## Facts

- Nationwide Corporation had a dual-class structure: publicly held Class A common stock and Class B common stock held entirely by two controlling mutual insurance company affiliates.
- The controlling mutuals initiated a going-private plan to eliminate public ownership of Nationwide Corporation.
- The mutuals first made a tender offer for Class A shares at $20.00 per share and acquired a substantial block.
- The mutuals continued open-market purchases until they held 85.6% of the Class A stock.
- Nationwide’s board approved a freeze-out merger to cash out the remaining Class A shares at $42.50 per share, leaving the company wholly owned by the mutuals with no public shareholders.
- Nationwide solicited proxies from Class A shareholders to approve the merger and represented that an investment banker found the transaction financially fair.
- The proxy materials listed factors considered for fairness but allegedly did not explain the analysis, relative weight of factors, or valuation support for the $42.50 price.
- Former public shareholders brought a class action alleging violations of Exchange Act § 13(e) and SEC Rule 13e-3/Schedule 13e-3, plus claims under Rules 10b-5 and 14a-9 and state fiduciary-duty theories.
- The district court recognized a private right of action under § 13(e) but granted summary judgment to defendants, reasoning that antifraud recovery required proof of fraudulent intent and finding no such evidence.

## Issues

1. Whether Exchange Act § 13(e) implies a private right of action for damages to enforce Rule 13e-3 in going-private transactions.
2. Whether Nationwide’s proxy disclosures satisfied Rule 13e-3 and Schedule 13e-3 requirements concerning the transaction’s reasons, fairness to unaffiliated shareholders, and valuation/appraisal information.
3. Whether a Rule 13e-3 disclosure violation, standing alone, establishes liability under Rule 10b-5 or Rule 14a-9.

## Decision

- The Sixth Circuit held that § 13(e) implies a private damages action for minority shareholders to enforce Rule 13e-3 and Schedule 13e-3.
- The court held the proxy disclosures were insufficient under Rule 13e-3 because they offered conclusory fairness assertions without the detailed supporting analysis and valuation information required by the Schedule.
- The court held that Rule 13e-3 violations do not automatically constitute violations of Rules 10b-5 or 14a-9; antifraud liability requires proof of the distinct elements of those claims (including scienter for Rule 10b-5).
- The court reversed summary judgment for defendants and remanded for further proceedings.

## Legal Principles

- Exchange Act § 13(e), in light of the Williams Act’s investor-protection purpose, supports an implied private right of action for damages to enforce SEC Rule 13e-3 in going-private transactions.
- Rule 13e-3 and Schedule 13e-3 impose affirmative, detailed disclosure duties, including: (i) reasons for the transaction (Item 7), (ii) fairness to unaffiliated holders and the material factors supporting that conclusion (Item 8), and (iii) appraisals, reports, or valuations bearing on value (Item 9).
- A fairness opinion and factor list, without substantive explanation of analysis and valuation support for the merger price, can be inadequate under Rule 13e-3.
- Failure to satisfy Rule 13e-3’s disclosure scheme is actionable under § 13(e) but does not, by itself, establish Rule 10b-5 or Rule 14a-9 liability; those claims require their own elements (material misstatement/omission, causation, and scienter where applicable).

## Conclusion

The Sixth Circuit recognized a private damages remedy under § 13(e) to enforce Rule 13e-3’s specific going-private disclosure requirements, found Nationwide’s proxy disclosures inadequate for lacking explanatory fairness and valuation analysis, and clarified that such regulatory disclosure violations do not automatically prove securities fraud under Rules 10b-5 or 14a-9.


Howing Co. v. Nationwide Corp., 826 F.2d 1470 (6th Cir. 1987)