Santa Fe Industries, Inc. v. Green

Whether unfairness in a freeze-out merger, without deception or manipulation, states a federal securities-fraud claim.

Santa Fe Industries used Delaware short-form merger procedures to cash out minority shareholders of Kirby Lumber after obtaining appraisals and offering $150 per share. Minority shareholders challenged the transaction under Rule 10b-5, alleging unfairness in price and process.

The Court held that a breach of fiduciary duty or unfair corporate transaction, without deception, misrepresentation, nondisclosure, or manipulation, is not enough for a Rule 10b-5 claim.

Justice White's opinion distinguished federal securities antifraud law from state corporate law. The federal statute targeted deception and manipulation in securities transactions, not general judicial review of corporate fairness where shareholders were informed and state appraisal or fiduciary remedies were available.

1. How does the rule affect information production, investor reliance, and enforcement costs?
2. What are the likely error costs for lawful market activity and for undetected misconduct?