Document: 393 U.S. 453 89 S.Ct. 564 21 L.Ed.2d 668 SECURITIES AND EXCHANGE COMMISSION, Petitioner,v.NATIONAL SECURITIES, INC., et al. No. 41. Argued Nov. 18, 19, 1968. Decided Jan. 27, 1969. Solicitor General Erwin N. Griswold, for petitioner. John P. Frank, Phoenix, Ariz., respondents. Mr. Justice MARSHALL delivered the opinion of Court. 1 This case raises some complex questions about Securities and Exchange Commission's power to regulate activities insurance companies persons engaged in business. The Commission originally brought suit United States District Court Arizona, pursuant § 21(e) Act 1934, 48 Stat. 900, as amended, 15 U.S.C. 78u(e). It alleged violations 10(b) Act, 891, 78j(b), Rule 10b—5, 17 CFR 240.10b—5 (1968). According amended complaint, National various associated with it had contrived a fraudulent scheme centering on contemplated merger between Life & Casualty Insurance Co. (National Life), firm controlled by Securities, Producers (Producers). details are not important here. contended that purchased controlling interest Producers, partly from Producers' directors form treasury stock held Producers. After taking control board, respondents sought obtain shareholder approval sending communications 14,000 stockholders. These communications, according Commission, contained misrepresentations material facts omitted state necessary make statements which were made misleading. Among other things, allegedly failed disclose their plan surviving company assume certain obligations undertaken part consideration its purchases stock. In plain language, shareholders told they going pay cost Securities' acquisition company. 2 was denied temporary relief, shortly thereafter Arizona Director approved merger. two formally consolidated into July 9, 1965. Thereafter, complaint seek additional relief; previously injunction forbidding further 10b—5 be supplemented court orders unwinding returning situation status quo ante, requiring an accounting unlawful gains, readjusting equities whatever survived decree. also requested relief might deem just, equitable, necessary. Respondents moved judgment pleadings, trial dismissed failure claim upon could granted. ruled either barred 2(b) McCarran-Ferguson 59 34 (1945), 1012(b),1 or beyond scope he Act. 252 F.Supp. 623 (1966). Ninth Circuit affirmed, relying 387 F.2d 25 (1967). Upon application we granted certiorari because importance raised administration securities laws. 390 1023, 88 1416, 20 280 I. 3 Insofar is relevant this case, provides '(n)o Congress shall construed invalidate, impair, supersede any law enacted State purpose regulating business * unless such specifically relates *.' contend bars present since found '(i)nequitable stockholders domestic insurer' otherwise 'contrary law,' required do under Ariz.Rev.Stat.Ann. 20—731 (Supp.1969). If applied, argue, these laws would 'superseded.' SEC sees no conflict federal law; contends applicable statutes did give determine whether full disclosure connection solicitation proxies.2 Although disagree, find inquire state-law dispute. first question posed statute 'law insurance' within meaning Even accepting respondents' view law, believe aimed at protecting interests those who own comes sweep Such attempt 'the insurance,' phrase used 4 passed reaction Court's decision v. South-Eastern Underwriters Assn., 322 533, 64 1162, L.Ed. 1440 (1944). Prior decision, been assumed, language leading '(i)ssuing policy transaction commerce.' Paul Virginia, 8 Wall. 168, 183, 19 357 (1869). Consequently, regulation transactions thought rest exclusively States. Underwriters, subject Commerce Clause, antitrust particular, them. reacted quickly. before announced, House bill exempting industry 90 Cong.Rec. 6565 Objection Senate killed bill, 8054 but clearly remained concerned inroads tradition insurance. produc concern. Its stated quite section; declared continued taxation several public interest.' 33 1011. As said afterward, '(o)bviously Congress' broadly support existing future systems taxing insurance.' Prudential Benjamin, 328 408, 429, 66 1142, 1342 (1946). 5 here type referred 1945 enactment. legislative history offers real assistance. mainly relationship ratemaking laws, tax companies. See, e.g., 91 1087—1088 (remarks Congressmen Hancock Celler). debates centered issues, Committee reports shed little light words 'business See S.Rep. 20, 79th Cong., 1st Sess. (1945); H.R.Rep. 143, (1945). context, however, relatively clear what problems dealing with. Under regime supra, free hand dealings insurers policyholders. Their negotiations, contract resulted, considered commerce were, therefore, left regulation. threatened supremacy area. turn back clock, assure policyholders remain Report makes clear, '(i)t (was) intention enactment legislation clothe possess prior Supreme Southeastern Association case.' Sess., 6 Given history, takes different coloration. purport supreme all companies; refers regulation, 'regulating may many things paramount regulation; only when does apply. Certainly fixing rates business; about. selling advertising policies, FTC Co., 560, 78 1260, 1540 (1958), licensing agents, cf. Robertson People California, 440, 1160, 1366 (1946), statute. centers around insurance, Virginia 'commerce.' insurer insured, issued, reliability, interpretation, enforcement—these core Undoubtedly, relate so closely reliable must placed same class. But exact statutory term, where focus was—it policyholder. Statutes relationship, directly indir ctly 7 concerning itself markedly set problems. attempting 'insurance' stockholder owns true applies mere matters need detain us. crucial point has focused attention protection; secure purchasing policies. reading implicit past decisions. Less than years ago registration requirements 1933, 5, 77, 77e, annuity contracts issued Benefit 202, 87 1557, 18 673 explicitly rejected arguments based similar slightly earlier vintage. Variable Annuity 359 65, 67—68, 79 618, 619—620, 640 (1959). contain number exemptions relating companies,3 traditionally regulated related securities.4 Of course, co-exist offered 85, 77r; 28(a), 903, 78bb(a). never pre-empts theory 'superseding' fact purports protect not, render inapplicable. II. 9 remains, which, matter remedies, seeks unwind. Moreover, capacity licensor State. requires proposed 'substantially reduce security service rendered policyholders' gives his approval. 20—731, subsec. B, par. section is, then, remedy affects circumstances particular think does; without intimating remedies appropriate should violation after merits, hold furnishes reason refusing seeking.5 10 obtained through use misrepresentations. ask pass approved. No legality illegality merger, standing alone, raised. gravamen misrepresentation, became insofar attack order undo harm caused deception. Presumably, have avoided complaint. Nevertheless, interfere officials 'invalidate, supersede' We cannot accept overly broad restriction power. 11 'impairment' most indirect one. Federal Government holders misrepresentations; protected normal operations Supremacy commanded something prohibit. permitted consummate merger; them so. asking speak truth talking shareholders. perfectly compatible And affect predominantly concern alone; least owning companies' holding circumstances, simply see conflict. Different would, arise if sphere reserved primarily case. there emasculate prove essential. Cf. J. Case Borak, 377 426, 84 1555, 12 423 (1964). On remand, return ante finds course action desirable, necessary, lawful. III. argue alternative grounds lower courts' granting pleadings can sustained. They fails allege 'purchase sale' apply proxies.6 Since context appeal pretrial dismissal simple remand leave courts nothing more base record presently addition, delays resolving controversy increase difficulty fashioning effective relief. Accordingly, desirable dispose issues remanding go forward proceedings undue delay. 13 14 '(a) To employ device, scheme, artifice defraud, '(b) untrue statement omit made, misleading, 16 '(c) engage act, practice, operates operate fraud deceit person, purchase sale security.' well litigated provisions time interpret enter virgin territory cautiously. presented narrow ones. area glib generalizations unthinking abstractions major occupational hazards. deciding remembering involved determining is. With mind, contentions. misstatements 'in security,' both rule. rely so-called 'no-sale doctrine' forth 133 230.133 (1968).7 That rule, promulgated authority define 'accounting, technical, trade terms' 1933 19(a), 75s, sets situations involving mergers types corporate reorganizations, declares 'sale' 'offer' deemed involved. validity effect rule—and intimate absolutely questions—it certainly result rule cases Act; arises 1934 interdependence sections factor interpretation chosen, ordinary rules construction still phrases determined C. M. Joiner Leasing Corp., 320 344, 350—351, 120, 123—124, (1943). cautioned take coloration laws; Acts preface lists general definitions 'unless requires.' 2, 74, 77b; 3, 882, 78c. therefore address ourselves 10(b). Whatever mean numerous contexts appear one Section together constitute anti-fraud prevent being defr uded For apply, proscribed conduct definitional unhelpful; declare generally terms 'purchase' include sell. §§ 3(a)(13), (14), 884, 78c(a)(13), (14).8 behavior meant forbidden misled respects deception furthered resulted losing becoming new voting favor each approving individually lost right appraisal payment cash. 10—347 (1956). contexts, affected individual shareholders' decisions way unlike typical cash share exchange. antifraud purposes situation. Therefore conclude 'purchased' shares exchanging old stock.9 Appeals Seventh said, 'This violence body responsible acts.' Dasho Susquehanna 380 262, 269 (opinion Fairchild Cummings, JJ.), cert. sub nom. Bard Dasho, 389 977, 480, 470 (1967); Vine Beneficial Finance 374 627 (C.A.2d Cir.), denied, 970, 463, 460 Ruckle Roto American 339 24 Cir. 1964). Respondents' argument cover occur proxy solicitations rather 895, 78n, adopted section, 240.14a—1 240.14a—103 (1968), up regulatory covering solicitations. At charged respondents; 1964 amendments later conditions met. 567, 78l(g) (2)(G). existence nonexistence 10b—5. situations. security; solicitations, onnection sale. overlap neither unusual nor unfortunate. Nor help often exempt amendments. laws' carefully limited. None confronted, create concluded powers over sales continue securities, even though detailed solicitations—which conducted managerial bar materials. 22 prohibit sought, meritorious, reverse consistent opinion. 23 ordered. Judgment reversed remanded BLACK, believing correctly analyzed right, dissents reversal judgment. 26 HARLAN, whom STEWART joins, concurring dissenting part. 27 I concur entirely Parts II construing am loss understand why construe 1934. reach believed exempted commands Government's petition similarly issue '(w)hether precludes *' Petition Certiorari 2. When brief merits argued position score properly appropriately decision.' Reply Brief 28 Despite heard views chooses vehicle elusive far-reaching radiations, despite precise Courts commentators long debated read sweeping prohibition against results rendering nullities limited books. 11(a), 12(2), 1933; late Judge Jerome Frank,1 Professor Louis Loss,2 Milton Cohen,3—to mention three particularly eminent field warned special schemes devised fair aspects A. Bromberg, Law 2.5 Ellis Carter, 291 270 (9 1961). extremely recognize rush refused permit intervene 14. 6.5(2), n. 93.1. Indeed, sort. Supply Leland Stanford University, 134 689, 694 1943). majority believes answer 'rather quickly,' 468, recognition basic principles hang balance. 29 chosen adopt very loose requirement, enunciated Augustus Hand Birnbaum Newport Steel 193 461 (2 1951), 343 956, 72 1051, 96 1356 (1952), involve violate While welcomed erosion doctrine, Lowenfels, Demise Doctrine: A New Era 54 Va.L.Rev. 268 especially actions initiated SEC, Note, Purchaser-Seller Limitation 53 Cornell L.Rev. 684, 694—697 others 'Birnbaum seems basically correct.' L. Loss, Regulation 1469. recently 1964, Second commonly understood reaffirmed vitality my Brother casting vote. O'Neill Maytag, 764, 768 1964);4 270. 30 unwilling decide fundamental full-dress argument. appeals develop case-by-case basis, much wiser us consider squarely marginal importance. 'No imposes fee business, insurance: Provided, June 30, 1948, 1890, known Sherman October 15, 1914, Clayton September 26, Trade extent law.' 1966 him 20—143 response Pub.L. 88—467, 565. E.g., 3(a)(8), 76, 77c(a) (8); 12(g)(2)(G), added 567 (1964), 78l(g)(2)(G). large examples brief. Petitioner 16—17. allowable 78u(e), party express proper section. Ancillary Relief Injunction Suits Violation Harv.L.Rev. 656 provides: 'It indirectly, means instrumentality interstate commence mails, facility national exchang — employ, registered exchange registered, manipulative deceptive device contrivance contravention regulations prescribe protection investors.' commerce, mails exchange, 518—542 (1961). indicate breadth using word 'include' including 'to buy, purchase, acquire' sell of' securities. presents none complications who, anyone, bring private Commission; coverage. 'standing' lurking Fischman Raytheon Manufacturing 188 783 1951). 1787—1791 'Truth Revisited, 1340, 1370 Both actions, suggest flatly inconsistent now ruling requirement met SEC's request injunction. Rule, legal situations, while identical, related.

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