Healey v. Catalyst Recovery of Pennsylvania, Inc.

OPINION OF THE COURT

SEITZ, Chief Judge.

Five individual and three corporate defendants appeal from a judgment entered against them on a jury verdict awarding the plaintiff damages for violation of § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and rule 10b-5, 17 C.F.R. § 240.10b-5.

I. Factual Background

In the spring of 1972, the plaintiff became a 20% shareholder and president of Catalyst Regeneration Services, Inc. (CRS), a Texas corporation. CRS set up its only plant in Pennsylvania and began regenerating oil refining catalysts (a process by which the catalyst is cleaned for reuse).

In early 1975, defendant P. K. Maher, a research chemist in the field of petroleum catalysts, decided to acquire an existing company and enter the regeneration market. Maher began contacting people in the Baltimore area in his search for investors for his plan. The first investor to join him was defendant Robert H. Levi, vice chairman of the board of directors at Mercantile Safe Deposit & Trust Co. (Mercantile). Levi then introduced Maher to defendant Lawrence P. Naylor, III, who also invested.

At about the same time, Maher began soliciting legal and business help in setting up and running his company, which was incorporated in Maryland and became known as SCR, Inc. (SCR).¹ He persuaded defendant Dennis J. Shaughnessy, a vice president at Mercantile, and defendant Wilbert H. Sirota, a partner in a Baltimore law firm, to assist him with planning the acquisition of an existing company. Eventually, Maher, Naylor, Shaughnessy, and Sirota became officers and/or directors of SCR and its subsidiary companies, all of which were made defendants.

In July of 1975, after studying the existing regeneration companies, Maher decided to purchase CRS, the plaintiff’s company. Shaughnessy began negotiating a stock purchase with the major shareholder of CRS. The negotiations over the price to be paid for the stock continued for the next four months. In November of 1975, all the shareholders of CRS other than the plaintiff agreed in principle to sell their 80% at a price of $5.25 per share. The plaintiff knew of this agreement and the previous offers and counteroffers but did not join in the agreement.

Next, in December, Maher, Naylor, and Sirota discussed with the plaintiff on behalf of SCR a possible purchase from him of the remaining 20% of the CRS stock. Plaintiff testified that he requested certain information at these December meetings that he never received. This information included long and short range plans for SCR, the identity of SCR board members and shareholders, and other similar information. The defendants admit that some of the information was never given to the plaintiff. In the course of the negotiations, the plaintiff submitted a proposed purchase option and a request for an employment contract. Sirota replied by letter on December 24 that SCR would only buy the plaintiff’s shares on the same terms as the other 80%.

In late February of 1976, the plaintiff travelled to Baltimore to meet with Maher to “see if I [could] get more information out of him.” Meeting with both Maher and Sirota, he renewed his request for a five-year plan for SCR and asked whether selling expenses for other CRS shareholders would be paid. The defendants admit he was not given the information relating to either request.

On March 2, 1976, SCR purchased 80% of the CRS stock pursuant to the agreement the previous November. On March 15, a new board of directors for CRS was elected without the plaintiff being reelected. For the rest of March, the plaintiff and Maher continued discussions but could not agree on a price.

In early April, a decision was made by SCR to form a new company and effect a merger between it and CRS. Accordingly, Catalyst Recovery of Pennsylvania, Inc. (CRPa) was incorporated in Maryland as a wholly owned subsidiary of SCR. SCR then transferred its own preferred shares to CRPa.

On April 12, 1976, Maher gave the plaintiff a copy of the proposed merger between CRS and CRPa along with a notice of a CRS shareholders meeting to be held on May 3 to vote to approve the merger, a description of the SCR preferred stock, and an SCR balance sheet. Under the merger proposal, if the CRS shareholders voted to approve (which was inevitable under Texas law given SCR’s 80% ownership of CRS), then the CRS shareholders would transfer their CRS shares to CRPa in return for the SCR preferred.

On April 27, the plaintiff’s attorney sent a letter to Sirota requesting six categories of information,² objecting to the merger, and threatening legal action. On April 28, the plaintiff sent a letter to Maher objecting to the merger and expressing his “intention to exercise his right to dissent.”

On April 29, SCR did two things. First, Donovan M. Hamm, Jr., a member of Sirota’s law firm, called one of the plaintiff’s lawyers and stated a willingness to provide information and said the merger still would go through. Second, the same day Hamm sent a letter to the plaintiff’s lawyer. Among other things, it answered some of the questions in the plaintiff’s attorney’s April 27 letter and confirmed the telephone offer to permit inspection of SCR documents and records by the plaintiff.³

On May 3, 1976, SCR voted its 80% of the CRS stock to approve the CRS-CRPa merger. On May 11, the plaintiff’s attorney again wrote a letter to Sirota asking for a chance to inspect the information as had been suggested in Hamm’s April 29 letter. No such inspection ever occurred. See note 3 supra.

The merger became effective June 30, 1976, and the plaintiff filed this suit seeking an injunction and damages under § 10(b) and rule 10b-5. The plaintiff also filed an appraisal petition in Texas court in September 1976, which was dismissed without prejudice in August 1977. After a lengthy jury trial in federal court, the jury found for the plaintiff for $189,400 plus prejudgment interest. This appeal followed.

II. Existence of a Cause of Action

The major contention of the defendants concerns a recurring problem of recent years: the role of rule 10b-5 in the context of mergers effected under state law. At trial, the plaintiff argued that if he had been given the information he requested, he would have tried to enjoin the merger in state court.⁴ He relied on Goldberg v. Meridor, 567 F.2d 209 (2d Cir. 1977), cert. denied, 434 U.S. 1069, 98 S.Ct. 1249, 55 L.Ed.2d 771 (1978), which held that such a theory states a basis for a cause of action under rule 10b-5. The defendants argue that under Goldberg, the plaintiff must prove that he would have obtained the injunction had he been given the information in question. Although Goldberg did not expressly consider this issue, the defendants’ position was adopted in Kidwell ex rel. Penfold v. Meikle, 597 F.2d 1273 (9th Cir. 1979).

Initially, we must determine whether this circuit should adopt the reasoning of Goldberg. Some have argued that Goldberg is inconsistent with the Supreme Court’s opinion in Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977). E. g., Note, Goldberg v. Meridor: The Second Circuit’s Resurrection of Rule 10b-5 Liability for Breaches of Corporate Fiduciary Duties to Minority Shareholders, 64 Va.L.Rev. 765 (1978).

In Santa Fe, minority shareholders brought suit under rule 10b-5 challenging the fairness of the terms of a short form merger effectuated under Delaware law. The Court noted: “[T]he complaint failed to allege a material misrepresentation or material failure to disclose. The finding of the District Court . . . was that there was no ‘omission’ or ‘misstatement’ . . . . ” 430 U.S. at 474, 97 S.Ct. at 1301. The Court therefore held that because the language of both § 10(b) and rule 10b-5 required some kind of improper flow of information, whether deception, misrepresentation, manipulation, or nondisclosure, the complaint failed to state a cause of action. Id. at 474-77, 97 S.Ct. 1292.

Although the statutory language in Santa Fe was “ ‘sufficiently clear in its context’ to be dispositive here,” id. at 477, 97 S.Ct. at 1303 (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 201, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)), the Court in Part IV of its opinion went on to examine other reasons for its refusal to find a cause of action under rule 10b-5. Noting that the essence of the complaint was a breach of fiduciary duty by the majority shareholders, the Court characterized this as “corporate conduct traditionally left to state regulation.” Id. at 478, 97 S.Ct. at 1304. The Court concluded: “Absent a clear indication of congressional intent, we are reluctant to federalize the substantial portion of the law of corporations that deals with transactions in securities, particularly where established state policies of corporate regulation would be overridden.” Id. at 479, 97 S.Ct. at 1304.

In Santa Fe, the minority’s only possible state law remedy was appraisal. See id. at 474 n.14, 97 S.Ct. 1292. The United States Court of Appeals for the Second Circuit distinguished the case in part on this ground in Goldberg v. Meridor, 567 F.2d 209 (2d Cir. 1977), cert. denied, 434 U.S. 1069, 98 S.Ct. 1249, 55 L.Ed.2d 771 (1978). In that case, under New York law the plaintiffs could seek an injunction against the merger in addition to their appraisal rights. Thus the information in the case was material to a reasonable investor because he could have used it to attempt to obtain an injunction. See id. at 218-19.

It is important to note at the outset the difference between Goldberg and Santa Fe. The mere existence of a state injunctive remedy would be insufficient, by itself, to distinguish Santa Fe. The crucial difference is whether there was misrepresentation or omission in the flow of information between the majority and minority shareholders. In Santa Fe, the Supreme Court expressly noted that there had been no misinformation connected with the merger. By contrast, in Goldberg, the plaintiffs claimed that a parent corporation had either not disclosed or misleadingly disclosed information concerning its sale of the overvalued assets of its controlled subsidiary, some of the shares of which were held by the public. See 567 F.2d at 211-13, 221.

We believe that this distinction concerning the flow of information between the majority and minority shareholders is persuasive. There is a strong federal interest, evidenced by the entire field of federal securities regulation, in ensuring a proper flow of information between the parties to a securities transaction. The Supreme Court has sanctioned a private cause of action under rule 10b-5 on behalf of sellers to enforce that federal interest. See Santa Fe, supra, 430 U.S. at 477, 97 S.Ct. 1292, citing Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 13 n.9, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971). All that Goldberg holds is that if some misrepresentation or omission by the defendant prevents the plaintiff from stopping the merger through a state injunction, then there is a cause of action under rule 10b-5. Because this result flows from misinformation that harms the plaintiff, it is precisely the type of situation to which rule 10b-5 is addressed.

Nor do we perceive an inconsistency between this result and Part IV of Santa Fe. Part IV should not be read out of context. What was objectionable in Santa Fe was use of rule 10b-5 by the federal courts to override traditional areas of state law “[ajbsent a clear indication of congressional intent.” 430 U.S. at 479, 97 S.Ct. at 1304. Thus the problem in Santa Fe was not merely federal judicial intrusion into areas of state law, but rather federal judicial invasion of areas of state law without explicit federal statutory authority.

Here, by contrast, the plaintiff alleges that the defendants engaged in conduct expressly forbidden by the statute and the rule: an omission of certain information claimed to be material. That the harm to the plaintiff from the omission was deprivation of a state remedy in no sense diminishes the federal interest in preventing the omission and thereby ensuring full disclosure of all material information in securities transactions. Indeed, deprivation of state rights and remedies often forms the basis for federal claims. See, e. g., Hart & Wechsler’s The Federal Courts and the Federal System 500-06 (2d ed. 1973).

Moreover, the federal courts have a duty under the supremacy clause of the Constitution to ensure that federal interests are vindicated. The Supreme Court has permitted use of the securities laws in the merger context where there has been misinformation that violates a specific federal provision. See, e. g., TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976) (proxy rules). Thus we do not feel that Santa Fe can be read to force us to stay our hand from remedying the harm that flows from the very type of conduct to which specific federal statutory and regulatory provisions are addressed.

Accordingly, we hold that 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.

III. Elements of a Cause of Action

A. Materiality

Having determined that the plaintiff has a cause of action, we now consider the defendants’ contentions that certain required elements of the 10b-5 cause of action are absent here. Preliminarily we note that the defendants make no contention that the plaintiff does not satisfy the purchaser-seller rule of Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975).

The defendants argue that a plaintiff must make some type of showing on the question of whether he would have actually been granted the injunction had he been given the information in question. The United States Court of Appeals for the Ninth Circuit in Kidwell ex rel. Penfold v. Meikle, 597 F.2d 1273 (9th Cir. 1979), adopted this rule on the theory that to hold otherwise would be inconsistent with Santa Fe’s concern over federal judicial encroachment on areas of law traditionally left to the states. See id. at 1294.

We feel it is better to view this question as an aspect of the materiality requirement. As already noted, once a sufficient disruption in the flow of information is alleged, as in Goldberg and here, the concerns expressed in Part IV of Santa Fe are not present. Therefore, Santa Fe is not particularly helpful in deciding whether there must be proof that the plaintiff had some chance of success in his injunctive suit. The theory of Goldberg is that the plaintiff wanted the information to make a decision whether to apply for a state injunction. Accordingly, we think a doctrine that is geared to the plaintiff’s decisionmaking process is more suitable for analyzing the question the defendants have raised here.

Under rule 10b-5, misinformation by misrepresentation or omission is not by itself sufficient; the information in question must be material. The Supreme Court has defined materiality as: “a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder.” TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). Because this test is geared to the plaintiff’s decisionmaking process, we think it is the relevant framework for analyzing the present question.

Applying this standard to the present case, the question is what information would be deemed to be material by the reasonable investor who contemplates seeking an injunction against a merger. Seen as a question of materiality, the issue of the plaintiff’s ability to secure an injunction is easily resolved. Unless there is a reasonable probability that a shareholder could have used the information to obtain an injunction, then the information would not be important to the decisionmaking process of a reasonable investor. We therefore hold that in a case such as this the plaintiff must demonstrate that at the time of the misrepresentation or omission, there was a reasonable probability of ultimate success in securing an injunction had there been no misrepresentation or omission. Although Meikle speaks in terms of actual success, we frame the test in terms of a reasonable probability for two reasons. First, we believe absolute certainty to be both an impossible goal as well as an impracticable standard for a jury to implement. Second, in most cases the state remedy will be a preliminary injunction, which looks to the likelihood of ultimate success.

It is important to stress here the relationship of the information to the injunction. As already noted, the mere existence of an injunctive remedy is not enough; the information must be of a type that if the plaintiff had the information not supplied, he could use it to seek an injunction. For example, in a 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.

Applying these principles to the facts here, we find that a remand is necessary. One can enjoin a merger for any of several reasons: fraud, illegality, ultra vires act, or unfairness. See generally W. Cary, Cases and Materials on Corporations 1707-12 (4th ed. 1969). It is unclear which, if any, of these doctrines would apply under Texas law. See, e. g., Texas Bus.Corp.Act Ann.art. 5.16.E(5) (Vernon Cum. Supp.1978-1979); Governing Board v. Pannill, 561 S.W.2d 517 (Tex.Civ.App.1977); Inter-Continental Corp. v. Moody, 411 S.W.2d 578 (Tex.Civ.App.1966); Farnsworth v. Massey, 365 S.W.2d 1 (Tex.1963).

In any event, we cannot decide the question here because the district court did not address this issue and it has not been fully briefed in this court. Therefore, we remand to the district court to consider in the first instance whether there was sufficient evidence to create a jury issue on the question of the plaintiff’s reasonable probability of ultimate success under Texas law. This requires a two-step inquiry. First, the court should determine what information the jury could reasonably believe was withheld. Second, it should determine whether any of that information could have been used to obtain a Texas injunction. If there was as a matter of law no reasonable probability of ultimate success, the information is not material.

Because there may be a new trial, we feel it is necessary to give some guidance as to the submission of the question to the jury. The problem is in some respects similar to cases involving legal malpractice or the law of a foreign country, where the question of what the law is can be either the subject of judicial notice or an issue for the jury. We leave to the district court in the first instance whether it will determine what Texas law is or leave that for the jury. In either event, there must be an appropriate instruction covering the relevant state law. Next, regardless of how the legal standard is submitted to the jury, the court should instruct the jury that it should test the facts against that legal standard and decide whether there was a reasonable probability of ultimate success. This instruction should be given in connection with the charge on materiality.

In sum, we hold that where a minority shareholder in a merger alleges a material misrepresentation or omission by the defendant in connection with the merger that deprived him of a state law injunctive remedy, a cause of action is asserted under rule 10b-5. For such information to be material, the plaintiff bears the burden of proving that had he received the correct information he would have had a reasonable probability of ultimate success in the state injunctive action. We remand to the district court to determine whether there was sufficient evidence to create a jury issue on materiality.'

B. Causation

Because of the possibility of a new trial, we will consider the remaining contentions of the defendants. The defendants claim that the district court erred by failing to give a special interrogatory on causation. We are not persuaded by this argument.

The district court has wide latitude in deciding which issues should be covered by special interrogatories. Its action will only be overturned for an abuse of discretion. Here, the district court covered causation in its charge⁵ and felt a special interrogatory would not be necessary. Generally this is not an abuse of discretion. See Kornicki v. Calmar Steamship Corp., 460 F.2d 1134, 1139 (3d Cir. 1972).

The defendants try to overcome this rule by labelling the question of whether the plaintiff could have gotten an injunction as a causation issue. They argue that because this was the crucial element of the plaintiff’s case, it was an abuse of discretion not to have a special interrogatory covering it. This argument is somewhat disingenuous given that a portion of the defendants’ brief treats this as a question of materiality. In any event, we feel that any problems of causation are adequately disposed of by applying objective materiality criteria. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 384-85, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970). Assuming a charge in accordance with the previous section were given, because we view the question as one of materiality and because special interrogatory 1 required a finding as to materiality, we reject the defendants’ argument.

C. Scienter

1.

The defendants contend that the district court improperly charged the jury as to the defendants’ scienter. To prevail on a rule 10b-5 claim, the plaintiff must prove scienter. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). In this circuit, a showing of recklessness satisfies the scienter requirement. See Coleco Industries, Inc. v. Berman, 567 F.2d 569 (3d Cir. 1977) (per curiam), cert. denied, 439 U.S. 830, 99 S.Ct. 106, 58 L.Ed.2d 124 (1978).

In Coleco, we left open the definition of recklessness. See id. at 574. At trial, the defendants asked the district court to use the standard set forth in Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.), cert. denied, 434 U.S. 875, 98 S.Ct. 225, 54 L.Ed.2d 155 (1977), in defining recklessness for the jury. Sundstrand defines “recklessness” as “an extreme departure from the standards of ordinary care, . . . which presents a danger of misleading . . that is either known to the defendant or is so obvious that the actor must have been aware of it.” Id. at 1045 (citation omitted).

The district court rejected this language, though expressly requested by the defendants, and gave the following charge:

An innocent error or a mistake of judgment or even a negligent error are not enough to establish [scienter]. An act is done recklessly if it is done with indifference to the consequences.

In McLean v. Alexander, 599 F.2d 1190 (3d Cir. 1979), we adopted the Sundstrand charge as the law of this circuit. Id. at 1197. We reasoned that Sundstrand was a proper reading of Ernst & Ernst because it defined recklessness as being relatively close to intentional conduct. Accordingly, we hold that the district court’s use of the phrase “indifference to the consequences” instead of the language requested by the defendants does not satisfy McLean.

2.

Maher, Naylor, Shaughnessy, and Sirota also contend that there was insufficient evidence of their scienter as a matter of law. In the face of the jury’s verdict, the defendants would be entitled to judgment n. o. v. only if we could say that as a matter of law “the record is deficient of that ‘minimum quantum of evidence from which a jury might reasonably afford relief.’ ” Fireman’s Fund Insurance Co. v. Videfreeze Corp., 540 F.2d 1171, 1178 (3d Cir. 1976) (citation omitted), cert. denied, 429 U.S. 1053, 97 S.Ct. 767, 50 L.Ed.2d 770 (1977).

Here there was evidence that these four defendants were aware of the plaintiff’s requests for information. In December of 1975, the plaintiff met with Maher, Naylor, and Sirota and requested certain information from them. The plaintiff made similar requests of Maher in Baltimore in February of 1976. On April 27, 1976, the plaintiff wrote to Sirota again requesting informátion. Finally, on April 29, 1976, when Hamm, a member of Sirota’s law firm, wrote to the plaintiff’s lawyer, he acknowledged the requests for information and said the plaintiff could inspect SCR records if he so desired. At the bottom of Hamm’s letter there is a notation that a copy was sent to Maher, Naylor, and Shaughnessy.

These meetings and letters demonstrate two things: all four of these defendants (1) knew of the plaintiff’s requests for the information and (2) knew that as late as April 29, four days before the CRS shareholders vote to approve the merger, the plaintiff had not yet received all the information he had requested. If the information was material, then there was a jury question as to whether these four defendants acted recklessly in failing to ensure that the plaintiff received the information he requested.

This is not a case like McLean v. Alexander, 599 F.2d 1190 (3d Cir. 1979), where we held that there was insufficient evidence of the scienter of accountants with a rather peripheral connection with the transaction. Here, the defendants knew the plaintiff’s requests for allegedly material information had not been complied with. See note 3 supra. We hold that there was sufficient evidence to create a jury question as to the scienter of Maher, Naylor, Shaughnessy, and Sirota.

3.

Finally, Levi argues separately that there was insufficient evidence of his scienter as a matter of law. Unlike' the other four individual defendants who have appealed, who all were officers and/or directors of SCR. Levi was only a shareholder in SCR. Levi admits that the district court’s charge was correct. It told the jury:

Before you can find Mr. Levi liable as a controlling person, insider or aider and abettor, you must find first that one or more of the other defendants committed a wrongful act and secondly, that the alleged controlling person, insider or aider and abettor had knowledge of the wrongful act and third, that the alleged controlling person, insider or aider and abettor rendered substantial assistance in effecting the wrongful act. Of course, that could [be the case] if circumstances are such [that he failed] to use his alleged control over other persons to stop whatever it is that they are alleged to have done.

See generally Monsen v. Consolidated Dressed Beef Co., 579 F.2d 793, 799-803 (3d Cir.), cert. denied, 439 U.S. 930, 99 S.Ct. 318, 58 L.Ed.2d 323 (1978).

The crux of Levi’s argument is that he did not know that material information was withheld from the plaintiff. We hold that there was sufficient evidence to create a jury question for several reasons. First, contrary to what Levi suggests, there was evidence that once SCR was set up, Levi did not assume the passive, non-managerial role of the normal shareholder. His own deposition, read into the record, revealed the following:

Q: Do you know how they [the SCR board of directors] were selected?

A: No special way that they were selected.

Q: Did you have any input into that?

A: Yes.

Q: Was Mr. Shaughnessy your representative on the Board?

A: They were all my representatives.

Q: Could you have influenced the Board of Directors of SCR at that time?

A: With all of my money paying for everything, yes.

Second, there was circumstantial evidence that Levi was involved in some way with the negotiations with the plaintiff over the sale of the plaintiff’s CRS stock to SCR. For example, the plaintiff testified that during these negotiations Maher told him that Shaughnessy (who was the vice president at Mercantile, where Levi was vice chairman of the board) was Levi’s representative on the SCR board. Indeed, Levi’s deposition reads:

Q: Did [Shaughnessy] ever travel anywhere in connection with the program to purchase [CRS]?

A: I’m sure he traveled.

Q: Do you know who or on whose behalf he was working at the time he made the trip to Texas?

A: Let me clarify the question. He was . in the employ of the Mercantile Bank. His trip to Texas was a service to the corporation which Maher and Levi were the two stockholders. His compensation was to come out of the funds that I had agreed to put forward for that group for that entity to operate with.

Finally, there was some evidence that Levi may have known that at least four days before the May 3 CRS shareholders meeting to approve the merger, the plaintiff had not gotten the information he had requested. There is a notation on the bottom of Hamm’s April 29 letter to the plaintiff’s attorney that a copy of it was sent to Levi. See note 3 supra.

Thus this evidence demonstrates that Levi felt he could influence the other defendants, that Levi had some connection with Shaughnessy’s trip to Texas to discuss a purchase of CRS stock by SCR, and that Levi knew the plaintiff had not received evidence requested from the other defendants. We hold this to be sufficient evidence of Levi’s involvement in the events surrounding the disputed information to create a jury question on Levi’s liability. As we noted in Monsen, supra :

[Ijnvolvement [in the wrongful conduct of the other defendants] may be demonstrated by proof that the alleged aider-abettor “had general awareness that his role was part of an overall activity that is improper.” ... In determining this awareness, “the surrounding circumstances and expectations of the parties are critical.”

579 F.2d at 799-800 (citations omitted).

IV.

We will reverse the judgment and remand to the district court for further proceedings.

1 . SCR later changed its name to Catalyst Recovery, Inc., as is reflected in the judgment. We will refer to it throughout as SCR because that is the name used at trial by most of the witnesses.

2 . The letter stated:

The information received about the proposed merger is woefully inadequate and is deficient in at least the following respects:

1. Failure to disclose the rationale for fixing the rate of exchange of the [CRS] common stock for the SCR preferred stock as called for in the merger proposal.

2. Failure to disclose the identity of the persons who fixed the exchange rate called for in the merger proposal and whether any conflicts of interest exist that could affect the judgment of the persons who fixed the rate of exchange.

3. Failure to furnish copies of recent audited financial statements of SCR so that a shareholder of [CRS] will have available to him material information he requires to determine whether to accept or reject the exchange offer called for in the merger proposal.

4. The failure to obtain and provide to shareholders of [CRS] an independent evaluation of their [CRS] stock.

5. The failure to obtain and provide to shareholders of [CRS] an independent evaluation of the SCR preferred stock.

6. The general failure to provide other material information about SCR which would enable a shareholder to make an informed investment decision.

3 . The defendants argue that this offer means there was no omission of information. The jury could have believed, however, either that the offer came too late (it was four days before the CRS shareholders meeting) or that the plaintiff reasonably felt that the defendants were not serious. For example, at trial, the plaintiff testified in part as to why he did not follow up on the offer:

Well, first the Baltimore group had a history of not providing any information for me. . . The other reason I didn’t go was my attorney told me they were to provide me information.

4 . The plaintiff testified:

Q: Can you tell us why you wanted this information?

A: Yes. I had to make a decision before May 3rd. What was I going to do? My lawyers told me that I could have tried to obtain an injunction to stop the merger vote.

Q: What’s an injunction?

A: This is an order from a court that would have stopped that merger.

Q: Did you consider that at the time?

A: Yes, we considered that.

Q: Okay. Did you go and seek one?

A: No, we did not.

Q: Why not?

A: We didn’t have enough information to go to a judge and tell him that there’s sufficient reason.

5 . The district court charged:

Plaintiff is further required to prove by a fair preponderance of the evidence that he suffered damages as a proximate result of the alleged misleading statements or omissions. In other words, the plaintiff must show that the misleading statement or omission played a substantial part in bringing about or causing the damages suffered by him and that the damage was either a direct result or a reasonably foreseeable result thereof.