Warren E. Burger: We'll hear arguments next in 74-415, Rondeau against Mosinee Paper Corporation. Mr. Beckwith you may proceed whenever you're ready.
David E. Beckwith: Mr. Chief Justice and may it please the Court. This case presents the question of what is the appropriate judgment to enter at this time for the violation of -- for a violation of the Williams Act which occurred in the spring and summer of 1971. The District Court Western District of Wisconsin, Judge Doyle determined in 19 -- February of 1973 that the appropriate judgment was to dismiss the complaint. This was pursuant to a motion for summary judgment. The Court of Appeals reversed and remanded in July of 1974 directing the District Court to enter an order sterilizing 3% of the stock of the defendant Mr. Rondeau for a period of five years and permanently enjoining Mr. Rondeau from further violations. The Williams Act as you know amended the Securities Exchange Act of 1934, in essence it provides that a shareholder who requires more than 5% of the shares of a covered company and that figure incidentally was 10% until December 31, 1970 approximately 6 months before the violation. A shareholder requires more than 5% as required to file a schedule 13D which sets forth his identity, sources of financing purpose and other manners. It is a notice statute. It is designed to give management and other shareholders a notice of accumulation of stock. It sets the rules of contest for tender offers and pretender offer conduct.
Potter Stewart: The 13D has to be filed with the company and with the exchange and --
David E. Beckwith: Yes.
Potter Stewart: -- with the commission.
David E. Beckwith: Correct.
Potter Stewart: And where else if anywhere?
David E. Beckwith: That's all.
Potter Stewart: And how the shareholders readily and promptly get knowledge of this?
David E. Beckwith: Usually through information from management if it is filed and has a pretender offer matter. It can come through publicity generally if it is picked up -- for filing is picked up.
Potter Stewart: Neither the commissioner of the exchange normally makes any effort to disseminate the information to the shareholder.
David E. Beckwith: That's correct but of course the exchange and the commission do have rules regarding what management must publicize and this might be considered such relevant information and management might be required to publicize in certain circumstances.
Potter Stewart: And would -- it would often be seemed to be and management's interest to publicize it too.
David E. Beckwith: It might be.
Potter Stewart: Yes.
David E. Beckwith: The District Court concluded that there was no issue of material fact as to the propositions which it included in its opinion under the heading facts. That matter was strenuously contested on appeal as Judge Pell's dissent indicates but both the majority in the Court of Appeals and the dissent Judge Pell agreed with Judge Doyle that summary judgment was appropriate and that the facts were not -- the operative facts were not immaterial dispute.
William H. Rehnquist: So that Judges Doyle's statement of facts is basically as not findings of fact but statements of fact that were undisputed.
David E. Beckwith: That is my position and that is the way he states it. That matter has been raised again here by respondents. We think improperly because no cross petition for certiorari was filed. The facts as stated by Judge Doyle are essentially these. Most and is a company in central Wisconsin engaged in the manufacture of pulp and paper is located in a small community Mosinee near WASA. Mr. Rondeau was a businessman in Mosinee. His business is a cold storage and cheese manufacture. He operates several companies, some of which bare his name and all of which are clearly identified with him and those smaller communities. He began to purchase Mosinee stock in April of 1971 because he thought it to be a good investment. By May 17, his holdings had exceeded 5%. He had over 40,000 shares and 40,309 shares was 5%.Accordingly he was required to file a schedule 13D on May 27, 1971. He did not do so and that's not contested de facto violation. It was not until the chairman of the board of Mosinee and Mr. Forester wrote to Mr. Rondeau on July 30 and called to his attention in the letter that he might have problems. Here, Rondeau might have problems under the Securities Act that Mr. Rondeau for the first time consulted legal counsel and was advised that he indeed did have problems under the Act and that he should discontinue his purchases and accumulate the information to file a schedule 13D which the District Court found that he promptly did. It was filed on August 25, 1971. This action was filed September 2, 1971. That's an important fact. It is quite clear we submit that Mr. Rondeau did not file in response to this action nor was the purpose we believe of this suit to force Mr. Rondeau to file rather it was to neutralize him or tie him up. In short it was not to enforce the Act but it was to use the Act to the advantage of the company. Now that's indicated because the customary conduct in cases of this nature is for the company to file a motion for preliminary injunction, frequently to seek a TRO. The motion for preliminary injunction here was not filed with the complaint but was filed some weeks later and then was withdrawn. In itself indicating that the company was apparently not sustaining irreparable injury which required to a preliminary injunction.
Potter Stewart: There's a schedule?
David E. Beckwith: Yes there was.
Potter Stewart: After the institution.
David E. Beckwith: Yes, in late September Mr. Rondeau filed an amended -- an amendment to his schedule. It does not materially change the part and information on the schedule in the attempt to get all of this lined up in August. The allocation between various purchasers, various defendants was slightly misstated. The total number of shares was not stated but the allocation was slightly misstated.
Potter Stewart: That is among himself and these various corporations.
David E. Beckwith: Right. And the question of financing, he -- he was -- had some difficulty in tracing whether he abused loans of various kinds for purchasers and that was clarified in the subsequent schedule and his statement of purpose was amplified but I submit not significantly changed in the amendment that was filed. The amendment was perhaps filed out of the abundance of caution. We do not contend one way or the other whether it was filed in response to the lawsuit.
Potter Stewart: Would the amendment for the first time indicate that his purpose might be the acquisition of control of the company?
David E. Beckwith: No. The original schedule indicated that he -- one of his purposes might be to tender for stock to seek control and the amendment simply amplify that to simply some additional language. At the time of these purchasers -- purchases, the chairman of Mosinee was the man by the name of Forester, a lawyer who did not practice but who with his companies managed trust. Mr. Forester, his family and the trust that he managed were the largest shareholders in -- as a group of Mosinee. The president was Mr. Sholtons. They became informed of Mr. Rondeau's purchases very early and both of them monitored his purchases by keeping tabulations. Mr. Sholtons called Mr. Rondeau when his purchases reached the level of approximately 18,000 shares. Mr. Rondeau purchases were open and notorious. Most of the shares were purchased in his own name, some 34,000. No shares were purchased in street name. Over 40,000 shares were purchased in the -- his own name or in the names of companies bearing his name. There seems to be no dispute that at least by June or July, it was well known to Mr. Sholtons and Mr. Forester that Rondeau was also associated with Mosinee cold storage and WASA cold storage. Mr. Forester's letter to Rondeau refers to rumors in the mail and the District Court found that it was well known that Rondeau was purchasing stock. His purpose, he has testified on deposition and there were some 23 depositions taken in this case. His purpose initially was a matter of investment and continued to be a matter of investment. As he acquired more shares, he express some interest in stockholder representation on the board but the District Court found that he had no control purpose and took no active steps toward the objective of control until after he receive Mr. Forester's letter, talk to his attorney and was advised that in the 13D, he would have to state a purpose. The conservative advice given by attorneys in filing 13D schedules is to state any purpose that you have or may have so that the veracity of your 13D cannot later be challenged if you decide to proceed with a tender offer or proxy statement. That was what he did. But even by the time that this 13D was filed, he had taken no real active steps toward a tender offer. He had no financing line up. He had not proceeded to a higher or proxy soliciting firm and etcetera. The District Court concluded that there was no issue that Mr. Rondeau had no serious intent to attain -- to attempt to obtain control prior to Forester's letter that Mr. Rondeau and his associates did not engage in intentional covert or conspiratorial conduct rather that the violation was unintentional and we submit the simple fact of the way he purchased the shares and how they were registered and the fact that he knew that they knew that he was purchasing, supports that. And that Mr. Rondeau scheduled 13D, met the requirements of the act. The Court therefore concluded that since there was an unintentional mistake, and with the passage of time, if being some 1 year and a half after the violation had occurred that it was appropriate to dismiss the complaint. It is now of course several years after the violation. There has been no tender offer. There has been no proxy contest. Annual meetings have been conducted in the years 1971, 72, 73 and 74 without contest. As I noted before the motion for preliminary injunction was withdrawn. The Court of Appeals took quite a different view. The Court of Appeals in my view accepted the facts as recited by Mr. -- by Judge Doyle. But the Court of Appeals held that since there was a violation, there had to be some sort of a remedy. And ordered a permanent injunction against further violation and a sterilization of 3% of the stock by which I mean he could not exercise the ordinary rights of a shareholder to vote 3% of his shares. The difference between the 5% and the 8% that he ultimately acquire. The Courts of Appeals decision is somewhat ambiguous on the matter of harm. They do say that Mosinee was harmed back in 1971 because they got the 13D information late. But there is no indication of continuing harm or any harm in 1974 and they go on to state, that in all events no proof of irreparable harm is necessary. Obviously, this was a matter that was debated among the judges because there is a strong dissent by Judge Pell and a thorough discussion which I commend to the Court. There was no finding by the Court of Appeals of a reasonable likelihood of future violations which would I submit be necessary to support a permanent injunction and there was no explanation by the Court of Appeals of a nexus between the violation, any harm that may have resulted from the violation and the relief that is ordered. In short, the relief that is ordered really doesn't bare any relationship I submit to what the Court found the violation to be or the harm to have existed back in 1971 if there was. Perhaps I should state clearly what we are not contending. We do not dispute that the act was violative. We do not dispute Mosinee's standing to bring this suit although it cannot by this suit benefit its shareholders who bought or sold stock during the period of violation. We do not contend that injunctive or other remedies are inappropriate in all cases. In fact we concede and contend that injunction and other remedies are appropriate in some cases. Much of the --
Potter Stewart: Has there been any litigation by any of the shareholders who sold their stock to your client after May and before August?
David E. Beckwith: There was a suit filed by the Valley Trust Company, I may have the name on. By counsel for the same counsel that represents Mosinee. Wisconsin Valley Trust Company happens to be the stock registrar for Mosinee Paper Company and Mr. Forester was the chairman of Mosinee is also a board member of the Trust Company. That suit has not been pursued, obviously Rondeau would contest their standing to be a proper representative under Rule 23. It is pleaded as a class action. It simply has pended.
Potter Stewart: And the class, the asserted class is the shareholders who sold their stock to Mr. Rondeau from the time of his violation until the time he made that 13D.
David E. Beckwith: Yes I --
Potter Stewart: Is that it?
David E. Beckwith: Mr. Justice, I am not certain whether it is sold to Rondeau or sold stock period but it is one of those two.
Potter Stewart: This I suppose was a -- had been irrelatively inactive over the counter market for this type?
David E. Beckwith: Well, I don't know the trading history, I think it was treated relatively actively. Incidentally Mr. Forester himself and his trust that he managed purchased 20,000 shares in the days of July 30 and the few days following. And of course, the question would be raised as to whether shareholders who sold to Mr. Forester who then had inside information might also have the suit. So it's a tangled scheme on that side. But this action I submit cannot adjust any rights between shareholders of the corporation, Mr. Rondeau and any other shareholders, or former shareholders. The purpose of the Williams Act in our view is to provide really the rules of contest for tender offers and pretender offers. It's a note to statute. It filled the gap that existed in the 1934 Act. Once a proper schedule is filed, the act has done its job unless some sort of a cooling off period maybe required. For that reason most cases involved preliminary injunctions. The Act does not proscribe conduct which is malum in se. That is to say an uninformed businessman possessing the highest sense of business ethics would not necessarily know that if he purchase more than 5% of the stock of a corporation, he was guilty of violating a federal law and required to file a schedule. Now that does not excuse the violation and that is not our position. But it does --
William H. Rehnquist: Mr. Beckwith.
David E. Beckwith: Excuse me Justice Rehnquist.
William H. Rehnquist: Did judge Pell's dissent indicates that an appeal to the Seventh Circuit. The plaintiffs question the propriety of granting summary judgment suggesting that your client was not quite the innocent victim that he suggested he was. Now, the Seventh Circuit majority apparently was willing to take Judge Doyle at his word that these facts were undisputed but are they not in a position to raise here if they raise in the Seventh Circuit, the question is to whether Judge Doyle should have resolved these questions without a factual hearing?
David E. Beckwith: Well in our reply brief, we suggest that their -- that the issue was not raised in the petition for certiorari. There was no cross petition and that therefore it's not properly before the Court. But I would say to you Mr. Justice Rehnquist that even if one were to take that argument and even if one were to accept the facts and I might state in our argument, in our arguments to Judge Doyle and in our briefs to Judge Doyle. We said give Mosinee its facts and give them all the inferences that they want from the facts. With the passage of time and with the fact that an adequate 13D has been filed, it doesn't make any difference.
William H. Rehnquist: Whatever Mr. Rondeau's motive might have been --
David E. Beckwith: That's right, I think there is ample evidence and if the Court is inclined to review the facts de novo which I think would be unwise but if that were to happen, there is ample evidence to support Judge Doyle's conclusions and the arguments of that or the description of that will be found in our Seventh Circuit brief which is, I had directed this file here for your examination.
William H. Rehnquist: Talk about ample evidence to support a judge's conclusions, it sounds like you're talking about something which is occurred after a trial and findings of fact.
David E. Beckwith: I appreciate that and that's been the argument of Mosinee's counsel. What I really mean to say and I -- is that if you look at the testimony, there is not a substantial or significant material dispute as to the operative facts. Those areas which -- in which there might be some dispute or which you might draw some inference differently are not essential, are not operative so far as the decision of this case. Congress made it quite clear in the passage of the Act that it was not the intent of Congress to tip the balance in -- and it was not the intent of Congress that the Williams Act could be used as a vehicle by management to neutralize a stockholder who might be kicking up the traces. It's our position that the proper administration of the Williams Act should provide for flexibility that the remedy should be carefully tailored to cure any corporate harm flowing from the violation as distinguished from anxiety by management. For instance, a limited injunction for a cooling off period might be appropriate in some cases. Sterilization is not appropriate, that is a punitive remedy. The act should be administered to avoid tipping the balance between the tender offer or/and management. The equal opportunity for the offer or/and management to present their case will be frustrated, if management can invoke a technical violation to prevent a large stockholder from exercising his rights for a long period of time. There must be a showing of continuing irreparable harm to the corporation as there was incidentally in the Bath case which is one of the leading lower court cases and is a Seventh Circuit Court case. Mosinee argues that such a continuing irreparable harm is not required. A punitive remedy is inappropriate and a punitive remedy will not deter unintentional violations. As we point out in our brief there is no way that a person uninformed to the act will be deterred by a punitive, we submit punitive remedy here and I commend to you reading the opinion of Judge Mansfield in the Second Circuit in 2152 288 F.2d which we have cited at 214 on this subject. There should be no permanent injunction in this or any other case I submit, absent a finding of a reasonable likelihood of future violations that will cause harm to the corporation and in that regard, the standard should be higher in private litigation than it is an SCC litigation.
Harry A. Blackmun: Mr. Beckwith, if you prevail here what incentive is there left for anyone to file a form?
David E. Beckwith: Well there's ample incentive as this case well illustrates. Litigation even in unintentional violation will -- can result in litigation and will result in litigation which can tie out a shareholder who has any intent to tender or engage in a proxy contest. It would be a foolish thing to do. There's plenty of incentive for a shareholder to file. The only time that there will be -- Mr. Justice Blackmun, the time when you will find the deterrence's of factor is where you have an intentional covert conspiratorial violation by a group who thinks that it can obtain some strategic advantage by not filing, by keeping it to their purpose disclosed and by proceeding to accumulate a large block of stock. That is the time when you -- perfectly properly a district judge would enter an injunction. Those are the facts in Bath. And in that case an injunction was entered. But even in that case, the injunction provided that the parties, the defendants would be enjoined only until illegally sufficient schedule 13D was filed. Respondent has argued that Mosinee shareholders were deprived of information for a period of time. Our response to that is what information? What did Mr. Rondeau have to tell them in May and June that was important to them? Furthermore, this case will not affect the rights between shareholders. The remedy does nothing for shareholders who bought or so. And I think the harm to shareholders that is referred to repeatedly by Mosinee should be put in context. We're talking about 16,000 shares that were purchased after May 27 out of a total of 800,000 shares issued on -- and outstanding. Suppose that shareholders purchase stock which is one of Mosinee's arguments expecting the company to be stable and not knowing that there might be a tender offer. Those shareholders were not harmed as soon as the schedule 13D was filed. If they decided that it was not an appropriate investment, they could have sold and sold that again. So no one was materially injured by the harm here, and certainly not the corporation. But even if shareholders were harmed, this action is not directed to that purpose. This action has to do with corporate harm only. The cases that are relied upon by the respondent principally involved preliminary injunctions and we submit are in all instances distinguishable on their facts particularly such cases as Chris Craft and Butler Aviation. Two lower court decisions support Judge Doyle, 2523 both of which are cited by us.
Harry A. Blackmun: Is Tristate Motor out of the Eighth Circuit?
David E. Beckwith: Yes.
Potter Stewart: 340, isn't it, under the rule?
David E. Beckwith: Yes. It was an affirmance by the Eighth Circuit and of a District Court decision.
Harry A. Blackmun: Was that in a precedent under the Eighth Circuit rule or they don't publish it?
David E. Beckwith: I don't think so and it was cited in our petition for certiorari and was cited in our brief. It was referred too by Judge Pell pointing out a split on the circuits.
Potter Stewart: Whether it's precedent or not in that circuit, it is at least arguably a conflict in point of view.
David E. Beckwith: Oh, I think that's correct. Yes. I'm not sure that it is precedent in such but if I were -- judge in the Eighth Circuit, I suppose I'd be mindful of that case.
Byron R. White: Would you -- injunction and adhere attached to the respective voting of the stock and no matter whose hands the stock was?
David E. Beckwith: Well it's not clear but presumably it does. By footnote, was find and tries to massage that relief a bit to suggest something else that might be done. But it simply says that 3% of the stock that Mr. Rondeau purchased shall be sterilized for a period of five years. It isn't clear when the five year starts.
Byron R. White: So if he tried to sell, a purchaser might be -- might not be so enthusiastic.
David E. Beckwith: Could well be. And certainly if the purchaser could in any respect be tied to Mr. Rondeau, then I'm sure even respondent would argue that the sterilization would cover but it's not clear as to the scope of it. I believe I have some time remaining which I would like to reserve.
Warren E. Burger: Very well Mr. Beckwith. Mr. Marison.
Laurence C.Hammond, Jr.: Mr. Hammond Your Honor. Mr. Chief Justice and may it please the Court. Initially I would like to comment on Mr. Beckwith's statement to Justice Rehnquist regarding the status of the findings of fact. It is our position the Seventh Circuit Court of Appeals did not adopt the findings of fact of Judge Doyle. And I do not think that one can discern from the opinion of the Seventh Circuit that that is in fact the situation. Judge Pell in the dissent takes that position but I do not think that it is essential to the Court's determination and I do not think that the Court did adopt all the findings of Judge Doyle.
William H. Rehnquist: Well then, where did the Seventh Circuit get its findings from if it didn't adopt Judge Doyle's?
Laurence C.Hammond, Jr.: Got its findings, Mr. Justice Rehnquist from giving do deference to most of the claims of innocence of Mr. Rondeau and the facts that were before it on the record that came up. And coming to the conclusion that whether you give that do deference or not, the nature of the violation by Mr. Rondeau was such as would warrant relief.
William H. Rehnquist: So in effect, it resolved all doubts in favor of Mr. Rondeau and still said an injunction was warranted.
Laurence C.Hammond, Jr.: That's what I believe they did. And I would like to get in to just what I think the Seventh Circuit concluded on the facts in presenting my argument. As counsel says, there is no question but what violation did in fact occur. And the issue apparently is whether the relief granted in this instance by the Seventh Circuit is appropriate under the circumstances whether wrong was committed. There is no doubt in this instance that the market operator for a substantial period of time without knowing that Mr. Rondeau was involved in substantial acquisitions of shares to the level that the Congress has said is sufficient to prompt the necessity for giving public notice. And when one says the notice must be given to the company to the exchanges upon which the stock is traded and to the SEC, one has to acknowledge that this notice is really a notice that is flowing to the public. It is the public that is involved whether the public be involved in accurately buying shares today or conceivably buying them tomorrow or selling shares today or selling them tomorrow. The failure to give the notice operated to the disadvantage of those people who sold their shares at the time Rondeau was buying --
Potter Stewart: And those people are the plaintiffs in this -- aren't the plaintiffs in this case.
Laurence C.Hammond, Jr.: That's correct Justice Stewart. It operated to their disadvantage, just one class. It operated to the disadvantage of sellers who sold during that time period because if the knowledge had been public that this was going on and that Mr. Rondeau was quickly acquiring shares, that would have a substantial effect on the market place. It certainly affected or would have affected the judgment of people who buy shares because they look to a company for stability, long term accretions and capital and in fact are abhor getting involved in companies that have internal turmoil or management conflicts, those people would -- could still buy under these circumstances not knowing that there is a potential conflict and I think the Court must keep in mind that it's not the question of whether or not there is or is not an intention at the time, to take over control of the company, that is the real objective of giving the notice. It is the potential for the conflict, potential for change in management, potential for corporate operation to continue potential for sufficient market interest to increase stock price. Those are the things that 13D is aimed to provide publicity for and it is the mere potential that that goes on by virtual one acquiring 5% of the stock of a company that prompts the -- that become into effect and the requisite for giving public notice. It operates to the destruction of management of a company whose obligation it is to ceded information as disseminated to its shareholders and see that their interest are protected. And when the instance arises that it suddenly discovers, late although, excuse me, late -- somewhat belatedly someone is involved in buying stock, it starts passing the information out. It then must get involved in litigation as counsel says because litigation is probably one of the only vehicles by which people can be required to conform to the law and that is a substantial destruction from the operation of a company. All of these things flow from violation of 13D. Now, some members of this class or one of these classes are clearly identifiable and perhaps the damages that flow to them are easily discernable. You can for instance take a look at the market and come to some -- come to some conclusion as to what the level of damages as to someone who sold it not knowing that this was going out or bought not knowing this was going out. But when you come to the issue of whether or not someone who got into the market at later date not knowing and the stock never fluctuated in price, what his injury is or the man who bought because he was looking for stability and then finds a company that is correct in turmoil and has all kinds of considerations as to when you should sell and whether or not he should get out, tax considerations, other considerations, this people are also injured and I think that's one issue that gets to the question or these are facts that get to the question of whether or not irreparable injury is really required. Now I would like to say on that I do not think that irreparable injury in the classic sense is required in order to prompt the initiation and attainment of relief in this kind of case.
Warren E. Burger: If Congress had intended that Mr. Hammond, it would been a very easy matter for them to written identity act, would it not?
Laurence C.Hammond, Jr.: That's true Justice Burger but by the same token, Congress has not written in to the act many of the rights that have been pursued under the Securities Law, under Section 10 (b) 5, under Section 16 (b), under short swing profits, they do not in fact establish --
Warren E. Burger: Well but when you're departing from a very firmly established traditional remedy of equity in the form of an injunction, so what the difference is it can -- some of the other factors are moving to?
Laurence C.Hammond, Jr.: I don't think so Justice Burger. In fact I think that the Court could have gone much farther in this case and that in fact went. I think the Court could have ordered that he disposed of the stock. I think that would probably be the ultimate penalty that they would impose but I think that they --
Warren E. Burger: All of it or just the excess over 5% or what --
Laurence C.Hammond, Jr.: I think if the situation were aggravated enough, all of it, if he -- if the facts were to disclose, that this was a concerted plan, a device for requiring control of the company and the level of acquisition had achieved the level of control for instance that under those circumstances, he could be required to dispose off all of it. I think that one must gradate the kind of ultimate result as this commencer with the wrong doing. And this case I think the Seventh Circuit struck a very heavy balance. Getting back for a few moments to the issue of whether or not the balance is really appropriate, I think that regardless of the level of conspiratorial intentional violation that counsel seems to think is essential for any kind of relief, what the Seventh Circuit in fact said was there is this much damage perpetuated, there's much mischief prompted by careless, abandoned and disregarded the laws in the securities field as there can be by a virtue of an intentional violation. And in this case, I think the facts clearly show without equivocation that Mr. Rondeau acted in clear abandon of the law and made no effort whatsoever to it in accordance with the level of requirement is imposed upon him. One has to take a look --
Potter Stewart: Like as conceded, isn't it?
Laurence C.Hammond, Jr.: Well I'm not so sure it is conceded.
Potter Stewart: And he violated the law that it clearly --
Laurence C.Hammond, Jr.: It's concededly violated.
Potter Stewart: Expressly, explicitly violated the law.
Laurence C.Hammond, Jr.: But it's not conceded that he is painted as an innocent mistaken individual. Not very well skilled in the law and not very well acquainted as to what the legal requirements are. But I think if you look at his business background, he is an eligible businessman, he's not unacquainted of the legal requirements, he is a president of a couple of corporations, he is the head of a foundation which undoubtedly was established for rather sophisticated tax reasons. He is a limited partner, a set-up limited partnership so he can hold his property in separate from his business operating business. He is engaged in many sort of sophisticated activities including at the backing industry.
William H. Rehnquist: Well if we were going to speculate about the facts here, one speculation would be that if he knew about this law, he certainly would have complied with it because he had absolutely nothing to gain from not complying.
Laurence C.Hammond, Jr.: But there is a substantial benefit to achieve by not complying. The benefit to achieve is if you do comply and you advise the market that you are acquiring and that you have some information and there is -- there maybe a tender offer or proxy 3812 that people who sell their stock suddenly are not very wind to sell it. At least they're not going to sell the prices they were formally able to sell that. So Mr. Rondeau derives the benefit of the market saying staying stable during that period of time when he does not report it. In addition, Mr. Rondeau achieves the benefit of surreptitious involvement communicating with others, all of which the management is unaware of.
William H. Rehnquist: But I thought it was the management that called his attention to the fact that it might be in legal trouble.
Laurence C.Hammond, Jr.: And that's true because the management's obligation is to advise the public and to see that Mr. Rondeau when they find out that he is engaging a violation advise the public and it was in this instance, the management that advised him on July 30th when it finally discovered or did not even discover, guessed based upon putting together a lot of facts that Mr. Rondeau in fact was in violation that they said "we think we have a securities problem here." Not -- Mr. Rondeau however did not promptly file, 25 days later he filed its first 13D.
Speaker: Were Mr. Forester and Mr. Rondeau good friends?
Laurence C.Hammond, Jr.: I do not believe so.
Speaker: And they are on a first name basis, aren't they?
Laurence C.Hammond, Jr.: Oh, I think that Mr. Sholtons who is the president of Mosinee and Mr. Rondeau are good friends and they are the first name basis.
Potter Stewart: Whatever they were, they no longer are.
Laurence C.Hammond, Jr.: No, I don't even think that's fair to say Justice Stewart. I think Mr. Sholtons and Mr. Rondeau are still good friends although probably there is a 4005 involved.
Harry A. Blackmun: 4008 whether at least on the first name basis, and one to achieve made reference.
Laurence C.Hammond, Jr.: Yes.
Harry A. Blackmun: Who is Cham?
Laurence C.Hammond, Jr.: Cham is the president of the company.
Harry A. Blackmun: That is a nickname?
Laurence C.Hammond, Jr.: Yes. But when he did file, the 13D, I think the Court should take notice of the rather debatable way in which is posture was put forward. I think that the Seventh Circuit came to the conclusion that regardless of how you view this violation, it requires some sort of responsible response and that's on that basis, the Seventh Circuit gave the response which it did. I think that it's essential when one recognizes in this 4110 the manner in which shares can be held that it is essential to give some deference to the manner in which securities violations are pursued. The SEC certainly would have a great deal of difficulty in pursuing violations. As a matter of fact, about the only time a violation truly gets called to the detention of the SEC would be when a filing occurs and the filing is erroneous. The only other instance would be if a company became aware of the violation and made its call and determined that the violation had occurred and let the SEC and the SEC would have to pursue all of these things. Decisions of the Court from this country and Courts of Appeals have said that the companies are acting in the capacity of private attorneys general in pursuing violations that occur in the Securities Law and that should not be discouraged. The private attorneys general are the only ones, the companies who really have the best opportunity to perceive when violation occurs because it is on their transfer books ultimately that the recordation of the violation takes place, perhaps and I say perhaps because in this sophisticated days, people very often do not hold their stock in their own name, they hold them in street names. And if one holds them in the street names, even then it's very difficult to ascertain when a violation occurs. In this particular instance, Mr. Rondeau did not use street names although he used multiple corporations and foundations for acquisition of stock. Counsel says that he held 34,000 in his own name but 34,000 is less 5% and as a matter of fact, in the first communication that took place between Mr. Sholtons and Mr. Rondeau, the conversation was that he intended to by up to 40,000 shares. Very unusual figure for a man to use who has no knowledge of the Securities Law when one recognizes it in this case, 5% is about 300 shares over 40,000. I submit that the facts can paint Mr. Rondeau in several fashions. And in this particular instance, the Seventh Circuit came to the conclusion that even if you accept the painting that's given by Mr. Beckwith, non-intentional covert conspiratorial. But nevertheless a businessman who is reasonably knowledgeable to form a law who was about to embark on a million dollar investment in a corporation who did nothing to confer with counsel to determine whether or not he was -- it was necessary that he engage in any kind of protective filings who was aware that this theory before that at 10% he had to file but who went ahead without regard and cause this kind of consternation in the market that under those circumstances that some relief should be afforded. If you do not grant relief under circumstances such as that, there is no deterrent to one who attempts to utilize the failure to file to his advantage and this particular case as I indicated, it did work to Mr. Rondeau's advantage.
William H. Rehnquist: Do you think that Judge Doyle may have taken into consideration the fact that Mr. Rondeau lived in Mosinee and that Mosinee Paper Corporation has its headquarters in Mosinee and that Mosinee is at time of about 2,500 and deciding whether to issue an injunction?
Laurence C.Hammond, Jr.: I think Judge Doyle may have taken that under consideration but if he did I think it's erroneous because to say that it was generally known that Mr. Rondeau was buying shares.Here is a misleading statement if you are attempting to state that the market was aware that Mr. Rondeau was engaging and purchase of the stock. The market is not also, the market is -- the stock is treated over the counter and it's traded widely and there are great many people involved. And if Judge Doyle came to the conclusion that the mere fact that the number of people on the street knew that Mr. Rondeau was buying shares and that was sufficient to read -- cause a non disclosure of violation of the -- that I should think that that's an over statement or an erroneous conclusion to draw from that fact. The very essence of the requirement for a disclosure and filing is to disseminate the information throughout the market and the potential market and that was not achieved in this case.
Thurgood Marshall: Wouldn't it long they first start monitoring the filing of the stock?
Laurence C.Hammond, Jr.: They never really monitored it as such. I think that's an erroneous statement. What happened is sometime in June I think, they came to the conclusion that based upon Mr. Rondeau is buying and the recordation on the stock transfer books that he was -- he had purchased a substantial number of shares and I think it comes to about 15,000 shares. At that point, they call them to welcome him as a substantial shareholder. After that they found out that he continued to buy and it -- when they became aware of the fact that he was continuing to buy and approaching a very high level, then they started watching and monitoring. And that was in -- I say it's probably on late June or July.
Thurgood Marshall: Of the same year?
Laurence C.Hammond, Jr.: Of the same year. It was not until July 30th when coupled with rumors and attempting to put together the various corporations and foundations that they knew Mr. Rondeau had involvement in that the company begin to suspect that he had violated and gone beyond the 40,309 shares.
Thurgood Marshall: They promptly told it?
Laurence C.Hammond, Jr.: And they promptly told it.
Thurgood Marshall: And 25 days later, he filed.
Laurence C.Hammond, Jr.: 25 days later he filed.
Thurgood Marshall: You are complaint is what?
Laurence C.Hammond, Jr.: The complaint is that one, he should have filed way back when he first -- ten days after he achieved 5% which was May 20 -- May 17.
Thurgood Marshall: How many days now are we talking about?
Laurence C.Hammond, Jr.: For what Justice Marshall?
Thurgood Marshall: How many days did Mosinee suffer?
Laurence C.Hammond, Jr.: I think Mosinee continues to suffer.
Thurgood Marshall: Who would do that?
Laurence C.Hammond, Jr.: I think they continue to suffer at all to the fact that they are distracted from their normal business by pursuing this violation. After all it's 4 years later now and they are still involved in litigation --
Thurgood Marshall: This litigation is affecting the company?
Laurence C.Hammond, Jr.: This litigation distracts.
Thurgood Marshall: Well who else is involved in to put you?
Laurence C.Hammond, Jr.: Management that has to give time.
Thurgood Marshall: What's management doing about it?
Laurence C.Hammond, Jr.: It has to give time and attention and make decisions as to whether or not they are going to process appeals but that's only a small faction of it. And in addition to that I think there are people, Justice Marshall who are -- who bought stock in the company during that time period who may still own the stock and are looking for the company to settle back to its stability.
Thurgood Marshall: Alright, any such complaints on file? Or is that out of the clear blue?
Laurence C.Hammond, Jr.: Well, I think its out of the clear blue Justice Marshall but its out of the clear blue with with some degree of realism. I think that when you talk about the -- when one talks about irreparable harm, unfortunately I think too often, one comes to the conclusion that that is such a horrendous harm occasion to individuals as to be immeasurable in dollars and unaccountable and I think that there's a great area of irreparable harm that has to do with the sort of out of the blue only evaluative by conjecture. It is occasion to people by virtue of other people's wrong doings for which protection must be afforded and which if you brought in action.
Thurgood Marshall: Do you know of any like case that is used in phrase considered irreparable harm out of the blue, you got to be specific when you say irreparable harm.
Laurence C.Hammond, Jr.: I did --
Thurgood Marshall: Whether it's harm and the other is irreparable.
Laurence C.Hammond, Jr.: I do think however Justice Marshall --
Thurgood Marshall: Well don't take both of them had declared blue, please.
Laurence C.Hammond, Jr.: I do think that there are cases that say that irreparable harm covers the spectrum of wrongs or damages including those which are sole superficial as to be and so defused as not to be measurable but yet to be wrongs that are occasion to people and I think this includes that kind of a wrong and I think when you enforce the securities law, it is intended to protect the kinds of people. Not the sophisticated investor but the man on the street who buys --
Thurgood Marshall: All this -- this laws -- has filed it, he has filed it.
Laurence C.Hammond, Jr.: That's true but it also says that the wrong that he accomplishes by not filing during the time period must be said it right. I think that is natural and in addition to that if one is to only consider that ones one files that that remedies the wrong, there is no incentive to filing.
Potter Stewart: Mr. Hammond would your client, the Mosinee would have a reaction for money damages?
Laurence C.Hammond, Jr.: I think that -- yes, I think my client could bring a claim from money damages. I think it would be almost impossible to prove what the damages are in dollars and cents. I think under the normal rules of evidence, it would be practically impossible. How do you evaluate the distraction of management during the course of processing these things?
Potter Stewart: You didn't ask for damages.
Laurence C.Hammond, Jr.: I think we ask for money damages.
Potter Stewart: You ask.
Laurence C.Hammond, Jr.: Yes. I think it would be almost impossible to prove.
Potter Stewart: That's what just drop out of the case, is it?
Laurence C.Hammond, Jr.: Yes, it's just drop out the case.
Potter Stewart: There are cases of course in -- or are they not under this statute where money damages have been allowed to shareholders.
Laurence C.Hammond, Jr.: That's true, yes, well certainly.
Potter Stewart: Where the damage is relatively easy to prove.
Laurence C.Hammond, Jr.: Where it's easy to prove and where the damages have sufficiently -- have sufficient substance as to warrant to pursue at the litigation in that fashion.
Potter Stewart: Would you make the course of action a judicial creation in any way?
Laurence C.Hammond, Jr.: Yes, it is a judicial creation.
Speaker: And Congress has provided one way or another.
Laurence C.Hammond, Jr.: No, it flows from that body of law which says that with there is a prohibitory statute or directory statute which requires an act and it's violated that the wrong that is occasion to people prompts relief or wants relief and including injunctive relief.
Speaker: And your submission is that in fashioning that remedy, the judiciary that to grant an injunction even absent irreparable injury.
Laurence C.Hammond, Jr.: Even absent irreparable injury but I am not holding to acknowledge in this case that there is no irreparable injury because I think as I explained to Justice Marshall that it covers that difficult to prove diffused area of injury.
Lewis F. Powell, Jr.: Mr. Hammond, does the record show what percentage of the stock in Mosinee Paper Company is owned or controlled by management using management to include the board of directors and officers?
Laurence C.Hammond, Jr.: No I do not think it does.
Lewis F. Powell, Jr.: We conceived 50%?
Laurence C.Hammond, Jr.: No, I do not believe so.
Lewis F. Powell, Jr.: What percentage?
Laurence C.Hammond, Jr.: Well, I think the only information that's provided is the ownership of Mr. Forester who was the chairman of the board and his companies and I do not recall offhand but it is substantially less than controlling interest.
Lewis F. Powell, Jr.: What percentage would you regard as evidence of control?
Laurence C.Hammond, Jr.: Well --
Lewis F. Powell, Jr.: The SEC used the figure 10% in good many context, are you talking about 25%?
Laurence C.Hammond, Jr.: Well in this instance, the really talks about 5% as being a controlling interest whatever controlling interest means and the law sets it a different standard, different levels. In this particular instance, I think of one controlled 25%, one may well have control of company.
Potter Stewart: The statement of facts in petitioner's brief says that Mr. Forester, his wife and trust managed by him were -- like to live the largest shareholders in Mosinee, you would agree that's true?
Laurence C.Hammond, Jr.: Yes, that's correct.
Lewis F. Powell, Jr.: Mr. Hammond, broadly speaking there are two categories of stockholders, those who are in management as I have indicated 5449 and just to run on the stockholder who owns a stock as an investment, it isn't clear to me from what you've said so far has a latter category about stockholders will benefit if you win this case or even with benefit from you bringing it. I can perceive how management if they be in entirely different category because in chelating 3% of the stock from participating in voting would tend to infringe management but focus your response to my question on the non-management stockholders.
Laurence C.Hammond, Jr.: If the question I understand is, what benefit will flow to those non-management shareholders in the event we are successful in the suit. I think the only response to that one can give is that Mr. Rondeau will be precluded from utilizing shares he improperly acquired and to the extent that those people are shareholders who are satisfied with the operation of the company and bought the stock for normal business accretions, earnings that they -- that the company which they bought into will held those characteristics. At least it will not be set by those particular shares acquired in violation of being utilized to create turmoil in the company. That's about the only degree to which those people will be benefited.
Lewis F. Powell, Jr.: And they transferred their shareholders who aren't entirely 5632 by management.
Laurence C.Hammond, Jr.: That's true, there maybe --
Lewis F. Powell, Jr.: Who might welcome attend to up?
Laurence C.Hammond, Jr.: There --
Lewis F. Powell, Jr.: That's one of the premises of the Williams Act, isn't it?
Laurence C.Hammond, Jr.: That's correct, as a matter of fact that may well be one of the class of people who are so defused as not to be recognizable as being injured. There are people in today's market who buy shares solely for the purpose of getting involved in corporations that have this kind of conflict going on because they see quick accretions in value and those people would not be involved in this because of the non-filing of Mr. Rondeau. The entire thing is geared for knowledge but when one talks about the knowledge, one must put it in perspective and the perspective is that it must be related to the shares that are required in the transactions in the market to take place or don't take place as a consequence of the lack of knowledge.
Harry A. Blackmun: Mr. Hammond, I gather there would be further proceedings in the District Court?
Laurence C.Hammond, Jr.: There would be further proceedings in the District Court under the Seventh Circuit's decision.
Harry A. Blackmun: Because there has to -- adjust the dates from which the five years begin -- has got to be established.
Laurence C.Hammond, Jr.: That's correct.
Harry A. Blackmun: And what about the colloquy 5747 colleague whether Mr. Rondeau is in a position where he cannot dispose of the stocks.
Laurence C.Hammond, Jr.: I think that --
Harry A. Blackmun: Will that matter have to be straightened down?
Laurence C.Hammond, Jr.: Yes, And I do not believe that this is an in rem determination.
Harry A. Blackmun: How far do you think the right to be mollification?
Laurence C.Hammond, Jr.: I think that Mr. Rondeau is free his free to dispose of his shares with out the restriction of the voting rights on those particular shares subject of course to a restriction on the voting right if he were to engage in a sale as a 5825 for the --
Harry A. Blackmun: Or rather for one of his corporations?
Laurence C.Hammond, Jr.: One of his corporations or one of his friends who would agree to do it and voted for him.
Byron R. White: Would you think -- would you press for any kind of a restriction on his right to transfer the share?
Laurence C.Hammond, Jr.: No, I do not believe that I would put any restriction on his right to transfer shares.
Byron R. White: He wanted to sell them all one day regardless to the effect on the market be alright with you?
Laurence C.Hammond, Jr.: Well I think that there are some restrictions on his right to sell it that way. I think there are securities regulations that would prohibit him from selling by putting it on the market one day. I think you'd have to register as an offering, secondary offering. So I think there are controls in that fashion. I do think that the Court should -- that the summary judgment issue is properly before the Court and I think that there is a determination that anything which would support that the trial court or that the Circuit Court of Appeals determination is probably before the Court and the -- sort of Court determination is the upsetting or the overruling of the summary judgment and I think that that should also be considered by the Court. Thank you.
Warren E. Burger: Do you have anything further Mr. Beckwith
David E. Beckwith: Just a few points Mr. Chief Justice. Mr. Justice Powell, I have empurple of your question to my colleague Mr. Hammond. Section 13D is not designed to promote management stability which is phrase used repeatedly in argument and in the briefs. In fact there is no public policy that says a stable management is necessarily a good management or beneficial management. And indeed, it maybe to the advantage of shareholders to permit a large influential stockholder like Mr. Rondeau to exercise his rights and see that the corporation is better managed. So far as the --
Warren E. Burger: Even if it doesn't ultimately take over.
David E. Beckwith: That's correct.
Warren E. Burger: Plus the --
David E. Beckwith: His lurking presence, effective lurking presence maybe helpful. Now so Mr. Justice Rehnquist, on the factual matter, I call your attention of the Court of Appeals decision which is reported on page 169 of the appendix where they say having considered all circumstances concerning Mr. Rondeau's violation of 13D giving a fact to specially to the District Court's findings in Mr. Rondeau and the other defendants did not engage an intentional covert and conspiratorial conduct in failing to timely file with 13D and was on a company by tender offer or proxy solicitation, we instruct this District Court so far. Had the Circuit Court considered other facts it seems to me they would have had to remand for trial. Four judges have considered these factual arguments and have rejected and there is no indication that the Seventh Circuit accepted. Four years have gone by since this technical -- I submit technical violation occurred in the spring and summer of 1971, if management has been destructed four years, it's by virtue of its own conduct, not by virtue of Mr. Rondeau. So far as the arguments that classes have been damaged in whatever manner whether it's out of the blue or in any other way, I submit those arguments are directed primarily to the question of violation or standing and not remedy. The issue here is remedy not whether management can sue or should sue or whether somebody might be injured or will be injured. The question is what do we do now four years later. The Seventh Circuit Court of Appeal decision I submit will lead to abuse in our circuit. It will turn this act that was designed to provide fair rules of conduct in tender offer situations into a weapon that can be used by management to neutralize a shareholder that may effectively control -- may effectively gain control or affect the management of a corporation and that's good, that's not bad. So far as the benefit to Mr. Rondeau and not filing, it was well known that he was purchasing stock. Mr. Forester wrote to the directors on May 7, that's just about 30 days after Mr. Rondeau made his first purchase calling their attention to the fact that Mr. Rondeau was purchasing stock and I believe the record shows that Mr. Forester and Mr. Sholtons started tabulating his purchases virtually from the first day that they appeared on the registrar of the corporation and that was in about April 26. The market price of the stock as suggested, he might have benefited because he was buying in a stable market even after he filed this 13D, there was a day or two when the market blipped up, there's no indication there was any trading at the higher level because its over the counter but then it's settled back at the same level, so but for this lawsuit, Mr. Rondeau could have continued purchasing after the 13D at approximately the same level. In conclusion Your Honors, I submit that it is appropriate for this Court to consider the remedy aspect here and to put Section 13D and the Williams Act back in the proper context in the Seventh Circuit. Thank you.
Warren E. Burger: Thank you gentleman. The case is submitted.