Great American Industries, Inc. (GAI) (defendant) owned 73 percent of the stock of Chenango Industries, Inc. (Chenango) (defendant) and wanted to obtain full ownership. GAI therefore proposed a merger in which Chenango shareholders would receive preferred stock in GAI. New York law did not require GAI to issue a full proxy statement regarding the proposed merger, but GAI nonetheless did so. The proxy statements contained material misrepresentations which underrepresented Chenango’s value. A sufficient number of minority shareholders voted in favor of the merger to deprive Chenango’s shareholders of appraisal rights under New York law. Some Chenango minority shareholders (plaintiffs) sued GAI, Chenango, and several officers and directors associated with the companies. They asserted a cause of action under SEC Rule 14a-9, alleging that the material misstatements induced the minority shareholders to vote in favor of a merger that was unfair to them, thereby causing them to suffer a loss. GAI responded that causation was lacking. Because New York law required only a two-thirds vote to approve a merger, GAI argued, it could have accomplished the merger even if all minority shareholders opposed it. The minority shareholder plaintiffs argued, however, that GAI needed more than the 73 percent to obtain certain favorable tax treatment, and further that a higher percentage would deprive the minority shareholders of their appraisal rights. The trial court ruled in favor of the minority shareholders. GAI and the other defendants appealed, arguing that a recently-decided Supreme Court case, Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991), mandated the dismissal of the case.