TSC Industries, Inc. v. Northway, Inc.
426 U.S. 438 (1976)

  • National bought 34% of TSC’s stock. They then put their own people on TSC’s Board. Then new directors floated a plan to sell all of TSC’s assets to National. They issued a joint proxy statement asking the shareholder to vote for the merger.
  • Some TSC shareholders sued to block the merger.
    • The shareholders argued that the proxy statement had a material omission because it failed to state that the purchase of 34% of TSC’s stock gave National control of TSC.
      • Securities Exchange Act of 1934 Rule 14a-9 prohibits the solicitation of proxies by means of materially false or misleading statements.
  • The Trial Court found for TSC. The shareholders appealed.
    • The Trial Court found that the omissions the shareholders were worried about were not material, and therefore not a violation of Rule 14a-9.
  • The Appellate Court reversed. TSC appealed.
    • The Appellate Court found that all facts that a shareholder might consider important are material.
  • The US Supreme Court reversed.
    • The US Supreme Court defined materiality for purposes of Rule 14a-9:
      • There must be a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.
      • There must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of the information made available.
    • The Court looked at the facts of this case, and found that under the standard of materiality they had established, the omissions were not material.