Source: https://law.justia.com/cases/federal/appellate-courts/F2/524/811/430349/
Timestamp: 2019-05-19 18:43:10
Document Index: 491840470

Matched Legal Cases: ['§ 14', '§ 240', '§ 240', '§ 14', '§ 14', '§ 14', '§ 14', '§ 14', '§ 14', '§ 14', '§ 14', '§ 14', '§ 14', '§ 14', '§ 14', '§ 14']

Fed. Sec. L. Rep. P 95,310browning Debenture Holders' Committee et al., Appellants, v. Dasa Corporation and Arthur Andersen & Co., Appellees, 524 F.2d 811 (2d Cir. 1975) :: Justia
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Fed. Sec. L. Rep. P 95,310browning Debenture Holders' Committee et al., Appellants, v. Dasa Corporation and Arthur Andersen & Co., Appellees, 524 F.2d 811 (2d Cir. 1975)
US Court of Appeals for the Second Circuit - 524 F.2d 811 (2d Cir. 1975)
Argued Sept. 3, 1975. Decided Oct. 3, 1975
The dissident bondholders organized themselves into the Browning Debenture Holders' Committee (hereinafter Browning). When the Browning bondholders could not secure a conversion price lower than that offered by DASA, they instituted suit against DASA claiming five violations of federal securities law. Three of the claims, which are not relevant to this appeal, assert violations of bondholder rights. Two of the Browning claims (hereinafter claims one and two) assert violations from the perspective of the DASA stockholders. In particular, the Browning bondholders argue that the proxies for the 1972 DASA annual meeting were solicited fraudulently in violation of § 14(a) of the Securities Exchange Act of 1934 and two SEC regulations promulgated thereunder, SEC Rule 14a-9, 17 C.F.R. § 240.14a-9 and Rule 14a-3(b) (2), 17 C.F.R. § 240.14a-3(b) (2).3
Plaintiffs' claim one asserts that various proxy materials and shareholder reports mailed by DASA in 1972 to its stockholders in connection with its annual meeting were materially false and therefore violative of § 14(a) and the SEC Rule 14a-9 prohibition against misleading proxy solicitations. Claim two asserts with somewhat greater specificity that the DASA annual report discussing 1971 as well as the DASA financial statements covering 1971 were also materially misleading and therefore violative of § 14(a) and SEC Rule 14a-3(b) (2). The implication of these first two assertions is that the 1972 DASA stockholder meeting was illegal since the proxies used therein were fraudulently solicited in a manner contrary to federal law.
Appellants contend that claims one and two should be reinstated because of the broad, prophylactic purposes underlying private enforcement of the federal proxy solicitation statutes. In support of its position, the Browning Committee cites the first Supreme Court decision to recognize a private cause of action for damages sustained from a violation of § 14(a), J. I. Case Co. v. Borak, 377 U.S. 426, 84 S. Ct. 1555, 12 L. Ed. 2d 423 (1964). The Borak Court expressly predicated its holding upon the "broad remedial purposes" of the federal proxy solicitation statute. Borak, supra at 431, 84 S. Ct. 1555.
In Borak, dissident minority stockholders claimed damages from a merger to which they objected. Since the proxies used to complete the merger were solicited fraudulently, the plaintiffs sued for damages under § 14(a). The Court decided that, by implication, § 14(a) established a private action for damages arising from fraudulent proxy solicitation. Such private enforcement was held necessary to augment enforcement of § 14(a) by the government. Speaking for the Court in Borak, Mr. Justice Clark declared: "(I)t is the duty of the courts to be alert to provide such (private) remedies as are necessary to make effective the congressional purpose" of the securities laws. Borak, supra at 433, 84 S. Ct. at 1560.
Five years later, in Mills v. Electric Auto-Lite, 396 U.S. 375, 90 S. Ct. 616, 24 L. Ed. 2d 593 (1970), the Supreme Court reiterated its expansive interpretation of the purposes underlying § 14(a) and the scope of private § 14(a) actions. The factual context of Mills was essentially the same as Borak: dissident shareholders sought monetary damages for a merger consummated with proxies allegedly solicited in a false and fraudulent manner. Both the trial court and Court of Appeals held that, to be successful, the plaintiffs' damage action required separate proof that the fraudulent representations had resulted in the merger. In other words, the lower courts in Mills had decided that a necessary element of a private § 14(a) claim is proof that the shareholders in fact yielded their proxies to management in reliance on management's misrepresentations.
The Supreme Court disagreed, holding that the broad, prophylactic purposes of § 14(a) would be frustrated if plaintiffs were required to prove such specific reliance. If a misrepresentation or omission is material, the Court held, a cause of action is stated: "Use of a solicitation that is materially misleading is itself a violation of law." Mills, supra at 383, 90 S. Ct. at 7. Requiring additional proof of reliance would discourage plaintiffs, the Court reasoned, whereas the goal of § 14(a) is to encourage private enforcement.
Finally, plaintiffs point to the recent Second Circuit decision in Schlick v. Penn-Dixie, 507 F.2d 374 (2d Cir. 1974), petition for cert. denied, 421 U.S. 976, 95 S. Ct. 1976, 44 L. Ed. 2d 467 (1975). In Schlick, as in Borak and Mills, minority shareholders challenged a merger on the ground that the proxy solicitations were fraudulently obtained in violation of § 14(a). However, in Schlick, unlike Borak and Mills, the defendant/majority stockholder owned sufficient shares to approve the merger without a single minority vote. The trial court held that, under those circumstances, there was no § 14(a) cause of action since the fraudulent proxy solicitation did not affect the merger: the majority stockholder had the votes anyway.
There are few principles as firmly and as deeply embedded in our jurisprudence as the proposition that federal courts will not issue opinions unless a valid and continuing controversy exists between the litigants. See, e. g., North Carolina v. Rice, 404 U.S. 244, 92 S. Ct. 402, 30 L. Ed. 2d 413 (1971). When, as here, an issue is rendered moot by plaintiffs' failure to specify monetary damages or other operative relief, and the remedy sought is a mere declaration of law without implications for practical enforcement upon the parties, the case is properly dismissed.
Plaintiffs argue that these pretrial procedural decisions are nevertheless appealable under the doctrine of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528 (1949). We disagree. In Cohen, the Supreme Court held that a small class of interlocutory orders are appealable when they present issues which are of great importance and which are collateral to the main lawsuit before the district court. Plaintiffs' pretrial motions do not, in our judgment, fall within this class. While plaintiffs of the Browning group are understandably concerned about the time and money they seek to save through pretrial discovery under their proposed methods, we do not believe that their motions present a sufficiently compelling question to justify piecemeal appellate review. See, American Express Warehousing, Ltd. v. Transamerican Insurance Co., 380 F.2d 277, 280 (2d Cir. 1967).
Fed. R. Civ. P. 16, 28 U.S.C.
Fed. R. Civ. P. 56(d), 28 U.S.C.
Rule 14a-3(b) (2) reads as follows:
While reaching the merits of plaintiffs' substantive claims, we note that there is a serious question raised by the record as to whether there has been proper certification of this appeal under Rule 54(b). Fed. R. Civ. P. 54(b), 28 U.S.C. Rule 54(b) applies to a situation such as this where, in a multiclaim suit, one of the parties seeks appellate review of some of the claims while other claims remain with the district court. The rule requires that the district judge in such multiclaim litigation expressly certify that there is "no just reason for delay(ing)" appellate review of those issues disposed of already by the district court. Absent such a certification, appeal must generally wait until all issues have been resolved by the district court