Source: http://openjurist.org/581/f2d/685/bastian-v-lakefront-realty-corporation-n
Timestamp: 2017-08-18 18:40:47
Document Index: 145441555

Matched Legal Cases: ['§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78']

581 F2d 685 Bastian v. Lakefront Realty Corporation N | OpenJurist
581 F. 2d 685 - Bastian v. Lakefront Realty Corporation N
581 F2d 685 Bastian v. Lakefront Realty Corporation N
581 F.2d 685
Fed. Sec. L. Rep. P 96,531
Robert L. BASTIAN, on behalf of himself and all others
similarly situated, and as a derivative action on
behalf of the shareholders of Lakefront
Realty Corporation, Plaintiff-Appellant,
LAKEFRONT REALTY CORPORATION, an Illinois Corporation, and
Joseph N. Scanlan, an Individual, Defendants-Appellees,
Northwestern University, Intervening Defendant-Appellee.
Nos. 77-2065, 77-2066.
On May 9, Bastian filed the complaint in this action. Count I, which is most directly pertinent on this appeal, alleged violations of the proxy solicitation requirements of Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a),1 and the rules promulgated thereunder and by the Securities and Exchange Commission. Count II alleged a failure to register the stock of Lakefront with the Commission, as required by Section 12(g)(1) of the Act, 15 U.S.C. § 78L (g)(1). Counts III and IV complained of the failure to file reports on corporate finances and insider stockholdings required by Section 13(a), 15 U.S.C. § 78m(a), and Section 16(a), 15 U.S.C. § 78p(a). Counts V through VII invoked pendent state claims, sounding in fraud and breach of fiduciary duty.
The district court obtained the agreement of the parties that the sale of the 850 property would not be closed before July 15, 1977, so the Club could have a last chance to match Northwestern's offer and exercise a right of first refusal given by the lease. On June 24, the court announced its view that the May 10 stockholders' meeting was not subject to the proxy requirements of the Act. Because this conclusion indicated little likelihood of success on the merits, and Lakefront stockholders Qua stockholders would not suffer irreparable injury if the property was sold, the court denied Bastian's motion for preliminary injunction against the closing.2 After the Club failed to meet Northwestern's offer, the ruling was formally entered on July 1. Thereafter, the court dismissed Count I, certifying the dismissal as a final judgment and that there was no just reason for delay of the appeal therefrom. See Fed.R.Civ.P. 54(b).
They argue that there was never an obligation to register the Lakefront stock under Section 12(g)(1), which extended the duty to register to
The parties agree that on June 30, 1967, this provision became effective as to Lakefront, in that on said date, Lakefront had assets exceeding $1,000,000 and stock held by slightly more than five hundred persons. Three arguments are nonetheless advanced to avoid the impact of Section 12(g)(1).
Appellees next assert that since at least October 1968, Lakefront stock has been held by less than 500 persons. The relevance of this fact frankly escapes us. Congress recognized that the shareholders of a Section 12(g) corporation might fall below 500, but it provided that deregistration would not be available until the shareholders numbered less than 300. Section 12(g)(4), 15 U.S.C. § 78L (g)(4). If Lakefront had registered as required its registration status would have remained unchanged by virtue of dropping under the requisite 500.
Appellees prevailed in the district court on the theory that Lakefront, even if it had properly registered its stock, would have been entitled to deregistration under Section 12(g)(4) as of October 1976, when there were less than 300 stockholders in the company. Section 12(g)(4) provides that:
Bastian argues that the purposes of the Act, and of the registration, reporting, and proxy requirements in particular, were to assure disclosure of all information pertinent to intelligent investment decisions and the exercise of the rights of corporate democracy. That such were the purposes, and that they are commendable, is not disputed. The fact remains that Congress drew a line to effectuate them, under which firms with less than 500 shareholders need never register, report, or comply with the proxy rules, and firms which once did these things may cease doing them once termination is accomplished.5 To argue that Lakefront, despite never having registered its stock, and being clearly entitled to termination of registration (and freedom from the proxy requirements) if it had registered, had to apply for "deregistration" is to call for the doing of an idle and useless act. Nothing in the pertinent statutes suggests that Congress intended an exception to the usual rule that the law does not require such acts. The remedy for Lakefront's and Scanlan's violations of the Act's requirements before October 1976 is directly to assert their liability therefor, as has been done in the counts of the complaint that the district court continues to entertain, not to twist Section 12(g)(4) and thus invoke proxy requirements from which Lakefront had every entitlement to be free.
The authorities invoked by Bastian do not suggest a different conclusion. Principal reliance is placed on Reserve Life Insurance Company v. Provident Life Insurance Company, 499 F.2d 715 (8th Cir. 1974), Cert. denied, 419 U.S. 1107, 95 S.Ct. 778, 42 L.Ed.2d 803 (1975), in which the court held that certain voting trust certificates were securities required to be (but which were not) registered under Section 12(g)(1), and that solicitations of consents to extend the trust were thus subject to the proxy rules of Section 14(a). The court did hold that a corporation At all pertinent times subject to registration and proxy requirements could not escape the latter merely because they are literally applicable only to solicitations of proxies for "registered" securities. The distinction from this case, however, is clear. The corporation in Reserve Life had no defense to the registration or proxy rules to which Congress clearly intended it be subject, other than the very fact of its violations.6
Schnorbach v. Fuqua, 70 F.R.D. 424, 441 (S.D.Ga.1975), is to the same effect, holding that once a corporate security is subject to registration under Section 12(g) (even though the registration did not occur until later) the corollary obligations of Section 13(d)(1), 15 U.S.C. § 78m(d)(1), become effective. Schnorbach implies nothing pertinent to the facts involved in Count I here, where clear entitlement to termination of registration (and its corollary proxy obligations) preceded the proxy solicitation.
We turn to Bastian's appeal from the denial of a preliminary injunction. Northwestern argues as a preliminary matter that the appeal is moot, because the 850 property has already been sold and Northwestern has leased the residential quarters to many students for the 1977-1978 academic year. It is true enough that the specific injunction against closing the sale would now come too late. On the other hand, "(i)t has long been established that where a defendant with notice in an injunction proceeding completes the acts sought to be enjoined the court may by mandatory injunction restore the Status quo." Porter v. Lee, 328 U.S. 246, 251, 66 S.Ct. 1096, 1099, 90 L.Ed. 1199 (1946). Because this "court has jurisdiction of the parties and (Northwestern) has possession and control of the assets (in question), we would have jurisdiction to compel restoration, if ultimately we should determine that the circumstances of the case require that result." Ramsburg v. American Investment Company of Illinois, 231 F.2d 333, 336 (7th Cir. 1956). The matter is therefore not moot.7
Northwestern cites In the Matter of Abingdon Realty Corporation, 530 F.2d 588 (4th Cir. 1976); Fink v. Continental Foundry & Machine Company, 240 F.2d 369 (7th Cir. 1957), Cert. denied, 354 U.S. 938, 77 S.Ct. 1401, 1 L.Ed.2d 1538; Sobel v. Whittier Corp., 195 F.2d 361 (6th Cir. 1952); and Taylor v. Austrian, 154 F.2d 107 (4th Cir. 1946), to support its argument, but these cases are readily distinguished. In Abingdon, Fink, and Taylor, the sales sought to be enjoined were to Parties not before the courts, and the consummation of the sales placed the properties in question beyond the reach of the courts' equitable powers. In Sobel, a merger presented an analogous situation, where the merging firm, a mortgagee which supplied the funds to pay off the firm's creditors, and the creditors, were not parties to the action. In such circumstances, to keep the controversy within the effective remedial powers of the court, a party with reason to fear consummation of the action to be enjoined must seek and obtain a stay or injunction pending appeal under Fed.R.Civ.P. 62, as the courts in Fink and Sobel pointed out. Where, as here, the action can be undone by orders directed to parties before the court, the situation is quite different. See Ramsburg, supra at 338.
Bastian suggests that if Lakefront had applied to the Commission for "deregistration" (perhaps more accurately, some sort of certification that such would have been appropriate), the Commission probably would have denied it at least until all reports which Lakefront had been required and had failed to prepare had been filed. There is no suggestion, however, that the Commission has ever thought to use its termination authority in this way, and there is no warrant in Section 12(g)(4) for such use