## Facts

- Great American Industries, Inc. (GAI) owned about 73% of Chenango Industries, Inc. and sought to acquire the remaining minority shares through a merger.
- A joint proxy/prospectus was distributed to Chenango and GAI shareholders in 1979 to solicit votes for the merger; minority Chenango shareholders would receive GAI preferred stock.
- Minority shareholders alleged the proxy/prospectus contained material misrepresentations and omissions that understated Chenango’s value and overstated or mischaracterized GAI’s condition.
- Plaintiffs claimed the misleading solicitation induced minority shareholders to vote in favor of the merger, helping GAI obtain desired tax treatment and impairing minority shareholders’ practical ability to pursue New York appraisal rights.
- The merger was approved and consummated; minority shareholders received GAI preferred stock, which they claimed was inadequate consideration.
- The district court found material proxy violations under Exchange Act §14(a) and Rule 14a-9, found causation and damages, and awarded monetary relief; defendants appealed and plaintiffs cross-appealed on damages.

## Issues

1. Whether, after *Virginia Bankshares*, minority shareholders can prove §14(a) causation when a controlling shareholder already has sufficient votes to approve the merger.
2. Whether the district court used a legally and methodologically proper damages measure for proxy-fraud in a merger, based on competing expert valuations.

## Decision

- The court held *Virginia Bankshares* did not require dismissal of the §14(a) claims merely because GAI’s majority stake could approve the merger without minority votes.
- The court affirmed the district court’s findings that the proxy/prospectus contained material misstatements and omissions actionable under §14(a) and Rule 14a-9.
- The court concluded the misleading proxy could be linked to a distinct economic injury to minority shareholders, including effects on transaction terms and the effective loss of state-law remedies.
- The court modified the damages analysis in specified respects and remanded for recalculation consistent with its opinion.
- Disposition: affirmed in part, modified in part, and remanded on damages.

## Legal Principles

- A §14(a) plaintiff is not categorically barred from proving transaction causation and loss causation solely because a controlling shareholder had enough votes to approve the transaction without minority support.
- A materially misleading proxy solicitation can be causally related to minority shareholders’ economic harm where it affects how shareholders vote or act, the structure or terms of the transaction, or the practical availability of state-law protections such as appraisal.
- Materiality in proxy statements is evaluated by whether a reasonable shareholder would consider the misstated or omitted information important in deciding how to vote.
- Damages in proxy-fraud merger cases generally require a valuation-based comparison between the value of what shareholders received and the value of what they would have had absent the misstatements, with careful attention to appropriate valuation inputs and assumptions.

## Conclusion

The Second Circuit held that minority shareholders may pursue §14(a) proxy-fraud claims even when their votes were not needed to approve a controlled merger, affirmed liability based on materially misleading disclosures, and sent the case back for adjusted damages calculations.


Wilson v. Great Am. Indus., Inc., 979 F.2d 924 (2d Cir. 1992)