358:. The Court of Appeals for the Seventh Circuit agreed with the District Court that there existed a genuine issue of fact as to whether National's acquisition of the Schmidt interests in TSC had resulted in a change of control, and that summary judgment was therefore inappropriate on the Rule 14a-3 claim. But the Court of Appeals reversed the District Court's denial of summary judgment to Northway on its Rule 14a-9 claims, holding that certain omissions of fact were material as a matter of law. 512 F.2d 324 (1975). The U.S. Supreme Court then granted
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of TSC. Marshall held that these omissions were of questionable materiality and inappropriate for summary judgment because other disclosures within the proxy materials could have led shareholders to similar conclusions about the degree of control
National exercised over TSC. Furthermore, there was
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to manipulate market prices by engaging in a series of transactions with
Madison Fund, Inc., a mutual fund. One of National's directors also had a seat on Madison's board, and in the period prior to National's acquisition of TSC, Madison's purchases of National's common stock accounted for 8.5% of
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Marshall wanted the test for materiality of a misstatement or omission to serve the remedial purposes of §14a, without creating too much liability for companies by allowing any minor or trivial defect to create liability. If the test was too stringent, it would cause the dismissal of otherwise
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behind the §14a of the
Securities Exchange Act. Stockholders need to understand the questions they are voting on, and misstatements or omissions in proxy materials prevent them from properly doing so. The court had previously held that a defect in a proxy statement need not be decisive in the
346:. Northway asserted that the proxy statement was misleading because National had omitted facts concerning the degree of control it had over TSC, and misrepresented whether or not the merger was a good deal for TSC shareholders. The
452:. The investment bank rendered an opinion that the high redemption price of National's stock was a substantial premium over the current market value of TSC's shares. The bank later revised its opinion when it discovered that the
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for
National stock were being offered at a lower price than expected. But since the bank still felt the transaction was fair and that TSC shareholders were still receiving a premium, Marshall held this omission to be immaterial.
424:. In other words, the court must determine whether under all the circumstances, the omitted fact would have assumed actual significance in the decision of the shareholder. Thus, materiality is a mixed question of fact and law.
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A misstated or omitted fact in a proxy solicitation is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.
469:. But Northway failed to demonstrate evidence of any unlawful manipulation at trial, and Marshall found that National had no duty to disclose all information which might suggest
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Marshall then examined the various standards of materiality which had been used by lower courts. The
Seventh Circuit used the test of “all facts which a reasonable shareholder
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would be inclined to overwhelm shareholders with such a large volume of information that truly valuable facts might escape them. He formulated the test as follows:
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actual vote: so long as the misstatement or omission was material, there was a causal link between violation of the law and the injury to the shareholder.
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an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote
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against both TSC and
National, alleging that the proxy statement was incomplete and materially misleading and therefore violated §14(a) of the
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already a genuine issue of fact as to whether
National was really in control of TSC at the time of the proxy solicitation anyway.
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473:, but rather only to be honest in its disclosures. Marshall overturned the decision of the Court of Appeals and
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was chairman of TSC's board of directors, and that
National had previously indicated to the SEC that it was the
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The two facts which
National omitted with respect to the fairness of the transaction were the statements of an
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would attach importance to the fact which was misrepresented or omitted in determining his course of action.
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The two facts that
National omitted with respect to the proxy solicitation were the fact that National's
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to approve the merger. The shareholders approved and the plan was carried out.
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Marshall, joined by Burger, Brennan, Stewart, White, Blackmun, Powell, Rehnquist
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consider important”, which Marshall held was not a stringent enough test. The
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of TSC to National. One aspect of the proposed merger was to exchange both
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Plaintiffs' motion for partial summary judgment on liability denied, 361
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firm involved in the deal and the purchase of National's stock by a
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in TSC for that of National. TSC and National then issued a joint
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United States District Court for the Northern District of Illinois
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Stevens took no part in the consideration or decision of the case.
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284:’s founder. Five nominees from National were placed on TSC's
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TSC Industries, Incorporated, et al. v. Northway, Incorporated
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TSC Industries, Inc., and had purchased 34% of TSC's voting
374:, writing for the majority, first examined the underlying
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public domain material from this U.S government document
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United States Supreme Court cases of the Burger Court
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List of United States Supreme Court cases, volume 426
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Application of the new rule to the facts of the case
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318:Northway, Inc. was a TSC shareholder who brought
344:United States Securities and Exchange Commission
252:, 426 U.S. 438 (1976), was a case in which the
115:1973), affirmed in part, reversed in part, 512
416:meritorious lawsuits; if it were too lenient,
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465:all reported transactions for the company's
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411:Marshall's new formulation of materiality
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583:TSC Industries, Inc. v. Northway, Inc.
561:Northway, Inc. v. TSC Industries, Inc.
543:Northway, Inc. v. TSC Industries, Inc.
506:TSC Industries, Inc. v. Northway, Inc.
249:TSC Industries, Inc. v. Northway, Inc.
24:TSC Industries, Inc. v. Northway, Inc.
18:1976 United States Supreme Court case
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272:National Industries, Inc. sought to
460:Northway also accused National of
399:circuits used a more conventional
254:Supreme Court of the United States
36:Supreme Court of the United States
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671:United States Supreme Court cases
666:United States securities case law
593:438 (1976) is available from:
383:Previous standards of materiality
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324:Securities Exchange Act of 1934
256:articulated the requirement of
240:Securities Exchange Act of 1934
661:1976 in United States case law
342:promulgated thereunder by the
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268:Facts and procedural history
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643:Oyez (oral argument audio)
550: (N.D. Ill. 1973).
527:This article incorporates
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548:361 F. Supp. 108
403:-based test: whether a
86:155; Fed. Sec. L. Rep. (
434:chief executive officer
164:William J. Brennan Jr.
45:Decided June 14, 1976
566:512 F.2d 324
43:Argued March 3, 1976
634:Library of Congress
471:market manipulation
196:Lewis F. Powell Jr.
78:96 S. Ct. 2126; 48
446:investment banking
418:corporate officers
350:denied Northway's
286:board of directors
160:Associate Justices
405:reasonable person
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200:William Rehnquist
184:Thurgood Marshall
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234:Laws applied
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96:Case history
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450:mutual fund
282:corporation
258:materiality
176:Byron White
655:Categories
493:References
477:the case.
467:securities
360:certiorari
332:§ 78n
90:) ¶ 95,615
84:U.S. LEXIS
82:757; 1976
462:collusion
316:Plaintiff
308:to their
302:preferred
290:liquidate
280:from the
113:N.D. Ill.
80:L. Ed. 2d
60:Citations
581:Text of
481:See also
475:remanded
454:warrants
372:Marshall
370:Justice
366:Decision
221:Majority
106:F. Supp.
607:Findlaw
274:acquire
264:cases.
135:Holding
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625:Justia
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564:,
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393:Second
376:policy
352:motion
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298:common
294:assets
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397:Fifth
389:might
340:14a-9
336:14a-3
278:stock
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101:Prior
591:U.S.
514:U.S.
401:tort
395:and
354:for
338:and
320:suit
300:and
128:U.S.
117:F.2d
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65:U.S.
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260:in
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