Alabama Farm Bureau Mutual Casualty Co. v. American Fidelity Life Insurance Co‪.‬

The plaintiffs in this stockholders' derivative action seek to recover for alleged violations of Rules 10b-5, 17 C.F.R. § 240.10b-5 (1976), and 14a-9, 17 C.F.R. § 240.14a-9 (1976) of the Securities and Exchange Commission, and corresponding provisions of the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n(a), in the course of a stock repurchase program instituted by the defendants in 1974 and 1975. Finding certain facts to be undisputed, the district court granted summary judgment for the defendants on the basis that: (1) Rule 10b-5 was not violated because there was no ""deception"" of or ""injury"" to the plaintiffs in connection with the repurchase program; and (2) Rule 14a-9 was not violated because there were no significant misstatements or omissions in the proxy materials. The plaintiffs, who were never allowed to complete discovery in this matter, contest the court's conclusions and also assert that there was a genuine issue of material fact concerning whether the repurchase program was a ""manipulative device"" to boost the price of the corporation's stock and thereby protect management's control of the corporation. This is an issue that was raised in Alabama Farm's amended complaint but not directly considered by the district court. Despite the lengthy and able consideration of the issues by the trial judge on the motion for summary judgment, we find that there are genuine issues of material fact as to whether the stock repurchase program, as intended and carried out, was a manipulative device that injured the corporation by artificially boosting the price of the shares purchased by the corporation, and regarding whether the shareholders were ""deceived"" by the nondisclosure of this alleged scheme. It was, therefore, inappropriate, at least at the stage reached in the proceedings, to dispose of these portions of the case by summary judgment. With respect to the other charges, however, summary judgment was proper. I. Background American Fidelity (AMFI), a Florida life insurance company, issued stock to the public in the early 1960's at an average price of $25 per share. The stock, which is traded over the counter, reached a high of $45 per share on January 2, 1973; thereafter, during a general market decline the price fell until it was below $10 per share.