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Subject: 89-1448 -- OPINION, VIRGINIA BANKSHARES, INC. v. SANDBERG




NOTICE: This opinion is subject to formal revision before publication in
the preliminary print of the United States Reports.  Readers are requested
to notify the Reporter of Decisions, Supreme Court of the United States,
Washington, D. C. 20543, of any typographical or other formal errors, in
order that corrections may be made before the preliminary print goes to
press.
SUPREME COURT OF THE UNITED STATES


No. 89-1448



VIRGINIA BANKSHARES, INC., et al., PETITIONERS v. DORIS I. SANDBERG et al.


on writ of certiorari to the united states court of appeals for the fourth
circuit

[June 27, 1991]



    Justice Souter delivered the opinion of the Court.
    Section 14(a) of the Securities Exchange Act of 1934, 48 Stat. 895, 15
U. S. C. MDRV 78n(a), authorizes the Securities and Exchange Commission to
adopt rules for the solicitation of proxies, and prohibits their violation.
{1}  In J. I. Case Co. v. Borak, 377 U. S. 426 (1964), we first recognized
an implied private right of action for the breach of MDRV 14(a) as
implemented by SEC Rule 14a-9, which prohibits the solicitation of proxies
by means of materially false or misleading statements. {2}
    The questions before us are whether a statement couched in conclusory
or qualitative terms purporting to explain directors' reasons for
recommending certain corporate action can be materially misleading within
the meaning of Rule 14a-9, and whether causation of damages compensable
under MDRV 14(a) can be shown by a member of a class of minority
shareholders whose votes are not required by law or corporate bylaw to
authorize the corporate action subject to the proxy solicitation.  We hold
that knowingly false statements of reasons may be actionable even though
conclusory in form, but that respondents have failed to demonstrate the
equitable basis required to extend the MDRV 14(a) private action to such
shareholders when any indication of congressional intent to do so is
lacking.

I
    In December 1986, First American Bankshares, Inc., (FABI), a bank
holding company, began a "freeze-out" merger, in which the First American
Bank of Virginia (Bank) eventually merged into Virginia Bankshares, Inc.,
(VBI), a wholly owned subsidiary of FABI.  VBI owned 85% of the Bank's
shares, the remaining 15% being in the hands of some 2,000 minority
shareholders.  FABI hired the investment banking firm of Keefe, Bruyette &
Woods (KBW) to give an opinion on the appropriate price for shares of the
minority holders, who would lose their interests in the Bank as a result of
the merger.  Based on market quotations and unverified information from
FABI, KBW gave the Bank's executive committee an opinion that $42 a share
would be a fair price for the minority stock.  The executive committee
approved the merger proposal at that price, and the full board followed
suit.
    Although Virginia law required only that such a merger proposal be
submitted to a vote at a shareholders' meeting, and that the meeting be
preceded by circulation of a statement of information to the shareholders,
the directors nevertheless solicited proxies for voting on the proposal at
the annual meeting set for April 21, 1987. {3}  In their solicitation, the
directors urged the proposal's adoption and stated they had approved the
plan because of its opportunity for the minority shareholders to achieve a
"high" value, which they elsewhere described as a "fair" price, for their
stock.
    Although most minority shareholders gave the proxies requested,
respondent Sandberg did not, and after approval of the merger she sought
damages in the United States District Court for the Eastern District of
Virginia from VBI, FABI, and the directors of the Bank.  She pleaded two
counts, one for soliciting proxies in violation of MDRV 14(a) and Rule
14a-9, and the other for breaching fiduciary duties owed to the minority
shareholders under state law.  Under the first count, Sandberg alleged,
among other things, that the directors had not believed that the price
offered was high or that the terms of the merger were fair, but had
recommended the merger only because they believed they had no alternative
if they wished to remain on the board.  At trial, Sandberg invoked language
from this Court's opinion in Mills v. Electric AutoLite Co., 396 U. S. 375,
385 (1970), to obtain an instruction that the jury could find for her
without a showing of her own reliance on the alleged misstatements, so long
as they were material and the proxy solicitation was an "essential link" in
the merger process.
    The jury's verdicts were for Sandberg on both counts, after finding
violations of Rule 14a-9 by all defendants and a breach of fiduciary duties
by the Bank's directors.  The jury awarded Sandberg $18 a share, having
found that she would have received $60 if her stock had been valued
adequately.
    While Sandberg's case was pending, a separate action on similar
allegations was brought against petitioners in the United States District
Court for the District of Columbia by several other minority shareholders
including respondent Weinstein, who, like Sandberg, had withheld his proxy.
This case was transferred to the Eastern District of Virginia.  After
Sandberg's action had been tried, the Weinstein respondents successfully
pleaded collateral estoppel to get summary judgment on liability.
    On appeal, the United States Court of Appeals for the Fourth Circuit
affirmed the judgments, holding that certain statements in the proxy
solicitation were materially mis leading for purposes of the Rule, and that
respondents could maintain their action even though their votes had not
been needed to effectuate the merger.  891 F. 2d 1112 (1989). {4}  We
granted certiorari because of the importance of the issues presented.  495
U. S. --- (1990).

II
    The Court of Appeals affirmed petitioners' liability for two statements
found to have been materially misleading in violation of MDRV 14(a) of the
Act, one of which was that "The Plan of Merger has been approved by the
Board of Directors because it provides an opportunity for the Bank's public
shareholders to achieve a high value for their shares."  App. to Pet. for
Cert. 53a.  Petitioners argue that statements of opinion or belief
incorporating indefinite and unverifiable expressions cannot be actionable
as misstatements of material fact within the meaning of Rule 14a-9, and
that such a declaration of opinion or belief should never be actionable
when placed in a proxy solicitation incorporating statements of fact
sufficient to enable readers to draw their own, independent conclusions.

A
    We consider first the actionability per se of statements of reasons,
opinion or belief.  Because such a statement by definition purports to
express what is consciously on the speaker's mind, we interpret the jury
verdict as finding that the directors' statements of belief and opinion
were made with knowledge that the directors did not hold the beliefs or
opinions expressed, and we confine our discussion to statements so made.
{5}  That such statements may be materially significant raises no serious
question.  The meaning of the materiality requirement for liability under
MDRV 14(a) was discussed at some length in TSC Industries, Inc. v.
Northway, Inc., 426 U. S. 438 (1976), where we held a fact to be material
"if there is a substantial likelihood that a reasonable shareholder would
consider it important in deciding how to vote."  Id., at 449.  We think
there is no room to deny that a statement of belief by corporate directors
about a recommended course of action, or an explanation of their reasons
for recommending it, can take on just that importance.  Shareholders know
that directors usually have knowledge and expertness far exceeding the
normal investor's resources, and the directors' perceived superiority is
magnified even further by the common knowledge that state law customarily
obliges them to exercise their judgment in the shareholders' interest.  Cf.
Day v. Avery, 179 U. S. App. D. C. 63, 71, 548 F. 2d 1018, 1026 (1976)
(action for misrepresentation).  Naturally, then, the share owner faced
with a proxy request will think it important to know the directors' beliefs
about the course they recommend, and their specific reasons for urging the
stockholders to embrace it.

B


1
    But, assuming materiality, the question remains whether statements of
reasons, opinions, or beliefs are statements "with respect to . . .
material fact[s]" so as to fall within the strictures of the Rule.
Petitioners argue that we would invite wasteful litigation of amorphous
issues outside the readily provable realm of fact if we were to recognize
liability here on proof that the directors did not recommend the merger for
the stated reason, and they cite the authority of Blue Chip Stamps v. Manor
Drug Stores, 421 U. S. 723 (1975), in urging us to recognize sound policy
grounds for placing such statements outside the scope of the Rule.
    We agree that Blue Chip Stamps is instructive, as illustrating a line
between what is and is not manageable in the litigation of facts, but do
not read it as supporting petitioners' position.  The issue in Blue Chip
Stamps was the scope of the class of plaintiffs entitled to seek relief
under an implied private cause of action for violating MDRV 10(b) of the
Act, pro hibiting manipulation and deception in the purchase or sale of
certain securities, contrary to Commission rules.  This Court held against
expanding the class from actual buyers and sellers to include those who
rely on deceptive sales practices by taking no action, either to sell what
they own or to buy what they do not.  We observed that actual sellers and
buyers who sue for compensation must identify a specific number of shares
bought or sold in order to calculate and limit any ensuing recovery.  Id.,
at 734.  Recognizing liability to merely would-be investors, however, would
have exposed the courts to litigation unconstrained by any such anchor in
demonstrable fact, resting instead on a plaintiff's "subjective hypothesis"
about the number of shares he would have sold or purchased.  Id., at
734-735.  Hindsight's natural temptation to hypothesize boldness would have
magnified the risk of nuisance litigation, which would have been compounded
both by the opportunity to prolong discovery, and by the capacity of claims
resting on undocumented personal assertion to resist any resolution short
of settlement or trial.  Such were the premises of policy, added to those
of textual analysis and precedent, on which Blue Chip Stamps deflected the
threat of vexatious litigation over "many rather hazy issues of historical
fact the proof of which depended almost entirely on oral testimony."  Id.,
at 743.
    Attacks on the truth of directors' statements of reasons or belief,
however, need carry no such threats.  Such statements are factual in two
senses: as statements that the directors do act for the reasons given or
hold the belief stated and as statements about the subject matter of the
reason or belief expressed.  In neither sense does the proof or disproof of
such statements implicate the concerns expressed in Blue Chip Stamps.  The
root of those concerns was a plaintiff's capacity to manufacture claims of
hypothetical action, unconstrained by independent evidence.  Reasons for
directors' recommendations or statements of belief are, in contrast,
characteristically matters of corporate record subject to documentation, to
be supported or attacked by evidence of historical fact outside a
plaintiff's control.  Such evidence would include not only corporate
minutes and other statements of the directors themselves, but
circumstantial evidence bearing on the facts that would reasonably underlie
the reasons claimed and the honesty of any statement that those reasons are
the basis for a recommendation or other action, a point that becomes
especially clear when the reasons or beliefs go to valuations in dollars
and cents.
    It is no answer to argue, as petitioners do, that the quoted statement
on which liability was predicated did not express a reason in dollars and
cents, but focused instead on the "in definite and unverifiable" term,
"high" value, much like the similar claim that the merger's terms were
"fair" to shareholders. {6}  The objection ignores the fact that such
conclusory terms in a commercial context are reasonably understood to rest
on a factual basis that justifies them as accurate, the absence of which
renders them misleading.  Provable facts either furnish good reasons to
make a conclusory commercial judgment, or they count against it, and
expressions of such judgments can be uttered with knowledge of truth or
falsity just like more definite statements, and defended or attacked
through the orthodox evidentiary process that either substantiates their
underlying justifications or tends to disprove their existence.  In
addressing the analogous issue in an action for misrepresentation, the
court in Day v. Avery, 179 U. S. App. D. C. 63, 548 F. 2d 1018 (1976), for
example, held that a statement by the executive committee of a law firm
that no partner would be any "worse off" solely because of an impending
merger could be found to be a material misrepresentation.  Id., at 70-72,
548 F. 2d at 1025-1027.  Cf. Vulcan Metals Co. v. Simmons Mfg. Co., 248 F.
853, 856 (CA2 1918) (L. Hand, J.) ("An opinion is a fact. . . .  When the
parties are so situated that the buyer may reasonably rely upon the
expression of the seller's opinion, it is no excuse to give a false one");
W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of
Torts MDRV 109, pp. 760-762 (5th ed. 1984).  In this case, whether $42 was
"high," and the proposal "fair" to the minority shareholders depended on
whether provable facts about the Bank's assets, and about actual and
potential levels of operation, substantiated a value that was above, below,
or more or less at the $42 figure, when assessed in accordance with
recognized methods of valuation.
    Respondents adduced evidence for just such facts in proving that the
statement was misleading about its subject matter and a false expression of
the directors' reasons.  Whereas the proxy statement described the $42
price as offering a premium above both book value and market price, the
evidence indicated that a calculation of the book figure based on the
appreciated value of the Bank's real estate holdings eliminated any such
premium.  The evidence on the significance of market price showed that KBW
had conceded that the market was closed, thin and dominated by FABI, facts
omitted from the statement.  There was, indeed, evidence of a "going
concern" value for the Bank in excess of $60 per share of common stock,
another fact never disclosed.  However conclusory the directors' statement
may have been, then, it was open to attack by garden-variety evidence,
subject neither to a plaintiff's control nor ready manufacture, and there
was no undue risk of open-ended liability or uncontrollable litigation in
allowing respondents the opportunity for recovery on the allegation that it
was misleading to call $42 "high."
    This analysis comports with the holding that marked our nearest prior
approach to the issue faced here, in TSC In dustries, 426 U. S., at 454-55.
There, to be sure, we reversed summary judgment for a Borak plaintiff who
had sued on a description of proposed compensation for minority
shareholders as offering a "substantial premium over current market
values."  But we held only that on the case's undisputed facts the
conclusory adjective "substantial" was not materially misleading as a
necessary matter of law, and our remand for trial assumed that such a
description could be both materially misleading within the meaning of Rule
14a-9 and actionable under MDRV 14(a).  See TSC Industries, supra, at
458-460, 463-464.

2
    Under MDRV 14(a), then, a plaintiff is permitted to prove a specific
statement of reason knowingly false or misleadingly incomplete, even when
stated in conclusory terms.  In reaching this conclusion we have considered
statements of reasons of the sort exemplified here, which misstate the
speaker's reasons and also mislead about the stated subject matter (e.g.,
the value of the shares).  A statement of belief may be open to objection
only in the former respect, however, solely as a misstatement of the
psychological fact of the speaker's belief in what he says.  In this case,
for example, the Court of Appeals alluded to just such limited falsity in
observing that "the jury was certainly justified in believing that the
directors did not believe a merger at $42 per share was in the minority
stockholders' interest but, rather, that they voted as they did for other
reasons, e. g., retaining their seats on the board."  891 F. 2d, at 1121.
    The question arises, then, whether disbelief, or undisclosed belief or
motivation, standing alone, should be a suf ficient basis to sustain an
action under MDRV 14(a), absent proof by the sort of objective evidence
described above that the statement also expressly or impliedly asserted
something false or misleading about its subject matter.  We think that
proof of mere disbelief or belief undisclosed should not suffice for
liability under MDRV 14(a), and if nothing more had been required or proven
in this case we would reverse for that reason.
    On the one hand, it would be rare to find a case with evidence solely
of disbelief or undisclosed motivation without further proof that the
statement was defective as to its subject matter.  While we certainly would
not hold a director's naked admission of disbelief incompetent evidence of
a proxy statement's false or misleading character, such an unusual
admission will not very often stand alone, and we do not substantially
narrow the cause of action by requiring a plaintiff to demonstrate
something false or misleading in what the statement expressly or impliedly
declared about its subject.
    On the other hand, to recognize liability on mere disbelief or
undisclosed motive without any demonstration that the proxy statement was
false or misleading about its subject would authorize MDRV 14(a) litigation
confined solely to what one skeptical court spoke of as the "impurities" of
a director's "unclean heart."  Stedman v. Storer, 308 F. Supp. 881, 887
(SDNY 1969) (dealing with MDRV 10(b)).  This, we think, would cross the
line that Blue Chip Stamps sought to draw.  While it is true that the
liability, if recognized, would rest on an actual, not hypothetical,
psychological fact, the temptation to rest an otherwise nonexistent MDRV
14(a) action on psychological enquiry alone would threaten just the sort of
strike suits and attrition by discovery that Blue Chip Stamps sought to
discourage.  We therefore hold disbelief or undisclosed motivation,
standing alone, insufficient to satisfy the element of fact that must be
established under MDRV 14(a).

C
    Petitioners' fall-back position assumes the same relationship between a
conclusory judgment and its underlying facts that we described in Part
II-B-1, supra.  Thus, citing Radol v. Thomas, 534 F. Supp. 1302, 1315, 1316
(SD Ohio 1982), petitioners argue that even if conclusory statements of
reason or belief can be actionable under MDRV 14(a), we should confine
liability to instances where the proxy material fails to disclose the
offending statement's factual basis.  There would be no justification for
holding the shareholders entitled to judicial relief, that is, when they
were given evidence that a stated reason for a proxy recommendation was
misleading, and an opportunity to draw that conclusion themselves.
    The answer to this argument rests on the difference between a merely
misleading statement and one that is materially so.  While a misleading
statement will not always lose its deceptive edge simply by joinder with
others that are true, the true statements may discredit the other one so
obviously that the risk of real deception drops to nil.  Since lia bility
under MDRV 14(a) must rest not only on deceptiveness but materiality as
well (i. e., it has to be significant enough to be important to a
reasonable investor deciding how to vote, see TSC Industries, 426 U. S., at
449), petitioners are on perfectly firm ground insofar as they argue that
publishing accurate facts in a proxy statement can render a misleading
proposition too unimportant to ground liability.
    But not every mixture with the true will neutralize the deceptive.  If
it would take a financial analyst to spot the tension between the one and
the other, whatever is misleading will remain materially so, and liability
should follow.  Gerstle v. Gamble-Skogmo, Inc., 478 F. 2d 1281, 1297 (CA2
1973) ("[I]t is not sufficient that overtones might have been picked up by
the sensitive antennae of investment analysts").  Cf. Milkovich v. Lorain
Journal Co., 497 U. S. ---, --- (1990) (slip op., at 16-17) (a defamatory
assessment of facts can be actionable even if the facts underlying the
assessment are accurately presented).  The point of a proxy statement,
after all, should be to inform, not to challenge the reader's critical
wits.  Only when the inconsistency would exhaust the misleading
conclusion's capacity to influence the reasonable shareholder would a MDRV
14(a) action fail on the element of materiality.
    Suffice it to say that the evidence invoked by petitioners in the
instant case fell short of compelling the jury to find the facial
materiality of the misleading statement neutralized.  The directors claim,
for example, to have made an explanatory disclosure of further reasons for
their recommendation when they said they would keep their seats following
the merger, but they failed to mention what at least one of them admitted
in testimony, that they would have had no expectation of doing so without
supporting the proposal, App. at 281-82. {7}  And although the proxy
statement did speak factually about the merger price in describing it as
higher than share prices in recent sales, it failed even to mention the
closed market dominated by FABI.  None of these disclosures that the
directors point to was, then, anything more than a half-truth, and the
record shows that another fact statement they invoke was arguably even
worse.  The claim that the merger price exceeded book value was
controverted, as we have seen already, by evidence of a higher book value
than the directors conceded, reflecting appreciation in the Bank's real
estate portfolio.  Finally, the solicitation omitted any mention of the
Bank's value as a going concern at more than $60 a share, as against the
merger price of $42.  There was, in sum, no more of a compelling case for
the statement's immateriality than for its accuracy.

III
    The second issue before us, left open in Mills v. Electric Auto-Lite
Co., 396 U. S., at 385, n. 7, is whether causation of damages compensable
through the implied private right of action under MDRV 14(a) can be
demonstrated by a member of a class of minority shareholders whose votes
are not required by law or corporate bylaw to authorize the transaction
giving rise to the claim. {8}  J. I. Case Co. v. Borak, 377 U. S. 426
(1964), did not itself address the requisites of causation, as such, or
define the class of plaintiffs eligible to sue under MDRV 14(a).  But its
general holding, that a private cause of action was available to some
shareholder class, acquired greater clarity with a more definite concept of
causation in Mills, where we addressed the sufficiency of proof that
misstatements in a proxy solicitation were responsible for damages claimed
from the merger subject to complaint.
    Although a majority stockholder in Mills controlled just over half the
corporation's shares, a two-thirds vote was needed to approve the merger
proposal.  After proxies had been obtained, and the merger had carried,
minority shareholders brought a Borak action.  396 U. S., at 379.  The
question arose whether the plaintiffs' burden to demonstrate causation of
their damages traceable to the MDRV 14(a) violation required proof that the
defect in the proxy solicitation had had "a decisive effect on the voting."
Id., at 385. The Mills Court avoided the evidentiary morass that would have
followed from requiring individualized proof that enough minority
shareholders had relied upon the misstatements to swing the vote.  Instead,
it held that causation of damages by a material proxy misstatement could be
established by showing that minority proxies necessary and sufficient to
authorize the corporate acts had been given in accordance with the tenor of
the solicitation, and the Court described such a causal relationship by
calling the proxy solicitation an "essential link in the accomplishment of
the transaction."  Ibid.  In the case before it, the Court found the
solicitation essential, as contrasted with one addressed to a class of
minority shareholders without votes required by law or by-law to authorize
the action proposed, and left it for another day to decide whether such a
minority shareholder could demonstrate causation.  Id., at 385, n. 7.
    In this case, respondents address Mills' open question by proffering
two theories that the proxy solicitation addressed to them was an
"essential link" under the Mills causation test. {9}  They argue, first,
that a link existed and was essential simply because VBI and FABI would
have been unwilling to proceed with the merger without the approval
manifested by the minority shareholders' proxies, which would not have been
obtained without the solicitation's express misstatements and misleading
omissions.  On this reasoning, the causal connection would depend on a
desire to avoid bad shareholder or public relations, and the essential
character of the causal link would stem not from the enforceable terms of
the parties' corporate relationship, but from one party's apprehension of
the ill will of the other.
    In the alternative, respondents argue that the proxy statement was an
essential link between the directors' proposal and the merger because it
was the means to satisfy a state statutory requirement of minority
shareholder approval, as a condition for saving the merger from voidability
resulting from a conflict of interest on the part of one of the Bank's
directors, Jack Beddow, who voted in favor of the merger while also serving
as a director of FABI.  Brief for Re spondents 43-44, 45-46.  Under the
terms of Va. Code MDRV 13.1-691(A) (1989), minority approval after
disclosure of the material facts about the transaction and the director's
interest was one of three avenues to insulate the merger from later attack
for conflict, the two others being ratification by the Bank's directors
after like disclosure, and proof that the merger was fair to the
corporation.  On this theory, causation would depend on the use of the
proxy statement for the purpose of obtaining votes sufficient to bar a
minority shareholder from commencing proceedings to declare the merger
void. {10}
    Although respondents have proffered each of these theories as
establishing a chain of causal connection in which the proxy statement is
claimed to have been an "essential link," neither theory presents the proxy
solicitation as essential in the sense of Mills' causal sequence, in which
the solicitation links a directors' proposal with the votes legally
required to authorize the action proposed.  As a consequence, each theory
would, if adopted, extend the scope of Borak actions beyond the ambit of
Mills, and expand the class of plaintiffs entitled to bring Borak actions
to include shareholders whose initial authorization of the transaction
prompting the proxy solicitation is unnecessary.
    Assessing the legitimacy of any such extension or expansion calls for
the application of some fundamental principles governing recognition of a
right of action implied by a federal statute, the first of which was not,
in fact, the considered focus of the Borak opinion.  The rule that has
emerged in the years since Borak and Mills came down is that recognition of
any private right of action for violating a federal statute must ultimately
rest on congressional intent to provide a private remedy, Touche Ross & Co.
v. Redington, 442 U. S. 560, 575 (1979).  From this the corollary follows
that the breadth of the right once recognized should not, as a general
matter, grow beyond the scope congressionally intended.
    This rule and corollary present respondents with a serious obstacle,
for we can find no manifestation of intent to recognize a cause of action
(or class of plaintiffs) as broad as respondents' theory of causation would
entail.  At first blush, it might seem otherwise, for the Borak Court
certainly did not ignore the matter of intent.  Its opinion adverted to the
statutory object of "protection of investors" as animating Congress' intent
to provide judicial relief where "necessary," Borak, 377 U. S., at 432, and
it quoted evidence for that intent from House and Senate Committee Reports,
id., at 431-32.  Borak's probe of the congressional mind, however, never
focused squarely on private rights of action, as distinct from the
substantive objects of the legislation, and one member of the Borak Court
later characterized the "implication" of the private right of action as
resting modestly on the Act's "exclusively procedural provision affording
access to a federal forum."  Bivens v. Six Unknown Fed. Narcotics Agents,
403 U. S. 388, 403, n. 4 (1971) (Harlan, J., concurring in judgment)
(internal quotation marks omitted).  See generally L. Loss, Fundamentals of
Securities Regulation 929 (2d. ed. 1988).  See also Touche Ross, supra, at
568, 578.  In fact, the importance of enquiring specifically into intent to
authorize a private cause of action became clear only later, see Cort v.
Ash, 422 U. S., at 78, and only later still, in Touche Ross, was this
intent accorded primacy among the considerations that might be thought to
bear on any decision to recognize a private remedy.  There, in dealing with
a claimed private right under MDRV 17(a) of the Act, we explained that the
"central inquiry remains whether Congress intended to create, either
expressly or by implication, a private cause of action."  442 U. S., at
575-576.
    Looking to the Act's text and legislative history mindful of this
heightened concern reveals little that would help toward understanding the
intended scope of any private right.  According to the House report,
Congress meant to promote the "free exercise" of stockholders' voting
rights, H. R. Rep. No. 1383, 73d Cong., 2d Sess., 14 (1934), and protect
"[f]air corporate suffrage," id., at 13, from abuses exemplified by proxy
solicitations that concealed what the Senate report called the "real
nature" of the issues to be settled by the subsequent votes, S. Rep. No.
792, 73d Cong., 2d Sess., 12 (1934).  While it is true that these reports,
like the language of the Act itself, carry the clear message that Congress
meant to protect investors from misinformation that rendered them unwitting
agents of self-inflicted damage, it is just as true that Congress was
reticent with indications of how far this protection might depend on
self-help by private action.  The response to this reticence may be, of
course, to claim that MDRV 14(a) cannot be enforced effectively for the
sake of its intended beneficiaries without their participation as private
litigants.  Borak, supra, at 432.  But the force of this argument for
inferred congressional intent depends on the degree of need perceived by
Congress, and we would have trouble inferring any congressional urgency to
depend on implied private actions to deter violations of MDRV 14(a), when
Congress expressly provided private rights of action in 15 9(e), 16(b) and
18(a) of the same Act.  See 15 U. S. C. 15 78i(e), 78p(b) and 78r(a). {11}
    The congressional silence that is thus a serious obstacle to the
expansion of cognizable Borak causation is not, however, a necessarily
insurmountable barrier.  This is not the first effort in recent years to
expand the scope of an action originally inferred from the Act without
"conclusive guidance" from Congress, see Blue Chip Stamps v. Manor Drug
Stores, 421 U. S., at 737, and we may look to that earlier case for the
proper response to such a plea for expansion.  There, we accepted the
proposition that where a legal structure of private statutory rights has
developed without clear indications of congressional intent, the contours
of that structure need not be frozen absolutely when the result would be
demonstrably inequitable to a class of would-be plaintiffs with claims
comparable to those previously recognized.  Faced in that case with such a
claim for equality in rounding out the scope of an implied private
statutory right of action, we looked to policy reasons for deciding where
the outer limits of the right should lie.  We may do no less here, in the
face of respondents' pleas for a private remedy to place them on the same
footing as shareholders with votes necessary for initial corporate action.

A
    Blue Chip Stamps set an example worth recalling as a preface to
specific policy analysis of the consequences of recognizing respondents'
first theory, that a desire to avoid minority shareholders' ill will should
suffice to justify recog nizing the requisite causality of a proxy
statement needed to garner that minority support.  It will be recalled that
in Blue Chip Stamps we raised concerns about the practical consequences of
allowing recovery, under MDRV 10(b) of the Act and Rule 10b-5, on evidence
of what a merely hypothetical buyer or seller might have done on a set of
facts that never occurred, and foresaw that any such expanded liability
would turn on "hazy" issues inviting self-serving testimony, strike suits,
and protracted discovery, with little chance of reasonable resolution by
pretrial process.  Id., at 742-743.  These were good reasons to deny
recognition to such claims in the absence of any apparent contrary
congressional intent.
    The same threats of speculative claims and procedural intractability
are inherent in respondents' theory of causation linked through the
directors' desire for a cosmetic vote.  Causation would turn on inferences
about what the corporate directors would have thought and done without the
minority shareholder approval unneeded to authorize action.  A subsequently
dissatisfied minority shareholder would have virtual license to allege that
managerial timidity would have doomed corporate action but for the
ostensible approval induced by a misleading statement, and opposing claims
of hypothetical diffidence and hypothetical boldness on the part of
directors would probably provide enough depositions in the usual case to
preclude any judicial resolution short of the credibility judgments that
can only come after trial.  Reliable evidence would seldom exist.
Directors would understand the prudence of making a few statements about
plans to proceed even without minority endorsement, and discovery would be
a quest for recollections of oral conversations at odds with the official
pronouncements, in hopes of finding support for ex post facto guesses about
how much heat the directors would have stood in the absence of minority
approval.  The issues would be hazy, their litigation protracted, and their
resolution unreliable.  Given a choice, we would reject any theory of
causation that raised such prospects, and we reject this one. {12}

B
    The theory of causal necessity derived from the requirements of
Virginia law dealing with postmerger ratification seeks to identify the
essential character of the proxy solicitation from its function in
obtaining the minority approval that would preclude a minority suit
attacking the merger.  Since the link is said to be a step in the process
of barring a class of shareholders from resort to a state remedy otherwise
available, this theory of causation rests upon the proposition of policy
that MDRV 14(a) should provide a federal remedy whenever a false or
misleading proxy statement results in the loss under state law of a
shareholder plaintiff's state remedy for the enforcement of a state right.
Respondents agree with the suggestions of counsel for the SEC and FDIC that
causation be recognized, for example, when a minority shareholder has been
induced by a misleading proxy statement to forfeit a state-law right to an
appraisal remedy by voting to approve a transaction, cf. Swanson v.
American Consumers Industries, Inc., 475 F. 2d 516, 520-521 (CA7 1973), or
when such a shareholder has been deterred from obtaining an order enjoining
a damaging transaction by a proxy solicitation that misrepresents the facts
on which an injunction could properly have been issued.  Cf. Healey v.
Catalyst Recovery of Pennsylvania, Inc., 616 F. 2d 641, 647-648 (CA3 1980);
Alabama Farm Bureau Mutual Casualty Co. v. American Fidelity Life Ins. Co.,
606 F. 2d 602, 614 (CA5 1979), cert. denied, 449 U. S. 820 (1980).
Respondents claim that in this case a predicate for recognizing just such a
causal link exists in Va. Code MDRV 13.1-691(A)(2)(1989), which sets the
conditions under which the merger may be insulated from suit by a minority
shareholder seeking to void it on account of Beddow's conflict.
    This case does not, however, require us to decide whether 14(a)
provides a cause of action for lost state remedies, since there is no
indication in the law or facts before us that the proxy solicitation
resulted in any such loss.  The contrary appears to be the case.  Assuming
the soundness of respondents' characterization of the proxy statement as
materially misleading, the very terms of the Virginia statute indicate that
a favorable minority vote induced by the solicitation would not suffice to
render the merger invulnerable to later attack on the ground of the
conflict.  The statute bars a shareholder from seeking to avoid a
transaction tainted by a director's conflict if, inter alia, the minority
shareholders ratified the transaction following disclosure of the material
facts of the transaction and the conflict.  Va. Code MDRV 13.1-691(A)
(2)(1989).  Assuming that the material facts about the merger and Beddow's
interests were not accurately disclosed, the minority votes were inadequate
to ratify the merger under state law, and there was no loss of state remedy
to connect the proxy solicitation with harm to minority shareholders
irredressable under state law. {13}  Nor is there a claim here that the
statement misled respondents into entertaining a false belief that they had
no chance to upset the merger, until the time for bringing suit had run
out. {14}

IV
    The judgment of the Court of Appeals is reversed.
It is so ordered.









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1
    Section 14(a) provides in full that:
    "It shall be unlawful for any person, by the use of the mails or by any
means or instrumentality of interstate commerce or of any facility of a
national securities exchange or otherwise, in contravention of such rules
and regulations as the Commission may prescribe as necessary or appropriate
in the public interest or for the protection of investors, to solicit or to
permit the use of his name to solicit any proxy or consent or authorization
in respect of any security (other than an exempted security) registered
pursuant to section 78l of this title."  15 U. S. C. MDRV 78n(a).

2
    This Rule provides in relevant part that:
    "No solicitation subject to this regulation shall be made by means of
any proxy statement . . . containing any statement which, at the time and
in the light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein not false
or misleading . . . ."  17 CFR 240.14a-9 (1990).
    The Federal Deposit Insurance Corporation (FDIC) administers and
enforces the securities laws with respect to the activities of federally
insured and regulated banks.  See Section 12(i) of the Exchange Act, 15 U.
S. C. MDRV 78l(i).  An FDIC rule also prohibits materially misleading
statements in the solicitation of proxies, 12 CFR MDRV 335.206 (1991), and
is essentially identical to Rule 14a-9.  See generally Brief for SEC et al.
as Amici Curiae 4, n. 5.

3
    Had the directors chosen to issue a statement instead of a proxy
solicitation, they would have been subject to an SEC antifraud provision
analogous to Rule 14a-9.  See 17 CFR 240.14c-6 (1990).  See also 15 U. S.
C. MDRV 78n(c).

4
    The Court of Appeals reversed the District Court, however, on its
refusal to certify a class of all minority shareholders in Sandberg's
action.  Consequently, it ruled that petitioners were liable to all of the
Bank's former minority shareholders for $18 per share.  891 F. 2d, at
1119.

5
    In TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 444, n. 7
(1976), we reserved the question whether scienter was necessary for lia
bility generally under MDRV 14(a).  We reserve it still.

6
    Petitioners are also wrong to argue that construing the statute to
allow recovery for a misleading statement that the merger was "fair" to the
minority shareholders is tantamount to assuming federal authority to bar
corporate transactions thought to be unfair to some group of shareholders.
It is, of course, true that we said in Santa Fe Industries, Inc. v. Green,
430 U. S. 462, 479 (1977), that " `[c]orporations are creatures of state
law, and investors commit their funds to corporate directors on the
understanding that, except where federal law expressly requires certain
responsibilities of directors with respect to stockholders, state law will
govern the internal affairs of the corporation,' " quoting Cort v. Ash, 422
U. S. 66, 84 (1975).  But MDRV 14(a) does impose responsibility for false
and misleading proxy statements.  Although a corporate transaction's
"fairness" is not, as such, a federal concern, a proxy statement's claim of
fairness presupposes a factual integrity that federal law is expressly
concerned to preserve.  Cf. Craftmatic Securities Litigation v. Kraftsow,
890 F. 2d 628, 639 (CA3 1989).

7
    Petitioners fail to dissuade us from recognizing the significance of
omissions such as this by arguing that we effectively require them to
accuse themselves of breach of fiduciary duty.  Subjection to liability for
misleading others does not raise a duty of self-accusation; it enforces a
duty to refrain from misleading.  We have no occasion to decide whether the
directors were obligated to state the reasons for their support of the
merger proposal here, but there can be no question that the statement they
did make carried with it no option to deceive.  Cf. Berg v. First American
Bankshares, Inc., 254 U. S. App. D. C. 198, 205, 796 F. 2d 489, 496 (1986)
("Once the proxy statement purported to disclose the factors considered . .
. , there was an obligation to portray them accurately").

8
    Respondents argue that this issue was not raised below.  The appeals
court, however, addressed the availability of a right of action to minority
shareholders in respondents' circumstances and concluded that respondents
were entitled to sue.  891 F. 2d 1112, 1120-1121 (CA4 1989).  It suffices
for our purposes that the court below passed on the issue presented,
Stevens v. Department of the Treasury, 500 U. S. ---, --- (1991) (slip op.
at 6); cf. Cohen v. Cowles Media Co., 501 U. S. ---, --- (1991) (slip op.,
at 3), particularly where the issue is, we believe, " `in a state of
evolving definition and uncertainty,' " St. Louis v. Praprotnick, 485 U. S.
112, 120 (1988) (plurality opinion), quoting Newport v. Fact Concerts,
Inc., 453 U. S. 247, 256 (1981), and one of importance to the
administration of federal law.  Praprotnick, supra, at 120-121.

9
    Citing the decision in Schlick v. Penn-Dixie Cement Corp., 507 F. 2d
374, 382-383 (CA2 1974), petitioners characterize respondents' proferred
theories as examples of so-called "sue facts" and "shame facts" theories.
Brief for Petitioners 41; Reply Brief for Petitioners 8.  "A `sue fact' is,
in general, a fact which is material to a sue decision.  A `sue decision'
is a decision by a shareholder whether or not to institute a representative
or derivative suit alleging a state-law cause of action."  Gelb, Rule 10b-5
and Santa Fe -- Herein of Sue Facts, Shame Facts, and Other Matters, 87 W.
Va. L. Rev. 189, 198, and n. 52 (1985), quoting Borden, "Sue Fact" Rule
Mandates Disclosure to Avoid Litigation in State Courts, 10 SEC '82, pp.
201, 204-205 (1982).  See also Note, Causation and Liability in Private
Actions for Proxy Violations, 80 Yale L. J. 107, 116 (1970) (discussing
theories of causation).  "Shame facts" are said to be facts which, had they
been disclosed, would have "shamed" management into abandoning a proposed
transaction.  See Schlick, supra, at 384.  See also Gelb, supra, at 197.

10
    The district court and court of appeals have grounded causation on  a
further theory, that Virginia law required a solicitation of proxies even
from minority shareholders as a condition of consummating the merger.  See,
891 F. 2d at 1120, n. 1; App. 426.  While the provisions of Va. Code  15
13.1-718(A), (D), and (E) (1989) are said to have required the Bank to
solicit minority proxies, they actually compelled no more than submission
of the merger to a vote at a shareholders' meeting, MDRV 13.1-718(E),
preceded by issuance of an informational statement, MDRV 13.1-718(D).
There was thus no need under this statute to solicit proxies, although it
is undisputed that the proxy solicitation sufficed to satisfy the statutory
obligation to provide a statement of relevant information.  On this theory
causation would depend on the use of the proxy statement to satisfy a
statutory obligation, even though a proxy solicitation was not, as such,
required.  In this Court, respondents have disclaimed reliance on any such
theory.

11
    The object of our enquiry does not extend further to question the
holding of either J. I. Case Co. v. Borak, 377 U. S. 426 (1964), or Mills
v. Electric Auto-Lite Co., 396 U. S. 375 (1970) at this date, any more than
we have done so in the past, see Touche Ross & Co. v. Redington, 442 U. S.
560, 577 (1979).  Our point is simply to recognize the hurdle facing any
litigant who urges us to enlarge the scope of the action beyond the point
reached in Mills.

12
    In parting company from us on this point, Justice Kennedy emphasizes
that respondents in this particular case substantiated a plausible claim
that petitioners would not have proceeded without minority approval.
FABI's attempted freeze-out merger of a Maryland subsidiary had failed a
year before the events in question when the subsidiary's directors rejected
the proposal because of inadequate share price, and there was evidence of
FABI's desire to avoid any renewal of adverse comment.  The issue before
us, however, is whether to recognize a theory of causation generally, and
our decision against doing so rests on our apprehension that the ensuing
litigation would be exemplified by cases far less tractable than this.
Respondents' burden to justify recognition of causation beyond the scope of
Mills must be addressed not by emphasizing the instant case but by
confronting the risk inherent in the cases that could be expected to be
characteristic if the causal theory were adopted.

13
    In his opinion dissenting on this point, Justice Kennedy suggests that
materiality under Virginia law might be defined differently from the
materiality standard of our own cases, resulting in a denial of state
remedy even when a solicitation was materially misleading under federal
law.  Respondents, however, present nothing to suggest that this might be
so.

14
    Respondents do not claim that any other application of a theory of lost
state remedies would avail them here.  It is clear, for example, that no
state appraisal remedy was lost through a MDRV 14(a) violation in this
case.  Respondent Weinstein and others did seek appraisal under Virginia
law in the Virginia courts; their claims were rejected on the explicit
grounds that although "[s]tatutory appraisal is now considered the
exclusive remedy for stockholders opposing a merger," App. to Pet. for
Cert. 32a; see Adams v. United States Distributing Corp., 184 Va. 134, 34
S. E. 2d 244 (1945), cert. denied, 327 U. S. 788 (1946), "dissenting
stockholders in bank mergers do not even have this solitary remedy
available to them," because "Va. Code MDRV 6.1-43 specifically excludes
bank mergers from application of MDRV 13.1-730 [the Virginia appraisal
statute]."  App. to Pet. for Cert. 31a, 32a.  Weinstein does not claim that
the Virginia court was wrong and does not rely on this claim in any way.
Thus, the MDRV 14(a) violation could have had no effect on the availability
of an appraisal remedy, for there never was one.