Santa Fe Industries, Inc. v. Green
430 U.S. 462 (1977)
Santa Fe owned 95% of a
corporation called Kirby. In order to get the last 5%, they attempted a short
Corporation Law §253, a parent
corporation that owns at least 90% of a subsidiary can, with the approval
of the directors of the parent, merge with the subsidiary and cash out
the remaining shareholders.
Santa Fe hired some
appraisers to determine the value of Kirby. The appraisers figured Kirby
was worth $125 a share. Santa Fe offered the minority shareholders $150
Some of the minority
shareholders (led by Green) sued to block the merger.
Green argued that the true
value of the stock was $772 a share, and that Santa Fe had fraudulently
Green argued that this
fraud was a violation of the Securities Exchange Act of 1934 Rule
Green also argued that the
merger itself was a violation of Rule 10b-5 because it was accomplished without any corporate purpose and
without prior notice to minority shareholders.
The Trial Court found for
Santa Fe. Green appealed.
The Trial Court found that
Green didn't make a reasonable case that the stock was significantly
The Appellate Court reversed.
Santa Fe appealed.
The Appellate Court agreed
that Green did not make a reasonable case that the stock was undervalued.
However, The Court found
that any breach of fiduciary duty by a majority of shareholders against
the minority could be a violation of Rule 10b-5, even without a charge of fraud or
The US Supreme Court reversed.
The US Supreme Court found
that Rule 10b-5 only prohibits
conduct involving manipulation and deception.
The Court found that Rule
10b-5 was only designed to ensure
full disclosure, it wasn't designed to be used the way Green was trying
to use it.
The Court found that
Green's claims were a matter of State law, not Federal law.