Fed. Sec. L. Rep. P 98,000 Ora E. Gaines v. D. J. Haughton, Lois A. And James Fitzpatrick v. D. J. Haughton

Ora E. Gaines, the plaintiff-appellant herein, appeals from an order of dismissal and summary judgment for defendants (Lockheed Aircraft Corporation and a number of former and present directors and *765 officers of Lockheed) in a shareholder lawsuit alleging both derivative claims of breach of fiduciary duty/waste of corporate assets and class action claims of federal securities violations. Gaines assigns a variety of errors by the District Court and seeks partial summary judgment and/or remand.

FACTS

From as early as 1961 to as late as 1975, Lockheed engaged in the practice of hiring “consultants” and “foreign sales agents” and paying them large fees and commissions in connection with foreign sales of Lockheed aircraft and equipment. Approximately $30-38 million was paid directly to foreign governments and officials during this period. 1 Shortly after the existence of these clandestine, “off the books” questionable payments was revealed by Securities and Exchange Commission (SEC) and United States Senate proceedings 2 in July-August 1975, Gaines — an individual Lockheed shareholder — commenced his lawsuit in the United States District Court for the Central District of California. 3 Gaines’ complaint, filed on February 24, 1976, asserts two derivative causes of action on behalf of the corporation and two class action counts on behalf of the shareholders.

The derivative causes of action— based on California law since Lockheed is a California corporation 4 — allege that the individual defendants 5 breached their fiduci *766 ary duty to the corporation and “wasted” corporate assets by authorizing, employing, and affirmatively concealing corrupt business practices (i. e., the practice of paying large “sales commission,” “consulting fees,” and outright bribes to foreign purchasers, foreign government officials, and their agents) which resulted in “no use or benefit to Lockheed whatsoever” (Complaint, 143(a), see id. 1143(c), (e), 44) and tarnished Lockheed’s image and goodwill. See id. 1117, 30. The class action counts— based on federal securities law — allege that defendants-appellees (hereinafter “appellees”) violated the filing and proxy requirements of §§ 13(a) and 14(a) of the Securities Exchange Act of 1934, as amended (“the 1934 Act”), 15 U.S.C. §§ 78m & 78n, by (1) failing to disclose the existence and details of the questionable foreign payments to the shareholders in proxy solicitation materials each year from 1961-74, and (2) by filing materially false and misleading annual and other periodic financial reports on behalf of Lockheed.

Gaines’ federal class action claims seek a permanent injunction barring Lockheed from making further improper or undisclosed payments, filing materially false or misleading proxy materials or periodic financial reports, or maintaining any undisclosed accounts. Gaines also seeks a declaration invalidating past elections, removing certain directors, appointing a special master to investigate the payments made, approving new proxy materials, requiring amendment of prior filings, and requiring an accounting of payments made. Gaines does not seek any damages in his § 13(a) or § 14(a) claims.

The derivative causes of action seek restitution and money damages for “any and all” disbursements and expenditures in connection with the alleged corrupt business practices and improper foreign payments, including interest, attorneys’ fees, and punitive damages.

Apart from the commencement of Gaines’ lawsuit, the revelation of Lockheed’s foreign payments in July-August 1975 precipitated several other events. 6 On February 2, 1976, the Lockheed board of directors appointed a Special Review Committee 7 (SRC), whose investigation was assisted by the New York law firm Shearman & Sterling and the accounting firm Arthur Anderson & Co. and was directed by the SRC’s *767 counsel, former United States District Judge Arnold Bauman. On April 13, 1976, and in response to an SEC complaint, see SEC v. Lockheed Aircraft Corp., [1975-1976 Transfer Binder] Fed.Sec.L.Rep. 195,509 (CCH) (D.D.C.1976), Lockheed entered into a consent decree and permanent injunction which enjoined future improper payments, improper accounting methods, and other forms of concealment; required amendment of prior SEC filings; provided for an internal corporate investigation and report procedures to be conducted under SEC supervision; and ordered other remedial actions. On June 23, 1978, Lockheed agreed to a consent order of the Federal Trade Commission containing even more sweeping prohibitions than those contained in the SEC permanent injunction. See In re Lockheed Corp., [1976-79 Transfer Binder] Trade Reg. Rep. (CCH) 1121,454 (FTC Dkt. C-2942, Aug. 17, 1978).

The SRC conducted a fourteen-month investigation, interviewed more than 250 witnesses, and issued a report (dated May 16, 1977) to the Lockheed board, the SEC, and the United States District Court for the District of Columbia on May 26, 1977. The SRC report, which concluded that Lockheed had, with the approval and participation of several senior executives, made $30-38 million in questionable and “off the books” foreign payments, was distributed to all Lockheed shareholders on June 10, 1977. The SRC report contained a “secret” two-volume appendix prepared by Judge Bau-man, which the District Court placed under a protective order on June 10, 1977.

On April 20, 1977, the Lockheed board appointed a Special Litigation Committee 8 (SLC), and delegated to it the full power and authority of the board of directors with respect to the then-pending derivative lawsuit. 9 The SLC, composed of four non-defendant outside directors, retained independent outside counsel 10 and, over a period of ten months, considered the factual and legal merit of Gaines’ lawsuit. In its March 14, 1978 report, the SLC detailed the factual background of Gaines’ lawsuit, enumerated and analyzed a series of factors it deemed definitive of Lockheed’s interest in pursuing the suit, 11 and unanimously concluded *768 that “sound business judgment as to the interests of Lockheed in light of the circumstances and legal considerations here present leads directly and clearly to the conclusion that the claims asserted in the derivative cases should not be pursued against any of the defendants.” Special Litigation Committee Report at 41. Consistent with its decision that the pursuit of the derivative litigation was not in the best interests of the corporation or its shareholders, on March 14,1978, the SLC directed its counsel to seek dismissal of the derivative claims. Shortly thereafter, Lockheed authorized counsel to seek dismissal of the federal class action claims. These motions were filed in the District Court on April 17, 1978. 12

THE DISTRICT COURT DECISION

Judge Whelan’s order of summary judgment for appellees was entered on April 20, 1979. The District Court opinion, which contains findings of fact 13 and conclusions of law, is entitled “Memorandum of Grounds Supporting Decision Granting Summary Judgment” [hereinafter “District Court Memorandum”]. Judge Whelan granted summary judgment for appellees on the derivative state law claims because a Special Litigation Committee of disinterested directors, appointed by the full board, had unanimously determined in the exercise of its lawfully delegated 14 independent business judgment that pursuing legal claims against the individual appellees would not be in the best interests of the corporation.

The District Court determined that the decision of the SLC to terminate the derivative lawsuit

was made in good faith after consideration of relevant factors. There was no fraud, collusion, or other conduct of a breach of trust nature on the part of any member of the Committee.

The Committee’s business judgment is not grossly unsound. It cannot be concluded that it did not represent the Committee’s honest and independent judgment. .. .

The Court may not substitute its judgment for the good faith business judgment of the Committee which is charged with the conduct of the business of the corporation in this matter.

There are no genuine issues of material fact to be tried herein with regard to the Committee’s exercise of its business judgment.

District Court Memorandum at 7. Judge Whelan based his holding on this issue on California law. See Findley v. Garrett, 109 Cal.App.2d 166, 174, 240 P.2d 421, 426 (1952). His ruling presaged this Court’s decision in Lewis v. Anderson, 615 F.2d 778 (9th Cir. 1979), cert. denied,-U.S.-, *769 101 S.Ct. 206, 66 L.Ed.2d 89 (1980), which is discussed infra.

The District Court also dismissed Gaines’ federal securities claims pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. Because Gaines did not allege in his complaint that he purchased or sold Lockheed stock in reliance on Lockheed’s allegedly false and misleading proxy statements and did not allege that he actually granted a proxy based on the allegedly false and misleading proxy solicitation materials, the District Court held that Gaines did not have standing to assert a nonderivative § 14(a) cause of action. “To maintain an [individual, nonderivative] action under Section 14(a), plaintiffs must allege that they granted a proxy based on the alleged false and misleading proxy solicitations .... Klaus v. Hi-Shear Corp., 528 F.2d 225 (9th Cir. 1975).” District Court Memorandum at 8-9.

Moreover, because Gaines had not alleged any direct relationship between the proxy materials distributed and the improper foreign payments, Judge Whelan dismissed Gaines’ § 14(a) claim for lack of “casual connection” between the alleged violation and the alleged injury. Alternatively, the District Court dismissed the § 14(a) claim because Gaines sought only declaratory and injunctive relief and Lockheed had already entered into a consent decree and permanent injunction with the SEC, which enjoined future foreign payments, corrupt and improper business practices, and other conduct that served as the gravamen of Gaines’ federal claims. The consent decree also required Lockheed to implement certain reforms and to amend and correct its prior SEC filings. Judge Whelan stated:

For a grant of injunctive or declaratory relief, the plaintiffs must show that irreparable harm will occur in the absence of such relief. Injunctive relief is not proper where a prior injunction restraining the same conduct has been obtained and is still in force ....

[I]njunctive and declaratory relief is improper as a matter of law under these facts.

District Court Memorandum at 9. 15

STANDARD OF REVIEW

The test to be applied in reviewing the grant or denial of a summary judgment motion is that summary judgment is proper only when there is no genuine issue of any material fact or when viewing the evidence and the inferences which may be drawn therefrom in the light most favorable to the adverse party, the movant is clearly entitled to prevail as a matter of law. Smith v. Gross, 604 F.2d 639, 641 (9th Cir. 1979); Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1254 (9th Cir. 1976) (per curiam). Phrased differently, an appellate court reviewing a summary judgment “need decide only whether any genuine issue of material fact remains for trial and whether the substantive law was correctly applied.” Inland Cities Express, Inc. v. Diamond National Corp., 524 F.2d 753, *770 754 (9th Cir. 1975). See Dressier v. MV Sandpiper, 331 F.2d 130, 133-34 (2d Cir. 1964) (vague and conclusory allegations by party moved against will not prevent a court from screening out “sham issues of fact” and determining whether “one side has no real support for its version of the facts”).

As with motions for summary judgment, in reviewing a motion to dismiss, the appellate court should construe the allegations of the complaint favorably to the pleader. De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978), cert. denied, 441 U.S. 965, 99 S.Ct. 2416, 60 L.Ed.2d 1072 (1979).

Ordinarily, an appellate court can freely review questions of law. Miller v. United States, 587 F.2d 991, 994 (9th Cir. 1978). However, when a federal court is in the position of interpreting state law with no definitive guidance from the state’s highest court, see Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967), we accord “substantial deference” to the district judge’s interpretation or construction of the law of the state in which he sits. Kabatoff v. Safeco Ins. Co. of America, 627 F.2d 207, 209 (9th Cir. 1980); Associated General Contractors v. San Francisco Unified School District, 616 F.2d 1381, 1384 (9th Cir.), cert. denied, - U.S. -, 101 S.Ct. 783, 66 L.Ed.2d 603 (1980); Lewis v. Anderson, 615 F.2d 778, 781 (9th Cir. 1979), cert. denied, -U.S.-, 101 S.Ct. 206, 66 L.Ed.2d 89 (1980); Mesa Oil Co. v. Business Men’s Assurance Co. of America, 476 F.2d 491, 494 (9th Cir.), cert. denied, 414 U.S. 1003, 94 S.Ct. 358, 38 L.Ed.2d 239 (1973). The District Court’s construction of state law will be accepted on review unless it is “clearly wrong” or “clearly erroneous.” Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir. 1980); Owens v. White, 380 F.2d 310, 315 (9th Cir. 1967).

ISSUES ON APPEAL

On appeal, Gaines challenges the order of summary judgment for appellees on the derivative state law claims and the dismissal of the § 14(a) cause of action for failure to state a claim upon which relief can be granted. Specifically, the issues in this appeal are as follows:

1. Whether the District Court correctly applied the “business judgment rule” to the SLC’s decision to terminate Gaines’ derivative state law claims alleging breach of fiduciary duties by the individual appellees and, if so, whether triable issues of fact exist regarding the special investigative and litigation committees’ compliance with the rule.

2. Whether the District Court erred in dismissing the § 14(a) claim on the basis of its holdings that (a) only a shareholder who has himself given a proxy to management has legal “standing” in a nonderivative shareholder action under § 14(a); and (b) “causal nexus” ' between proxy materials and shareholder injury is lacking as a matter of law when an equitable § 14(a) claim is premised on failure to disclose director misconduct and/or mismanagement (other than self-dealing) in proxy solicitation materials for director elections. 16

For the reasons discussed herein, we affirm the District Court’s invocation of the business judgment rule and dismissal of Gaines’ § 14(a) claim.

DISCUSSION

I. The Business Judgment Rule and Corporate Decisions to Terminate Derivative Litigation

In Lewis v. Anderson, 615 F.2d 778 (9th Cir. 1979), cert. denied,-U.S.-, 101 S.Ct. 206, 66 L.Ed.2d 89 (1980), this court decided that, as a matter of California law, a corporation’s board of directors may delegate to a disinterested “special litigation *771 committee” the business judgment authority to dismiss a shareholder derivative lawsuit brought on behalf of the corporation against some of the directors. While Lewis is not identical to the instant case — Lewis determined only the legal authority of the delegation and exercise of the “business judgment rule”; did not pass on the factual determination of whether the committee acted in good faith; and involved derivative federal securities claims — it lends strong support to the District Court’s holding on this issue.

Drawing on analogous decisions by intermediate appellate courts in California — for the California Supreme Court had not (and still has not) faced the precise issue sub judice — this court in Lewis amplified the general common law “business judgment rule” in two important respects. 17 First, Lewis held that a board of directors’ general management responsibility and discretion — including the decision whether to pursue a cause of action — may be delegated to a committee of directors. 18 The committee’s good faith decision that dismissing a derivative action would be in the best interests of the corporation, even if that decision is negligent, bars any further legal action by the shareholder. 615 F.2d at 780, 783-84. The second, and related, holding of Lewis is that even when “a majority of the board is charged with wrongdoing in the very action sought to be dismissed,” id. at 782, they may appoint a committee of disinterested directors “to make an independent determination of the merits of the [derivative] action.” Id. The application of the business judgment rule to boards of directors with “interested” majorities is not improper because “the directors who are accused of wrongdoing have not decided to dismiss the case,” id., a committee of disinterested directors has. See Gall v. Exxon Corp., 418 F.Supp. 508, 517 (S.D.N.Y.1976). 19

We noted in Lewis that the Eighth Circuit and the New York Court of Appeals have similarly extended the business judgment rule. See Abbey v. Control Data Corp., 603 F.2d 724, 727-30 (8th Cir. 1979), cert. denied, 444 U.S. 1017, 100 S.Ct. 670, 62 L.Ed.2d 647 (1980) (applying Delaware law); Auerbach v. Bennett, 47 N.Y.2d 619, 629-36, 419 N.Y.S.2d 920, 926-30, 393 N.E.2d 994 (1979) (applying New York law). “Auerbach and Abbey reflect a clear trend in corporate law, and we are confident that a California court would follow this trend.” Lewis, 615 F.2d at 783. The role of a court in this situation is limited to determining the disinterested independence of the committee members and the appropriateness and sufficiency of the investigative procedures chosen and pursued by the committee. Id.

Gaines urges this court to distinguish or limit our holding in Lewis, and even to overrule it outright. We decline this invitation to retreat from Lewis, for Gaines has offered no persuasive authorities suggesting that this court’s reading of California *772 law is no longer tenable. In fact, the developing trend in corporate law we discerned in Lewis has become unmistakably clear. See, e. g., Genzer v. Cunningham, 498 F.Supp. 682 (E.D.Mich.1980) (applying Michigan law). In addition to Abbey and Auerbach, many well-reasoned district court decisions have adopted the position that a board of directors may lawfully delegate to a disinterested minority committee the business judgment authority to terminate shareholder derivative litigation because it is either not meritorious or not in the best interests of the corporation. See Maldonado v. Flynn, 485 F.Supp. 274 (S.D. N.Y.1980) (on remand) (applying Delaware law); Rosengarten v. ITT Corp., 466 F.Supp. 817, 822-24 (S.D.N.Y.1979); Gall v. Exxon Corp., 418 F.Supp. 508, 514-15 (S.D. N.Y.1976) (applying New Jersey law). The contrary holding of the Delaware Chancery Court, an inferior state court, does not counter this trend or impugn our interpretation of California law. Maldonado v. Flynn, 413 A.2d 1251 (Del.Ch.1980). Cf. Maher v. Zapata Corp., 490 F.Supp. 348 (S.D.Tex.1980) (following the Delaware Chancery Court’s interpretation of Delaware law); Abella v. Universal Leaf Tobacco Co., 495 F.Supp. 713, 717-18 (E.D.Va. 1980) (applying Virginia law).

Therefore, we hold that Lewis v. Anderson controls in this case. The Special Litigation Committee’s decision to terminate Gaines’ derivative state law cause of action is, if made in good faith by a disinterested committee of directors, dispositive of Gaines’ state law claims. The District Court’s prescient anticipation of the Lewis interpretation is, in addition, entitled to “substantial deference” and must be affirmed unless “clearly erroneous.”

Gaines contends, however, that various factors require remand to the District Court for further findings of fact on the appropriateness and sufficiency of the investigative procedures chosen and pursued by the SLC. Specifically, Gaines argues that Lockheed’s delay in establishing the SLC until a year after this suit was commenced is attributable to shopping around for a “friendly” committee. Gaines also alleges that the participation of two “deeply involved” directors in the formation and investigation of the SRC sufficiently tainted the investigative structure and procedures by the later SLC to preclude summary judgment on this issue. Gaines also asserts that the District Court applied an erroneous legal standard in determining the propriety of the SLC’s exercise of business judgment.

While we are mindful of the need to scrutinize carefully the mechanism by which directors delegate to a minority committee the business judgment authority to terminate derivative litigation, 20 particularly when the lawsuit is directed against some or a majority of the directors, we find that Gaines has not raised a triable issue of fact on this issue. The record establishes beyond question that the SLC was composed of independent outside directors whose investigation and recommendations were not tainted by the attenuated involvement of “interested” directors in the formation and preliminary investigation of the SRC. The record also establishes beyond question that the SLC’s investigatory procedures were adequate. See generally Radobenko v. Automated Equipment Corp., 520 F.2d 540, 543-44 (9th Cir. 1975). Moreover, we hold that the legal standard employed by the District Court in reviewing the SLC’s decision to terminate the litigation comports with this court’s statement in Lewis that even a negligent decision to dismiss an action is legally dispositive, so long as it is made in good faith. See 615 F.2d at 783-84. Accordingly, we conclude that remand is unnecessary. The District Court’s order of summary judgment for appellees on this issue is affirmed.

II. The Dismissal of the § 14(a) Claim

Gaines contends that the District Court’s Rule 12(b)(6) dismissal of his § 14(a) claim *773 was erroneous because his complaint adequately states a cause of action for equitable relief under § 14(a) of the 1934 Act. Gaines challenges both of the District Court’s alternative bases for dismissal— that Gaines lacked “standing” to bring a nonderivative action because he himself had not granted a proxy in reliance on the allegedly misleading solicitation materials and that Gaines’ complaint failed to allege the requisite “transactional causation” or “causal nexus.” Resolution of these issues requires a brief overview of the § 14(a) cause of action.

Section 14(a) of the 1934 Act, 15 U.S.C. § 78n(a), provides:

It shall be unlawful for any person, by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of a national securities exchange or otherwise, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect to any security (other than an exempted security) registered pursuant to section 787 of this title.

(Emphasis added.) The pertinent SEC regulation, 17 C.F.R. § 240.14a-9 (1980), provides:

(a) No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.

(b) The fact that a proxy statement, form of proxy or other soliciting material has been filed with or examined by the Commission shall not be deemed a finding by the Commission that such material is accurate or complete or not false or misleading, or that the Commission has passed upon the merits of or approved any statement contained therein or any matter to be acted upon by security holders. No representation contrary to the foregoing shall be made.

Note: The following are some examples of what, depending upon particular facts and circumstances, may be misleading within the meaning of this section.

(a) Predictions as to specific future market values.

(b) Material which directly or indirectly impugns character, integrity or personal reputation, or directly or indirectly makes charges concerning improper, illegal or immoral conduct or associations, without factual foundation.

(c) Failure to so identify a proxy statement, form of proxy and other soliciting material as to clearly distinguish it from the soliciting material of any other person or persons soliciting for the same meeting or subject matter.

(d) Claims made prior to a meeting regarding the results of a solicitation.

“The purpose of § 14(a) is to prevent management or others from obtaining authorization for corporate action by means of deceptive or inadequate disclosure in proxy solicitation.” J.I. Case Co. v. Borak, 377 U.S. 426, 431, 84 S.Ct. 1555, 1559, 12 L.Ed.2d 423 (1964). The Supreme Court has recognized an implied private cause of action under that section in favor of stockholders and investors who have been injured as a result of false or misleading proxy solicitations. Id. at 430-31, 84 S.Ct. at 1558-59. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 377, 90 S.Ct. 616, 618, 24 L.Ed.2d 593 (1970).

A. Standing

Gaines, who did not grant a proxy in reliance on the contested solicitations, asserts his § 14(a) claim in a direct, not derivative, action seeking only equitable relief. *774 In Klaus v. Hi-Shear Corp., 528 F.2d 225 (9th Cir. 1975), this court recognized that interference with the processes of corporate democracy results in direct harm to the corporation and to shareholders who were actually deceived. “The harm to be averted is only indirectly that to the individual shareholder.” Id. at 232. Accord, J.I. Case Co. v. Borak, 377 U.S. at 432, 84 S.Ct. at 1559. This court stated in Klaus v. Hi-Shear :

Although a demonstration that proxies were obtained by materially misleading solicitation establishes a violation of section 14(a), the relief available to a plaintiff who did not himself grant a proxy depends on equitable considerations based on “the best interest of the shareholders as a whole.” Mills, 396 U.S. at 388, 90 S.Ct. at 623.

Klaus did not himself grant a proxy. He is able to assert a section 14(a) violation only derivatively on behalf of Hi-Shear. “[Njothing in the statutory policy ‘requires the court to unscramble a corporate transaction merely because a violation occurred.’ ” Mills, 396 U.S. at 386,90 S.Ct. at 622.

528 F.2d at 232 (emphasis added). Accord, Jacobs v. Airlift International, Inc., 440 F.Supp. 540, 542 (S.D.Fla.1977). See Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 32-33, 41-42, 97 S.Ct. 926, 944-945, 949-950, 51 L.Ed.2d 124 (1977) (defeated tender offeror has no standing to sue in an implied cause of action under § 14(e)); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 735-55, 95 S.Ct. 1917, 1925-35, 44 L.Ed.2d 539 (1975) (limiting standing in rule 10b-5 actions to purchasers or sellers of securities); Mount Clemens Industries, Inc. v. Bell, 464 F.2d 339, 341-43 (9th Cir. 1972) (same). See also Lewis v. McGraw, 619 F.2d 192, 195 (2d Cir.) (per curiam), cert. denied, - U.S. -, 101 S.Ct. 354, 66 L.Ed.2d 214 (1980) (shareholders of target company cannot state cause of action for deception under § 14(e) if the failed tender offer fails to become effective).

Gaines argues that the language from Klaus v. Hi-Shear quoted above is dicta, but cites no authority from this Circuit to refute the “standing” rule. We hold that the policies of § 14(a) and established doctrine in analogous securities contexts support the Klaus v. Hi-Shear position: shareholders who do not rely on allegedly misleading or deceptive proxy solicitations lack standing to assert direct (as opposed to derivative) equitable actions under § 14(a). Therefore, the District Court’s dismissal of Gaines’ § 14(a) claim for lack of standing is affirmed. We do not, however, rest our decision solely on this rationale. Even had Gaines granted a proxy to Lockheed’s management on the basis of the allegedly defective proxy solicitations, his § 14(a) count would still have been properly dismissed for failure to state a claim. The causation and materiality elements of a § 14(a) cause of action are discussed next.

B. Transactional Causation and Materiality

Gaines’ § 14(a) claim is ultimately premised on appellees’ failure to disclose “corrupt and improper foreign payments” and related corporate misconduct to the Lockheed shareholders in the proxy solicitation materials for director elections each year from 1961 to 1975. The real issue in this appeal is whether, and in what circumstances, management’s failure to disclose particular conduct to the shareholders states a § 14(a) cause of action.

The precise roles of “materiality,” “causation-in-fact,” and “proximate cause” in federal securities litigation are often unclear. See, e. g., Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 50-53, 97 S.Ct. 926, 953-955, 51 L.Ed.2d 124 (1977) (Blackmun, J., concurring); TSC Industries, Inc. v. North-way, Inc., 426 U.S. 438, 444, 448-49, 96 S.Ct. 2126, 2130, 2131-32, 48 L.Ed.2d 757 (1976); Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472-73,