The court had previously held that a defect in a proxy statement need not be decisive in the actual vote: so long as the misstatement or omission was material, there was a causal link between violation of the law and the injury to the shareholder.

The Second and Fifth circuits used a more conventional tort-based test: whether a reasonable person would attach importance to the fact which was misrepresented or omitted in determining his course of action.

If the test was too stringent, it would cause the dismissal of otherwise meritorious lawsuits; if it were too lenient, corporate officers would be inclined to overwhelm shareholders with such a large volume of information that truly valuable facts might escape them.

He formulated the test as follows: an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.

In other words, the court must determine whether under all the circumstances, the omitted fact would have assumed actual significance in the decision of the shareholder.

The investment bank rendered an opinion that the high redemption price of National's stock was a substantial premium over the current market value of TSC's shares.

But since the bank still felt the transaction was fair and that TSC shareholders were still receiving a premium, Marshall held this omission to be immaterial.