## Facts

- William M. McCormick was the former CEO of Fireman’s Fund Insurance Company, a wholly owned subsidiary of Fund American Companies, Inc. (FAC).
- During his employment, McCormick acquired roughly 500,000 FAC performance and option shares, with vesting continuing through 1991.
- After resigning, McCormick retained his FAC equity interests.
- In May 1990, McCormick negotiated and sold all of his FAC securities back to FAC in a repurchase transaction.
- At the time of the repurchase, FAC was in discussions with a large foreign insurer about a possible sale involving the subsidiary.
- FAC representatives informed McCormick of the pending discussions and indicated that a sale, if completed, would likely increase FAC’s stock value.
- After the repurchase closed, the negotiations resulted in a transaction in which the foreign insurer (Allianz) purchased the subsidiary or a major interest in it, and FAC’s stock price rose.
- McCormick alleged that FAC made materially misleading statements and omissions during the repurchase negotiations, including not disclosing Allianz’s identity, understating the seriousness/probability of a deal, and providing information arguably inconsistent with later proxy disclosures about investment banker involvement.

## Issues

1. Whether FAC’s alleged misrepresentations and omissions in connection with the negotiated repurchase were material under § 10(b) and Rule 10b-5.
2. Whether McCormick’s sophistication, insider background, and access to information affected the materiality analysis and the “total mix” of information.
3. Whether related state statutory and common-law claims could survive if the federal securities claims failed for lack of materiality.

## Decision

- The Ninth Circuit affirmed summary judgment for FAC.
- The court held that none of the alleged misstatements or omissions was material as a matter of law when assessed against the total mix of information available to a reasonable investor in McCormick’s position.
- The court concluded that details such as the buyer’s identity and certain negotiation particulars were incremental and did not significantly change what McCormick already knew about the potential transaction and its likely effect on stock value.
- The court also affirmed dismissal of the related state-law claims on summary judgment.

## Legal Principles

- An alleged misstatement or omission is material only if there is a substantial likelihood that a reasonable investor would consider it important, meaning it would significantly alter the total mix of information available.
- For contingent corporate events (including merger or sale negotiations), materiality depends on both the probability the event will occur and the magnitude of the event for the company.
- Materiality is typically for the factfinder, but may be resolved on summary judgment when no reasonable jury could find the information material.
- In assessing the total mix, the “reasonable investor” benchmark accounts for the investor’s position, including sophistication and information already known in the context of the transaction.
- When an issuer repurchases securities from a sophisticated insider who is told the core facts about ongoing serious discussions and the likely market impact of a deal, additional undisclosed details may be immaterial as a matter of law.

## Conclusion

The Ninth Circuit held that, given McCormick’s insider experience and the substance of what he was told about active discussions and their potential effect on stock value, the alleged additional omissions and discrepancies did not materially alter the total mix of information; summary judgment for the issuer on federal securities and related state claims was proper.


McCormick v. Fund Am. Cos., 26 F.3d 869 (9th Cir. 1994)