## Facts

- A bank holding company, through an affiliate, controlled 85% of a bank’s shares and proposed a freeze-out merger to eliminate the remaining minority shareholders.
- An investment banker advised that $42 per share would be a fair price to pay minority shareholders; the board approved the merger at that price.
- State law required submission of the merger proposal to a shareholder vote and distribution of proxy materials.
- Despite having sufficient votes to approve the merger without minority support, the directors solicited minority proxies and recommended approval.
- The proxy materials stated the directors approved the merger because it offered minority shareholders a “high” value and a “fair” price for their shares.
- A minority shareholder voted against the merger and sued, alleging the directors did not genuinely believe the price was “high” or “fair” and that the proxy solicitation omitted the directors’ actual motives.
- A jury awarded damages based on the difference between $42 and the stock’s value as found by the jury; the court of appeals affirmed.

## Issues

1. Whether directors’ qualitative statements of belief or reasons in proxy materials (e.g., “high” value, “fair” price) can be materially misleading under § 14(a) of the Securities Exchange Act and SEC Rule 14a-9 when knowingly false.
2. Whether minority shareholders whose votes were not legally required to approve a freeze-out merger can establish § 14(a) causation for damages based on alleged proxy misstatements.

## Decision

- The Supreme Court held that knowingly false statements of reasons, opinion, or belief, even if conclusory, may be actionable as materially misleading statements under § 14(a) and Rule 14a-9.
- The Court held that, on these facts, minority shareholders could not establish the causation necessary for § 14(a) damages where the majority had enough votes to approve the merger regardless of how the minority voted.
- The Court reversed the judgment for the plaintiffs because the proxy solicitation was not shown to be an essential link to the merger’s approval or to a non-speculative theory of damages.

## Legal Principles

- A statement of directors’ belief or reasons in a proxy solicitation can assert an actionable fact: that the directors actually held the stated belief and had a basis for it.
- Qualitative characterizations (such as “fair” or “high”) do not become immaterial as a matter of law merely because detailed financial data is also disclosed.
- A private plaintiff seeking damages under § 14(a) must show a causal connection between the proxy violation and the injury.
- The “essential link” inference of transaction causation recognized when shareholder approval is required does not generally apply where the minority votes could not affect the outcome.
- Courts should not extend the implied § 14(a) remedy beyond harms tied to proxy voting and the interests the statute protects absent a sufficient equitable basis or indication of congressional intent.

## Conclusion

The Court recognized that directors’ knowingly false statements of belief or reasons in proxy materials can violate Rule 14a-9, but limited § 14(a) damages by requiring proof of causation; where a controlling shareholder could approve the merger without minority votes, the minority could not recover on the record presented.


Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991)