Opinion ID: 291677
Heading Depth: 2
Heading Rank: 4

Heading: Mismanagement of National American and the Proposed Merger

Text: 11 Since acquiring control of National American, it is alleged that the Arizona Group, aided and abetted by Latta and Harris, have wasted the assets of the corporation. They intend to engage in similar wasting in the future. Moreover, defendants propose to merge National American, Alabama National, and another corporation the Group controls into one company at terms disadvantageous to National American and the shareholders of National American. Specifically, National American will be caused by the terms of the merger to acquire Wilder's First Colonial and National American stock at the excessive price NSI paid to Wilder for selling control of National American in the first place. To carry out this plan, defendants solicited proxies by mail in September 1968 to elect their nominees to the board of National American. These proxies are said to have been misleading in some manner not pleaded with particularity. 12 With respect to all wrongs alleged in the complaint, plaintiffs, one of whom was a director of National American, aver that they did not discover the facts they allege until February 14, 1968. Plaintiffs state that they could not have discovered these facts earlier by the exercise of any duty imposed upon them because defendants and those in conspiracy with defendants concealed and misrepresented the facts to prevent National American shareholders from discovering the fraud and deceit being practiced upon them. 13 All four counts of the amended complaint allege that defendants, either as principals or as aiders and abettors, have in various ways violated section 10(b) of the Securities Exchange Act of 1934 and, more particularly, Rule 10b-5, promulgated thereunder by the Securities and Exchange Commission (SEC). 6 Count one also alleges violations of the Investment Company Act of 1940. The allegations of count one relate primarily to the sale of control by Wilder to the Arizona Group and the means by which this sale was and is being financed. Count two involves the Harris transaction, while count three involves the Latta transaction. Finally, count four, incorporating the allegations of count one by reference, relates primarily to the proposed merger of National American and other Arizona Group corporations into one company. Counts one, two, and three seek damages. Counts two and four seek injunctive relief. Use of the mails is alleged in all counts. 14 For reasons that follow, we conclude that plaintiffs have stated claims that are triable in the federal courts. Accordingly, without making any suggestion how this case should be determined on the merits, e.g., Orr v. Thorpe, 5 Cir., 1970, 427 F.2d 1129; Merlite Land, Sea & Sky, Inc. v. Palm Beach Investment Properties, Inc., 5 Cir., 1970, 426 F.2d 495; Exhibitors Poster Exchange, Inc. v. National Screen Service Corp., 5 Cir., 1970, 421 F.2d 1313, we reverse in part the judgment of the District Court and remand the case for further proceedings not inconsistent with this opinion.