Opposition Brief — Harris Trust & Savings Bank v. E-II Holdings, Inc.

r FILED

No. 91-198 z Aus

30 1993

IN THE | OFFICE OF THE CLE

Supreme Court of the United States

Octoser Term, 1991

HARRIS TRUST AND SAVINGS BANK, an Illinois banking

corporation, not individually but as Trustee; and

LASALLE NATIONAL BANK, a national! banking association,

not individually but as Trustee,

Petitioners,

VS.

E-II HOLDINGS, INC. and AMERICAN BRANDS, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF IN OPPOSITION OF RESPONDENT

AMERICAN BRANDS, INC.

DANIEL J. O'NEILL

Counsel of Record

DoNALD W. Rose

Trini L. Donato

CHADBOURNE & PARKE

Attorneys for Respondent

American Brands, Inc.

Of Counsel: 30 Rockefeller Plaza

ANDREW G. RAK New York, New York 10112

AMERICAN BRANDS, INC. (212) 408-5100

1700 East Putnam Avenue

Old Greenwich, Connecticut 06870

(203) 698-5000

Eric M. Rot

JOHN F. SAVARESE

WACHTELL, Lirpron, ROSEN & Katz

299 Park Avenue

New York, New York 10171

(212) 371-9200

QUESTIONS PRESENTED

Should certiorari be granted where all but one of the claims

for declaratory judgment made in the underlying litiga-

tion are moot and the only remaining claim presents an

issue of state contract law?

Should certiorari be granted so that this Court may review

whether the Court of Appeals correctly held that a party

seeking declaratory relief fails to state a case or controver-

sy where it refuses to take a position or express any view

as to the merits of the matters allegedly “in dispute,” where

the Court of Appeals found decisive and followed this

Court’s decision in Princeton University v. Schmid, 455 U.S.

100 (1982)?

Should certiorari be granted so that this Court may review

whether the Court of Appeals correctly applied New York

state law when it held that the implied covenant of good

faith and fair dealing recognized under that law may not

be invoked by a party to an existing contract to create a

new, substantive and unbargained-for contractual term

which is inconsistent with the existing terms of the contract?

ee

i

PARTIES TO THE PROCEEDING

The parties to the proceedings below all appear in the cap-

tion of this case. Pursuant to Rule 29.1 of this Court, American

Brands, Inc. states that it has no parent company and that the

following are subsidiaries or affiliates of American Brands, Inc.

which are not wholly owned:

ACCO International (N.Z.) Limited

ACCO Jamaica Limited

ACCO Mexicana S.A. de C.V.

Griplight Limited

Office Products International (W.A.) Pty. Ltd.

C.A. ACCO Manufacturing

Acushnet (Thailand) Limited

Acushnet Foot-Joy (Thailand) Limited

Titleist Japan, Inc.

Artesania Espanola de Optica S.L.

Delta Optik AG

Donal MacNal’y Opticians Limited

Filotecnica Salrmoiraghi S.p.A.

General Optica S.A.

Konan Keeler Limited

RX Optik AG

Sanmartin Inmeubles S.A.

Lintrend Licensing Company Limited

Microprint Group Limited

Prestige Housewares (India) Limited

The Scotch Whisky Heritage Centre Limited

DICO Holding Company

Flavorpac France S.A.

Hostan Company, Ltd

TABLE OF CONTENTS

Page

EE i

Parties To The Proceeding..................... ii

Table Of Authorities.......................... Vv

I. Counterstatement Of The Case ............. 1

Preliminary Statement ..................... ]

A. The Transactions “In Dispute” And The

Nature Of The Action.................. 3

B. Bases for Federal Jurisdiction In The

ME 8... 58... 4

C. The Decisions Below ................... 4

1. The District Court Decision ......... 4

2. The Court Of Appeals’ Decision... ... 6

II. Reasons Why The Writ Should Be Denied... 8

A. E-II’s March 1991 Payment Default Has

Mooted All But One Of The Trustees’

Claims And Deprived The Trustees Of

i 9

1. The Trustees’ Claims For Declaratory

Relief As To Whether E-II Is In

Compliance With The Indentures Are

RITE s oy Gis s ss sees .-.. 9

2. The Trustees Do Not Have Standing

To Seek Declaratory Relief .......... 1]

iv

Page

B. There Are No Special Or Important

Reasons To Grant The Petition .......... 12

1. The Sole Federal Question Presented

Has Been Settled By This Court

Adversely To The Trustees .......... 12

2. No Court of Appeals’ Decision Is In

Conflict With The Decision Below ... 14

3. Trustees’ Petition Does Not Present An

Important Question Of Federal Law .. 15

4. The Trustees’ Claimed Errors Of State

Law Do Not Constitute An

Appropriate Subject For This Court's

NS TERRORS DSC Bie BBE EN a 16

OS pip ER AR ME oS ter PG DAM Poy OP Se 18

Respondent’s Appendix...............-..--++-- RA-i

TABLE OF AUTHORITIES

Cases: Page

Aetna Life Ins. Co. v. Haworth, 300 U.S. 227

: SN ar ee oes tah eee races Teer ia a 7, 14n.12

Allen v. Wright, 468 U.S. 737 (1984) ........... 12

Barrow S.S. Co. v. Kane, 170 U.S. 100 (1898) ... 14

Bellefonte Reinsurance Co. v. Aetna Casualty &

Sur. Co., 590 F. Supp. 187 (S.D.N.Y. 1984) ... 11n.9

Broad v. Rockwell Intl Corp., 642 F.2d 929 (5th

Bs Nc ax Foie Ss 0b 4 5 Reed a ve wae ake 17n.15

Browning Debenture Holders’ Comm. v. DASA

Corp., 524 F.2d 811 (2d Cir. 1975) .......... 10

Delta Air Lines, Inc. v. August, 450 U.S. 346

| REPT A SEATS IR PP ant Gr ee arg 15n.12

Don King Prods., Inc. v. Douglas, 742 F. Supp.

ok 8 A er eee 17n.15

Duart Mfg. Co., Ltd. v. Philad Co., 30 F. Supp.

cg SS | OP ee rere 11n.9

Fitzgerald v. McChesney, 336 F.2d 905 (D.C.

Gy MN Social le en veveneaveyencctenes 11n.9

Flast v. Cohen, 392 U.S. 83 (1968) ...... Paes 13

Grafon Corp. v. Hausermann, 602 F.2d 781 (7th

RE 9 ay a, Rs eee ae ee i5

Hanna v. Plumer, 380 U.S. 460 (1965) .......... 14n.12

Haring v. Prosise, 462 U.S. 306 (1983) .......... 16

Hartford Fire Ins. Co. v. Federated Dep’t Stores,

Inc., 723 F. Supp. 976 (S.D.N.Y. 1989) ....... 17n.15

Havel v. Kelsey-Hayes Co., 83 A.D.2d 380, 445

N.Y.S.2d 333 (4th Dept. 1981)............... 17n.15

a

Hendrix v. Poonai, 662 F.2d 719 (11th Cir. 1981) 11n.9

Illinois ex rel. Barra v. Archer Daniels Midland

Co.; 704 F.2d 935 (7th Cis. 1GG3)............ 4-5,

Iron Arrow Honor Soc’y v. Heckler, 464 U.S. 67

(IGBD) ... «oasis ussee eee ores = 9, 10

M & M Transp. Co. v. U.S. Industries, Inc., 416

F. Supp. O66 (B.0D..S. Bee oe ore ee eaves 11n.9

Metropolitan Life Ins. Co. v. RJR Nabisco, Inc.,

716 F. Supp. 1504 (S.D.N.Y. 1989)........... 17n.15

Murphy v. Hunt, 455 U.S. 478 (1982) .......... 9, 10n.8

NLRB vy. Pittsburgh S.S. Co., 340 U.S. 498 (1951) 14

Patrick v. Burget, 486 U.S. 94 (1988) ........... 15n.12

Princeton University v. Schmid, 455 U.S. 100

(TOBE) . . 05 5 5 <4 ano aire ae ae es passim

Rowe v. Great Atl. ¢ Pac. Tea Co.. Inc., 46

N.Y.2d 62, 412 N.Y.S.2d 827, 385 N.E.2d 566

to eee Pere a Ue ee 17n.15

Sierra Club v. Morton, 405 U.S. 727 (1972. ..... 13

Van Gemert v. Boeing Co., 520 F.2d 1373 (2d

Cir. 1975), cert. denied, 423 U.S. 947 (1975)... 17n.15

Vasquez v. United States, 454 U.S. 975 (1981) ... 14

Page

Vickers v. Henry County Sav. & Loan pam 827

of 8 Gy Ge li, 12

Warth v. Seldin, 422 U.S. 490 (1975) ........... 12

Watson v. Tarpley, 59 U.S. 517 (1855).......... 14

Weinstein v. Bradford, 423 U.S. 147 (1975)...... 9, 10n.8

Wisconsin Elec. Co. v. Dumore Co., 282 U.S.

ee ne ales. ody woos 9s Aw 55% «> 14

Statutes and Rules:

Trust Indenture Act of 1939, 15 U.S.C. §§ 77aaa,

EN 5 a8 Ee SAE Nd ee wee oy doe oo 8s 4

NG co We wav sew we « ww ws 4

EE Ee ogre asc kc ed ves ¥ Fue e ues 4

I UE WE ee i's boxes toueweces 4

Le nang aso be ve «ees 0.0 eaves 4

I ee One's 's ony xh ond ecee eas 4

Declaratory Judgment Act,

a 7

eae, asa os ¢ aun pera ee 2, 8, 12

NR Os oases oN c's cas vse d'sare aan 16n.14

No. 91-198

IN THE

Supreme Court of the United States

Ocroser Term, 1991

HARRIS TRUST AND SAVINGS BANK, an Illinois

banking corporation, not individually but as Trustee; and

LASALLE NATIONAL BANK, a national banking

association, not individually but as Trustee,

Petitioners,

vs.

E-II HOLDINGS, INC. and AMERICAN BRANDS, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF IN OPPOSITION OF RESPONDENT

AMERICAN BRANDS, INC.

I.

COUNTERSTATEMENT OF THE CASE

Preliminary Statement

Respondent, American-Brands, Inc. (“American”), respect-

fully requests that the Petition for Writ of Certiorari (the “Peti-

tion”)' of Petitioners Harris Trust and Savings Bank (“Harris”)

and LaSalle National Bank (“LaSalle,” and together with Harris,

' Citations to the Petition appear herein as “Pet. at _.”

the “Trustees”) to review the judgment of the United States Court

of Appeals for the Seventh Circuit be denied.

Seven of the eight claims for declaratory relief asserted in the

Trustees’ complaint are not, have never been and will never be

justiciable. The Trustees brought the underlying action ques-

tioning whether certain transactions engaged in by respondent

E-II Holdings Inc. (“E-II”) between February and December

1988 were in compliance with the terms of two trust indentures

pursuant to which E-II had issued $1.5 billion in high-yield

bonds in 1987. When filed, the complaint failed to demonstrate

the existence of an actual controversy between the Trustees and

E-II and the relief sought was clearly in the nature of an ad-

visory opinion.

Claiming insufficient information regarding the questioned

transactions and fearful of litigation, the Trustees asked the

District Court to determine for them whether any of the trans-

actions violated the indentures. Without such relief, they

claimed, they could not know whether a default had occurred

and, consequently, whether they owed the bondholders narrow

pre-default contractual duties or broader post-default fiduciary

duties.

In March 1991, after the Court of Appeals had affirmed the

dismissal of the Trustees’ complaint for lack of subject matter

jurisdiction and failure to state a claim, E-II defaulted in the

payment of interest to the holders of the bonds. As a result of

this undisputed default, the rights and duties of the Trustees

vis-a-vis E-II and the bondholders have been firmly fixed; the

claims for declaratory relief as to whether there has been a

default have been mooted; and the Trustees do not face a threat

of injury sufficient to confer standing on them.

Even if the Trustees’ declaratory judgment claims were not

moot, the Petition should be denied because there are no “special

and important reasons” for granting a writ of certiorari here.

Sup. Ct. R. 10. With respect to the claims seeking declarations

as to indenture compliance, the Court of Appeals correctly

applied this Court’s decision in Princeton University v. Schmid,

455 U.S. 100 (1982) (per curiam), to the facts of this case when

it held that the Trustees failed to present an actual case or con-

troversy, inasmuch as they refused to take any position as to

whether any of the questioned transactions actually violated the

indentures. The Trustees point to no conflict between the deci-

sion of the Court of Appeals and that of any other United States

Court of Appeals on the same matter, and no conflict with any

state court of last resort on any federal question. Moreover, the

decision below did not decide an important issue of federal law

unsettled by this Court or in a manner conflicting with any other

applicable decisions of this Court.

With respect to the sole claim of the Trustees found below

to have presented a case or controversy — their alleged entitle-

ment to information from E-II about the transactions beyond

that required to be furnished under the terms of the indentures

— the Court of Appeals correctly held that the Trustees had

failed to state a claim for relief under applicable New York State

contract law. This Court does not ordinarily sit to review claimed

errors of state common law.

A. THE TRANSACTIONS “IN DISPUTE”

AND THE NATURE OF THE ACTION

The Statement of the Case presented in the Petition contains

several misstatements of the facts of this case and of the holdings

of the courts below. Rather than restate the facts of the 14

separate corporate transactions underlying the litigation,

American adopts and incorporates herein the statement of facts

contained in the District Court’s opinion which is reprinted at

pages A-20 through A-38 of Petitioners’ Appendix (cited hereafter

a"TA ... )"

* Among other things, the Trustees incorrectly state that the opinions of counsel

and the opinion of E-II’s investment banker provided to them on June 22,

1988, did not cover the March 31, 1988, and April 15, 1988, sales by E-II of

its Day-Timers and Vogel Peterson subsidiaries to American. These opinions,

(Footnote continued)

B. BASES FOR FEDERAL JURISDICTION

IN THE DISTRICT COURT

The statement of the bases for federal jurisdiction in the District

Court appearing in the Petition is neither complete nor correct.

For purposes of their motion to dismiss, E-II] and American

assumed, arguendo, that a private right of action exists under

the Trust Indenture Act of 1939, 15 U.S.C. §§ 77aaa et seq. (the

“TIA”). Based upon that assumption, the District Court would

have had federal question jurisdiction over the action pursuant

to 28 U.S.C. § 1331, as the claims asserted are allegedly based

upon Section 322 of the TIA, 15 U.S.C. § 77vwy, in that this is

an action purportedly to, inter alia, effectuate the purpose of

the TIA, including but not limited to Sections 314 and 315 thereof,

15 U.S.C. §§ 77nnn, 77ooo. E-II and American have reserved the

right to contest the existence of a private right of action under

the TIA. The Court of Appeals did not address this question.

(PA 5 n.7.) American does not now agree that the District Court

had federal question jurisdiction under 28 U.S.C. § 1331.

The District Court otherwise had jurisdiction pursuant to 28

U.S.C. § 1332, in that there exists complete diversity between the

parties and the amount claimed to be in issue exceeds $50,000,

exclusive of interest and costs.

C. THE DECISIONS BELOW

l. The District Court Decision

Relying in part on the Court of Appeals’ decision in Illinois

ex rel. Barra v. Archer Daniels Midland Co., 704 F.2d 935 (7th

which were provided to the Trustees despite the fact that their delivery was

not required by the terms of the indentures, did in fact cover those sales. (PA.

31-32.) Copies of the opinions delivered to Harris are appended hereto as Respon-

dent's Appendix 1. The same opinions were simultaneously provided to LaSalle.

With respect to the Trustees’ claim that information has been withheld from

them, it should also be noted that the Trustees have refused certain informa-

tion proffered by E-II, claiming their fiduciary duties precluded receipt of

information on a confidential basis (PA 3 n.5; PA 35), and that the Trustees

now state that E-II is at this time providing information to certain uniden-

tified bondholders (Pet. at 9 n.8).

Cir. 1983) (“Archer Daniels”), the District Court held that it

was without “subject matter jurisdiction to advise the Trustees

whether the various acquisitions and transactions were in com-

pliance with the terms of the Note Indentures” (PA 43), finding

that no “controversy” existed and that “neither the Trustees nor

the Note Holders have as yet alleged any injury and instead are

proceeding in the realm of conjecture and hypothesis” (PA 42-43).

The District Court concluded that the complaint asked for

nothing more than an advisory opinion, stating (PA 42):

“Comparing the facts here as alleged by Trustees

in their complaint and the facts in Archer-Daniels-

Midland appears to foreclose the relief sought by the

Trustees with respect to whether E-II violated the In-

dentures creating an ‘Event of Default.’ For a varie-

ty of reasons, including lack of information and lack

of sufficient Holder participation, Trustees have

declined to declare an event of default under the terms

of the Indentures. Even if this court should conduct

the lengthy evidentiary hearings necessary for it to

make an independent determination that an event of

default had in fact occurred with regard to one or

mnore of the transactions, so as to empower the

Trustees to act, the Indentures do not require them

to act. Under Section 7.05, in the event of a default

other than payment of principal, Trustees may

withhold the notice if the Trustees determine

withholding is in the interest of the security Holders.

Even if the Trustees did act, under Sections 6.04 of

the Indentures, the security Holders holding a ma-

jority of the principal amount of indebtedness have

the power to overrule the Trustees. Therefore any

opinion that the court might issue could be nothing

more than an advisory opinion, advising Trustees of

their rights but not resolving any actual case or con-

troversy. Archer-Daniels-Midland at p. 941. The

Trustees, in effect, at all times have the power to

create a controversy but they have not yet done so

nor do they have to do so.”

ee

With regard to the Trustees’ request for a declaration con-

cerning their entitlement to information beyond that specified

in the indentures, the District Court observed that “[a]rguably

an actual dispute may exist over Trustees’ rights to additional

information” (PA 44) (footnote omitted), and in view of such

probable jurisdiction, proceeded to resolve that claim on the

merits. In its opinion, the District Court noted that the “Trustees

admit that there is no specific provision in the Indentures en-

titling them to the information they request” (PA 45), found that

“neither the Indentures nor the TIA appears to require [E-II]

to furnish information not specifically provided for in the In-

dentures themselves” (PA 45), and held that “absent any specific

requirement in the Indentures, E-II is under no obligation under

New York law, the TIA or rules and regulations issued under

authority of the TIA to furnish information on its acquisition

or transactions other than the certificates and opinions expressly

provided for” (PA 46). Accordingly, to the extent that it had

jurisdiction to entertain the Trustees’ complaint, the District

Court held that the complaint failed to state a claim upon which

relief can be granted (PA 46).’

2. The Court Of Appeals’ Decision

On appeal the Trustees continued to argue that it is “neither

necessary nor appropriate for them to commit to a position,”

asserting instead that their “request for ‘judicial guidance’ and

> Thereafter, the Trustees moved, pursuant to Rule 59(e) of the Federal Rules

of Civil Procedure, for an order amending or modifying the judgment. (Cir.

App. at 0046) (citations in this form refer to the Appellants’ Appendix filed

with the Court of Appeals). The motion was limited to that portion of the

complaint which sought a declaration regarding their entitlement to addi-

tional information from E-II. (Cir. App. at 0914.) Contrary to the admission

contained in their complaint (Cir. App. at 0063; 0268), the Trustees main-

tained in their post-judgment motion that the express terms of the indentures

entitled them to the information sought, citing Section 11.05(4) thereof (Cir.

App. at 0914). The District Court rejected this new argument, holding that

by its express terms Section 11.05 is limited to an “opinion” and “certificate,”

and nowhere in that section “is there any requirement that the facts underly-

ing the opinion or certificate be disclosed.” (Cir. App. at 0914-15.) The District

Court also rejected the Trustees’ claim that, under New York law, they had

an “implied” right to such information. (Cir. App. at 0915-16.)

‘judicial instruction’ is the paradigm on which ali dec] aratory

judgment cases are built.” (PA 6.)

Relying upon this Court’s decision in Schmid, 455 U.S. at 102,

the Court of Appeals held that the Trustees’ refusal to express

an opinion on the merits of the questions raised by them

evidences the lack of an actual controversy as to indenture com-

pliance. (PA 7-8.) The court rejected the Trustees’ claim that

the positions taken by a minority of the bondholders that a_

default had occurred somehow satisfied the case or controversy

requirement as to them. The court heid that the Declaratory

Judgment Act requires the existence of an “actual controversy,”

28 U.S.C. § 2201(a), a predicate which has as its “unspoken, but

yet obvious, corollary. . . that the dispute must exist between the

parties to the declaratory judgment action.” (PA 6-7 (emphasis

in original), citing Aetna Life Ins. Co. v. Haworth, 300 U.S. 227,

242 (1937).)*

Like the District Court, the Court of Appeals found that the

only issue as to which there was a possible case or controversy

was the Trustees’ claim that they are entitled to more informa-

tion. (PA 10.) And, like the District Court before it, the Court

of Appeals found that, under applicable New York state law,

neither the express language of the indentures* nor the implied

covenant of good faith and fair dealing granted the Trustees any

right to the information they had demanded. (PA 12-16.) With

respect to the implied covenant of good faith, the court applied

existing New York precedents‘ and held that the implied covenant

* The court also found the complaint “troublesome” for two additional reasons:

(1) it failed to allege any injury sustained by the Trustees or the bondholders

sufficient to demonstrate that they had standing to seek declaratory relief,

and (2) that at least one of the requests was “premised on pure speculation

as to what the future might hold, is akin to a hypothetical question asked by

a law school professor; [and] it does not raise issues that are ripe for judicial

determination.” (PA 8 n.14.)

* The court considered the Trustees’ argument that the express language of the

indentures granted them the right to additional information, despite the fact that

it found the Trustees had consciously and deliberately waived that argument,

only to raise it tardily on their motion to alter or amend the judgment. (PA 11.)

* See infra at n.15.

may be invoked by a court only to prevent a party to a contract,

who has violated the spirit but not the letter of the contract,

from depriving the other party of a mutually contemplated

benefit of the contract; and not to create an additional, substan-

tive and unbargained-for right.’ (PA 13-15.) Finally, the court

affirmed the District Court finding that the TIA imposed no

obligation on E-II to provide the additional information

demanded, stating that the TLA’s “freedom-of-contract mentality

leaves no room for the interpretation that the Trustees would

thrust upon the Act.” (PA 17.)

Il.

REASONS WHY THE WRIT SHOULD BE DENIED

The Trustees’ Petition should be denied. Substantially all of

the Trustees’ claims have been rendered moot by reason of E-II’s

March 199] default. As a result, even if there were “special and

important reasons” for granting the writ, this case is a particular-

ly inappropriate vehicle for Supreme Court review. Sup. Ct. R.

10. Moreover, none of the traditional reasons for certiorari review

is present here. There is no conflict among the circuits. No im-

portant and unsettled issue of federal law is presented. In

deciding that most of the Trustees’ claims failed to present a

case or controversy because the Trustees did not take a position

with respect to the merits, the Court of Appeals engaged in a

straightforward application of this Court’s precedents. The only

conceivably justiciable issue present — the Trustees’ claimed

right to information about the transactions at issue beyond that

which E-II has already provided — is essentially an issue of New

York contract law. The Court of Appeals correctly held that the

Trustees had no such right as a matter of New York law, a deter-

mination which does not warrant this Court's exercise of cer-

tiorari review.

’ The Trustees blatantly misrepresent the holding of the court below in this

regard when they claim that the court held that the implied covenant of good

faith and fair dealing applies only to unsophisticated investors. See Pet. at 26.

A. E-II’s MARCH 1991 PAYMENT DEFAULT HAS

MOOTED ALL BUT ONE OF THE TRUSTEES’

CLAIMS AND DEPRIVED THE TRUSTEES OF

STANDING

1. The Trustees’ Claims For Declaratory Relief

As To Whether E-II Is In Compliance With

The Indentures Are Moot

In the Petition, the Trustees concede that since the Court of

Appeals rendered its decision “a payment default has occurred,

and, as a consequence, it appears that the issue of whether E-II

has sufficient remaining assets to ensure repayment of principal

and interest on the debt is moot.” (Pet. at 9 n.8.) What the

Trustees fail to appreciate, however, is that the March 1991 pay-

ment default moots not only this one request, but all of their

other requests for declarations as to whether or not E-II is in

default under the indentures.

“(T]he complaint asks the court to determine whether there

has been a default, and to delineate the Trustees’ rights.” (Pet.

at 12.) The Trustees claim to need this determination because

it “would have a direct effect on the nature and scope of their

duties, as the existence of a default transforms the role of the

Trustees from a contractual one to that of a prudent fiduciary.”

(Pet. at 15.) As a result of E-II’s recent failure to pay interest on

the bonds, there is no longer any question whether there has been

a default or the nature of the Trustees’ current rights and duties.

No useful purpose can be served by having the federal courts opine

as to whether an earlier default existed. As a result, these claims

are “classically ‘moot’.” Iron Arrow Honor Soc’y v. Heckler, 464

U.S. 67, 70-71 (1983) (per curiam); see also Murphy v. Hunt, 455

U.S. 478 (1982) (suspect’s constitutional challenge to state statute

denying him pre-trial bail held moot once he was convicted,

where no claim for bail pending appeal had been made); Schmid,

455 U.S. at 103 (university’s appeal of state supreme court’s rul-

ing invalidating its regulations regarding on-campus solicitations

held moot where regulations were substantially amended while

case pending on appeal); Weinstein v. Bradford, 423 U.S. 147

(1975) (challenge to constitutionality of parole procedures held

moot once respondent was paroled).

10

The Trustees claim that they “did not present this definite,

concrete dispute to the court to satisfy mere academic curiosi-

ty.” (Pet. at 15.) Whatever the Trustees’ motives for commenc-

ing this action, the question now is whether the continued pur-

suit of these claims can be viewed as anything other than an

academic exercise. E-II’s current default removes any conceivable

uncertainty the Trustees might have had as to the nature of their

obligations to bondholders or their ability “to pursue remedies

against the issuer.” (Pet. at 15.) Even were the Trustees to ob-

tain a declaration in this action that any one of the 1988 trans-

actions constituted a default under the indentures, their

remedies would be no greater than the remedies available to

them today by reason of the March 1991 payment default. In-

deed, that these issues are now moot is amply demonstrated by

the fact that E-II has not even bothered to file a brief in op-

position to the Petition. Because the declarations sought as to

whether E-II was in compliance prior to the March 1991 default

will not affect the future behavior of any party and will not

redress the Trustees’ asserted grievances, those claims are moot.

See Iron Arrow Honor Soc’y, 464 U.S. at 70; Browning Deben-

ture Holders’ Comm. v. DASA Corp., 524 F.2d 811, 816 (2d Cir.

1975).*

The Trustees assert that they can still benefit from having the

District Court advise them if they have viable claims for damages

against third parties. (Pet. at 9 n.8.) What the Trustees seek now

is nothing more than an advisory opinion counseling them as

to their most advantageous litigation options and strategies.

Before deciding whom to sue and as to which transactions —

* This is not a situation which is “capable of repetition, yet evading review,”

as there is neither a “ ‘reasonable expectation’ or a ‘demonstrated probability’

that the same controversy will recur involving the same complaining party.”

Murphy, 455 U.S. at 482, citing Weinstein, 423 U.S. at 149. The hypothetical

possibility that another indenture trustee may someday find itself desirous of

declaratory relief when it is unwilling to take a position with respect to the

interpretation of the indentures it has agreed to administer is simply too

speculative to save these claims from mootness. Murphy, 455 U.S. at 482 (“The

Court has never held that a mere physical or theoretical possibility was suf-

ficient to satisfy the test stated in Weinstein.”).

1]

or even whether to bring suit at all — the Trustees want to be

advised as to whether they have any claim worih pursuing.

Simply put, the provision of such legal advice is the function

of the Trustees’ counsel and not the federal judiciary.°

2. The Trustees Do Not Have Standing To Seek

Declaratory Relief

The Court of Appeals also found “troublesome” the Trustees’

failure “to allege the injury that the Trustees or investors have

sustained or are in immediate danger of sustaining, thereby fail-

ing to indicate standing to seek a declaratory judgment.” (PA

8 n.14, citing Vickers v. Henry County Sav. & Loan Ass’n, 827

F.2d 228, 231-32 (7th Cir. 1987).) In the Petition, the Trustees

continue to protest (Pet. at 8) that, absent judicial advice, they

tace “a quandary the likes of Scylla and Charybdis”: If they

wrongfully declare a default, cross-default provisions in

unspecified other credit agreements could cause “the collapse

of E-II,” resulting in potential liability for the Trustees. (Jd.)

“If, on the other hand, an undetected default did exist, the failure

to sue E-II could have resulted in litigation as well.” (Jd.)

The March 1991 payment default has freed the Trustees from

their “quandary.” E-II is now indisputably in default. Any

* See Archer Daniels, 704 F.2d at 941; Hendrix v. Poonai, 662 F.2d 719, 722

(11th Cir. 1981) (declining to opine on whether proposed action would violate

antitrust laws, stating that while “the decisionmakers would benefit greatly

by having guidance as to the potential legal ramifications of their deci-

sions. ..such guidance prior to the making of the decision. . .is the role of

counsel, not of the courts”); Fitzgerald v. McChesney, 336 F.2d 905, 910 (D.C.

Cir. 1964) (While “[t]he declaratory judgment is a valuable addition to the

array of modern judicial remedies, ...it was never intended as a device for

relegating to the courts responsibilities reposed initially in private parties.”);

Bellefonte Reinsurance Co. v. Aetna Casualty & Sur. Co., 590 F. Supp. 187,

193 (S.D.N.Y. 1984) (the requirements of justiciability are not satisfied by a

plaintiff who merely alleges that it “‘is at a loss to know what course to pur-

sue’”) (quoting Duart Mfg. Co., Ltd. v. Philad Co., 30 F. Supp. 777, 779-80

(D. Del. 1939)); M & M Transp. Co. v. U.S. Industries, Inc., 416 F. Supp. 865,

870-71 (S.D.N.Y. 1976).

12

cataclysmic repercussions of that default have either been visited

on E-II or have been stayed by the hand of the Trustees, the

bondholders and/or any other creditors of E-II. Under these cir-

cumstances, the Trustees are no longer suffering an injury or

threat of injury sufficient to confer standing on them to seek

declaratory judgment. See Allen v. Wright, 468 U.S. 737, 751

(1984); Warth v. Seldin, 422 U.S. 490, 501 (1975); Vickers, 827

F.2d at 231-32.

B. THERE ARE NO SPECIAL OR IMPORTANT

REASONS TO GRANT THE PETITION

This Court’s rules provide that “[a] petition for a writ of cer-

tiorari will be granted oniy when there are special and impor-

tant reasons therefor.” Sup. Ct. R. 10. None of the traditional

reasons for granting certiorari is present here.

1. The Sole Federal Question Presented Has Been

Settled By This Court Adversely To Petitioners

The decision of the Court of Appeals that the Trustees’ prayers

for declaratory relief regarding indenture compliance failed to

present a justiciable case or controversy was based squarely on

this Court’s decision in Princeton University v. Schmid, supra,

455 U.S. at 102. (PA 7-8.) In that case, the University was an

intervening party to a criminal appeal in which the New Jersey

Supreme Court had reversed Schmid’s criminal trespass convic-

tion on the ground that certain University regulations had

violated Schmid’s rights of free speech and assembly under the

New Jersey Constitution. 455 U.S. at 101. The University ap-

pealed to this Court and filed a jurisdictional statement claim-

ing an abridgment of its federal constitutional rights. Id. The

State of New Jersey did not file a separate jurisdictional state-

ment, but filed a brief stating that it “deem[ed] it neither

necessary nor appropriate to express an opinion on the merits

of the respective positions of the private parties to this action.”

Id. at 102.

This Court dismissed the University’s appeal for lack of

jurisdiction because the issue of the validity of the University’s

13

regulations had been mooted by the withdrawal of those regula-

tions during the pendency of Schmid’s appeal to the New Jersey

Supreme Court. Jd. The Court concluded, moreover, that the

State’s presence in the case did not create an independent basis

for jurisdiction precisely because the State had failed to take

a position on the merits, stating:

“Had the University not been a party to this case

in the New Jersey Supreme Court and had the State

filed a jurisdictional statement urging reversal, the ex-

istence of a case or controversy — and of jurisdiction

in this Court — could not be doubted. However, if

the State were the sole appellant and its jurisdictional

statement simply asked for review and declined to take

a position on the merits, we would have dismissed the

appeal for want of a case or controversy. We do not

sit to decide hypothetical issues or to give advisory

opinions about issues as to which there are not adverse

parties before us. See, e.g., Sierra Club v. Morton, 405

U.S. 727, 731-732 (1972); Flast v. Cohen, 392 U.S. 83,

99 (1968). Thus the presence of the State of New Jersey

in this case does not provide a sound jurisdictional

basis for undertaking tc decide difficult constitutional

issues.

Id. (emphasis added).

In the case at bar, the Trustees are the sole appellants and they

have declined to take a position on the merits of the issue whether

the questioned transactions gave rise to a default under the in-

dentures. The Court of Appeals thus correctly concluded that

no case or controversy exists with respect to the portion of the

Trustees’ complaint seeking an “advisory opinion” as to whether

the questioned transactions give rise to a default.” (PA 7-8.)

” The Trustees assert that “[t]he present case does not suffer from any of the

substantive infirmities that plagued Schmid.” (Pet. at 17.) This could not be

further from the truth. As demonstrated above, the Trustees are not adverse

parties on seven of their eight claims; like the University, they are pressing moot

claims; claims which suffer frorm the same disinterested neutrality evidenced

by the State of New Jersey in that case. v

14

2. No Court of Appeals’ Decision Is In Conflict

With The Decision Below

Significantly, the Trustees do not identify a single federal ap-

pellate court decision in conflict with the decision below. As the

Court of Appeals correctly noted, the Trustees fail to cite a single

case directly supporting the proposition that trustees, unlike any

other litigant, may sue for declaratory relief in federal court

without taking a position on the merits of the underlying issue.

(PA 7 n.11.) The absence of any direct conflict among the cir-

cuits makes the exercise of certiorari jurisdiction inappropriate

here. See Vazquez v. United States, 454 U.S. 975, 976 (1981);

NLRB vy. Pittsburgh S.S. Co., 340 U.S. 498, 502 (1951); Wiscon-

sin Elec. Co. v. Dumore Co., 282 U.S. 813 (1931).

The Trustees criticize the Court of Appeals for even consider-

ing whether it had Article III jurisdiction, contending that

“[jJurisdictional concerns are no barrier to obtaining judicial

instructions in federal court when diversity jurisdiction is

alleged” and “[t]hus the Appellate Court’s search for a jurisdic-

tional basis need go no further than the law of New York, which

specifically authorizes trustee actions for judicial instructions.”

(Pet. at 21.) What the Trustees fail to comprehend is that state

courts are not subject to the “case or controversy” requirement

of Article III of the United States Constitution nor the “actual

controversy” requirement of the federal Declaratory Judgment

Act. It is axiomatic that state law cannot alter or expand the

jurisdiction of federal courts. Watson v. Tarpley, 59 U.S. 517

(1855); Barrow S.S. Co. v. Kane, 170 U.S. 100 (1898).”

" The Trustees implicitly concede the complete lack of support for their posi-

tion, by relying on cases which they admit “do not specify whether a position

was taken in the pleadings.” (Pet. at 24 n.16.)

“ This argument also completely ignores the well-settled principle that ques-

tions of procedure relating to actions brought in the federal court system are

governed by federal law. Hanna v. Plumer, 380 U.S. 460, 471 (1965); Aetna

Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937) (operation of the Declaratory

Judgment Act is procedural).

(Footnote continued)

15

3. Trustees’ Petition Does Not Present An

Important Question Of Federal Law

The Trustees’ Petition does not present to the Court an unset-

tled, important question of federal law. Rather, as demonstrated

above, to the extent that any federal issue is presented by the

Petition, this Court’s decision in Schmid is dispositive.

Unsatisfied with the Court of Appeals’ decision, the Trustees

complain that “[b]y grafting the artificial and constitutionally

unnecessary condition that trustees ‘take a position’ onto the case

or controversy requirement, the Appellate Court has rendered

the Declaratory Judgment Act incapable of performing its in-

tended function... .” (Pet. at 13.) To the contrary, the “actual

controversy” requirement of the Declaratory Judgment Act is

neither “artificial” nor “unnecessary;” it “is a jurisdictional prere-

quisite of constitutional dimension.” Grafon Corp. v. Hauser-

mann, 602 F.2d 781, 783 (7th Cir. 1979). In effect, what the

Trustees seek is an exemption, applicable only to indenture

trustees, from the ordinary application of a statutory and con-

stitutional requirement. Such an exemption would be wholly

unprecedented and unwarranted.

To the extent that the Trustees claim the ruling below will

place other trustees in a similar “quandary the likes of Scylla

and Charybdis,” that quandary is no different from that of most

other litigants who must choose whether or not to commence

litigation on the basis of less than perfect information.” In any

event, given E-II’s March 1991 payment default and the ensu-

ing negotiations, the Trustees and the bondholders whose in-

terests they represent may well be in a better position to obtain

the information they desire from E-II now than they were

Moreover, since the Trustees failed to raise this argument in either the District

Court or the Court of Appeals, it is not properly before this Court for con-

sideration. Patrick v. Burget, 486 U.S. 94, 99 n.5 (1988); Delta Air Lines, Inc.

v. August, 450 U.S. 346, 362 (1981).

" The nature of the Trustees’ “quandary” is vastly overstated. The Court of

Appeals specifically stated that its holding should not be interpreted as re-

quiring the Trustees to issue a Notice of Default before their claims will be

justiciable (PA 9 n.16.)

a

16

previously. (See Pet. at 9 n.8. (acknowledging that E-II has been

voluntarily sharing information with “certain large holders” of

its bonds).) Should the Trustees ultimately obtain information,

whether from E-II or other sources, substantiating any of the

minority bondholders’ claims, they can then take appropriate

action.

4. The Trustees’ Claimed Errors Of State Law

Do Not Constitute An Appropriate Subject

For This Court’s Review

The Court of Appeals held that, as a matter of New York law,

the Trustees lacked any contractual right to information beyond

the Officers’ Certificates and Opinions of Counsel specifically

required by the indentures and furnished by E-II. The Trustees

argue that the ruling of the Court of Appeals “misinterprets”

New York law and that the “implied covenant of good faith and

fair dealing” entitled the Trustees to the additional information

they sought. (Pet. at 26.)" American respectfully submits that,

even if this assertion were true, which it is not, the Trustees’

challenge to the Court of Appeals’ determination of an issue of

state contract law is not a matter of sufficient import to war-

rant a grant of certiorari jurisdiction. See Haring v. Prosise, 462

U.S. 306, 314 n.8 (1983) (“[S]tanding alone, a challenge to state-

law determinations by the court of appeals will! rarely constitute

an appropriate subject of this Court’s review.”).

This challenge is particularly inadequate in the instant case

where the decision below is completely consistent with the body

“ Before the Court of Appeals the Trustees also argued that the express terms

of the indentures granted them the right to the additional information they

had demanded. The court held that this argument had been consciously and

deliberately waived (PA 11), before going on to state that were it to reach the

issue it would “feel compelled to agree with the district court” and find against

the Trustees as this argument was “more wishful thinking than anything else”

(PA 12). Prudently, the Trustees do not reassert this argument in the Petition.

Similarly, the Trustees do not challenge the Court of Appeals’ holding that

the TIA does not afford them a right to the additional information they seek.

The argument has thus been waived. Sup. Ct. R. 14.1(a).

17

of New York law rejecting efforts by bondholders and inden-

ture trustees to use the implied covenant of good faith and fair

dealing to impose on an issuer new, substantive and unbar-

gained-for obligations inconsistent with the terms of the

indenture.’

'S See Broad v. Rockwell Int1 Corp., 642 F.2d 929 (5th Cir. 1981), cert. denied,

454 U.S. 965 (1981); Hartford Fire Ins. Co. v. Federated Dep't Stores, Inc.,

723 F. Supp. 976 (S.D.N.Y. 1989); Metropolitan Life Ins. Co. v. RJR Nabisco,

Inc., 716 F. Supp. 1504, 1519 (S.D.N.Y. 1989) (“These plaintiffs do not invoke

an implied covenant of good faith to protect a legitimate, mutually con-

templated benefit of the indentures; rather, they seek to have this Court create

an additional benefit for which they did not bargain.”); see also Don King

Prods., Inc. v. Douglas, 742 F. Supp. 741, 767 (S.D.N.Y. 1990) (“The implied

covenant does not operate to create new contractual rights.”); Rowe v. Great

Atl. & Pac. Tea Co., Inc., 46 N.Y.2d 62, 412 N-Y.S.2d 827, 385 N.E.2d 566 (1978);

Havel v. Kelsey-Hayes Co., 83 A.D.2d 380, 445 N.Y.S.2d 333 (4th Dep't 1981);

cf. Van Gemert v. Boeing Co., 520 F.2d 1373 (2d Cir. 1975), cert. denied, 423

U.S. 947 (1975) (invoking implied covenant to prevent deprivation of

“bargained-for” rights).

18

CONCLUSION

For the reasons stated above, Respondent, American Brands,

Inc., respectfully requests that the Trustees’ Petition for a Writ

of Certiorari to the United States Court of Appeals for the

Seventh Circuit be denied.

Dated: September 3, 1991

Respectfully submitted,

DaniEt J. O'NEILL

(Counsel of Record)

DonaLp W. RosE

Trin1 L. Donato

CHADBOURNE & PARKE

30 Rockefeller Plaza

New York, New York 10]12

(212) 408-5100

Attorneys for Respondent

American Brands, Inc.

Of Counsel:

ANDREW G. RAK

AMERICAN BRANDS, INC.

1700 East Putnam Avenue

Old Greenwich, Connecticut 06870

(203) 698-5000

Eric M. Roru

JOHN F. SAvARESE

WACHTELL, Lipron, Rosen & Katz

299 Park Avenue

New York, New York 10171

(212) 371-9200

RESPONDENT'S APPENDIX 1

RA-1

RESPONDENT'S APPENDIX 1

E-II HOLDINGS INC.

June 22, 1988

Ms. Carolyn Potter

Assistant Vice President

Harris Trust and Savings Bank

111 West Monroe Street

Chicago, Illinois 60690

Dear Ms. Potter:

This is in response to your letter of June 15, 1988 in which

you request an opinion of counsel and certain other informa-

tion regarding the sale by American Brands, Inc. (“American”)

of the stock of E-II Holdings Inc. (“E-II”) to a subsidiary of Riklis

Family Corporation and the sales to be made by E-II to

American of certain E-II subsidiaries.

In accordance with your request, the following is a descrip-

tion of the transactions. American entered into a Stock Sale

Agreement on June 12, 1988 whereby it agreed to sell all the

stock of E-II to McGregor Acquisition Corp., a subsidiary of

privately held Riklis Family Corporation. Riklis Family Cor-

poration also owns McCrory Stores and Faberge/Elizabeth

Arden. American will purchase from E-II the following com-

panies: Aristokraft, Inc., Waterloo Industries, Inc. and Twen-

tieth Century Companies, Inc. American has already purchased

Day-Timers, Inc. and Vogel Peterson Company from E-II. In

addition, American will also acquire from E-II two other opera-

tions — The Stiffel Company and Aunt Nellie’s Farm Kitchens,

Inc. — the resale of both of which it is presently negotiating.

The purchase price for the five companies being retained by

American is $645 million.

McGregor Acquisition Corp. will pay approximately $950

million in cash, subject to closing adjustment, plus $250 million

face amount of preferred stock. The $1.5 billion in subordinated

RA-2

debt, including the Notes covered by the Indenture, will remain

with E-II. The companies being retained by E-II include

Culligan International Company, Samsonite Corporation, Sam-

sonite Furniture Co., Home Fashions, Inc., Beatreme Food In-

gredients, Inc., Frozen Specialties, Inc., Lowrey’s Meat

Specialties, Inc., Martha White Foods, Inc. and Pet Specialties,

Inc. The sale is subject to compliance with the Hart-Scott-

Rodino Antitrust Improvements Act of 1976.

Let me assure you that the transactions, including the planned

sales of certain E-II subsidiaries to American, will be in full com-

pliance with the Indenture. While it should not be assumed that

the prior sales by E-II of Day-Timers, Inc. and Vogel Peterson

Company te subsidiaries of American were necessarily transac-

tions related to the planned sales, such prior sales were in full

compliance with the Indenture. In accordance with your re-

quest, we are enclosing an opinion of counsel covering the pro-

posed transactions and prior sales. We note, however, that the

Indenture does not require the delivery of such an opinion.

Please note that E-II was formed as an entity which would

be engaged in the business of making acquisitions and

divestitures. The sales of the E-II subsidiaries to American is

in keeping with its announced business purpose. The Prospec-

tus dated July 2, 1987 for the issuance of the Notes provides:

“(E-II] is a newly formed holding company that will

manage a portfolio of businesses and will seek to

enhance its valup through leveraged acquisitions, im-

proved management of operations, selective disposi-

tions and corporate restructurings.”

“Management of the Company expects to devote

substantial time and resources to analyzing the

possibility of investing in additional businesses, mak-

ing and monitoring investments in publicly-owned

companies, acquiring companies, rationalizing the

operations of acquired businesses with those of the

RA-3

Company’s existing businesses and disposing of

businesses or parts of businesses as opportunities arise

to enhance shareholder value.”

“Management anticipates reviewing the Company’s

portfolio of companies and investments on a regular

basis. Such periodic reviews of the operating per-

formance over time, the need for capital, general

market, economic and business conditions, the

perceived ability to further improve the operating

company, the availability of buyers and values

ascribed by the market will be among the factors con-

sidered in deciding whether to dispose of a business.

When a business is disposed of, the Company may re-

tain an equity interest in it or in the acquiring com-

pany. The Company expects to retain cash proceeds

from dispositions and use such cash to reduce debt,

to make-further investment or for other corporate pur-

poses.

“Character of Investment. In view of management's

intention to engage in significant purchases and sales

of businesses, investors face the risk, in addition to that

inherent in the ownership of any security, that the

Company might ultimately have a risk profile which

differs in material respects from that which it had at

the date hereof.”

It is intended that the cash received by E-II from the sales

of its subsidiaries will be used in the furtherance of its corporate

purposes.

We have not enclosed the pro forma financial information

that you requested. The furnishing of such information is not

required by the Indenture and, given the nature of the sale of

E-II and the sales by E-II to American which are covered by

RA-4

the enclosed opinion of counsel, such financiais do not appear

to have any relevance to the issues you have raised.

Please note that an annual Officers’ Certificate was recently

delivered regarding compliance with the Indenture. The

proposed transactions are also fully in compliance with the In-

denture. We trust that the foregoing and the enclosed opinion

will resolve any issues you might have with respect to these

matters.

Very truly yours,

/s/D. L. Bauerlein, Jr.

D. L. Bauerlein, Jr.

Vice President and Treasurer

RA-5

CHADBOURNE & PARKE

30 Rockefeller Plaza

New York, N.Y. 10112

June 22, 1988

Harris Trust and Savings Bank

111 West Monroe Street

Chicago, Illinois 60690

Attention: Carolyn Potter

Assistant Vice President

Gentlemen:

E-II Holdings Inc. (“E-II’”) has requested that we render our

opinion to you with respect to the announced sale by subsidiaries

of E-II to American Brands, Inc. (“American”), a Delaware cor-

poration and currently the sole stockholder of E-II, of the follow-

ing subsidiaries of L-II: Waterloo Industries, Inc. (“Waterloo”),

Aristokraft, Inc. (“Aristokraft”), Twentieth Century Companies,

Inc. (“Twentieth Century”), The Stiffel Company (“Stiffel”) and

Aunt Nellie’s Farm Kitchens, Inc. (“Aunt Nellie’s”) and the sale

by American to a subsidiary of Riklis Family Corporation

(“RFC”), a Delaware corporation, of all the outstanding stock

of E-II. You have also requested that our opinion cover the sale

by subsidiaries of E-II to a subsidiary of American of all the

outstanding stock of Day-Timers, Inc. (“Day-Timers”) and Vogel

Peterson Company (“Vogel Peterson”). Waterloo, Aristokraft,

Twentieth Century, Stiffel, Aunt Nellie’s, Day-Timers and Vogel

Peterson are sometimes referred to collectively in this opinion

as the “Divested Subsidiaries.”

For purposes of this opinion, we have reviewed the provisions

of the Indenture dated as of July 1, 1987 between E-II and Harris

Trust and Savings Bank as Trustee (the “Indenture”) covering

E-II’s 12.85% Senior Subordinated Notes due 1997 (the “Notes”)

and, in particular, we have considered Sections 4.02, 4.06 and

5.01 thereof. We have also reviewed the Stock Sale Agreement

dated as of June 12, 1988 between American and a Riklis

RA-6

subsidiary providing for the sale of E-II stock, the audited finan-

cial statements of E-II and the Divested Subsidiaries, the recom-

mendation of Morgan Stanley & Co. Incorporated (the finan-

cial advisor to E-II with respect to the sales of the Divested Sub-

sidiaries), the resolutions of the boards of directors of E-II and

E-II Consumer Products Company, Inc. relating to the March

31, 1988 sale of Day-Timers and the resolutions of the boards

of directors of E-II and Samsonite Furniture Co. relating to the

April 15, 1988 sale of Vogel Peterson, as well as such other mat-

ters as we have deemed relevant for the purpose of rendering

our opinion as set forth herein. We have been informed by E-II

that Day-Timers and Vogel Peterson have been sold for at least

their book value and that the other Divested Subsidiaries will

be sold for at least the book value thereof.

Based upon the types of transactions in which American or

its subsidiary has acquired or will acquire the Divested Sub-

sidiaries and American will sell the E-II stock to a RFC sub-

sidiary, the nature and amount of assets included in the Divested

Subsidiaries and other legal considerations that we deem rele-

vant, it is our opinion that Section 5.01 of the Indenture (which

is limited to consolidations, mergers and transfers of all or

substantially all of E-II’s assets) is not applicable to the sale by

American of the E-II stock nor the sale by subsidiaries of E-II

of the Divested Subsidiaries. In this connection, we have been

advised that the value of the assets of the Divested Subsidiaries

is only approximately 25% of E-II’s assets. We also have noted

the express purpose for E-II’s formation, as set forth in its Pro-

spectus dated July 2, 1987 for the Notes, was to acquire, manage

and sell a portfolio of businesses, and that Prospectus pointed

out that the profile of E-II might ultimately differ from that

which existed at the time of the issuance of the Notes.

It is also our opinion that the sale of the Divested Subsidiaries

at no less than their book value will be in compliance with Sec-

tion 4.02 of the Indenture.

It is our further opinion that Section 4.06 of the Indenture

(which is limited to maintenance of properties) is not applicable

to the past and proposed transactions relating to the Divested

RA-7

Subsidiaries, all of which involve sales of the stock thereof and,

as indicated above, are consistent with the Prospectus disclosure

described above. Even if Section 4.06 of the Indenture were held

to apply, however, its provisions would be met. We note that

the resolutions of the boards of directors of E-II and E-II Con-

sumer Products Company, Inc. adopted on March 30, 1988 pro-

vided that the sale of Day-Timers to American was desirable

in the conduct of the businesses of E-II and E-II Consumer Prod-

ucts Company, Inc. and was not adverse in any material respect

to the holders of the Notes. The resolutions of the boards of direc-

tors of E-Ii and Samsonite Furniture Co., a subsidiary of E-II,

for the sale by Samsonite Furniture Co. of Vogel Peterson to a

subsidiary of American likewise vrovided that such sale was

desirable in the conduct of the businesses of E-II and Samsonite

Furniture Co. and was not adverse in any material respect to

the holders of the Notes. Based on the foregoing and other legal

considerations that we deem relevant, it is our opinion that, if

Section 4.06 of the Indenture were held to be applicable, those

sales were in compliance with Section 4.06. While corporate ac-

tion by E-II and its subsidiaries has not as yet been taken with

respect to the sale to American of Waterloo, Aristokraft, Twen-

tieth Century, Stiffel and Aunt Nellie’s, we have no reason to

believe that the appropriate boards of directors will not make

similar determinations in connection with the proposed sales

of these companies.

In conclusion, it is our opinion that the sale by American of

the E-II stock as contemplated by the Stock Sale Agreement and

the purchases by American or its subsidiary of the Divested Sub-

sidiaries have been or will be in compliance with the provisions

of the Indenture.

Very truly yours,

/s/Chadbourne & Parke

“RAS

E-II HOLDINGS INC.

July 1, 1988

Ms. Carolyn Potter

Assistant Vice President

Harris Trust and Savings Bank

111 West Monroe Street

Chicago, Illinois 60690

Dear Ms. Potter:

This is in response to your letter of June 22, 1988 in which

you request additional information regarding sales proposed to

be made by E-II Holdings Inc. (“E-II”) of certain of its sub-

sidiaries to American Brands, Inc. (“American”).

The opinion of counsel, which we sent to you on June 22,

1988, noted that the sales of Waterloo Industries, Inc.,

Aristokraft, Inc., Twentieth Century Companies, Inc., The Stiffel

Company and Aunt Nellie’s Farm Kitchens, Inc. will be made

at a price at least equal to the book value thereof. This will con-

firm to you that such sales will be made at a price to be received

by E-II considerably in excess of the book value thereof. In ad-

dition, the sales of Day-Timers, Inc. and Vogel Peterson Com-

pany to a subsidiary of American were also in excess of the book

value thereof.

Your assumption that we have consulted with experts on these

sales is correct. E-JI has consulted with Morgan Stanley & Co.

Incorporated with respect to these sales and we enclose at your

request a copy of the opinion of Morgan Stanley that the con-

sideration to E-II as a result of these sales is fair to E-II from

a financial point of view. This opinion of Morgan Stanley is not

publicly available information and we trust that you will treat

it in a confidential manner.

Very truly yours,

/s/D.L. Bauerleia, Jr.

D.L. Bauerlein, Jr.

Vice President and Treasurer

oF?

:

MORGAN STANLEY

MORGAN STANLEY & CO.

INCORPORATED

1251 AVENUE OF THE AMERICAS

NEW YORK, NEW YORK 10020

June 14, 1988

Board of Directors

E-II Holdings Inc.

1700 East Putnam Avenue

Old Greenwich. CT 06870

Dear Sirs:

We understand that E-II Consumer Products Company, Inc.

(“Consumer Products”), a subsidiary of E-II Holdings Inc. (“E-

II”) has sold or intends to sell all of the issued and outstanding

shares of AristoKraft, Inc., Vogel Peterson Company, Day-

Timers, Inc., Twentieth Century Companies, Inc., Waterloo In-

dustries, Inc. and The Stiffel Company (the “Consumer Disposed

Subsidiaries”) to American Brands, Inc. or a subsidiary thereof

(“American Brands”) and, in addition, E-II Food Specialties

Company, Inc. (“Food Specialties”), a subsidiary of E-II, intends

to sell all of the issued and outstanding shares of Aunt Nellie’s

Farm Kitchens, Inc. (“Aunt Nellie’s”) to American Brands. (Col-

lectively, the Consumer Disposed Subsidiaries and Aunt Nellie’s

are referred to as the “Disposed Subsidiaries”). E-II also has sold

or will sell to American Brands or a subsidiary thereof prom-

issory notes owing from certain of the Disposed Subsidiaries to

E-II. We further understand that American Brands will pay a

total of $693 million in cash at the various closings of the sales

of the Disposed Subsidiaries.

You have requested our opinion as to whether the total considera-

tion to be paid to Consumer Products and Food Specialties for

the Disposed SubsiJiaries is fair to E-II, Consumer Products and

Food Specialties from a financial point of view.

In connection with our opinion set forth herein, we have, among

other things:

(i)

(ii)

(iii)

RA-10

reviewed the financial results for recent years, for

interim periods to date and financial projections

of the Disposed Subsidiaries, obtained from the

management of E-II or from the management

of the subsidiary operating entities;

discussed with certain members of E-II senior

management the operating performance of the

Disposed Subsidiaries for recent years and for in-

terim periods to date, and the projected finan-

cial performance of such entities in the near

future;

analyzed published information regarding cer-

tain comparable companies and compared cer-

tain financial statistics of the Disposed Sub-

sidiaries with the same statistics of these other

companies;

reviewed the financial terms, to the extent public-

ly available, of certain comparable acquisitions;

and

performed such other analyses and examinations

as we have deemed appropriate.

In rendering our opinion, we have assumed and relied upon the

accuracy and completeness of all information supplied to us by

the managements of E-II and the Disposed Subsidiaries. We have

not undertaken any independent verification of any such

information.

Based upon the foregoing, we are of the opinion that the total

consideration to be paid to Consumer Products for the sale of

Consumer Disposed Subsidiaries and to Food Specialties for the

sale of Aunt Nellie’s is fair to E-I1, Consumer Products and Food

Specialties from a financial point of view.

Very truly yours,

MORGAN STANLEY & CO. INCORPORATED

By: /s/Joseph G. Fogg, III

Joseph G. Fogg, III

Managing Director