## Facts

- ABG, a wholly owned subsidiary of Royal, acquired about 8% of Realist’s voting stock as an initial step toward a hostile takeover.
- Royal informed Realist it intended to acquire all outstanding shares; Realist rejected the overture and took defensive actions.
- Realist’s board reduced the number of directorships up for election at the next annual meeting.
- Realist negotiated to acquire a Swiss company (Ammann); Royal and ABG alleged the transaction would dilute their position and otherwise deter the takeover effort.
- Realist circulated proxy materials for the June 6, 1989 annual meeting that did not disclose the Ammann negotiations or certain planned insider stock purchases.
- Royal and ABG launched a proxy contest, nominated two director candidates aligned with selling Realist to Royal, and incurred proxy-solicitation expenses.
- Shortly before the meeting, two Realist directors purchased substantial stock from a proxy holder who had intended to support Royal’s slate.
- Royal’s candidates initially appeared to win narrowly, but the Delaware Chancery Court set aside the election and ordered a new vote.
- Realist later announced the Ammann acquisition; Royal withdrew its acquisition offer. A later special election proceeded without contest.
- Royal and ABG sued seeking damages measured by their proxy-contest expenses, asserting federal proxy-fraud claims and state-law fraud.

## Issues

1. Whether § 14(a) of the Securities Exchange Act and SEC Rule 14a-9 permit a private action by proxy contestants to recover their own proxy-contest expenses allegedly caused by misleading proxy disclosures.
2. Whether the complaint stated a viable common-law fraud claim based on nondisclosure of the Ammann negotiations and related matters.

## Decision

- The First Circuit affirmed dismissal of the § 14(a)/Rule 14a-9 claims.
- The court held the implied § 14(a) private remedy does not extend to reimbursing proxy contestants for their campaign expenses.
- The court also affirmed dismissal of the common-law fraud claim for failure to plead an actionable omission (including failure to show a duty to disclose or misleading half-truths).
- Royal’s nonshareholder status further confirmed the claims sought a bidder’s remedy rather than redress for impaired shareholder voting rights.

## Legal Principles

- The implied private right of action under § 14(a) is aimed at protecting shareholders’ voting rights and related investor harms, not indemnifying insurgents in corporate control contests for proxy-battle costs.
- Standing and the nature of injury under § 14(a) turn on whether the plaintiff seeks relief for harm suffered in its capacity as a shareholder, rather than as a takeover bidder or proxy contestant.
- § 14(a) causation requires a link between the alleged proxy misstatement/omission, a shareholder vote authorizing a corporate action, and the plaintiff’s resulting loss; campaign expenses incurred in a control fight do not satisfy this transactional-and-loss causation framework.
- Common-law fraud by omission generally requires a duty to disclose or a misleading partial disclosure; absent such a duty or actionable half-truth, nondisclosure alone is insufficient.

## Conclusion

The First Circuit limited § 14(a)’s implied private remedy to shareholder-protection harms and rejected extending it to proxy contestants’ reimbursement claims, and it dismissed the parallel omission-based fraud theory for lack of a pleaded disclosure duty or misleading half-truths tied to the claimed proxy-contest expenses.


Royal Bus. Grp., Inc. v. Realist, Inc., 933 F.2d 1056 (1st Cir. 1991)