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Should an outside accountant be held liable for negligently providing incorrect information to be included in a corporation's proxy statement in a shareholder action under section 14(a) of the Securities Exchange Act of 1934 (the 1934 Act)? Or should the plaintiff in a section 14(a) action be required to show that the accountant intended to deceive the shareholder; that is, should liability be imposed only where the accountant acted with scienter?

Section 14(a) makes it unlawful for any person to solicit proxies in violation of rules prescribed by the Securities and Exchange Commission (SEC). Rule 14a-9, implementing section 14(a), prohibits proxy solicitations which contain false or misleading statements with regard to, or which omit, any material fact. Although neither the statute nor the rule provides for civil liability, a private right of action and the elements of such a suit, such as materiality, causation, and the standard of liability, have emerged as judge-made law from a series of shareholder actions brought under section 14(a) and Rule 14a-9.

Where the defendants have been corporate directors, whether insiders or outsiders, the courts have uniformly held that the plaintiff is not required to establish that the defendant acted with scienter. In the sole proxy misrepresentation case in which the defendant was an outside accountant, however, the court applied the scienter standard.

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