## Facts

- Hudson City Bancorp, Inc. and M&T Bank Corporation agreed to a merger requiring shareholder approval.
- To solicit votes, the companies issued a joint prospectus/proxy statement describing the transaction, regulatory approval process, and risks of delay or failure due to regulation.
- After distribution of the joint proxy but before the vote, M&T issued a supplemental proxy disclosing that the Federal Reserve had identified regulatory concerns about M&T’s compliance program (including BSA/AML areas) and that these concerns would delay closing.
- The supplemental proxy did not detail every underlying criticism or specific deficiency identified by regulators.
- The merger ultimately closed in 2015.
- Certain former Hudson shareholders filed a putative class action alleging they would have evaluated the merger differently had the proxy materials described M&T’s regulatory and compliance problems in greater detail.

## Issues

1. Whether the joint and supplemental proxy statements contained actionable misstatements or omissions under Exchange Act § 14(a) and SEC Rule 14a-9, including under Regulation S-K Item 105 risk-factor disclosure requirements.
2. Whether plaintiffs plausibly alleged materiality and that any alleged misstatement or omission was an essential link in accomplishing the merger through the shareholder vote.

## Decision

- The Third Circuit affirmed dismissal under Rule 12(b)(6).
- The court held the proxy materials, read as a whole, did not contain materially false or misleading statements or omissions about regulatory risks and potential merger delay.
- The court held Item 105 and § 14(a) did not require disclosure of every specific regulatory criticism where the disclosed warnings accurately conveyed the nature of the regulatory review and its potential effects.
- The court concluded plaintiffs failed to plausibly plead materiality and transaction causation (the “essential link”) based on the alleged lack of additional detail.

## Legal Principles

- A § 14(a)/Rule 14a-9 plaintiff must plead: (1) a material misrepresentation or omission, (2) culpability, and (3) that the misstatement or omission was an essential link in accomplishing the transaction approved by shareholder vote.
- Materiality turns on whether there is a substantial likelihood a reasonable shareholder would consider the information important in deciding how to vote.
- Proxy disclosures are evaluated in context and as a whole; liability generally requires identifying an affirmative statement rendered misleading by an omission, not merely asserting that more detail would be preferable.
- Risk-factor disclosure duties do not require cataloging every regulatory issue where the company discloses the relevant regulatory constraints, the existence of concerns, and the reasonably foreseeable consequences (such as delay or non-approval).

## Conclusion

The Third Circuit held that the merger proxies’ warnings and updates about regulatory oversight and delay sufficiently informed shareholders, and that plaintiffs’ demand for more granular disclosure did not state a materially misleading omission or the required causal link under § 14(a) and Rule 14a-9.


Jaroslawicz v. M&T Bank Corp., 962 F.3d 701 (3d Cir. 2020)