*1 FIRE SLAVIN et al. v. GERMANTOWN et al. INS. CO. FIRE et
FRAZIER al. v. GERMANTOWN al. INS CO. et 9568, 9570.
Nos. Appeals
United Court of States Third Circuit.
Argued .Tune April 1, 1949.
Decided
BIGGS, Judge, Chief dissenting. *2 Fire defendant-appellee Germantown for Ins. Co. others. Pa., Philadelphia, Egan,
Thomas C. of Independent Committee. for Protective BIGGS, Judge, and Before Chief GOOD- KALODNER, Judges. RICH and Circuit KALODNER, Judge. Circuit action This a shareholders’ derivative upon 10(b) the Securi based Section of Exchange Act of 15 U.S.C.A. ties X-10B-5,2 (Cum. and Rule C.F.R. 78j(b), § 24O.10b-5, promul Supp.) Title Section pursuant by the Securities thereto gated Philadelphia, Dilworth, of Richardson Commission, jurisdiction Kohn, A. Sutton E. (Harold Pa. James upon the district courts being conferred Kalish, & Paxson, Dilworth Murdoch, Act, 15 cf the U.S.C.A. Section 27 Pa., on the Philadelphia, Green, all of 78aa. § appellants and others. brief), Slavin for Com- The Germantown Fire Insurance Pa., Felix, Philadelphia, of H. H. David company pany (“Germantown”), a stock and others. Frazier appellants of organized insurance laws under the D. Willner, Washington, of Sidney H. became, Pennsylvania, or about on Jan- Cohen, Alexander (Roger S. Foster and C. capitalized uary successor to brief), C., Washington, D. on the of both Company Mutual Fire Insurance of Exchange Commission. for Securities (“Mutual”), a com- Germantown mutual Kenworthey, Pittsburgh, of E. Charles century, pany which, oper- over & Kenworthey, Segal Pa. (Schnader, Pennsylvania under insurance ated counsel; Pa., Philadelphia, Lewis, of controversy instant out arises laws. Blair M. and Robert Wm. Schnader A. of the mutual of the conversion Philadelphia, Pa., Smith, on both of company. The to the stock force brief), defendant-appellee Rosenlund chiefly against case directed plaintiffs’ and others. Rosenlund, O. the conduct one Arthur independent broker, Rhoads, Philadelphia, insurance and the C. Brewster manner which became owner of (Sidney L. and Mont- Pa. Wickenhaver Rhoads, McCracken, approximately shares gomery, Walker & Pa., brief), It is the contention Philadelphia, on the Germantown. all of contrivance change means registered protection of investors.” any directly change facility of change— may prescribe priate commerce rules and (b), “It shall “(b) [*] Section manipulative provides: or To or Act or [*] regulations any security or use instrumentality indirectly, any public unlawful for or [*] contravention national national or or sale employ, necessary interest or for deceptive the Securities as the mails, [*] U.S.C.A. securities securities so any security any person, Commission usé or of registered, connection [*] interstate device appro- Ex any any 78j ex- ex- [*] or . made, course of business which means material fact Title any artifice to circumstances chase commerce, directly “(2) “(1) “It shall “ material Rule (3) statements person, operate to make or or X-10B-5, sale employe any device, misleading, defraud, or engage instrumentality indirectly, by necessary unlawful for connection made, any the mails or to omit 240.10b-5, provides: C.F.R. fraud or deceit untrue statement of any security.” or in order act, practice, the use of of interstate * * * (Oum.Supp.), operates any person, light scheme state make pur- any or or or together plaintiffs juris- with dismissed for want Cushmore, an officer and direc- diction. M. found mails one E. neither use of the Mutual, conspired advantage take within applicable meaning tor of stat- *3 $3,000,000 Rule, existing approximate diversity sur- ute and of an nor of citizen- conversion; ship complaint the plus, by bringing upon about sustain the inde- pendent design; grounds D.C., in they the in local law. succeeded F.Supp. apparent the other 74 give express it became It not when did Mutual Rosen- of consideration to authority officers and directors the Hurn of position, they Oursler, lund was in dominant 289 U.S. 53 S.Ct. making agreement L.Ed. along”, import. “went and cases of like whereby become the senior him he was to result, To reach the stated the District of with a officer the Court findings made extensive of $25,000 annum and a share salary per of wherein the individual defendants other profits; in the that the aforesaid conduct that Rosenlund were absolved offenses of the specific was in of stat- contravention Act; per the the conversion se desig- inasmuch utes referred to as the separated from the activities of Rosen- purpose of conversion and the nated the lund; and Rosenlund’s conduct found about, bringing methods of as stated to be outside the Act want of use of registration the the statement filed with assumed, the mails him in what was Exchange Securities and Commission and arguendo, to have been a on his scheme the mailed to the part acquire large holdings in German- Mutual, and fal- of were circumvented Court, however, expressed town. The the 'sified; and the result constituted end had, contrary good view a fraud Germantown sale and the morals, concealed his activities from the purchase of its securities. officers and of in ac- complaint originally quiring included a holdings. such prayer appointment for the of a receiver appeal, On this the defendants have con- Germantown, withdrawn, being but that such a use ceded of the mails as would primary sought relief now is cancel- allegations bring the of holdings of stock of Rosenlund lation 10(b) within Section of the Securities voting disestablishment of trust Exchange of Act and the Commis- voluntary deposits containing Moreover, they rule X-10B-5. sion’s do deposits required purchased those who of not take issue over the failure Act of through the issue underwriter.3 Sec- explicitly permit private civil suits of the Securities plaintiffs persons, nor failure of (b), Act of is U.S.C.A. 78cc § assert, money They seek do damages. upon, general as well principles as relied however, is that Germantown equity. monetary damage of No claimed. proper party to sue under the Act. In ad-
Upon dition, presentation wrong conclusion contend has parties,5 Germantown, that, of evidence all the Court below been done pressed chiefly per- engaged This latter relief made or shall have plaintiffs. intervening any contract, (2) formance of shch regards (b) any person who, 29(b), 15 as U.S.C.A. 78cc provides: being party contract, shall such “Every acquired any right contract made thereunder with violation any knowledge provision chapter any this or of actual the facts reason regulation making performance thereunder, every or rule or * * * any such contract or contract in violation heretofore here- performance provision, regulation made, rule, such or of which * * of, involves or violation the con- relationship Initially any practice or on motion tinuance case was heard of, any injunction, during provision preliminary but violation chapter any regulation agreed or course of the trial was there- rule scope under, (1) regards inquiry shall be void should bo broadened person any who, to include violation case and heard as on whole provision, bearing. rule, regulation, final $1,000,000 proposed capital has fraud or addition general, deceit no actionable stock, derived the sale of been committed. value shares would have a book voluminous, case is The evidence per somewhat in share. excess of $87 over- summary of it would all of and fair in addition to noted here that pur- necessity. For the the bounds o-f reach proscription dis- against in the local law outline of poses orientation, a basic surplus a mutual com- tribution of may be set case framework conversion, surplus, pany, was re- forth. quired surplus to remain intact existence, century of Mutual, during its *4 company.8 stock the pre $3,000,000surplus the had accumulated policyholders Prior to the action of the mentioned, viously was undistribut which conversion, the officers authorizing the Pennsylvania.6 of On the laws able under had, April, of Mutual and directors 1944, policyholders 21, au Mutual’s June 1943, agreement concluded an with Bioren company to a thorized conversion Co., for a & to the stock issue underwrite 17, 534, May 682, pursuant section P.L. to $30,000, for which that fee of in return 674, 1921, and further authorized 40 P.S. § par, up, to the stock firm take at all Mutual to take the and of officers directors remaining by policyhold- after the exercise re necessary steps accomplish to the deposit rights, pre-emptive ers of their plan contained in the Resolution sult. The trust, resell, voting and such stock contem approved the par, certificates therefor. voting at trust company plated would the converted 22, 1944, voting arrange- trust On the June $1,000,000 consisting of capital have a of completed, National ment par of of common shares value 50.000 and Trust Co. as Bank of Germantown be $20, rights which were to pre-emptive Emhardt, presi- depositary, W. H. and with rec policyholders Mutual of allotted of Mutual, A. and W. dent and director of May 11, the basis of one- ord on on Dearnley, of Mu- and E. directors C. Jones tual, for full dollar of of one share each tenth voting The was au- trustees. trust as policyholders, premium and paid term stock, issue of to hold total the thorized full ten of each one share for one-tenth course, of but, certificates to of the number deposit by perpetual perpetual dollars of depended the number of be issued policyholders. The 100th annual statement deposited. shares policy condition, which the of Mutual’s contemplated Although them, it had been before disclosed assets to holders had plan ready and the warrants £3,952,043.42, liabilities of the extent of shortly June, $3,438,808.-2 after vari- surplus distributed $513,235.18, of and delayed factors irrelevant here Thus, with the ous apparent 4.7 surplus The statement of of resources disclosed 677: “The § See 40 P.S. holdings having $2,- par of value com bonds of domestic mutual fire insurance 234,101, $2,332,986.- issuing policies panies market and value in accordance 01; par having $192,901, provisions stocks value or two of one of section $211,013; 676) (40 and value of first mort shall market 675 and §§ this act P.S. gages $784,748.42; payment valued and cash be held as a reserve $279,387.73. and,, expenses; amount The bal event losses and Up estate, company, ance was made of real real divid shall be dissolution deposit notes, investments, agents’ pro among estate ed rata balances, receivable, policies accrued in accounts are force at time whose perpetual dissolution, receivable, policyholder, terest insurance other but no deposits buildings. claimants, home office than loss shall receive more “ * ** policy 8 40 P.S. 674: amount cash unearned than the company paid company premium holders of said shall last right stock, Any policy. first to subscribe to said sub term of balance current ject equitable regulations remaining to such shall escheat to the Common Pennsylvania.” prescribe, or trustees And weath see surplus company of the mutual shall Fire Ins. Co. Germantown v. United F.Supp. distributed, D.C., States, not be but shall remain in aifirmed 3 surplus company. Cir., 1944, tact as the 142 F.2d certiorari denied ” * * * U.S. 89 L.Ed. S.Ct. 585. Depart- Insurance trustees approval present “Who are State three di- July rectors until of Mutual Company was not about ment. Fire Insurance of Germantown, sale announcing president prospectuses including company policyholders, and that occupy of stock were mailed who will similar rep- offices with July company”, the new about intended to subscription rights use rights resenting pre-emptive voting pres- continue management The warrants ent were mailed them. for the September voting effective until term of agreement. trust also disclosed Emhardt conversion, as stated final proposed acquire, right, in his own vot- regula- (1) prospectus, included ing trust certificates representing adopted by Directors to Board of stock, shares of Dearnley Jones policyholder would the effect that no proposed acquire each, by 500 shares him, rights entitling pre-emptive issued exercise would re- proration, to more than to subscribe policyholders, ceive stock; agree- (2) oral shares market, open stock on the or the Co.; (3) ten- ment with Bioren & *5 purchase of unsubscribed stock from the year voting trust. underwriter. It further recited that Mu- prospectus, the writ- As revealed in paid tual never any salary officer a in underwriting with Bioren & ten contract $12,000 per annum, excess of and that govern manner in which it did not Co. present no substantial conditions voting certifi- trust would distribute the in change policy contemplated; that was the shares was cates to be issued for only person who, that the during the fiscal was, however, up. an There bound take period December ended received understanding between Board of oral aggregate $20,- remuneration in excess of that: Bioren & Co. Directors and $30,- 000 was who had received appears to “(a) the under- Insofar commissions; 265.81 pay- that the total preference practicable, will be writer to be all ments to officers and the direc- policyholders who at given to those tors, fees, including pro- committee “are indi- time of exercising posed $38,500.00 be a maximum desire, if possible, to subscribe for cated a year reorganization”; first shares; additional person that “No other than officers or di- “(b) Insofar as the underwriter can compensation rectors will receive from the situation, will not be trol certificates Company $12,000 per year” excess of having persons or a substan- firms sold by way unless earned of commissions on companies competing or tial interest placed Company. insurance likely otherwise to be whose interests are finally The warrants as issued to thi company; adverse to the policyholders contained the statement on knowingly underwriter will not “(c) The their face were transferable way certificates as to distribute divisible; subscriptions to fractions any possible for individual or make it firm of accepted; not be would shares more obtain control of than 1000 shares “Warrants to subscribe to fractions of part any or not all whether must presented shares with sufficient represented by voting same shall be trust up additional warrants to make the number certificates.” of whole shares subscribed for”. On the respect voting trust, ro the reverse side With in addi- of the warrants was as- already pro- signment addition, In given, details form. there was a provision, spectus terms stated under the thereof effective unless deleted subscriber, prohibited deposit voting authorizing trustees approving merger the dissolution or voting for or shares subscribed in the trust company or the sale of all or voting sub- the issuance of trust certificates stantially of its without all assets There unani- in lieu thereof. was a statement organizer written consent of certificate- Germantown mous was Mu- ; subscription further voting holders. stated that tual was for stock 80á compensation until having a dent without additional 50,000 shares issue of total April, meeting next stockholders’ would
par $20, of which value of all that 1947. par; and than price not less sold at by policyholders unsubscribed
stock Mu- clarify To relation to Rosenlund’s par. public at general be offered tual, it noted no time was should be that at company. he an officer director of warrant there face of each On the However, commencing he was rider unless “Void rubber-stamp legend, producer, largest Mutual’s business is attach- 'Important Amendment’ entitled represented policyholders. For carried, largest other among “rider” ed”. That reason, rep- right this he able account for “The stating things, a “Notice” necessary proxies warrant substantial number of the resented approval of use this to the the conversion at want to you If do has value. policyholders’ meeting June, subscribing purpose for the warrant consult you stock, suggest we allegations In view of the of the com- re- Again, on the reputable stock broker”. plaint, activity Rosenlund and the warrant, an- there thé verse side of assignments manner in which obtained specific attention calling rider other many particular so deserve atten- shares depositing the provision for tion. voting trust. January, commit the insurance the ex- days before Approximately two tee of Mutual’s Board Directors warrants, & Bioren piration date considering the conversion. the matter of *6 had been as- which received warrants Co. pre with connection the distribution Rosenlund en- policyholders to signed emptive subscription policyhold to rights of about to a total subscribe him to titling ers, respect problem to the arose with 17,000 stock. shares relatively handling of who new assureds premiums.. paid the conver- substantial advance completion of Following, the Germantown, had in The assured the committee which and the effectuation sion Co., Cylinder Janney Mutual’s directors, mind who had served was and officers policyholder Mutual, largest and Rosenlund’s cus entered into the same-function Schell, February, tomer. in Horace member of the agreement with Rosenlund an committee, and Mutual’s Rosen- Board and the agreement, this to 1946. Pursuant counsel, legal that the matter believed would and chair- a director to lund was become power granted by $25,000 come within the salary statute Board at man equitable regulat to to make profits the directors per plus in year, a share Nevertheless, high he deemed it so manage ions.9 to He was business. insurance Janney ly Cylinder agree in desirable production insurance busi- end pre-emptive to waive whatever permitted to main- advance ness, while he was and might business, rights brokerage excess of amount independent his tain equita be as fair later to determined and what- commission to receive he not was subject that he contract, policyholders, ble to all indicated which This soever. management stockholders, would not read to he undertake the action the conversion with the State annual stock- to discuss at the approved them and Department unless such waiver April, although no Insurance meeting in holders’ suggested, He were first obtained. further made in the notice of of it mention noted, as it was custom to deal addition- inasmuch with meeting. only through broker, their March, Emhardt had ally, Cylinder’s which, broker Janney resignation, after con- that asked to his tendered plans waiver. The accepted tentative him, was as of obtain ference with accordingly explained conversion were with leave of absence for December well as the date of reason for Upon the effective that time. waiver, he appoint- was asked to Board see whe resignation, the Emhardt’s agree. Cylinder Janney position presi- ther Rosen- fill the Rosenlund ed 8, supra. note 9 See signments which, total, January, the warrants such a waiver lund did obtain spe- approximately requests, him to subscribe to obtained entitled on similar 17,000 admittedly pre-emptive rights, ac- waivers, rights shares. limiting cific by Rosenlund, quired gratis market his customers had a three of from two or share, shortly per value ranging from April, April, 1944. $7 issuance, $15, expiration at cus- During his discussions date. shares He additional 500 obtained an many tomers, were learned that voting in the form of certificates trust com- insurance acquiring interested in Co., par this Bioren & suggested they give pany stock. He being number allotted to him that firm August, him. Between 5,250 out of approximately of the total April agree- accumulated by poli- pre-empted shares were assign ments from customers to cyholders up and which it therefore took agreements represent- These when issued. underwriting pursuant to its contract. approximately a total shares. ed prior to issuance of the war- stated, already Just As the defend rants, presented to let- dispute ants do not failure Act about 100 of ask- ters from his customers permit specifically private litiga civil ing warrants be delivered to Ros- 10(b). Logic, tion for violation of delivery enlund for to them. These re- available, authority and such as is seem to with,10 and, quests complied addi- despite action favor such absence vice-presi- Cushmore, tion, M. E. who legislation.12 enabling We are content to Mutual, general manager dent observation, rest with this do not we charge well as in details distribu- disposition think the ultimate con this warrants, tion of the asked Rosenlund troversy necessarily point. rests personally delivery three of the actually And if there was scheme which largest policyholders, also Rosenlund’s cus- in harm culminated to the tomers.11 which was effectuated violation *7 finally issued, provisions When the warrants were 10(b) Section the Securi July, Act,13 in Exchange Rosenlund visited his cus- ties we have no doubt that and corporation prosecute tomers obtained from them actual as- could the action 10 delivering letters, Prior these duty private a created in enforceable liti- had Rosenlund ing written to Mutual advis gation, majority but held on the that that he held them. Mutual referred facts, damage was traceable to the legal matter for decision its breach) ; Speed Corp., Transamerica v. D. counsel. Rosenlund ob testified that he C.D.Del.1947, F.Supp. 457; 71 Kardon v. assignments tained from had some who Gypsum Co., D.C.E.D.Pa.1946, National given letters, him such and that he F.Supp. 512; Notes, Implied 69 see Lia- assignments did not obtain from others bility Exchange Act, Under The Securities given per who him authorization (1948) (noting 61 Ilarv.L.Rev. sonally deliver the warrants. legislative history); absence New Civil Under Liabilities and Securities reason, The testified Cush Rules, Act 14 U. of Chi.L.Rev. more, that the warrants were made (1947) ; and see 14 Minn.L.Rev. out to full number of to which (1948) . entitled, these but that “rights “Warrants” and to subscribe rubber-stamp legend carried the not purchase” fall within the definition of ing that excess of 1000 “security” 3(a) (10) in Section exercised, assigned, could not be or other Act, 78c(a) (10). § U.S.C.A. in It is This, course, wise utilized. was con teresting Pennsylvania note prior waiver, sistent with the and the decisions, subscription for stock in a regulation adopted. which the Board had “pur to be formed is not a explain wanted Cushmore Rosenlund “sale”, subscription chase” or but a this to his customers. existing corporation an stock in is: Bole Franklin, Fulton, Cir., 1944, 12 Cf. Baird v. 947; 233 Pa. 82 A. (wherein 141 F.2d agreed Casualty Schwartz v. Co., 244-245 Court Manufacturers’ Ins. , Ex 1939 Securities 335 Pa. 6 A.2d change 78£(b), Act 15 U.S.C.A. A.L.R. 1045. redress; case, employ proper Board or that also authorized Schell brought its firm counsel, specifying on be associate the law suit derivative desired, it which Cush- member of
half. more’s brother. allegations The record discloses that Mutual first plot en conversion charge that the through Rosen- learned E. M. Cushmore gendered and Cushmore Rosenlund. lund, appear although definitely it does not Mutual officers directors of employed, he in the fall of charges contended that joined. It is solely through recommenda- Rosenlund’s that Rosen are established the evidence tion. The uncontradicted evidence is 1942, gave lund, Mutual in the summer who the summer of business, pre ,which its total exceeded chief, represented concerns industrial sources; that he then from other all miums gave his at the Mutual some of business business, the man and forced cut off that special agent company. of a behest Cushmore, employ agement of Mutual After about he two months discovered rapidly general mana who advanced properly equipped handle was not presi the- Board and vice ger to member of type placed business his and therefore he manager, of Rosen because dent-general previously com- he had done. The business; placed being on lund’s pany, however, retaining was desirous of conversion, charge details business, Rosenlund to and asked cooperated with Rosenlund for Cushmore might employ. Rosen- suggest someone benefit, in furtherance mutual Cushmore, suggested lund whom design procured employment placing came in contact in the course of represent attorney, brother, Mu an business with the Pearl Assurance Co. tual. by Mutual, employment Following his against these found Court below business, sought Rosenlund’s Cushmore inferences, opinion we are and obtained it. permit no other the evidence The officers and directors of Mutual were Mu- insurance business of clusion. testimony in their clear writing smaller confined to the tual was no influence or control them exercised over shops dwellings small policies convert, in their decision in their Its chief source of area. the Germantown decision, of that effectuation there is revenue, profit from investment came nothing justify record to infer- surplus, stag- but with business huge of its contrary. ence to the *8 “dry” developing into a nating, Mutual was also affords trust, surplus record no basis for in- was undistributable. the since ferring keenly the officers and directors of and directors were The officers situation, early arrangement into an least as entered and at aware of this permit 1941, him submitted to Rosenlund subscribe to beginning of as the counsel, problem together shares so that would Schell, of benefit- have its the control, and to make him head of through German- distribution of ing upon upon learning town. The evidence is Having an ex- embarked dividends. by problem, Rosenlund as- the Board exercise of this ploration policyholders, until, signed him upon Mutual’s possibilities the various sidered “surprised”, Board, counsel, “shocked” or investi- insistence of its de- advice and merely the gated manner which he outstanding solution was termined assignments, also the but the advantage local -statute obtained as- take the. ' signments themselves to determine their a stock conversion to com- permitting validity. A decision, full the disclosure of circum- the Having made pany.14 sug report fall of rescinded the Resolution Schell A submitted participating participating gested submit issuance the alternative policies beginn policies to its and author- From conversion. exploration opposed former; ing, matter of ized conver- Schell but April, upon early 1942, Board sion. au- the Board it. did decided proceeding Upon Schell, thorize with the conversion. the further advice of rights, acquisition any, was sider the if on the his conferred surrounding stances commit- 10(b) Board’s Act made Rosenlund to reported to the X-10B-5. by the committee tee and Rule On the advice Board October plaintiffs’ gen Dominating the counsel, that he concluded the Board argument eral are references to fraud com rights. manage- had acted within his mitted assignors, referred, ment to which we have contract creation, by Rosenlund, situa phase exclusively production relating tion making statements business, arranged aas result former, respect false. With to the obvious represent- parties being of bargaining, both ly redress, the right any, if belongs Board, through counsel; ed its assignors,16 corporation. and not to the took initiative as executive committee respect latter, similarly, With to the part expand of its desire to revitalize redress, right of any, if to be seem business. insurance long purchased to those who securit ies.17 larger than salary While as the of Mutual indicated intention considerably conclusions reached prospectus,15 Germantown’s nevertheless scope narrow against appro and directors considered it officers plaintiffs’ point, Rosenlund. At this posi priate in of the fact that between view accumulating tion is pre-emptive 1, 1946, March and March Rosen subscription rights Rosenlund frustrated placed lund’s commissions insurance aim of the conversion to benefit the $27,- approximately averaged
with Mutual
policyholders,
the concealment
per year
The Board
into
net.
took
prevented
thereof
officers
direc
consideration that Rosenlund
the com
taking steps
tors of Mutual from
to' revise
largest
pany’s
producer, and it
business
equitable
assure more
dis
advantage
ability
of his
desired
tribution of
among
policy
Mutual’s
respect
experience.
in this
well
holders
and wide distribution of the stock
case,
purposes
enough
For the
of this
it is
in general;
Rosenlund, by
and that
the de
was no connection
concealment,
to hold
there
be vice of
was enabled to make a
negotiation
employment
tween the
profit and unjustly
secret
enrich himself at
agreement
expense
deceitful conduct
Germantown.
is con
stock,
acquisition
and,
tended
the claim
comes within Sec
accordingly,
there is
occasion to con
the Act of
1934 and
X-
Rule
77g, requires
See footnote
infra.
35 U.S.C.A. §
registration statement
include the infor
16In Norris Tool &
Co. v.
Machino
specified
A,
mation
in Schedule
35 U.S.
Rosenlund, 355 Pa.
50 A.2d
Act,
O.A. § 77aa. Section 32 of the
assignors
un
one of Rosenlund’s
provides
U.S.C.A.
remedy
similar
sought
successfully
to recover
purchaser against any person
to the
who
grounds of
Rosenlund on
local law.
security,
conditions,
sells a
*9
under certain
17
prospectus
The issue of
was
stock here involved
means
aof
or oral com
registered with
Securities
Ex
munication
omission,
which includes an
requirements
change
pursuant
statement,
Commission
to the
or untrue
of material
fact.
3933,
37(a),
f
77q
Securities Act of
35
(a>
o
U.S.C.A. §
seq.
accomplish
U.S.C.A.
77a ct
§
Aside from
makes it
to
35
unlawful
the sale1
penalties,
Act,
criminal
Section 33 of the
of securities
in such a manner as to
77k,
specific
operate
upon
35 U.S.C.A.
edy
affords a
rem
§
as a deceit or fraud
omissions,
statements,
purchaser.
provisions
or untrue
Undeniably
These
registration
give
right
material
facts
purchaser
a
of action to the
“any person acquiring
“spurious”
to
securities,
statement
such
of such
and a
class
security”
knowledge
without
Independence
un
is
suit
maintainable.
30(a)
Corp.
truth or
Deekert,
omission. Section
Cir.,
1939,
Shares
v.
3
3933,
77j
51,
Securities Act
35
grounds
U.S.C.A.
108 F.2d
reversed on other
(a), requires
282,
the same
in the
statements
311 U.S.
63 S.Ct.
limitation in excess of sert the issuance stranger, might other- policyholder, 1000 shares was invalid. acquire market. No other wise on possible of state- is face inference Similarly, nothing we think prospectus that the ments gained by that Rosenlund ac the assertion were transferable and price quired the stock lower than at who subscribers would could know value, value, particu book or its market be; was to be issued larly in failure view of the evidence amounts, holders fractional anything to do with to establish addi- warrants should secure fractional price which the stock fixing the market.20 tional quarrel, reality, The was to be sold. price relat- with the others Rosenlund and The statements paid, price but Bioren & fixed in the con agreement with ing to the oral plan.22 voting merely indicate version Since Rosenlund paid trust Co. and price full at which it of Mutual the stock the cash officers and directors Note, Against individuals, stockholders SEC Action See ,v. corporation. Shellenberger Securities, Pat Fraudulent Purchasers 943; terson, (1946). 168 Pa. 31 A. Harv.L.Rav. adopted Co. v. Edison Illuminat Electric ing Electric District Court 164; request Co., 1901, Pa. 50 A. of fact Kittanning Brewing (Defendant’s Request Co., Glenn defendants. L.R.A.1918D, 74.) Findings Fact, Pa. A. No. Ann.Cas.1918D, according plaintiff Slavin, Shcllen to the berger complaint, v. Patterson also held sub- entitled complain where the stockholder cannot of stock. ob- share She scribe % appears plain- no stockholder offered on the market. tained 199% *10 willing Talens, complaint, according or to the take was take stock at to the tiff par, purchased that would have sold for more. to orí market the the 22 plaintiffs contended in The the court of stock. to 17 shares subscribe par intervening plaintiffs allege below that the value of the stock not that do price fraudulently policyholders fixed too they was at a Mutual. been of had high permit policyholders yet Dilworth, 1903, buy, 21 to to 204 Willock v. Cf. enough permit officers, 492, low to direc- the 54 A. of 278. Where the issue Pa. tors, large pre illegal, right to and afford and the was emphasis amounts, placed stockholders, being empt on the not accorded a capital requirement might that local rest either of action cause right make pub which he secured and both offered Thus, any subscription in amount. that corporation is made lic, wrong no duty deceit, concealment, or breach respect, this In score. out on that and directors known the officers profits realized discussing secret cases23 time, Mutual, to, prior in sufficient di agents, officers and promoters, by the alleged prevent of Rosenlund’s corporate the fruition dealings with rectors in say scheme.24 is obvious It to state inapposite. entity are rele where all the there no deceit that is Rosen that contention With the before the acts vant facts known are plaintiffs a agent, introduce lund was executed. the deceit are completion of approach substantially to the case. different agent all Similarly, discloses where the agency, is principles there On settled completion of the before relevant facts loss, wrong, to make out necessity no of, complained he has satisfied transaction principal. Law of Restatement Law duty. Restatement 388; Pennsyl Agency, Section and see Finally, offi Agency, 392. Section And it is im vania Annotations thereto. faith, directors, acting in good cers agent’s services were material surround investigated the circumstances 387, Restatement, gratuitous. Section acquisition rights to ing Rosenlund’s agency relationship, c. Comment counsel, subscribe, and, on the advice case, Mutual is between duty. that he had violated concluded primarily upon the based evidence Bailey instant case not similar to is procure Rosenlund was asked to waivers 187, 1937, 320, Jacobs, v. 325 Pa. 189 A. also from his customers. Reference is had corporate where made use director respect activity proxies to his to the profit, own which the assets for his a matter policyholders’ in connection with meet ratify, not officers directors could June, ing 1944. And it claimed that parties were held to have become latter agent as an were violated in fail duties transaction, illegal especially' to the since ing to inform his cus the directors that attempted ratify they doing so purchasing tomers were not interested in corporate entry on made an books in failing to inform stock and them of the such form toas constitute a concealment. agreements obtained to as nearly approaches more Chambers v. sign if the warrants issued. Co., 1898, McKee Chambers & Glass September, 1945, the officers and A. in which stockholder di Pa. aware, rectors of Mutual became as it held bound the action Board would, they inevitable of the total amount in the absence of fraud and intentional subscription. disregard Rosenlund’s And in Oc of the stockhold- interests tober, 1945, they fully apprised by ers, despite the fact that the action was corporation. the circumstances detrimental corporation could fixed as low as denied 295 U.S. be S.Ct. $100,COO. 380(b). P.S. The ex- L.Ed. 1696. The court is a harbor of planation, however, repair that, refuge, shop. advice of on Even if it counsel, capitalization was fixed at assumed $1,000,000 approved plan on the basis a local re- known quirement expenses pro- conduct, clearly of Rosenlund’s it was motion, price approximately not the here were the securities that caused $80,000, wrong. could not the suggestion, exceed Moreover 10% capital. observed, 40 P.S. 392. does not fit well on the particular plaintiffs The Securities and Commis in this case: see sion, supra. amicus, which has filed a note brief as suggests Corporations (Perm. Fletcher the officers and Ed.) negligent preserving Mutual were in not Sections prescribing higher price Cf. Vaughn, assets Berwick Hotel Co. public. page 396, the securities to the 300 Pa. But 150 A. availability 13-10, holding of a better is no A.L.R. indica duty. fiduciary tion of or- fraud breach of creation of newa is inchoate *11 Corp. Lovell, Milk United Products until the articles of the are Cir., 75 F.2d certiorari filed. fact or omit the untrue statement of a material we are stated For the reasons fact, material in order not to mis a to estab- state plaintiffs failed opinion that the lead, any or course which engage defend- against the action lish a cause person any operate as fraud on to would were entitled latter ants and purchase or sale of Inasmuch connection with the below. judgment the Court security.2 any erroneously dismissed below as the Court jurisdiction or- want of for the action following. The record demonstrates the cause remand- der will be reversed Company of The Mutual Fire Insurance for the judgment to enter with direction ed a sur- (Mutual) Germantown had achieved opin- with this accordance defendants in $3,400,000. plus amounting to about ion. into to convert decided desirable, company thought lest BIGGS, Judge, (dissenting). Chief group or should seize some rival below dismissed The court liquidation control effect or not was no basis upon that there ground policies organi- of the tinue successful D.C., F. See jurisdiction. for federal zation, dis- should be a wide there ample uncontra- Supp. 876, There 883. person tribution of the stock and that or however, support evidence, dicted permitted group persons small should be meeting of notices conclusion-that company. gain new control cf the forms, prospectus- proxy policyholders, they would directors decided effect subscription distrib- were es and policyholders pre-emptive giving while through States mails. the United uted subscription proportions travention mission “ ofAct public interest.1 device directly, it unlawful ** Section or contrivance [*] may 10(b) of of such any for use prescribe as 15 U.S.C.A. *Rule manipulative any person, of the mails to regulations as the Com Securities * X-10B-5, adopted necessary in § ** directly or in 78j(b), makes or ” Exchange deceptive in con employ dent to ing such waivers was deemed to more That was such premiums paid by clients, rectors fact that the large policyholders, Rosenlund's waivers of Mutual to properly effecting than of their shares each. Obtain- them,3 demonstrated the conversion.4 condition by obtaining to subscribe prece- com- di- 10(b), pany, Fire Germantown Insurance Com- under Commission by the 240.10b-5, pany, filed with the Securities Ex- Title (Cum.Supp.J C.F.R. pur- person change May to em Commission on any for it unlawful makes any Act suant the Securities or to make U. any defraud ploy scheme curity facility means directly change— device ties mission appropriate Act commerce registered, tinent “(b) “It shall # Rule Section 10 protection of investors.” provides exchange rules or part; To use registered or or X-10B-5 contrivance [*] Commission or of instrumentality indirectly, any prescribe unlawful or manipulative or regulations pertinent [*] national of the Securities employ, any security public or sale Securities mails, provides [*] contravention national the use part: interest or securities in connection necessary as or any or of [*] interstate Exchange the Com- deceptive any person, securi- per any any ex- [*] se- so means commerce, directly chase any person, artifice a material circumstances material the statements or course of made, “(c) “(a) “It “(b) # See shall be unlawful or sale operate To To 40 P.S.Pa. §§ To make or or [*] misleading, defraud, employ or of instrumentality engage indirectly, by fact in connection with the necessary in business of fact No. [*] made, any or a fraud or any security.” any device, mails, untrue statement in the or which any act, [*] omit the use 677. order any person, light operates deceit scheme, [*] interstate practice, to make state pur- any [*] or
811 April, 1944, though clear from on “The three dates seq., et stated S.C.A. 77a had record, reported Fire the Rosenlund largest policyholders of procured large respective from his waivers Company Germantown [Mu Insurance necessarily clients, had to waivers which agreement into an have entered tual] precedent of Company procured if the condition of that Board of Directors by down pre-emp ownership limited stock laid not exercise will He informed rights to the extent directors was to be achieved. subscribe tive to * ”5 * * 1,000 procured each Mutual’s he had shares directors that than more stock then proven by fact that the waivers tell them but he failed to and is also large policy acquisition assignments. his issued to of the purchase warrants stamped upon directors, circum- cogent 1945 had this July on unaware of holders “By special stance, legend, proceeded put top the to into motion at the them conversion, by represented agreement rights machinery effecting the policyholders not more than limited to Proxies were mailed to the certificate are 6 April, 1,000 prospectus proration.” 1944. The filed shares Commission, stated, May as on condition Rosenlund was aware approving A 1944. resolution the con- upon by the directors as precedent decided adopted by version was two-thirds plan of Mu element an essential policyholders required by law on as fully with what the June conversant tual and was Copies 1944. were hoped by to achieve of Mutual directors July 5, mailed policyholders on 1945 and plan of conver While the the conversion.7 stock warrants were mailed to among stage still discussion sion was 9, 1945, July on directors, January far back as Mutual’s expiring (by subsequent subscribe author- years the conversion before three amendment) September ized 1945. year before consummated and over a September 9, 1945, days On two before the 14, 1944 voted directors on March Mutual’s expiration warrants, date of the Rosen- conversion, proposing the resolution lund informed Mutual’s that he directors already had entered into a writ Rosenlund procured assignments had of the warrants agreement with one of his clients for ten which, stated, gave we him the policyholder’s right assignment of that an ownership 17,000 of about shares of the August, for stock. From to subscribe 50,000 shares of stock company April procured Rosenlund until by to be created the conversion. The di- policyholders assignments of various from rectors, “shocked” “disappointed” by altogether rights amounting to more stock plan the failure of their large avoid 12,000 15,000 Of these over shares. than concentrations of the stock of the new com- prior April, assigned to him 8,9,10 pany but advised counsel that the war- legally rants had been obtained Rosen- requested by Mutual’s lund, decided to consummate the April, 1944, prior some time conversion and did so.11 large procure waivers from clients Throughout pre-emptive period subscribe to the critical of their July each. In in excess of shares until the end first week exception per vice-president Subject general brother was not bere manager Exhibit 17. Plaintiffs’ Mutual. tinent. See finding Plaintiffs’ Exhibit the sub See of fact See No. 3. scription Bronze blank issued to Reliance 11 A time table of the events which Inc., transpired Foundry, Aluminum one follows: & January, largest and Rosenlund’s 1943. assisted Cushmore, prepared C. L. client. and had printed assignment of fact No. 8. forms See pp. Plaintiff’s Exhibit No. the new which was to transcript. be created 1888-4 of the the conversion. January, interesting procured this connection assignment assignment written form for first note stock. prepared January August, 1843, April for Rosenlund in 1944. Rosen- procured Cushmore, assignments approxi- L. lund O. whose *13 is this acquired and it which Rosenlund Rosenlund September following
of
majority.
feel
misled
E. M.
fact which I
has
daily
contact
inwas
almost
that Rosenlund
is clear
Mutual, who was On
record
Cushmore,
of
a director
pro-
an
Mutual to
manager
agent
acting
of was
position of
in the confidential
policyhold-
steps
large
cure
waivers
of the
Mutual,
progress
as to
preemptive rights to subscribe
of
finan- ers
and the
leading to the conversion
1,000
each.
M. Cush-
of
shares
E.
to stock in excess
company.
of the
cial condition
cap-
-Cushmore,
trust and
his
was false to
Rosenlund
L.
more
the brother of C.
was
acquies-
unneces-
with the
tured the new
It
is
referred
hereinbefore
to..
majority
the direc-
of
cence of
least a
which Bioren
at
part
full
sary
to relate
point.
beside
underwriter,
a
of Mutual but this
tors
is
Co:,
dismissed
&
of
majority
are
of
this court
defendant, played in the conversion. The
party
possible
opinion
recovery
&
is
Co.
Bioren
state that-
It is sufficient to
paid
of
because
5,200
stock
new
acquired
shares of
about
stock
price
which its
at
approximately
to it the
cash
full
190.0
which it allotted
policyholders and to
Mutual,
more
offered to the
hundred
several
directors
words,
new
public;
remain-
and the
other
or associates
partners
it has
parties, including
because
corporation cannot recover
certain interested
der to
which it
full
value to
latter allotment
The
received the
dollar
to Rosenlund.
majority are
approval of
officers
also of
was entitled. The
with the
made
all
they
were
received
view that the
directors of
they
acquisitions.12
were entitled
to which
right9
of Rosenlund’s earlier
aware
damage.
I
completed
they
been
can claim no
had
therefore
the conversion
When
opinion
cause of action
acquired stock
Rosenlund had
am of
proof will
more than
one million dollars
stated
worth about
paid
working con-
had
for it and the
suit based
he
a
derivative
sustain
stockholders’
company, and was elected
equitable principle
new
of the
known
trol
on the well
$25,000 year
president
salary
agent
at
breach of trust
underwriting
plus
percentage
necessary
rely on
Securities and
.
profits.13 As
of the direc-
indicated some
jurisdiction,
1934 for
Act of
profited
to some
Mutual had also
tors
diversity is
See Hurn
though
absent.
even
acquisition
by the
of the stock
extent
238, 245-246,
Oursler,
53 S.Ct.
289 U.S.
company.
new
majority
1148.
of this
77 L.Ed.
The
obviously
contrary
court
entertain the
view
charac-
at bar has
of the
suit
some
aspect
particular
and this
case need
ac-
of a
derivative
teristics
stockholders’
dissenting
further
in this
corporation-
not be discussed
recover
the stock
for the
plan
14,000
mately
óf the
conversion
two-thirds
stock
shares of the
company.
vote.
July 5,
Copies
prospectus
1945.
'1944. The
conver-
March
,
policyholders.
approved
mailed to
resolution
sion
July
1945. Stock
Mutual’s board
directors.
duty
April,
given
policyholders,
1944.
Rosenlund was
were mailed
procuring
large
expiring
September
from
waivers
subscribe
his
pre-emptive rights
clients
excess
1945.
September
each.
1945.
shares
inform-
April,
procured
1944. Rosenlund informed the
ed the
had
directors
assignments
directors
on divers
had
dates
that he
procured
large
pre-
including
clients’
his own
waivers
clients.
emptive rights
to inform
January 2,
and failed
1946. Conversion consum-
assign-
procured
that he had
mated.
own favor.
March,
the stock
ments
1946. Rosenlund was elected a
April,
director,
1944.
were mailed
Proxies
di-
chairman
board of
policyholders and
en-
president.
Rosenlund was
rectors of Germantown and its
seeing
trusted with
task
of fact No. 15.
were executed.
May 29,1944.
acquired
which Rosenlund
was filed
$20
Commission.
a share
a hook value of
about
Policyholders approved
$80
share.
June
ported
right of the
opinion.
procured
he had
clear
the waivers the
*14
Germantown, qua
policyholders
cor-
and
corporation,
directors
the
pro-
then
distinguished
ceeded
promotion
its stock-
with the
poration as
from
of the conver-
purchase
sion.
that at
After
the
holders,
suit such as
maintain a
warrants
copies
and
prospectus
of
the
issue
or fall on the
of the
had been
bar does not stand
mailed it
breach of
been
there
some
difficult
whether or not
to have
right
plan
of withdrawn the
of
fiduciary duty by
conversion.
Rosenlund.
When
discovered,
the
days prior
such as
corporation to maintain
suit
two
expiration
statute and the
date of
at bar
under the
the stock
arises
warrants,
procured
If
Rosenlund’s
rule of the Commission.
Rosenlund had
assignments
prohibited
of conduct was
of. stock in his favor
course
it would
rule,
corporation
impossible
could have been
and the
to have withdrawn
statute
plan
conversion,
must turn the
of
maintain
suit at bar. We
least without
and to the rule
equity.
to the
intervention
therefore
statute
of a court of
liability.
determine Rosenlund’s
order
Neither
policy-
the directors nor
any
holders
points
knew at
of
of time
falls
conduct
within'
Rosenlund’s
designated
preceding paragraph
(a), (b) and
prohibitions
subparagraphs
of
procured assignments
Rosenlund had
or not
(c) of Rule X-10B-5. But whether
clients
which enabled
employed
(c) be
subparagraphs
(a) or
him, subsequently, to circumvent
impor-
that both what
test his actions it is clear
tant
feature of
ownership.
limited stock
pur-
failed
within the
he
and
to do is
did
Rosenlund’s failure to inform the direc-
subparagraph
(b). Rosenlund
view of
and policyholders
tors
pro-
that he had
express
intention
knew that it was the
assignments
cured the
was “material” to
to obtain waiv-
Mutual
of its directors
and
procured
statement
large
subscription rights from his
ers of
waivers from his clients for both directors
that it was
clients. Rosenlund was aware
policyholders
and
would have consider-
promotion
precedent to the
a condition
carefully
question
ed15 most
as to
integral part
conversion and an
thereof
plan
whether or
not
of conversion
by the directors
as conceived
proceeded
should be
large
with when a
(see
provisions
policyholders
centration
the hands of one
upon
legend
man, Rosenlund, had become inevitable.
purchase warrants,
*15
be
The warrants
thereunder shall
void.
ordinary
sary for the maintenance
procured
by which
which Rosenlund
suit,
basis foi
as a
derivative
stockholders’
obtained his stock in the new
he
The statute
action
bar.
at
kind
though
the ambit of this section
fall within
create a
and the rule of
Commission
contracts have been executed.
the warrant
law
offense,
unknown to
hitherto
permitted
to re
should
be
required of
conduct
and set the standard of
illegal
tain the benefit of his
contracts.
sale
who are
those
connected
should be cancelled. Section
His stock
securities, assuming arguendo
purchase of
expressly
remedy
a
give
29
a
does not
use of the
was such
mails
injured
person
by
private
a violation
purview,
10(b)
of Section
within
well
10(b)
But as was
Section
Act.
the Act.
Kirkpatrick
by Judge
in Kardon v.
stated
Co.,
Gypsum
D.C.E.D.Pa., 69 F.
National
mails were used
United States
That the
512, 513, under
analo
Supp.
circumstances
execution of
in connection
*
bar,18
doubt,16
open
those at
while “It is
gous to
conversion is
*
provision
10
that there is
Sec.
himself, insofar as
true
albeit
expressly allowing civil suits
shows,
mails. or
made
of the
elsewhere
no use
record
persons injured as
result of violation
necessary
juris by
a
to sustain
But this is not
* * *
X-10B-
10 or of
constitute of Sec.
below and to
[Rule
diction
court
However,
legisla
‘The
by
5],
Mu
violation
a
the mails
offense.
use of
act,
prohibited
enough
doing
tive enactment
tual,
agents,
its officers
act,
required
makes
by failing to
position
do
bring
where
Rosenlund into
in
actor liable
an invasion of an
A the
by the
and the rule.
he is hit
statute
if;
ap
(a)
another
the intent of
persuasive analogy
terest of
supplied
is
exclusively
part
Statute,
pro
is
or in
plication
enactment
the Mail
Sec
Fraud
ed.,
an interest of the other as an indivi
18
now tect
338 of Title
U.S.C. 1940
dual;
(b)
invaded is one
1341
18
interest
of revised Title
U.S.C.A.
protect
the enactment
intended to
has been which
of stock certificates
mailing
*’
**
Restatement, Torts,
2,
Vol.
Sec.
mails to
be sufficient use of the
held to
merely
rule
286. This
is more than
bring
purview a defendant within the
statutory interpretation.
statute,
The dis
Landay
canon
criminal
v. United
States, Cir.,
698,
regard of the command of
is a
108
and the
6
F.2d
701 17
statute
wrongful
and a
party,
act
tort. As was said
mailing
as a
innocent third
Rigsby,
R.
241
probable consequence
& Pacific Co. v.
U.S.
of the Texas
natural and
482, 484,
874,
defendant,
lay the
36 S.Ct.
60 L.Ed.
suffices to
acts of a
application
maxim,
latter, United
but an
the door of the
‘This is
crime at
”
443,
ibi remedium.’
Kenofskey,
jus
See
the same
243 U.S.
Ubi
also
States v.
hearing
D.C.,
F.Supp.
final
61
A
the case on
at
836.
fortiori
37 S.Ct.
73
L.Ed.
principle
the material
the 798. The same
was invoked in
mailing of
referred
Clayton
Corporation,
supra)
v.
finding
(see
note
Remar
Securities
twelfth
C.D.Mass.,
F.Supp.
81
jurisdiction of the
Down-
to corifer
D.
1014. Cf.
was sufficient
Howard, Cir.,
3
ing
162 F.2d
bar on the court below. See Sec-
v.
658.
suit
United
633.
16
In the
See
States,
also
cited
Kopald-Quinn
Cir.,
case
fact No. 12.
101 F.2d
certain defendants
& Co. v.
632-
X-10B-5,
porations
plaintiffs to sell their stock in two cor-
of Section
were accused
less
conspiring
violating
than its true value.
the Act and of Rule
induce
provisions
open
chase
United
warrants in
market
text
but the
11 cited to the
Cf. note
purchase
appear
Cir.,
date
does not
Silliman,
167 F.2d
from
States v.
complaint,
Cir.,
thereto,
Franklin,
F.
the answer
See Baird v.
611.
Groesbeck, any findings
of fact made
238, 244-246;
the court
Goldstein
2d
below,
426-427,
I
nothing
154 A.L.R.
found
Cir.,
F.2d
858, voluminous record
aid in
Review
which would
as
Harvard Law
See 61
certaining
by Section
date.19 Talens is
owner
supplied
remedy
865-6. The
supplied by
acquired
of 17 shares
of stock
remedies
29(b), like the other
and,
by purchase
purchase
Act,
origin,
in view
of stock
federal in
authorities,
be con- between July
September
must
1945 and
foregoing
purchase
availed of
broadly
of a
so that it
strued
8/10
open
share of
injured private person.
It follows
stock in the
market.
by an
action,
as I think to he
if
date
last
cannot be found
a cause
case,
up by the
the in the record.
is set
grant
power
the relief
below has
*16
court
only
court below held that
Slavin
sought.
plaintiff
qualified
party
as a
under Rule
right or the rem-
I
think that the
not
do
Procedure,
23(b), Federal Rules of Civil
cramped into a narrow
edy
should be
action,21
28 U.S.C.A. to
maintain
find
cept of
See Stewart
or deceit.
fraud
ing as a conclusion of
law
“Charles
Co.,
383,
128 U.S.
Wyoming Cattle Ranche
complain
Talens is not entitled to
Berle,
101,
388,
mated at No. Docket directly in case I Though can find no the device use of sustains the point which Appeals United States Court of brought suit stockholders’ derivative Second Circuit. under arising cause action to assert May 20, 1949. Exchange Act of the Securities bar, at those identical with circumstances of the Court the decision nonetheless in Gold- for the Second Circuit Appeals helpful Groesbeck, supplies a supra, stein v. where, logical reason There is no analogy. pursue here, will fed by a to it action granted the cause of main statute, may not eral stockholders corpora suit for
tain a rhe-benefit neces way. It is the timedionored most, only rem right and sary, to fit the the framework
edy the Act into created secondary suit.
of a stockholder’s *17 plaintiffs qua stockholders
status law of
must course determined
Pennsylvania Mutual and since both corporation under the were created law the that State. law of Under '
plaintiffs The law of are stockholders. beyond
Pennsylvania run does not
point in the instant case. reme- judice
The federal act here sub
dial one. is entitled to a broad precise aspects it now
struction. questions present this court novel
before presented, I am heretofore insofar as
aware, appeals. For this court of im- litigation great instant
reason the is of
portance effective administration Securities Act of 1934. put upon the statute construction purpose
majority seems me to defeat the it ineffective. statute to render below, reinstate I the court reverse complaint, cancellation and order the Caudle, Foster Louise and Theron L. employ- stock, voiding the of Rosenlund’s C., Washington, petitioner. D. contract between him and German- ment Stewart, Austuan, B. Irving Carl J. voting I would also declare the town. Lance, City, respondent, New York S. J. nullity to the end that Germantown’s trust Rudick, Harry City, and New York might reenfranchised stockholders J. dpne Baker, City, Jr., Ray Palmer New control of York Rosenlund’s with., as amici. brief away filed a April opposes actively court re- filed this its Germantown 1948 and position plaintiffs. its brief observe the court lief set below. the stock notes Perhaps they would have concluded none- large should supra) there be no proceed conversion, theless to with the part This was concentrations stock. doubted, though surely this is to be but despite of conversion the fact timely would have deemed a revelation proposed the desideratum limi- by Rosenlund that he had circumvented ownership tation due achieved design ownership of limited stock to Rosenlund’s deceitful course of con- relevant to highly course which Mutual ownership duct. The limitation of stock pursue respect should to the conversion. great was a matter of concern to the direc- to the it tors and cannot Therefore, I cannot doubt but that Ros- be doubted that was an element of im- enlund’s course of conduct was within portance which influenced the decisions prohibitions subparagraph (b) of pro- X-10B-5, the directors if “person” Rule he be deemed a plan. purview ceed It cannot doubted within the of the Act. Rosen- “person” therefore that che limitation “mate- was a lund under the definition plan. rial” When 3(a) (9), Rosenlund of Section 78c(a) re- U.S.C.A. § “materiality” may pointed The word should be de- out that some of the directors, upon substantia] property discovery fined as: “The later of Rosen importance influence, especially acquisition lund’s to subscribe distinguished requirement.” stock, from formal than more shares of con Diet., way 2 Bouv. See ’Law Rawle’s Third sulted counsel to find some to avoid Revision, p. ownership. his stock support statement No. 9. Exchange Act extent, tion 27 of the perhaps Securities and repeat to (9). some To to of 15 U.S.C.A. 78aa. right needlessly, against that at bar a suit such as maintain sup remedy in the instant case any based to be plied by Act, 15 U.S. relationship between fiduciary agency or 78cc(b), provides C. A. § Mutual, rela- though such Act or contract made violation of the has eliminated tionships The Act existed. promulgated rules Commission relationship, fiduciary so neces- agency or