Santa Fe Industries, Inc. v. Green
430 U.S. 462 (1977)

  • Santa Fe owned 95% of a corporation called Kirby. In order to get the last 5%, they attempted a short form merger.
    • Under Delaware Corporation Law §253, a parent corporation that owns at least 90% of a subsidiary can, with the approval of the directors of the parent, merge with the subsidiary and cash out the remaining shareholders.
    • Santa Fe hired some appraisers to determine the value of Kirby. The appraisers figured Kirby was worth $125 a share. Santa Fe offered the minority shareholders $150 a share.
  • Some of the minority shareholders (led by Green) sued to block the merger.
    • Green argued that the true value of the stock was $772 a share, and that Santa Fe had fraudulently appraised it.
      • Green argued that this fraud was a violation of the Securities Exchange Act of 1934 Rule 10b-5.
    • Green also argued that the merger itself was a violation of Rule 10b-5 because it was accomplished without any corporate purpose and without prior notice to minority shareholders.
  • The Trial Court found for Santa Fe. Green appealed.
    • The Trial Court found that Green didn’t make a reasonable case that the stock was significantly undervalued.
  • The Appellate Court reversed. Santa Fe appealed.
    • The Appellate Court agreed that Green did not make a reasonable case that the stock was undervalued.
    • However, The Court found that any breach of fiduciary duty by a majority of shareholders against the minority could be a violation of Rule 10b-5, even without a charge of fraud or misrepresentation.
  • The US Supreme Court reversed.
    • The US Supreme Court found that Rule 10b-5 only prohibits conduct involving manipulation and deception.
      • The Court found that Rule 10b-5 was only designed to ensure full disclosure, it wasn’t designed to be used the way Green was trying to use it.
      • The Court found that Green’s claims were a matter of State law, not Federal law.