Santa Fe Industries, Inc. v. Green

Santa Fe Industries, Inc. (Santa Fe) (defendant) controlled 95 percent of the stock of Kirby Lumber Corp. (Kirby). Santa Fe sought to own 100 percent of the stock, so it filed for a merger under the Delaware short-form-merger statute, which allows a parent corporation owning at least 90 percent of the subsidiary to merge with the subsidiary and make a cash payment to the minority stockholders. The statute does not require approval of the minority stockholders, but rather requires only notice within 10 days of the merger. The statute provides that if the minority stockholders are unhappy with the merger, they can petition the Delaware Court of Chancery to attempt to obtain fair value for their shares. Santa Fe followed the statute and completed the short-form merger, giving the minority stockholders of Kirby $150 per share, a value based on an appraisal by Morgan Stanley. The minority stockholders (plaintiffs), rather than petitioning the state court as called for by the statute, brought suit in federal court seeking to set aside the merger on the grounds that the appraisal was fraudulent in violation of SEC Rule 10b-5. The district court dismissed the Rule 10b-5 complaint for failure to state a claim because it did not allege a material misrepresentation or nondisclosure. The United States Court of Appeals for the Second Circuit agreed that the complaint did not allege a material misrepresentation or nondisclosure, but it reversed, holding that neither misrepresentation nor nondisclosure was an essential element of Rule 10b-5. The United States Supreme Court granted certiorari.