2d 757 (1976). Even if found to be a material fact, the jury was further instructed that if the material facts had been disclosed and plaintiff's decision would not have been different from what it was, then recovery should be denied. The jury had ample opportunity and information to adopt defendants' position that causation is lacking. Having chosen not to do so, this Court will not disturb the jury's reasoned judgment as trier of fact.
A holding that causation is absent whenever a minority shareholder lacks the voting strength to defeat a merger vote would be counterproductive to the spirit of full and fair disclosure embodied in Section 10(b). In other similar situations to the case Sub judice, the majority ownership would actually be induced to act fraudulently. Without fear of running afoul of the Securities and Exchange Act, the corporate control group can establish an inadequate exchange ratio with impunity, comfortable in the knowledge that an appraisal granting the appropriate fair value to the minority shareholder(s) is the only likely consequence. They need not be concerned with the possibility of securities fraud and if fortunate, the minority may unwittingly believe the exchange ratio to be fair and passively ensure the success of the fraudulent scheme.
Confronted with a jury finding of causation and satisfied that such a finding is supportable as a matter of law, defendants' motion for judgment notwithstanding the verdict must be denied. A case where fraudulent conduct resulted in the forfeiture of potential injunctive relief and gross undervaluation of the worth of plaintiff's shares falls squarely within the proscription of Section 10(b).
An appropriate Order will issue.