Virginia Bankshares, Inc. v. Sandberg
501 U.S. 1083 (1991)
FABI was the parent
corporation to VBI. FABI also owned 85% of another corporation called
American Bank of Virginia. FABI merged VBI with American Bank.
This was a "freeze-out"
merger. The shareholders who owned the other 15% of American Bank got
FABI hired an independent
appraiser who figured that the American Bank shares were worth $42 each.
FABI submitted the merger
proposal to a vote at the shareholders' meeting. When they sent out the proxy
solicitation, they urged the
shareholders to approve the merger because if was a "fair price"
and a "high value."
Most of the minority
shareholders voted to approve the merger and cash out, but some did not.
Sandberg voted against the merger, and then sued to block it.
Sandberg argued that some of
the directors had not thought that the merger terms were fair, but voted
for it anyway so they could stay on the Board.
Sandberg argued that was a
violation of the Securities Exchange Act of 1934 Rule 14a-9 which prohibits the solicitation of proxies
by means of materially false or misleading statements.
Sandberg also argued that
the directors had breached their fiduciary duty to minority shareholders.
VBI argued that the terms
used in the proxy solicitation
weren't 'facts' they were just 'opinions' so Rule 14a-9 did
The Trial Court found for
Sandberg. VBI appealed.
The Appellate Court affirmed.
The US Supreme Court reversed.
The US Supreme Court found
that terms like "fair price" and "high value" have a
factual basis and can be materially
Basically, it doesn't
matter if the statements are couched in terms of 'opinions' and not
'facts', if the directors make a statement that is false, and that
falsity is somehow material to
the transaction, then it is potentially a violation of Rule 14a-9.
However, the Court found
that the link between the statements in the proxy solicitation and the merger process is too speculative and
too procedurally intractable to find an implied private right of action.
The Court found that since
VBI owned 80% of the shares, it really didn't matter how the minority
voters voted. Since it didn't matter how the vote turned out, any
statements the directors made couldn't possible be considered material to the merger. It was going to happen
See Mills v. Electric
Auto-Lite Co. (396 U.S. 375
In a concurrence, it was
suggested that directors can reduce their exposure to liability if they
make clear they are expressing opinions and not facts when they send out a