J.I. Case Co. v. Borak
377 U.S. 426 (1964)


PROCEDURE: Petitioner corporation challenged a judgment from the United States Court of Appeals for the Seventh Circuit, which, on interlocutory appeal, reversed in favor of respondent shareholder. The shareholder had alleged deprivation of his and other shareholders' pre-emptive rights by a merger allegedly effected by circulation of a false and misleading proxy statement in violation of § 14(a) of the Securities Exchange Act of 1934


FACTS:Borak (P) and other shareholders (P) brought this action alleging that the merger between Case (D) and American Tractor Corporation (ATC) was approved through false proxy statements that violated § 14(a) of the Securities Exchange Act. Borak (P) argued that the proposed merger breached the directors' fiduciary duties to its shareholders and constituted self-dealing. Borak (P) and the other plaintiffs insisted that Case (D) used their names in violation of SEC procedures and alleged that the merger would not have been approved without the false statements. Borak (P) seeks to have the merger declared void.


ISSUE: Is a private federal cause of action exist for rescission or damages to a stockholder with respect to a consummated merger which was authorized pursuant to the use of a proxy statement alleged to contain false and misleading statements?

RULE: Section 27 of the SEC Act authorizes a federal cause of action for rescission or damages to stockholders regarding proxy statement information alleged to be false and misleading. There is an implied private right of action for violation of § 14 (a) of the Securities Exchange Act of 1934.


HOLDING: The United States District Court for the Eastern District of Wisconsin dismissed two counts of the complaint upon holding that it had no power to redress alleged violations of the Securities Exchange Act but was limited solely to granting declaratory relief, and that state statute requiring security was applicable except with respect to the count for declaratory relief. On an interlocutory appeal, the United States Court of Appeals reversed holding that the District Court had power to grant remedial relief, and that the state statute was not applicable. Certiorari was granted. The Supreme Court, held that the Securities Exchange Act authorizes a federal cause for rescission or damages to a corporate stockholder with respect to a consummated merger which was authorized pursuant to the use of a proxy statement alleged to contain false and misle