PREGERSON, Circuit Judge:
Appellant Carol Plaine, a former shareholder of Magma Power Company ("Magma"), brought suit against Natomas Company ("Natomas"), Magma, and various individual officers of both companies alleging violations of section 14(e) of the Securities and Exchange Act of 1934, as amended, 15 U.S.C. § 78n(e) (1982) ("the Act"), and state securities laws in connection with Natomas' tender offer to, and eventual merger with, Magma. The district court granted summary judgment to defendants, ruling that a decision of the California Corporations Commissioner ("Commissioner") that found the merger price fair collaterally estopped Plaine from proving injury, an essential element of her section 14(e) claim. We agree that collateral estoppel precludes Plaine from challenging the Commissioner's fairness finding, but conclude that such a finding does not foreclose Plaine from proving actual damages going beyond a fair merger price in her section 14(e) claim. Therefore, we affirm in part, reverse in part and remand for further proceedings consistent with this opinion.
Natomas acquired Magma, a geothermal energy company, in a two-step transaction. The first step was a tender offer, after which Natomas held 83 per cent of Magma's outstanding shares. The second step was a freeze-out merger of the remaining Magma shareholders. Appellant Plaine was forced to give up her shares in the second part of this two-step transaction.
On March 30, 1981, Natomas, through a subsidiary, NEC Acquisition Co., made a cash tender offer for all of Magma's stock at $42 per share. Natomas issued an Offer to Purchase to all Magma shareholders in connection with the proposed tender offer. Magma's management initially opposed the offer, and Magma's chairman, B.C. McCabe, characterized the offer to reporters as "wholly inadequate." McCabe claimed that because of the substantial energy assets of the company, in particular its 25% interest in the Geysers Project (the Geysers),
On April 16, 1981, Natomas and Magma began negotiations on the terms of the
When the amended tender offer expired on May 5, 1981, Natomas owned a total of 8,289,197 shares, or 83 per cent of the total. At a meeting on February 5, 1982, the shareholders approved the merger by a vote of 99.26 per cent of the shares represented. Although the Agreement structured the vote so that Natomas' 83 per cent of the total shares guaranteed the outcome, a majority of the minority shares (93.78 per cent) were voted in favor of the merger. Following the vote, on March 1-3, 1982, the California Corporations Commissioner held a fairness hearing as required by Cal.Corp.Code § 1101.1 (West Supp.1985).
Plaine filed this action in federal court on October 27, 1982. She alleged Natomas and Magma had violated section 14(e) of the Act in omitting and misstating certain material information in the Offer to Purchase sent with the initial tender offer and in the Supplement issued in connection with the amended offer. Specifically, she alleged that certain information regarding projections of future revenues from the Geysers, the financial opinions rendered by Smith Barney and Drexel Burnham, and a possible conflict of interest of Magma's management because of the creation of the new Magma Development Company should have been disclosed to the Magma shareholders.
The district court converted the defendants' motion to dismiss to a motion for summary judgment under Fed.R.Civ.P. 12(c), and ordered judgment for defendants on the grounds that the Commissioner's "fairness" decision collaterally estopped Plaine from proving the injury element of her section 14(e) claim. Plaine timely appealed.
STANDARD OF REVIEW
We review de novo the district court's grant of summary judgment for the defendants.
Initially, we address the defendants' argument that Plaine lacks standing to bring a section 14(e) claim. The defendants allege that because Plaine did not voluntarily tender her shares pursuant to the amended tender offer, she must not have relied on the alleged misstatements and was not injured by them. Although she did not tender her shares, Plaine alleges that the false information and omissions in the proxy materials led other shareholders to tender their shares. The success of the tender offer gave Natomas the 83 per cent share in Magma that eventually allowed Natomas to accomplish the merger. While Plaine does not contest the information distributed in connection with the merger vote itself, she alleges she received an inadequate price in the freeze-out merger because of the previous wrongdoings of the defendants.
Id. 430 U.S. at 38-39, 97 S.Ct. at 947-48 (footnote omitted).
II. Collateral Estoppel
The availability of collateral estoppel is a mixed question of law and fact which we review de novo. Davis & Cox v. Summa Corp., 751 F.2d 1507, 1519 (9th Cir.1985). Once we determine that collateral estoppel is available, we review under an abuse of discretion standard the district court's decision to accord collateral estoppel effect to the state's fairness decision under Cal.Corp.Code § 1101.1. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331, 99 S.Ct. 645, 651, 58 L.Ed.2d 552 (1979). Traditionally, collateral estoppel gives preclusive effect in a subsequent court action to a final adjudication made by a court in a prior proceeding.
Here, the decision for which preclusive effect is sought is not a state court judgment, but an unreviewed state administrative adjudication. The Supreme Court has held that administrative proceedings may be given the preclusive effect accorded to a court "[w]hen an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate." (Emphasis added.) United States v. Utah Construction & Mining Co., 384 U.S. 394, 422, 86 S.Ct. 1545, 1560, 16 L.Ed.2d 642 (1966).
Thus, the threshold inquiry for a court deciding whether to give preclusive effect to a state administrative adjudication, is to determine whether the state administrative proceeding was conducted with sufficient safeguards to be equated with a state court judgment. "When an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate, the courts have not hesitated to apply res judicata to enforce repose." Utah Construction, 384 U.S. at 422, 86 S.Ct at 1560. However, there can be no indiscriminate presumption of judicial adequacy of state administrative proceedings.
Sims established a two part test for determining whether administrative decisions will be given collateral estoppel effect. First, it adopted the standard the United States Supreme Court had established in Utah Construction. 32 Cal.3d at 479, 186 Cal.Rptr. at 83, 651 P.2d at 327-28.
Second, the Court looked to whether the traditional criteria for applying collateral estoppel were satisfied on the facts of the case. 32 Cal.3d at 484, 186 Cal.Rptr. at 87, 651 P.2d at 331. California courts will allow collateral estoppel to bar relitigation of an issue decided at a previous proceeding if:
Id. (quoting People v. Taylor, 12 Cal.3d 686, 691, 117 Cal.Rptr. 70, 527 P.2d 622, 625 (1974)). See also St. Paul Fire and Marine Insurance Co. v. Weiner, 606 F.2d 864, 868 (9th Cir.1979) (applying same California standard in applying law of forum state).
The district court did not abuse its discretion in giving collateral estoppel effect here to the California Corporations Commissioner's fairness decision because under California preclusion law, both the standard for giving collateral estoppel effect to administrative judgments and the traditional criteria for applying collateral estoppel are present.
The Commissioner's fairness hearing meets the Utah Construction criteria for giving effect to the judgment of an administrative agency. The fairness hearing was conducted similarly to a court proceeding. It was an adversary proceeding in which opposing parties were present and represented by counsel and were allowed to call, examine, cross-examine, and subpoena witnesses. Under the applicable sections of the California Administrative Code, testimony was to be submitted under oath or affirmation and a verbatim transcript was required. The parties received a written decision setting forth the Commissioner's reasons for allowing the merger. See Sims, 32 Cal.3d at 479-81, 186 Cal.Rptr. at 83-85, 651 P.2d at 528-30.
The Commissioner's decision was also adjudicatory in nature, requiring the application of a rule ("fairness") to a specific set of facts. See Sims, 32 Cal.3d at 480, 186 Cal.Rptr. at 84, 651 P.2d at 328. The Commissioner had sole jurisdiction to decide the fairness issue under Cal.Corp.Code § 1101.1. In fact, the validity of the merger was dependent upon the decision.
Further, the fairness hearing provided both parties with an adequate opportunity to litigate their fairness claims. Although some of the full benefits of court proceedings were not provided by the administrative procedure, these additional procedures are not required to give collateral estoppel effect to an administrative decision. See Sims, 32 Cal.3d at 480-81, 186 Cal.Rptr. at 84-85, 651 P.2d at 329 (difference in rules of evidence not material).
The Commissioner's decision also meets the traditional requirements for applying collateral estoppel. Plaine was a party to and active in the administrative proceeding. The Commissioner's determination of fairness was final. Although Plaine could
Thus, we conclude that the district court did not abuse its discretion in giving collateral estoppel effect to the Commissioner's decision on the fairness of the merger.
III. "Fairness" and Injury Under § 14(e)
Plaine contends that even if collateral estoppel effect is given to the Commissioner's fairness determination, the mere fact that the merger price was determined to be fair is not fatal to her suit claiming that misstatements in the amended tender offer violated section 14(e). Defendants argue that even assuming that there was a violation of the proxy rules, the fact that the merger price was fair prevents Plaine from proving that she was injured by any misstatement or omission. Thus we must consider whether precluding Plaine from contesting the fairness of the terms of the merger in this securities litigation also precludes her from proving a cause of action under section 14(e).
In Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970), the Supreme Court considered the issue of fairness in a suit under section 14(a), 15 U.S.C. § 78n(a) (1982) — a section that is similar in purpose to section 14(e). See Klaus v. Hi-Shear Corp., 528 F.2d 225, 232 (9th Cir.1975). In Mills, the Court held that a finding that the merger was fair could not be used to foreclose the plaintiff's attempt to show liability because "[t]here is no justification for presuming that the shareholders of every corporation are willing to accept any and every fair merger put before them ...." 396 U.S. at 382 n. 5, 90 S.Ct. at 620 n. 5. Rather, the plaintiff succeeds in proving causation once the misstatement or omission has been shown to be "material."
These opinions recognize, as Plaine contends, that shareholders can be injured in ways other than by receiving an "unfair" price for their shares. While the issue of fairness is relevant to the issue of damages, it does not necessarily defeat a plaintiff's claim of injury.
The defendants rely on Shapiro v. Midwest Rubber Reclaiming Co., 626 F.2d 63 (8th Cir.1980), cert. denied, 449 U.S. 1079, 101 S.Ct. 860, 66 L.Ed.2d 802 (1981), which is factually similar to the instant case but holds that the plaintiffs had not proved injury. There the plaintiffs had alleged violations of sections 14(a) and 14(e) in connection with a tender offer and merger. Plaintiffs alleged that they suffered harm despite their own inaction because the defendants had unlawfully induced other minority shareholders to exchange their shares. Id. at 69 n. 12. The court concluded, however, that "[the plaintiffs] were harmed, if at all, only when the takeover was consummated — i.e., when they were frozen out in 1978. They do not, however,
Plaine's position is further strengthened by her argument that the issue of fairness in the state proceeding is not identical to the question of value to be determined in federal court. The two cases she relies upon, Graham v. Exxon Corp., 480 F.Supp. 12 (S.D.N.Y.1978), and Dofflemyer v. W.F. Hall Printing Co., 558 F.Supp. 372 (D.Del.1983), while dealing with the more limited Delaware state appraisal procedure, are instructive. In both cases, the Delaware Court of Chancery had determined the "objective" value of the plaintiff's shares, yet the federal district courts both held that the more restrictive method of valuation used in the state court prevented application of collateral estoppel in the federal proceeding. Graham, 480 F.Supp. at 14; Dofflemyer, 558 F.Supp. at 381. Here too, the California Corporations Commissioner merely decided that the merger price was within a range of "fairness." The determination of actual damages in the federal claim may well produce a different price.
Because collateral estoppel effect was properly given to the Corporations Commissioner's decision, it should be considered determinative of the issue of "fairness" to the extent that issue is involved in the federal proceeding. The damages awarded a successful section 14(e) plaintiff, however, may go beyond a determination of a "fair price." The purpose of the 1934 Act is to compensate plaintiffs injured by violations of the federal securities laws whether the measure of damages is out-of-pocket loss, benefit of the bargain, or some other appropriate standard. Osofsky v. Zipf, 645 F.2d 107, 111 (2d Cir.1981). "`[A]ctual damages' may include loss of possible profit, unless wholly speculative, from securing a merger agreement more favorable to plaintiff." Dofflemyer, 558 F.Supp. at 380.
The differences between the state administrative proceedings and federal court proceedings leave some questions of material fact regarding section 14(e) damages to be determined in the federal proceeding. For example, even though $45 per share is considered a "fair" price, plaintiff might be able to show that, had section 14(e) been fully complied with, the shareholders' negotiating position would have produced a higher amount. The existence of these disputed material facts require the reversal of the district court's summary judgment decisions.
IV. Alternative Grounds for Dismissal
Finally, defendants raise several alternative grounds for dismissing the case originally raised in their moving papers. The general rule is that an appellate court may affirm the district court's grant of summary judgment on any basis supported by the record. Salmeron v. United States, 724 F.2d 1357, 1364 (9th Cir.1983). If the opinion below was correct, it must be affirmed, even if the district court relied on wrong grounds or wrong reasoning. Keniston v. Roberts, 717 F.2d 1295, 1300 & n. 3 (9th Cir.1983).
We review de novo a motion to dismiss under 12(b)(6). Guillory v. County of Orange, 731 F.2d 1379, 1381 (9th Cir.1984).
Defendants argue that Plaine's claim does no more than state a claim for breach of fiduciary duty that is not actionable in federal court. We disagree. Plaine's allegations are sufficient to survive a motion to dismiss. Rather than alleging mere mismanagement and breach of fiduciary duty, as in Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977), Plaine set forth specific items of information which she alleges were improperly omitted from or misrepresented in the tender offer documents. In particular, she alleged the documents failed to contain certain of Natomas' financial projections and professional opinions rendered to Magma in connection with both tender offers.
Assuming that Plaine does more than allege mere breach of fiduciary duty, the defendants further argue that including the information that Plaine alleges should have been included in the offer documents is not required by the proxy rules and its omission does not constitute an actionable violation of section 14(e). This raises a difficult issue in a developing area of the law. See Texas Partners v. Conrock, 685 F.2d 1116, 1121 (9th Cir.1982), cert. denied, 460 U.S. 1029, 103 S.Ct. 1281, 75 L.Ed.2d 501 (1983); South Coast Services Corp. v. Santa Ana Valley Irrigation Co., 669 F.2d 1265, 1274-78 (9th Cir.1982) (Fletcher, J., dissenting); Vaughn v. Teledyne, Inc., 628 F.2d 1214, 1221 (9th Cir.1980); see also Starkman v. Marathon Oil Co., 772 F.2d 231, 241-42 (6th Cir.1985), cert. denied, ___ U.S. ___, 106 S.Ct. 1195, 89 L.Ed.2d 310 (1986); Flynn v. Bass Brothers Enterprises, Inc., 744 F.2d 978, 988 (3d Cir.1984). This question was not fully briefed to the district court, and was not addressed in the district court's order. We decline to resolve this issue now except to conclude that, given the present incomplete record, the nature and reliability of the undisclosed information is sufficiently in dispute to defeat the defendants' motion for summary judgment.
REVERSED in part and REMANDED for further proceedings consistent with this opinion.
FLETCHER, Circuit Judge, concurring in the result:
I concur in part I of the majority opinion holding that Plaine has standing to assert a section 14(e) claim, and in part IV of the opinion rejecting the defendants' alternative grounds for dismissal. I disagree, however, with the majority's collateral estoppel analysis, and concur separately to state my reasons.
Collateral estoppel may bar relitigation of an issue decided in a previous proceeding. "`Collateral estoppel' is an awkward phrase, but it stands for an extremely important principle in our adversary system of justice. It means simply that when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit." Ashe v. Swenson, 397 U.S. 436, 443, 90 S.Ct. 1189, 1194, 25 L.Ed.2d 469 (1970). "Similarity between issues does not suffice; collateral estoppel is applied only when the issues are identical." Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352, 1357 (9th Cir.1985) (en banc) (emphasis added). The key question facing us is whether the issue adjudicated before the California Corporations Commissioner, the fairness of the merger price, is identical to the issue in the case at bar, whether Natomas and Magma violated section 14(e) by omitting and misstating certain material information in the Offer to Purchase.
In Part III of its opinion, the majority addresses this question and correctly concludes that "shareholders can be injured in
I thus conclude that the issue of whether a merger price is fair within the meaning of the California Corporations Code is not identical to the issue of whether the plaintiff has suffered compensable injury under section 14(e). Because identity of issues is the first prerequisite for application of collateral estoppel, I believe we need proceed no further. I would hold that the district court erred in deciding that the California Corporations Commissioner's determination of fairness collaterally estopped Plaine from proceeding with her federal securities law action, and would remand to allow Plaine to proceed with her case.
I therefore concur in the result.
This case does not raise the issue of claim preclusion. The parties do not contend that Plaine could have raised her federal securities law claim before the California Corporations Commissioner. Federal law provides exclusive federal court jurisdiction for Plaine's section 14(e) claim. 15 U.S.C. § 78aa (1982). In any event, because California adheres to the concept of prior jurisdictional competency, California law would not require Plaine to raise her federal claim in the state administrative proceeding. See Eichman v. Fotomat Corp., 759 F.2d 1434, 1437 (9th Cir.1985) (citing cases).
456 U.S. at 470 n. 7, 102 S.Ct. at 1891 n. 7. Relying on this footnote, the Sixth Circuit held that prior, unreviewed state administrative determinations should not be given preclusive effect in subsequent federal civil rights actions. Elliott v. University of Tennessee, 766 F.2d 982, 989-93 (6th Cir.1985), cert. granted, ___ U.S. ___, 106 S.Ct. 522, 88 L.Ed.2d 455 (1985); See also Holley v. Seminole County School District, 763 F.2d 399, 400 (11th Cir.1985) (per curiam) ("[T]he preclusive effect, in a [§ 1983] case, of state administrative proceedings ... is a difficult and arguably open question."); Garguil v. Tompkins, 704 F.2d 661, 667 (2d Cir.1983) (no claim preclusive effect in § 1983 cases for procedurally inadequate unreviewed state administrative decision), vacated on other grounds, 465 U.S. 1016, 104 S.Ct. 1263, 79 L.Ed.2d 670 (1984); Moore v. Bonner, 695 F.2d 799, 801-02 (4th Cir.1982) (no preclusive effect in a § 1983 case to unreviewed state administrative decision). We decline similarly to broaden Kremer to prevent application of issue preclusion in the context of any later federal securities suit.
We read footnote 7 in Kremer as applying to the unique statutory scheme of Title VII cases with its dual system of state and federal proceedings. See Kremer, 456 U.S. at 468-69, 102 S.Ct. at 1890-91. We see no indication that the Supreme Court intended its holding to be carried outside of that limited context.
In extending the Kremer rule beyond Title VII suits to civil rights cases, the Sixth Circuit relied heavily on the unique historical and procedural antecedents of section 1983. See e.g., 766 F.2d at 994. (Court's holding is "attempt ... to remain faithful to both the teachings of the Supreme Court and the intent of Congress as manifested in section 1983 and its history."). Even assuming that there is some basis for extending the exception of footnote 7 to section 1983 actions, there are no remotely comparable historical and procedural antecedents for federal securities law violations.