Appendix — Transamerica Mortgage Advisors, Inc. v. Lewis

TRANSAMERICA MORTGAGE ADVISORS, INC.

(TAMA); KENT L COLWELL; J. WENDE

COOMBS; JOHN R. JENSEN; RALPH D. WENGER;

JOHN HAVENS; TRANSAMERICA CORPORA

TION; TRANSAMERICA LAND CAPITAL, INC.;

AND MORTGAGE TRUST OF AMERICA,

Petitioners,

i

INDEX

Page

Chronological List of Relevant Docket Entries... 1

Complaint, Filed April 5, 1973 3

Notice of Motion am Motion Dinmin, Fed March

a on 22

Order, Filed October 7, 1974 . 4

Order, Filed November 21, 1974 0 ”

Opinion of Court of Appeal, Ninth Ciresit, Fie

Po 3

(R. 1-2).

2%).

March 29, 1974—Motion to dismiss, with accompanying af-

davite and memoranda of law, filed by defendants Trans-

america Mortgage Advisors, Ine. (TAMA), J. Wendell

Coombs, Ralph D. Wenger, Kent L. Colwell, and John

RK. Jensen (R. 237-273).

scommary judgment and a more definite statement filed

by defendant Mortgage Trust of America (RB. 274-275).

May 14, 1974—Motion to dismiss, or in the alternative, for

a more definite statement filed by defendant Transamerica

Land Capital, Ine. (R. 276-278).

July 24, 1974—Motion to dismiss filed by defendant John

F. Havens (R. 282-254).

September 16, 1974— Memorandum in opposition to defend-

ante’ motions to dismiss, or for summary judgment, or

for other relief fled by plaintiff (B. 285-321).

2, 1974—Hearing on defendants’ motions to

dismiss, or in the alternative, for summary judgment and

for a more definite statement, held before the Hon. Robert

HL. Schnacke, United States Distriet Court Judge (R. 380).

2 Appendiz

October 7, 1974--Order entered granting defendants’ motion

to dismiss with leave to amend (BR. 390.382).

November 21, 1974—Order entered dismissing the case with

prejudice (KR. 383.384).

December 2), 1974—Notice of appeal filed (R. 385-386).

April 19, 1978—Opinion of the Court of Appeals for the

Ninth Cireuit filed, reversing and remanding order of

emit

Appendix 3

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

HARRY LEWIS,

Plaintiff,

- against -

TRANSAMERICA CORPORATION,

TRANSAMERICA MORTGAGE

ADVISORS, INC., TRANSAMERICA

LAND CAPITAL, INC., J. WENDELL

COOMBS, RALPH D. WENGER, 73 CIV. 1448

KENT L. COLWELL, JOHN R.

JENSEN, JOHN F. HAVENS,

ALBERT H. SCHAAF, WALTER M.

®& BUCK, WARREN G. HAIGHT,

MICHAEL J. CASEY and

MORTGAGE TRUST OF AMERICA,

Defendants.

COMPLAINT

A CLASS ACTION IS BROUGHT IN THE FOURTH

THROUGH SIXTH CAUSES OF ACTION

PLAINTIFF DEMANDS A TRIAL BY JURY

Filed

U.S. District Court

Southern District of New York

April 5, 1973

Transferred to

U.S. District Court

Northern District of California

November 21, 1973

No. C-73-2180 RHS

Plaintiff, by his attorneys, Wolf Popper Ross Wolf &

Jones, allege upon information and belief, except as to

Paragraphs “1”, “2” and “3” which are alleged upon knowl-

edge:

+ Appendix

FIRST CAUSE OF ACTION

1. Plaintiff is the beneficial owner of shares of Mortgage

Trust of America (“MTA”) and was a shareholder of MTA

at the time of the transactions complained of herein and has

been a shareholder continuously to date.

2. Plaintiff brings this action derivatively in the right

and for the benefit of MTA.

3. This action is not a collusive one to confer on this

Court jurisdiction it would otherwise not have.

4. The acts complained of herein constitute violations

of Sections 203, 205, 206 and 215 of the Investment Advisers

Act of 1940 as amended (15 U.S.C. §§ 80b-3, 80b-5, 80b-6 and

80b-15) (the “Advisers Act”), Rule 206(4)-1(a)(5) promul-

gated thereunder, and the common law. This Court has

jurisdiction pursuant to Section 214 of the Advisers Act

(15 U.S.C. § 80b-14), and the principle of pendent jurisdiec-

tion.

5. MTA was organized, under the sponsorship of Trans-

america Corporation (“Transamerica”), as a California

business trust, pursuant to a Declaration of Trust dated

May 23, 1969. It was established to invest in a diversified

portfolio of real estate mortgages, including construction

and development mortgages, permanent first and junior

mortgages, other similar loans and certain equity interests

in real estate. The mortgages and loans invested in and

hought and sold by MTA are securities within the meaning

of Seetion 202(a)(18) of the Advisers Act (15 U.S.C. § 80b-

2(a)(18)). In or ahout November, 1969, MTA issued to the

public approximately 3,168,500 units of its shares of bene-

ficial interest and 3,168,500 warrants to purchase an addi-

tional share of beneficial interest. It commenced investing

operations in or about June, 1969. MTA qualified as a real

estate investment trust under Sections 856 through 858

Appendix 5

of the Internal Revenue Code of 1954, as amended, for the

calendar years 1970, 1971 and 1972 and it intends to con-

tinue so to qualify in future years. MTA transacts business

throughout the United States, including the Southern Dis-

trict of New York. Certain of the acts and transactions here

complained of occurred in said District.

6. As of May 31, 1972, MTA had total assets of approxi-

mately $146,398,000 and it held real estate mo:tgages and

loans of approximately $136,000,000. As of February 28,

1972, it had undisbursed commitments on closed loans of

approximately $63,000,000.

7. There are at present issued and outstanding approxi-

mately 3,382,000 shares of MTA’s beneficial interest.

8. Transamerica, a Delaware corporation incorporated

in 1928, is a diversified service industry oriented holding

company, engaged through its operating subsidiaries, in

the insurance, real estate, finance, transportation, motion

picture and related industries. Transamerica Mortgage

Advisors, Ine. (“Mortgage Advisors”), a Delaware corpora-

tion organized in 1969, is a wholly-owned subsidiary of

Transamerica, formed to serve as investment adviser to

MTA and its shareholders. Transamerica Land Capital, Inc.

(“TALC”), a Delaware corporation organized in 1964, is

also a wholly-owned subsidiary of Transamerica, was en-

gaged in the business of making real estate construction and

development loans; but is presently a dormant corporation.

Transamerica and its wholly-owned operating subsidiaries

do or transact business throughout the United States and

maintain offices in, inter alia, New York, New York. Trans-

america, through Mortgage Advisors, has acted as invest-

ment adviser to MTA since the latter’s establishment, pur-

suant to an agreement dated June 24, 1969 (“the Advisory

Contract”) between MTA and Mortgage Advisors. However,

" Appendix

neither Transamerica nor Mortgage Advisors has ever

registered as an investment adviser under the Advisers Act.

9. The individual defendants, J. Wendell Coombs

(“Coombs”), Ralph D. Wenger (“Wenger”), Kent L. Col-

well (“Colwell”), John R. Jensen (“Jensen”), John F.

Havens (“Havens”), Albert H. Schaaf (“Schaaf”), Walter

M.S. Buck (“Buck”), Warren G. Haight (“Haight”) and

Michael J. Casey (“Casey”) were the original trustees of

MTA, and continue to be, or were at various times material

to the matters complained of, members of the board of

trustees of MTA. Defendants Coombs, Wenger, Colwell and

Jensen each served simultaneously as a trustee of MTA

and an officer or director or both of Transamerica, Mortgage

Advisors, or one or more of the other wholly-owned

and controlled subsidiar.es of Transamerica. Defendants

Coombs, Wenger, Colwell and Jensen are hereinafter col-

lectively referred to as the “Interlocked Trustees.” The

principal oceupation of each of the Interlocked Trustees is

his position as an officer or director of Transamerica,

Mortgage Advisors, or another Transamerica subsidiary.

All of the officers of MTA are officers of other Transamerica-

controlled companies and all of the operating officers of

MTA, who effectively make its business decisions, are subor-

dinates of those Interlocked Trustees who are the principal

executives of MTA. None of the trustees devote a substantial

portion of their time to MTA’s business.

10. By virtue of the Interlocked Trustees’ positions with

and dependence upon Transamerica and Mortgage Advisors,

the latter can and do control the acts, decisions, judgments

and recommendations of the Interlocked Trustees as they

affect MTA, Mortgage Advisors, Transamerica and the

relationships between them.

Appendix 1

11. The individual defendants other than the Interlocked

Trustees are men of affairs actively engaged in the conduct

of their own substantial business interests. None of them

are or have been officers of MTA, nor are they substantial

holders of MTA securities, or representatives of any signi-

ficant interest in MTA independent of Transamerica and

Mortgage Advisors. With respect to the affairs of MTA,

they have relied on, deferred to and accepted the decisions,

judgments and recommendations of MTA and the Inter-

locked Trustees, and have not exercised their own informed

and independent judgment.

12. By virtue of the foregoing, and particularly the

matter set forth in paragraphs 9 through 11 hereof, Trans-

America, Mortgage Advisors and the Interlocked Trustees

have the power to control and dominate the board of

trustees of MTA: Transamerica and Mortgage Advisors

have exercised this power ever since the formation of MTA.

13. Transamerica’s control and domination has perme-

ated the affairs of MTA since prior to its formal establish-

ment. As the sponsor of MTA, Transamerica was instru-

mental in the formulating and deciding the terms of its

Declaration of Trust, the Advisory Contract, and the fur-

ther agreements pursuant to which MTA agreed to, and

did, acquire all of its initial investments from TALC.

Transamerica selected all of the original members of the

board of trustees and all of the officers of MTA (all of

whom were employees of Transamerica subsidiaries when

selected).

14. By virtue of their offices in MTA, each of the trus-

tees, as trustees, owe to MTA the absolute duty of loyalty,

the duty to avoid all dealings involving self-dealing or

conflict of interest and such other fiduciary duties as are

imposed by law upon any trustee. Because of their power

8 Appendix

of domination and control, and particularly because of their

power to dictate the composition of both the board of

trustees and the operating management of MTA, Trans-

america and Mortgage Advisors are charged with the same

fiduciary duties as are the individual trustees.

15. Transamerica, Mortgage Advisors, the Interlocked

Trustees and the other individual defendants caused MTA

to enter into the Advisory Contract with Mortgage Advi-

sors, whereby Mortgage Advisors would act as the invest-

ment adviser to MTA for an initial period of approximately

two vears. The Advisory Contract provides that Mortgage

Advisors will use its best efforts to present a suitable

investment program and appropriate investment oppor-

tunities to MTA; will act generally as its investment

adviser; and will perform such clerical and ministerial

functions in connection with MTA’s portfolio as may be

agreed upon. The Contract provides that MTA will pay

compensation to and expenses of Mortgage Advisors as

follows:

(a) an annual fee equal to 1% of all assets invested

in real estate loans and equities plus the undisbursed

commitments on closed loans and other closed invest-

ments up to $100,000,000; plus a fee equal to .9% of

all such assets in excess of $100,000,000 but less than

$200,000,000; plus a fee equal to .8% of all such assets

in excess of $200,000,000; (for the purpose of comput-

ing said monthly fee, all assets are carried at hook

value without reduction for any liabilities or indebted-

ness in respect thereof); plus

(bh) incentive compensation equal to 10% of the

amount hy which the “net profit” of MTA for each

fiseal vear exeeeds 8%, hut does not exceed 12%, of

the “average net worth” of MTA during such vear;

plus

Appendiz 9

(c) further incentive compensation equal to 20%

of the amount by which such “net profit” exceeds 12%

of such “average net worth” during such year; plus

(d) such fees as are agreed upon by Mortgage

Advisors and MTA in connection with the performance

by Mortgage Advisory [sic] of certain other manage-

rial and advisory functions as provided for in the Ad-

visory Contract and of other services not provided for

in the Advisory Contract; plus

(e) expenses of Mortgage Advisors paid to trustees,

appraisers, independent advisers, contractors, mort-

gage and property servicers, consultants, managers,

officers, employees and others employed by or on behalf

of MTA, and expenses of servicing mortgage loans.

The amount paid by MTA to Mortgage Advisors for each

year can be as much as the greater of (a) 144% of MTA’s

average net assets, but without reduction for the major

expenses of MTA, including such items as the cost of

borrowed money; or (b) 25% of MTA’s net income, but

without reduction for expenses such as interest, deprecia-

tion, depletion and amortization, maintenance of assets,

taxes, legal fees, proxy expenses and other costs of holding

meetings of the holders of securities of MTA.

16. The Advisory Contract was unlawful when entered

into and the receipt of benefits by both Transamerica and

Mortgage Advisors under that agreement and in connection

with such services as it, or they, have performed for MTA

is and has been unlawful pursuant to Sections 203(a) and

215(b) of the Advisers Act, 15 U.S.C. §§ 80b-3(a) and

80b-15(b), because neither Transamerica nor Mortgage

Advisors has ever been registered as an investment adviser

under the Advisers Act.

*

0 Appeades

17. The Advisory Contract and the performance thereof

are and have always been grossly unfair, unjust and in-

equitable to MTA and its sharchoklers. It represents the

purchase by MTA of services to be performed by Trans

consideration and constitutes a gift and waste of the funds

and assets of MTA and its shareholders. The consideration

provided for and paid by MTA is so grossly excessive as to

the Advisory Contract was not due to honest errors of

judgment bu’ ather to had faith or to a reckless indifference

to the rights of MTA and its sharcholders, Defendants

Transamerica, Mortgage Advisors and the Interlocked Trus.

sees ave the heneficlaries of Chie grossly unfair, unjust and

have aided and abetted the making end performance ef the

agreement. The making and performance of the Advisory

Contract constitute fraud, breach of trust and such mal.

administration of the affairs of MTA, and such a conscious

abuse of discretion by the defendants as to work a manifest

gross wrong, harm and injury to MTA and its shareholders.

18 Tt is evident from the following that the making

aml ite sharchoklers and perpetrates a fraud upon MTA

(a) The total fers paid by MTA to Mortgage Ad-

these fees can be as much as 114% per year of the

performed by an internal staff could be obtained at

a cost of lees than 14 of 1% of the total assets of MTA.

Approdus -

(b) The basic fee to be paid by MTA to Mortgage

Advisors as well as the overall limit on cot :

is measured against a base which ay sagen

bureed commitments on closed loans and other closed

investments. However, such undisbursed commitmen

such a fee, and in many cases they carn no return at

all

determination ofthe basi fe and the overall limit on

te are carried at book value without

his once Sitecentip saul ae a Ste.

not earning a return for MTA and its sharehold :

pay a 10% bonus to Mortgage Advisors, as afore-

for a farther 20% bonus on net incor ee: eae a

12% of such average net worth. However, it dors not

provide for any corresponding decreases where net

income falls below the set percentage. Such

ge Mortgage Advisors to make high

risk investments which may create losses for MTA

and its stockholders

= a | putea of exe year cath, AN

on Ghetase anh thatines Aid stent to re

extend ae ek teetneadaseesanhtntaa pan

12 Appandus

for the remainder of the duration of the life of MTA, on

terms which will continue to be favorable to Mortgage

Advisors and unfair to MTA and its shareholders,

». By virtue of the foregoing, defendants, by participat-

ing in, approving, or acquirecing in the Advisory Contract,

have breached and threaten to continue to breach their

fxluciary duties to MTA and its shareholders, or have aided

and abetted in the breach of said fiduciary duties to MTA

21. By reason of the foregoing, the defendants other

than MTA have violated and will continue to violate Section

26(1) amd (2) of the Advisers Act in that they have,

direetly and indirectly, by the use of the mails and other

Imeans of instrumentalities of interstate commerce emploved

deviews, schemes and artifiees to defraud MTA and its

shareholders and they have engaged in transactions, prac.

tiers and a course of business which were intended to and

did operate as a fraud upon MTA and its shareholders.

22. By reason of the foregoing, the defendants other

than MTA have violated and will continue to violate Section

(4) of the Advisers Act and Rule 904(4)-1(a)(5) there.

umder in that they have, direetly and indireetly, uy the use

of the mails and means and instrumentalities of inte a

rommrrre (a) engaged in acts, practices or « course of

Mesinees which is fraudulent, deceptive or nani pa

(B)

mn Ry seins 48 io, Geseaiinan Mi ancl On has

hoklers have suffered damages in the millions of dollars,

sums Sillenen einen men te

Appendas ad

enjoins the defendants from renewing or extending the

tions will continue throughout the duration of the life of

MTA.

%. Plaintiff has made no demand upon the board of

trustees of MTA to bring and prosecute this action. Such

a demand would have been futile because the board of

more, the trustees are themselves defendants in this action.

complained of would, in effect, constitute a demand that

futile.

2%. Demand upon the shareholders of MTA to bring

A. Under the Declaration of Trust of MTA, the

management of its affairs, including the bringing of

sult, is entrusted to the trustees and not the share-

holders ; the shareholders cannot by resolution or other:

wise require MTA or its trustees to bring an action.

B. A shareholder resolution demanding the bring-

ing of suit would be futile since control of the action

would be in the hands of the very persons alleged to be

wrongdoers and cannot properly be prosecuted by

them.

cates dete Ga tate tne, Hee ent

shareholders to take action would cast an unconscion.

able financial burden on the plaintiff in that the plain.

tiff would have to solicit proxies from all the share.

“ Appenduz

holders residing throughout the country. It would in-

volve the conduct of a proxy fight which would entail

prohibitive expenses and would cause undue loss of

time and would also create a danger that some claims

might eventually be barred by the Statute of Limita-

tions.

26. Plaintiff has no adequate remedy at law.

SECOND CAUSE OF ACTION

gation contained in paragraphs | through 14 with the same

force and effect as if set forth at length herein.

2%. In or about December, 199, and pursuant to the

Traneamerica, TALL, Mortgage Advisors, the Entecioched

to parchase from TALC nosregreteniggar yer. ite

sapvientdly enptall of ‘ts entten talthed t

restment portfolio, Itmetiately thereafter TALC, having

thus dieposed of ite entire portfolio, | pe

Rutenticlly ol of tts capleyess became employers of

a

wo i hn in connection therewith is and was un-

lawful in that, inter alia, the transaction was ted

with self-dealing and conflict of interest: and the trustees

of MTA, Transamerien and M a

their duties of wndivid : ote + olrwemtet em

ppendent judgment «olely for the hest interest of MTA

Appendus ss

in making said purchases and otherwise in acquiring MT A's

initial portfolio.

30. The aforesaid purchases and agreements to purchase

by MTA from TALC were grossly unfair, unjust and

inequitable to MT'A and its shareholders. Defendants Trans-

and inequitable transactions, The other individual defend.

ants participated in or aided and abetted in the making and

ing and performance of those agreements constitutes a

fraud, a breach of trust and such maladministration of the

affairs of MTA, and such a conscious abuse of discretion by

the defendants as to work a manifest gross wrong, harm

and injury to MTA and its shareholders. It is evident from

the following that the aforesaid agreement and purchases

were grossly unfair, unjest and inequitable to MTA and its

shareholders, who have been and are being substantially

damaged as a result thereof :

(a) As a result of the aforesaid transactions Trans-

america and TALC received large profits and other

conatal n whch eats to se ty om

pes ade ets tr li Ne renal

(b) The mortgages and other interests purchased by

Investors from TALC were selected solely by Trans

holdings of Transamerica and TALC nor did they

order to obtain the best possible portfolio for MTA:

16 Appandas

selected by Transamerica and TALC.

(c) The mortgage and other investments purchased

by MTA were of lower quality and have not performed

as well as a portfolio which MTA could have pur-

the same price, nor have they performed as well as a

Transamerica and TALC if Transamerica and TALC

best of such investments held by them.

31. Insofar as Transamerica and its affiliates received

a result of the aforesail purchases and agreements to pur-

chace, it or they received more compensation from MTA and

harehodlers [sic] than was permissible under the exist-

ing agreement described in paragraph 15 of thie complaint

and therefore, the receipt of such benefits was unlawful.

The reevipt of such benefits was also unlawful pursuant to

Sections 200(a) and 215(b) of the Advisers Act, 15 TSC.

$$ 50b3(a) and S0b-15(b), because neither Transamerica

nor Mortgage Advisors has ever been registered as an

gation contained in paragraphs 3) through 36 with the same

foree and effect as if set forth at length herein.

THIRD CAUSE OF ACTION

SS. Plaintiff repeats and realleges each and every alle-

gation contained in paragraphs | through 18 with the same

force and effect as if set forth at length herein.

Appendiz 17

% Pursuant to the Advisory Contract, Transamerica

eed Mortgage Advisors have the duty to MTA and its

shareholders to serve them as their investment and financial

advieer and consultant in connection with policy decisions;

to provide research and economic and statistical data in

connection therewith and also with respect to investments;

and to consult with MTA and to furnish it with advice and

recommendations with respect to making, acquiring, hold-

ine and disposing of real estate loans and other invest-

ments.

™. Transamerica and Mortgage Advisors have failed

te provide MTA with the full benefit of their knowledge

with respect to advice, consultation and recommendations

comeerning suitable real estate loans and other investments.

Tnetead of advising MTA as to all the suitable investments

whieh it might have made, Transamerica and Mortgage

Teveetors [sic] have presented only some of the possibili-

ties of which thev had knowledge. Thev have not advised

MTA as to the best investments which would have heen

vailable to MTA, but instead have acquired or retained

theee investments for other Transamerica affiliates.

™* The individual defendants as trustees of MTA have

failed to require Transamerica and Mortgage Advisors

to advise MTA as to the best, or all the suitable investments

whieh it might have made. Instead they have allowed Trans-

america to acquire or retain for the portfolios of other

Niates the best investments which should have been taken

for MTA.

37. Asa result of the foregoing the investment portfolio

of MTA and its shareholders has been of lower quality and

has not performed as well as it would have if MTA had

heen able to acquire the best investments known to Trans-

america and Mortgage Advisors.

18 Appendix

38. The withholding of the best investment opportunities

by Transamerica and Mortgage Advisors (and the acquisi-

tion or retention thereby), the failure of the trustees to

require them to advise MTA with respect to the best invest-

ments available and the receipt of benefits by Transamerica

and its affiliates as a result thereof is and has been grossly

unfair, unjust and inequitable to MTA and its shareholders.

Defendants Transamerica, Mortgage Advisors and the

Interlocked Trustees are the beneficiaries of this grossly

unfair, unjust and inequitable course of conduct. Trans-

america, Mortgage Advisors and the other individual de-

fendants have participated in and aided and abetted said

course of conduct. It constitutes a fraud, a breach of trust

and such maladministration of the affairs of MTA, and such

a conscious abuse of discretion by the defendants as to work

a manifest gross wrong, harm and injury to MTA and its

shareholders.

39. The aforesaid course of conduct constitutes a breach

of the Advisory Contract by Transamerica and Mortgage

Advisors.

40. Plaintiff repeats and realleges each and every alle-

gation contained in paragraphs 20 through 26 with the same

force and effect as if set forth at length herein.

FOURTH CAUSE OF ACTION—CLASS ACTION

41. Plaintiff repeats and realleges each and every alle-

gation contained in paragraphs 1, 4 through 23 and 26 with

the same force and effect as if set forth at length herein.

42. Plaintiff brings this action representatively on be-

half of himself and all the shareholders of Investors simi-

larly situated.

Appendiz 19

CLASS ACTION ALLEGATIONS

43. Plaintiff brings this action as a class suit pursuant

to Section 23(b)(1)(a), 23(b)(2) and 23(b)(3) of the Fed-

eral Rules of Civil Procedure.

44. There are approximately 32,000 shareholders of

MTA located in various parts of the country who are mem-

bers of the class. Plaintiff and his counsel, who are experi-

enced in the litigation of class actions and litigation under

the federal securities laws, will fairly and adequately protect

the interests of the other shareholders of MTA similarly

situated. There are numerous common questions of law and

fact, including whether the agreement between MTA and

Mortgage A.ivisors is unfair and inequitable to the share-

holders of MTA and whether the acts and conduct of the

defendants are in violation of Section 203, 206 and 215(h)

and Rule 206(4)-1(a)(5) of the Advisers Act, and the com-

mon law. Common questions of law and fact predominate

over questions affecting all the individual members of the

class. The class action is superior to other methods for

efficient adjudication of the claims herein since it would

not be economical or feasible for the shareholders of MTA

to institute individual actions against the defendants and it

would be virtually impossible for all said shareholders to

intervene as parties to this action.

FIFTH CAUSE OF ACTION—CLASS ACTION

45. Plaintiff repeats and realleges each and every allega-

tion contained in paragraphs 1, 4 through 14, 26, 28 through

31 and 42 through 44, with the same force and effect as if

set forth at length herein.

20 Appendix

SIXTH CAUSE OF ACTION—CLASS ACTION

46. Plaintiff repeats and realleges each and every allega-

tion contained in paragraphs 1, 4 through 18, 26, 34 through

40 and 42 through 44 with the same force and effect as if set

forth at length herein.

Wuenrerorr, plaintiff prays for the following relief:

(a) That the defendants be enjoined during the

pendency of this action and permanently from taking

any action to renew, extend, or carry out the Advisory

Contract between MTA and Mortgage Advisors and

Transamerica;

(b) That the Court direct and conduct a trial before

the renewal or extension of said Advisory Contract and

upon the conclusion of said trial, that a restraining

order be issued enjoining the defendants from taking

any action to renew, extend or carry out said Advisory

Contract;

(c) That the Advisory Contract be set aside and,

if the Advisory Contract is renewed or extended before

the trial, that all such renewals or extension be set

aside and that all fees and expenses and other con-

sideration paid to Mortgage Advisors or Transamerica

pursuant to said Advisory Contract and any renewals

or extensions thereof be returned to MTA.

(d) That the defendants other than MTA be required

to account for and pay over all damages sustained by

MTA or by the plaintiff and other shareholders of MTA

similarly situated, and all profits made by any of said

defendants by reason of the acts complained of herein.

(e) That plaintiff be allowed the costs and expenses

of this action including reasonable attorneys’ fees and

accountants’ fees.

Appendix 21

(f) That plaintiff have such other, further and

different relief as to this Court may seem just and

equitable in the premises.

Wo tr Popper Ross Wotr & Jones

By /s/ Donatp N. Rusy

A Member of the Firm

Attorneys for Plaintiff

845 Third Avenue

New York, New York 10022

PL 9—4600

Stare or New York

County or New YorK—ss. :

Harry Lewis, being duly sworn, deposes and says that he

is the plaintiff in the within action and has read the fore-

going complaint and knows the contents thereof to be true

and that the same is true to the deponent’s knowledge except

as to those matters therein stated to be alleged upon infor-

mation and belief and as to those matters deponent believes

them to be true.

/s/ Harry Lewis

Harry Lewis

(Jurat omitted in printing.)

,

22 Appendix

JOHN M. ANDERSON

WILLIAM A, FALIK

LANDELS, RIPLEY & DIAMOND

450 Pacific Avenue

San Francisco, California 94133

Telephone: (415) 788-5000

Attorneys for Defendants

Transamerica Mortgage Advisors, Inc. (TAMA)

J. Wendell Coombs, Ralph D. Wenger,

Kent L. Colwell, and John R. Jensen.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

HARRY LEWIS,

Plaintiff,

v.

No. C-73-2180 RHS

TRANSAMERICA CORPORA-

TION, et al.,

Defendants.

NOTICE OF MOTION

AND

MOTION TO DISMISS

Fed. R. Civ. P. 12

Filed

U.S. District Court

Northern District of California

March 29, 1974

To the Parties and To Their Counsel of Record:

Appendix 23

PLEASE TAKE NOTICE that on Friday, June 21, 1974,

at 9:30 a.m., or as soon thereafter as counsel can be heard,

and before The Hon. Robert H. Schnacke, Judge of the

District Court, Courtroom No. 5, 17th Floor, United States

District Court, 450 Golden Gate Avenue, San Francisco,

California, defendants Transamerica Mortgage Advisors,

Ine. (TAMA), J. Wendell Coombs, Ralph D. Wenger, Kent

L. Colwell and John R. Jensen, will move for an order of

this Court dismissing the complaint.

The above-described motion will be made and jased on

the accompanying Memorandum in Support of Motion to

Dismiss and Affidavit of Robert W. Cramer in Support of

Motion to Dismiss; and on all of the pleadings and other

papers on file in this case.

Dated: March 28, 1974.

Joun M. ANDERSON

Wii A. Favik

LanpELs, Rieptey & DiaMonp

Attorneys for Defendants,

Transamerica Mortgage

Advisors, Inc., (TAMA),

J. Wendell Coombs, Ralph

D. Wenger, Kent L. Colwell,

and John R. Jensen.

By /s/ Wii A, FaLix

William A. Falik

450 Pacific Avenue

San Francisco, California 94133

Telephone: (415) 788-5000

HARRY LEWIS, =

¥.

No. C-73-2180 RHS

U.S. District Court

October 7, 1974

The motion of defendants, Transamerica Mortgage Ad-

visors, Inc. et al. to dismiss; and the motions of defendants

Transamerica Corporation, Transamerica Land Capital,

Ine., and Mortgage Trust of America, to dismiss or, in the

alternative, for summary judgment and for a more defini-

ee eee . September

The plaintiff, Harry Lewis, was represented by Francis

J. MeTernan, Req. and Messrs. Garry, Dreyfus, MeTernan,

Broteky, Herndon & Pesonen of San Francisco. The defend

Coombs, Ralph D. Wenger, Kent L. Colwell and John R.

Jensen, were represented by John M. Anderson, Esq. and

seo Contiel: Ren, Gave siesumnted bey deaeghs Wantin, 2

Eeq., and Messrs, Pettit, Evers and Martin of San Fran-

resented by Jon F. Hartung, Feq. and Messrs, Farella,

Rraun & Martel of San Francisco. Defendant, John F.

Havens was represented by Neil L. Shapira, Peq. of

Messrs, Cooper, White & Cooper of San Francisco.

The Court having received and considered written memo-

randa from the parties in support of and in opposition to

am! having considered the affidavits, pleadings and other

papers on file in this case, makes the following

1. The Court having determined that since Section 3

of the Tawestment Advisers Act of 1940 (15 T_S.C. | S04)

affords no private right of action, and that consequently

the Court has no jurisdiction of the plaintiff's claims, the

defendants’ motion to dismiss ie eranted.

© The alternate motions of defendants Transamerica

Corporation, Transamerica Land Capital, Ine. and Mort-

gage Trust of America for eommary jodgment or for a

3. Plaintiff may have 45 dave from September 27, 1974,

within which to file an amended complaint. If the plaintiff

does not fle an amended complaint within the foregoing

period, then this case shall he dismissed parenant to Rule

41(b) of the Federal Hales of Civil Procectore.

Dated: Oct 7 1974

* RORTRT H. SCHNACKE

Terre Stare Deerarct Jrner

MB Appeadus

Wrensas, the motion of defendants, Transamerica Mort-

erg Adviser, Ene, of at, to Gamiens and the motions of

Capital, Ine, and Mortgage Trust of America, to diamian

or, in the alternative, for summary judgment and for a

more definite statement, came on for hearing on Friday,

September 27, 1974; and

Wreness, and pursuant to an order dated and filed

October 7, 1974, thie Court granted the motion of defend.

but allowing the plaintiff 45 days from September 27, 1974,

within which to amend: and

Appendus a

Waeneas, the plaintiff, Harris Lewis, has failed to amend

ORDER:

Pursuant to Fed. R. Civ, P. 41(b), this case is dismissed

with prejudice as against each and all of the defendants,

and each and all of the defendants are awarded their re-

spective costa,

Dated: Now 21 1974

je) ROBERT H. SCHNACKE

Usrren Starnes Deernct J enon

No. 75-1285

TRANSAMERICA CORP., et al.

STATES DISTRICT COURT FOR THE NORTHERN

DISTRICT OF CALIFORNIA

Filed

U.S. Court of Appeals

For the Ninth Circuit

April 19, 1978

and EAST,° Senior District Judge

EAST, Senior District Judge :

“Section 206 of the Investment Advisers Act of 1940 (15

°Henerable William G. Rast, Senior United States Dietrict

Judge for the District of Oregon sitting by designation.

Appendis PJ

Use. ( Sb.6) [Advieers Act) affords no private right of

of the plaintiff's claims . |? We vesste the ender and

Lewis’ Complaint :

Lewis is a shareholder of the defendant-appelle :

gage Trust of America (Test), and hie complalat preeeats

three shareholder derivative and three class actions for

violation of the Advisers Act and spss

duties. He alleges in substance :

A is qualified as a real estate investment trust under the

cial idneateiie talaaaaeannameaedion

and development first mortgage loans. None of its invest.

exchange or offered for trading in any over-the-counter

market. The exiginnl cease and Gaplayess of Ge Sout

Transamerica Land Capital, tne (TALC), a “first tier”

(Transamerica). The Trost purchased from TALC its

sidiary of Senate ie retained as the Trust's

mortgage adviser. Tt advises the Trust on various real

estate investments and administers its day-to-day opera-

tienes. The Trust ie and alwave hae been Mortgage Ad.

visces’ cally dient. Teansamerten fs Che parent of Mortgage

pm satlgenle ss somerset —dryetamaaaa

» Appenduz

Lewis’ lewue on Review:

Does the Advisers Act give rise to an implied private

right of action for injunctive relief and damages on behalf

of persons injured by violations of its provisions?

Defendants. Appellees’ leewes om Review:

In view of the naked holding of a lack of jurisdiction,

(2) Whether the class action claims are proper.

(3) Whether Lewis has standing to maintain a deriva-

tive action without having made a demand upon the trustees

to act.

to now do so. Singleton v. Wulf, 428 US. 106, 120, 96 S.Ct.

2368, 49 L.Ed2d 826 (1976); Hector +. Wiens, S33 F.2d

At the time of the District Court's consideration of its

ultimate order of dismissal of the action for lack of juris-

diction, the cireuit case law on the issue was nil. At that

able for consideration: Bolger v. Laventhol, Krekatein,

Horwarth 4 Horwarth, Bi F Supp. 9, M3 (SDNY.

1974) (recognizing an implied private right of action).

Greenspan v. del Toro, No. 73-638 CIV JE (SD. Fla. May

17, 1974), appeal dismissed for want of prosecution, No.

74-2043 (Sth Cir, Sept. 5, 1974); and Gemmage v. Roberts,

Scott & Co., (1974-1975 Transfer Binder) Fed. See, L. Rep.

(CCH) ¢ 4,761 (S.D. Cal. 1974) (no private right of action).

Appendix 31

We now have the benefit of the decisions of the Courts

ef Appeals for the Fifth and Second Circuits finding an

implied private right of action under the Advisers Act.

Wileon v. First Houston Investment Corp., 566 F.2d 1235

(Sth Cir. 1978) ; Abrahamson v. Fleschner, 568 F.2d 862 (2d

Cir, 1977).*

Without reiterating their able discussions, we adopt the

rationale of the majorities in Abrahamson and Wilson.

Accordingly, we hold that the implication of a private right

of action for injunctive relief and damages under the Ad-

wleers Act in favor of appropriate plaintiffs is necessary

to achieve the goals of Congress in enacting the legislation.

The District Court holds subject matter jurisdiction to en-

1. See the following for support of the majorities’ rationale in

Abrahamson and Wilson; J. I. Case Co, v. Borak, 377 U.S. 426,

#4 BCt. 1555, 12 L.Ed.2d 423 (1964) ; Cort v. Ash, 422 U.S. 66,

Ts & S.Ct. 2080, 45 L.Ed.2d 26 (1975); and Bolger’s clarity-

ime discussion of the goal of Congress in enacting the Advisers Act,

1 PF Supp. at 263.

The following District Courts have, since the entry of the order

of diwmissal in this case, held that an implied right of private action

exiete under the Advisers Act: Jones v. Equitable Life Assurance

— 409 F. Supp. 370 (S.D.N.Y. 1975), accord, Angelakis v.

‘bh Management Corp., [1975-1976 Transfer Binder] Fed.

See. L. Rep. (CCH) § 95,285 (N.D. Cal. 1975) ; and Sullivan v.

Chase Investment Services of Boston, Inc., 434 F.Supp. 171 (N.D.

1. 1977).

The Securities Exchange Commission has submitted to Congress

posed amendment to the Advisers Act which provides ex-

Setly for a private right of action under the Advisers Act. See

whieh have found no implied right of action. “The commentators

whe have reviewed these decisions agree that a private right of

ection should be implied under the Advisers Act. Note, Private

Cowes of Action Under Section 206 of the Investment Advisers

Act, 14 Mich. L. Rev. 308 (1975); Lybecker, Advisers Act Develop-

ments 8 Review of Securities Regulations 927, 934 (April 23,

1975), Note, Bolger v. Laventhol, Krekstein, Horwarth & Hor-

werth: Private Rights of Action Under the Investment Advisers

-~ 48 Temple L.Q. 433 (1975).” Abrahamson, 568 F.2d at 872,

® if.

32 Appendiz

tertain such actions and pendens state claims pursuant to

28 U.S.C. § 1331.

The District Court’s order of dismissal is vacated and

the cause remanded to the District Court for further pro-

ceedings consistent herewith.

ORDER OF DISMISSAL VACATED AND CAUSE

REMANDED.

WALLACE, Circuit Judge, Dissenting :

This case presents an issue of first impression in our

circuit on which reasonable minds may differ. I recognize

the strength of the opinions and the articles cited by the

majority. I am persuaded, however, by the analysis of

Judge Gurfein in Abrahamson v. Fleschner, 568 F.2d 862,

879 (2d Cir. 1977) (concurring and dissenting), and there-

fore respectfully dissent.

2. “The trial court stated that it was dismissing for lack of

subject matter jurisdiction. According to the district court’s anal-

ysis, the complaint more properly should have been dismissed for

failure to state a claim upon which relief can be granted. See Mobil

Oil Corp. v. Kelley, 493 F.2d 784, 786 (CA5), cert. denied, 419 U.S.

1022, 95 S. Ct. 498, 42 L.Ed.2d 296 (1974). As pertains to the

asserted cause of action under the IAA, general federal question

jurisdiction is conferred by 28 U.S.C. § 1331 (1970). See Abraham-

son v. Fleschner, 568 F.2d 862, at 867 n. 5 (CA2 1977), (the dissent

and majority agree on this point).” Wilson, 566 F.2d at 1237 n. 2.