Mills v. Electric Auto-Lite Co.

Facts

Electric Auto-Lite shareholders began suit the day prior to its annual shareholder meeting, hoping to enjoin a vote on a projected merger with Mergenthaler Linotype Company, based on a purported deceiving proxy statement. After the vote, the merger was approved. Filing an amended complaint, the shareholders sought to have the merger set aside because of the misleading proxy statements which violated § 14(a) of the 1934 Act and Rule 14a-9. Mergenthaler possessed over 50% of Auto-Lite’s outstanding common stock before the merger, with American Manufacturing possessing one third of Mergenthaler’s outstanding stock, meaning American Manufacturing had actually been in control of Auto-Lite. The proxy materials suggested that shareholders authorize the projected merger while omitting the truth that all of Auto-Lite’s directors has been nominated by Mergenthaler, was misleading. The district court held this was a material omission and found that required casual association had been shown betwixt the § 14(a) violation and the shareholders damages. The court of appeals affirmed, finding that the omission was significant, reversing on the concern of causation. The court declared the dispositive issue to be if the merger was fair to minority shareholders, then the court could determine those shareholders would have authorized the merger anyway. The shareholders sought review.