Healey v. Catalyst Recovery of Pennsylvania, Inc. (3rd Cir. 1980)

Facts: Lawsuit concerning merger under state law. Unlike Santa Fe where the state law only provided for an appraisal remedy after the merger and no way to enjoin the merger, the plaintiffs allege that (1) there was deceptive disclosure/omissions, and (2) state law provided for possible injunctive relief.

Issue: Whether Rule 10b-5 provides plaintiffs with a right of action where plaintiffs allege manipulative/deceptive conduct and the relevant state law allows for a pre-merger remedy?

Rule: Where a misrepresentation or omission of material information deprives a proper plaintiff minority shareholder of an opportunity under state law to enjoin a merger, there is a cause of action under Rule 10b-5. In the case of omitted information, the question is whether, if the plaintiff had received the information, it would have been significant to the determination of the reasonable probability of ultimate success.

Holding: The 3rd Circuit permits suit under Rule 10b-5.

Dissent (as if you’re not reading enough already): The Losers address the inconsistency/conflict between the implications of footnote 14 and part IV of Santa Fe. They argue that we should give emphasis to Part IV and not to footnote 14. The Losers also say this holding risks interference with state law–i.e., why should we provide federal relief to plaintiffs who already have a state remedy when, in Santa Fe, the court refused to provide federal relief to plaintiffs who didn’t have a state remedy? (The Losers say this is “perverse.”) Moreover, the dissent points out that federal courts can grant no greater relief under 10b-5 than these plaintiffs could have received under state law.