## Facts

- Westland Development Co., Inc., a closely held New Mexico real-estate company with substantial land holdings, agreed to be acquired by a SunCal entity for $315 per share.
- Westland distributed a proxy statement dated September 20, 2006 to solicit shareholder approval of the merger.
- A shareholder (Lane) alleged the proxy statement contained material misstatements and omissions that induced shareholder approval.
- Lane alleged the proxy represented that Westland’s directors and officers intended to vote their shares in favor of the merger, but several directors allegedly did not vote all (or any) of their shares in favor, including alleged nondisclosure or misdescription of a director’s vote against the merger.
- Lane also alleged the proxy inadequately disclosed conflicts of interest and omitted information bearing on valuation and deal price adequacy, including internal valuation information and development/financing possibilities tied to New Mexico tax increment development mechanisms.
- The merger closed after shareholder approval.
- Lane filed a federal putative class action asserting proxy-fraud claims under § 14(a) and SEC Rule 14a-9 and control-person liability under § 20(a), and sought temporary injunctive relief early in the case (denied).

## Issues

1. Whether the complaint stated a cognizable federal proxy-fraud claim under § 14(a) and Rule 14a-9, as opposed to an impermissible attempt to federalize state-law fiduciary-duty or appraisal grievances.
2. Whether the complaint satisfied heightened pleading requirements applicable to federal securities claims, including particularized allegations of falsity/omission and materiality.
3. Whether the alleged proxy misstatements or omissions—especially concerning directors’ voting intentions and actual votes, conflicts of interest, and valuation/development information—were material.
4. Whether the plaintiff could attribute proxy statement misstatements to directors and officers through group pleading at the motion-to-dismiss stage.
5. Whether the complaint plausibly alleged § 20(a) control-person liability tied to any surviving § 14(a) violation.

## Decision

- The court granted the motions to dismiss in part and denied them in part.
- The court held the case could proceed, in narrowed form, as a federal § 14(a)/Rule 14a-9 action challenging allegedly misleading proxy solicitation in connection with the merger vote.
- The court found allegations concerning misstatements about directors’ voting intentions and related omissions about actual votes adequately pled and potentially material, allowing those § 14(a) theories to proceed.
- The court dismissed § 14(a) theories premised on certain alleged valuation and development/financing omissions (including tax increment district-related information) as not material as a matter of law and/or insufficiently pled.
- The court permitted group-pled attribution of proxy statement statements to directors/officers involved in preparing, approving, and disseminating the proxy at the pleading stage.
- The court allowed § 20(a) control-person claims to proceed to the extent they were predicated on the surviving § 14(a) allegations and supported by plausible control allegations.

## Legal Principles

- A § 14(a)/Rule 14a-9 claim may proceed when a plaintiff plausibly alleges that proxy solicitation for a shareholder vote included materially false or misleading statements or omissions.
- Materiality turns on whether the challenged information would have significantly altered the total mix of information available to a reasonable shareholder deciding how to vote.
- Statements about directors’ support for a transaction (including stated intentions to vote their shares and disclosures about actual voting) can be material in a merger-vote context.
- Alleged omissions concerning speculative valuation or development/financing possibilities may be immaterial as a matter of law depending on context and what the proxy already disclosed.
- Group pleading may be permissible in a proxy-fraud case at the motion-to-dismiss stage where a limited group of directors and officers collectively authored, approved, and disseminated the proxy materials.
- § 20(a) liability requires a plausible primary securities violation and plausible allegations that the defendant had the power to control the primary violator and the challenged conduct.

## Conclusion

The court partially sustained a shareholder challenge to merger proxy disclosures, holding that alleged misstatements and omissions about directors’ voting intentions and related vote information could be material under § 14(a) and that group pleading and certain § 20(a) control-person theories were adequately pled, while dismissing valuation- and development-related disclosure theories deemed immaterial or insufficiently pleaded.


Lane v. Page, 581 F. Supp. 2d 1094 (D.N.M. 2008)