Mills v. Electric Auto-Lite Co.

396 U.S. 375 (1970)

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Nature of the Case

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Facts

Mills (P) were shareholders of Electric Auto-Lite (D) until it was merged into Mergenthaler Linotype Company. P sued the day before a shareholder meeting alleging that D's management had obtained proxies by a misleading proxy statement. P did not seek a TRO, and the voting went ahead the following day. Several months later, P then amended the complaint seeking to have the merger set aside and to obtain such other relief as is proper. P gave facts that before the merger Mergenthaler owned over 50% of the outstanding shares of D and had been in control of D for over two years. American Manufacturing owned about 1/3 of the outstanding shares of Mergenthaler and for two years had been in control Mergenthaler and through it D. P alleges that the proxy statement was misleading in that it told the shareholders that the board of directors recommended the merger but failed to inform them that all 11 of D's directors were nominees of Mergenthaler and were under the control and domination of Mergenthaler. Ps asserted the right to complain derivatively and as representatives of a class of minority shareholders of D. P filed a motion for summary judgment. The trial court ruled that proxy statement contained material omissions. From the Borak opinion, the court then reasoned that it had to hold a hearing on the issue of whether there was a causal connection between the section 14(a) findings and the alleged injury to Ps before it could consider the remedies available. After that hearing, the court concluded that a causal relationship had been shown and granted an interlocutory judgment in favor of P. The case was then referred to a Master. D took the interlocutory appeal. The appeals court affirmed that the proxy statement was materially deficient but reversed on causation in that P's did not take preventative measures soon enough and as such D could show by a preponderance of probabilities that the merger would have received a sufficient vote even if the proxy statement had not been misleading, Ps would be entitled to no relief. This was likened to the reliance showing for common law fraud. The Court of Appeals' ruled that 'causation' may be negated by proof of the fairness of the merger. Proof on this issue could be shown by showing that the merger had merit and was fair to the minority shareholders. P appealed.