Opposition Brief — AZL Resources, Inc. v. Margaret Hall Foundation, Inc.

| |. Supreme Court, U.S,

0) (|< EILED

No. 85-1877. i —

B Grecus GER

In the bene

ee -

Supreme Court of the United Sta

OcTOBER TERM, 1985.

AZL RESOURCES, INC.,

PETITIONER,

Vv.

MARGARET HALL FOUNDATION, INC., ET AL.,

RESPONDENTS.

Brief in Opposition to Petition for a Writ of Certiorari

to the United States Court of Appeals

for the First Circuit.

PETER J. SCHNEIDER,

Counsel of Record

LAWRENCE G. CETRULO,

Burns & LEVINSON,

50 Milk Street,

Boston, Massachusetts 02109.

(617) 451-3300

Of Counsel:

SAMUEL ADAMS,

WARNER & STACKPOLE,

28 State Street,

Boston, Massachusetts 02109.

(617) 725-1400

BATEMAN & SLADE. INC.

BOSTON, MASSACHUSETTS

Question Presented.

Whether Section 20(a) of the Securities Exchange Act of

1934 precludes the assertion of liability, based on common

law principles of apparent authority, against a corporation for

the misrepresentations of an important corporate officer.

- eI LEL ET LN AD

er rare eeme, ee

Fn —

List of Parties.

The list of parties is as stated by the petitioner.

}

Rule 28.1 List.

Margaret Hall Foundation, Inc. and Lexington Cemetery

Co., Inc. have no parent companies, subsidiaries or affiliates.

The Plymouth-Home National Bank is a subsidiary of Conifer

Group, Inc. The following companies are also subsidiaries of

Conifer Group, Inc.: Bank of Cape Cod, Berkshire Bank &

Trust Company, Essex Bank, Guaranty Bank & Trust Com-

pany, Conifer Computer Services, Inc. and Union National

Bank.

Table of Contents.

Opinions below

Jurisdiction

Statutes involved

Statement of the case

Summary of the argument

AA & NN N

Reasons for denying the writ

I. This Court’s exceptional power to review an ap-

peal from an interlocutory order should not be ex-

ercised in this case 6

II. This Court should not exercise its discretion to

grant AZL’s petition for a writ of certiorari because

AZL has failed to present any special or important

reasons to do so 8

A. The First Circuit correctly ruled that AZL is

liable for its agents’ misrepresentations made

with the apparent authority of AZL 8

B. The scienter requirement of Section 10(b) is

not vitiated by the First Circuit’s holding 10

C. Contrary to AZL’s assertions, no sharp conflict

exists between the circuits 11

Conclusion 13

Supplemental Appendix 15

Tabie of Authorities Cited.

Cases:

American Constr. Co. v. Jacksonville, T. & K. W. Ry.

Co., 148 U.S. 372 (1893) 7

ih el ial ian eee entail

il TABLE OF AUTHORITIES CITED.

American Society of Mechanical Engineers, Inc. v.

Hydrolevel Corp., 456 U.S. 556 (1982) 5n, 10

Armstrong, Jones & Co. v. SEC, 421 F.2d 359 (6th

Cir.), cert. denied, 398 U.S. 958 (1970) 12n

Carpenter v. Harris, Upham & Co., 594 F.2d 388 (4th

Cir.), cert. denied, 444 U.S. 868 (1979) 8

Carras v. Burns, 516 F.2d 251 (4th Cir. 1975) 12n

Carroll v. First National Bank of Lincolnwood, 413

F.2d 353 (7th Cir. 1969), cert. denied, 396 U.S.

1003 (1970) 12n

Christoffel v. E.F. Hutton & Co., 588 F.2d 665 (9th

Cir. 1978) 12n

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) 5n, 10

Fey v. Walston & Co., Inc., 493 F.2d 1036 (7th Cir.

1974) 12n

Hamilton-Brown Shoe Co. v. Wolf Brothers & Co.,

240 U.S. 251 (1916) 7,8

Henricksen v. Henricksen, 640 F.2d 880 (7th Cir.),

cert. denied, 454 U.S. 1097 (1981) 8

Holloway v. Howerdd, 536 F.2d 690 (6th Cir. 1976) 10, 12n

Johns Hopkins University v. Hutton, 422 F.2d 1124

(4th Cir. 1970), cert. denied, 416 U.S. 916 (1974) —=_:12n

Kamen & Co. v. Paul Aschkar & Co., 382 F.2d 689

(9th Cir. 1967), cert. granted, 390 U.S. 942, cert.

dismissed, 393 U.S. 801 (1968) 12n

Kerbs v. Fail River Industries, Inc. , 502 F.2d 731 (10th

Cir. 1974) 10, i2n

Lewis v. Walston & Co., Inc., 487 F.2d 617 (Sth Cir.

1973) 12n

Marbury Management, Inc. v. Kohn, 629 F.2d 705 (2d

Cir.), cert. denied, 449 U.S. 1011 (1980) 8, lin

Myzel v. Fields, 386 F.2d 718 (8th Cir. 1967), cert.

denied, 390 U.S. 951 (1968) 12n

TABLE OF AUTHORITIES CITED. ili

Paul F. Newton & Co. v. Texas Commerce Bank, 630

F.2d 1111 (Sth Cir. 1980) 12n

Rochez Brothers v. Rhoades, 527 F.2d 880 (3d Cir.

1975) . 12n

SEC v. Management Dynamics, Inc., 515 F.2d 801 (2d

Cir. 1975) lin

Sharp v. Coopers & Lybrand, 649 F.2d 175 (3d Cir.

1981), cert. denied, 455 U.S. 938 (1982) 8, 12n

Thomas v. Duralite Co., Inc., 524 F.2d 577 (3d Cir.

1975) 12n

United States v. A & P Trucking Co., 358 U.S. 121

(1958) 11

Zweig v. Hearst Corp., 521 F.2d 1129 (9th Cir.), cert.

denied, 423 U.S. 1025 (1975) 8, 12n

Statutes:

Securities Act of 1933

Section 2, 15 U.S.C. § 77b 3,9

Securities Exchange Act of 1934 6, 8, 9, 10

Section 10, 15 U.S.C. § 78) 2, 6, 10, 11

Section 20a, 15 U.S.C. § 78t 3, 5, 6, 9, 10

Sherman Act

15 U.S.C. §§ 1 et seq. 10

28 U.S.C. § 1292(b) 2n

Other Authorities:

United States Supreme Court Rule 17 6,7

Rule 10b-5 of the Securities and Exchange Commission 10, 11

er |

8 .

Va -

L

1

is

9

FY

Pre ee. ee SS ler eee oe

fe

iy

a

i

4

.

La

“i

: 7 bale at 7 ee ee

Sen eee a ee SOT |

No. 85-1877.

In the

Supreme Court of the United States.

OCTOBER TERM, 1985.

AZL RESOURCES, INC.,

PETITIONER,

v.

MARGARET HALL FOUNDATION, INC., ET AL.,

RESPONDENTS.

Brief in Opposition to Petition for a Writ of Certiorari

to the United States Court of Appeals

for the First Circuit.

The respondents' respectfully request that the petition for a

writ of certiorari to review the judgment and opinion of the

'The respondents, plaintiffs in six of twenty four actions consolidated in

the District of Massachusetts by the Judicial Panel on Multidistrict Litigation

under MDL Docket No. 584, are Margaret Hall Foundation, Inc., Lexington

Cemetery Co., Inc., Harley Anderson Haynes, Ruth Mann Horowitz, Robert

L. Horowitz as Trustee of the Alan J. Mann Trust, Susan P. Mann Trust and

Gail A. Mann Trust, Walter B. Gates, George M. Berman and Alan R. Shool-

man (as they comprise the Profit-Sharing Committee of the Unitrode Profit-

Sharing Plan and Profit Sharing Trust Fund), and Martin B. Hoffman (as

Trustee of Landlubber Deferred Profit Sharing Retirement Plan), individually

and on behalf of ail others similarly situated; Benjamin Slomoff; Gerald J.

Holton, Individually and as Employer and as Beneficiary of His Self-Employed

2

United States Court of Appeals for the First Circuit, entered

in this proceeding on February 19, 1986, be denied.

Opinions Below.

The opinions below are as stated by the petitioner.

Jurisdiction.

AZL’s statement of jurisdiction is correct, except insofar as

it states that on May 13, 1985 “the District Court of Massachu-

setts certified the issue herein for review.” Petition for a Writ

of Certiorari to the United States Court of Appeals for the First

Circuit (“Pet.”) 2. As set forth below in respondents’ statement

of the case, the question presented by AZL differs markedly

from the issue addressed by the District of Massachusetts’

February 15, 1985 order and from the issue decided by the

Court of Appeals for the First Circuit.

Statutes Involved.

15 U.S.C. § 78}. Manipulative and deceptive devices

It shall be unlawful for any person, directly or indirectly,

by the use of any means or instrumentality of interstate com-

Retirement Plan and Plymouth-Home National Bank as Trustee of a Self-Em-

ployed Retirement Plan, Gerald J. Holton FBO Gerald J. Holton; Bruno Rossi;

James P. Giblin individually, and James P. Giblin as Trustee of the James P.

Giblin Trust; and Michael Holt Massey. The six actions were the subject of

the February 15, 1985 District of Massachusetts decision from which petitioner

appealed to the Court of Appeals for the First Circuit, pursuant to 28 U.S.C.

§ 1292(b).

3

merce or of the mails or of any facility of any national securities

exchange:

(a) To effect a short sale, or to use or employ any stop-loss

order in connection with the purchase or sale, of any security

registered on a national securities exchange, in contravention

of such rules and regulations as the Commission may prescribe

aS necessary or appropriate in the public interest or for the

protection of investors.

(b) To use or employ, in connection with the purchase or

sale of any security registered on a national securities exchange

or any security not so registered, any manipulative or deceptive

device or contrivance in contravention of such rules and regula-

tions as the Commission may prescribe as necessary or appro-

priate in the public interest or for the protection of investors.

1S U.S.C. § 77b. Definitions

When used in this subchapter, unless the context otherwise

requires:

(2) The term-“person” means an individual, a corporation,

a partnership, an association, a joint-stock company, a trust,

any unincorporated organization, or government or political

subdivision thereof. As used in this paragraph the term “trust”

shall include only a trust where the interest or interests of the

beneficiary or beneficiaries are evidenced by a security.

IS U.S.C. § 78t. Liability of controlling persons

(a) Every person who, directly or indirectly, controls any

person liable under any provision of this chapter or of any rule

or regulation thereunder shall also be liable jointly and severally

with and to the same extent as such controlled person to any

person to whom such controlled person is liable, unless the

controlling person acted in good faith and did not directly or

indirectly induce the act or acts constituting the violation or

cause of action. ;

4

Statement of the Case.

Plaintiffs’ amended complaints allege that Maurice Strong

(“Strong”), the chairman of AZL Resources, Inc. (“AZL”),

acting with at least the apparent authority of AZL, engaged

in a scheme to disseminate materially false and/or misleading

information involving AZL and an impending block purchase

of AZL stock in order to manipulate the market price of AZL

common stock by artificially inflating its price. Supplemental

Appendix (“Supp. App.”). The amended complaints followed

an opinion dated July 31, 1984, in which the District Court

of Massachusetts (“District Court”) dismissed plaintiffs’ claims

against AZL because it found that the facts as alleged in the

original complaints negated any inference that the actions of

Strong and the other corporate officers and agents were per-

formed for AZL’s benefit, a necessary predicate for respondeat

superior liability.2 Appendix (“App.”) B, 23a. Thereafter, on

January 7, 1985, the District Court allowed plaintiffs’ motions

to amend to allege that Strong acted with “at least apparent

authority” — a theory of liability which does not require a

showing of benefit to AZL. App. C, 30a-31a.

AZL moved for reconsideration of the January 7, 1985 order,

arguing in essence that the theory of liability asserted against

AZL was based on respondeat superior, which, in AZL’s

view, had no applicability to securities fraud cases. App. D,

37a. In denying AZL’s motion for reconsideration on February

? As the plaintiffs have consistently argued below, the facts alleged by their

complaints, and the inferences to be drawn therefrom, are adequate to support

a finding that AZL stood to benefit from the misrepresentations of Maurice

Strong and other AZL officers and directors, and from the subsequent artificial

inflation of AZL’s stock price. AZL stood to benefit from the higher stock

price by obtaining an increased exchange ratio in any subsequent merger and

by more readily obtaining capital, absent a merger, to fund its oil exploration

activities.

5

15, 1985, the District Court held that the allegations of AZL’s

liability were legally sufficient based on a corporate principal’s

direct liability for the acts of its agents, not respondeat

superior. App. D, 38a.

The District Court subsequently allowed AZL’s request for

certification of the issue determined by the District Court’s

February 15, 1985 order. App. E, 39a. In an opinion dated

February 19, 1986, the First Circuit held that “section 20(a)

[of the Securities Exchange Act of 1934] does not preclude

the assertion of liability — based on common law notions of

‘apparent authority’ — against a corporation for the misrepre-

sentations of an important corporate officer.” App. A, 15a. It

is this decision that petitioner now seeks to have this Court

review.”

‘AZL framed the question presented here for review, Pet. I, in a manner

which is at variance with the First Circuit's narrow holding that “section 20(a)

does not preclude the assertion of liability — Lased on common law notions

of ‘apparent authority’ — against a corporation for the misrepresentations of

an important corporate officer.” App. A, 15a. The First Circuit made no attempt

to decide the general applicability of “principles of vicarious and strict liability”

— a far broader question than the narrow issue of the applicability of agency-

based liability premised on apparent authority addressed by the First Circuit. /d.

AZL’s statement of the case, Pet. 3-4, also contains inaccuracies. Contrary

to AZL’s assertions, Pet. 4, the issue decided by the First Circuit does not

“arise in the context of” a conflict between Ernst & Ernst v. Hochfelder, 425

U.S. 185 (1976) and American Society of Mechanical Engineers, Inc. v.

Hydrolevel Corp., 456 U.S. 556 (1982). Although the First Circuit does advert

briefly to the relationship between those two cases, App. A. Sa-6a, it is not

a focal point of the decision, primarily because, as discussed at Part II.B.,

infra, there is no conflict or inherent inconsistency between Hochfelder and

Hydrolevel. Further, as discussed at Part I1.C., infra, there is no sharp conflict

between the circuits as to the issue decided by the First Circuit.

6

Summary of the Argument.

This case presents no extraordinary circumstances warrant-

ing interlocutory review by this Court, which has consistently

refused to review cases concerning the applicability of common

law agency principles to securities laws violations. In holding

that Section 20(a) (“Section 20(a)”) of the Securities Exchange

Act of 1934, 15 U.S.C. §§ 78a et seq. (the “1934 Act”) does

not preclude the imposition of liability upon AZL for the mis-

representations of its chairman acting with its apparent author-

ity, the First Circuit decision comports with traditional agency

law principles, the remedial purposes and legislative history

of the 1934 Act, and the decisions of the clear majority of

circuits which have considered the issue. The First Circuit’s.

decision does not vitiate the scienter requirement of Section

10(b) of the 1934 Act (“Section 10(b)”) because the scienter

of AZL’s chairman, acting with apparent authority, is imputed

to AZL.

Reasons for Denying the Writ.

I. THE Court’s EXCEPTIONAL POWER TO REVIEW AN APPEAL

From AN INTERLOCUTORY ORDER SHOULD NOT BE EXER-

CISED IN THIS CASE.

Rule 17 of the Rules of the Supreme Court of the United

States provides, inter alia, that:

A review on writ of certiorari is not a matter of right,

but of judicial discretion, and will be granted only

when there are special and important reasons there-

for.

A

/

Moreover, as to interlocutory matters, this Court has long

applied an even more stringent standard for the grant of review,

holding that “except in extraordinary cases, the writ is not

issued until final decree,” Hamilton-Brown Shoe Co. v. Wolf

Brothers & Co., 240 U.S. 251, 258 (1916), and that a writ

of certiorari at an interlocutory stage of a case should not be

issued unless extraordinary inconvenience and embarrassment

in the conduct of a case will result from its denial. American

Constr. Co. v. Jacksonville, T.&K. W. Ry. Co., 148 U.S.

372, 384 (1893).*

No extraordinary circumstances are present here. First, AZL

will not suffer, nor can it plead, extraordinary inconvenience

by the denial of its petition. AZL is no different from any

other interlocutory petitioner which must bear whatever inher-

ent inconveniences litigation entails. Moreover, even if AZL

were not a party, it would still be extensively and centrally

involved in discovery and trial proceedings as plaintiffs pursue

their claims against Strong and the five other individual AZL

officers and directors. Thus, AZL’s presence as a party, by

itself, does not amount to “extraordinary inconvenience.” See

American Constr. Co., supra, at 384. Additionally, because

the First Circuit’s decision falls squarely within the clear major-

ity of circuits, as discussed at Part II.C., infra, no embarrass-

ment will occur by the denial of AZL’s interlocutory petition.

Finally, by allowing the case to proceed to a final disposition

below, AZL will have the opportunity to prove at trial that Strong

was not acting within his apparent authority or that the plaintiffs

could not reasonably have relied on any such apparent author-

*In American Constr. Co. the petitioner sought review of a nonfinal judg-

ment, arguing, among other grounds, that because one of the judges who took

part in the decision was forbidden by law to sit at the hearing, the disputed

decree was wholly void. To delay appeal until a final judgment was rendered

in that case was clearly an extraordinary waste of judicial and legal resources

and this Court, finding that the case satisfied the extraordinary circumstances

test, accordingly granted certiorari.

8

ity, thereby escaping liability under applicable agency princi-

ples, and rendering unnecessary any review by this Court of

the issue presented by AZL.

II. THis CourRT SHOULD Not EXERCISE ITs DISCRETION TO

GRANT AZL’s PETITION FOR A WRIT OF CERTIORARI BE-

CAUSE AZL Has FAILED TO PRESENT ANY SPECIAL OR

IMPORTANT REASONS TO Do So.

\

Since 1975 this Court has consistently declined to review

cases concerning the applicability of common law agency prin-

ciples to securities laws violations. See, e.g., Sharp v. Coopers

& Lybrand, 649 F.2d 175 (3d Cir. 1981), cert. denied, 455

U.S. 938 (1982); Henricksen v. Henricksen, 640 F.2d 880

(7th Cir.), cert. denied, 454 U.S. 1097 (1981); Marbury Man-

agement, Inc. v. Kohn, 629 F.2d 705 (2d Cir.), cert. denied,

449 U.S. 1011 (1980); Carpenter v. Harris, Upham & Co.,

594 F.2d 388 (4th Cir.), cert. denied, 444 U.S. 868 (1979);

Zweig v. Hearst Corp., 521 F.2d 1129 (9th Cir.), cert. denied,

423 U.S. 1025 (1975). As demonstrated below, there is nothing

in this case of such “peculiar gravity and general importance”,

Hamilton-Brown Shoe Co., svora at 258, to warrant this

Court’s departure from its prio. practice.

A. The First Circuit Correctly Ruled :nat AZL is Liable for

Its Agents’ Misrepresentations Made with the Apparent

Authority of AZL.

The First Circuit’s decision is well within the ambit of tradi-

tional agency law in holding that AZL is liable under the 1934

Act for the misrepresentations of its chairman. Recognizing the

remedial purposes of the 1934 Act, the First Circuit reasoned:

\

9

[A]s between the corporation that has placed the

official in a position to invoke its authority (though

improperly) and a victim, it. seems fairer that the

former bear the burden of an uncompensated loss.

Further, imposing such liability will encourage cor-

porate officials to prevent unauthorized (but ‘appar-

ently authorized’) misrepresentations, thereby help-

ing to achieve an important Securities [Exchange]

Act purpose.

App. A, 8a-9a.

After concluding that imposition of vicarious liability upon

a corporation for the “apparently authorized” misrepresenta-

tions of a high corporate officer is consistent with the policies

and purposes of the 1934 Act, the First Circuit examined

whether the inclusion of Section 20(a) was intended to preclude

the imposition of vicarious liability. The First Circuit aligned

itself with the majority of other circuits which have found

nothing in the legislative history of Section 20(a) to indicate

that it was intended to be the exclusive basis for imposing

liability on one “who, directly or indirectly, controls any person

liable.” App. A, 9a-12a, see also Part II.C., infra. Instead,

the First Circuit concluded that the legislative history of Section

20(a) “makes clear that the section was aimed at expanding

liability, rather than contracting it,” App. A, 9a, and stated

that “by explicitly including corporations in its definition of

‘person’, 15 U.S.C. § 77(b)(2), the statute seems to foresee

that corporations will be held liable.” App. A, 12a.

Because, as the First Circuit recognized, corporations can

act only through their agents, this liabilit,’ can only be imposed

through principles of vicarious liability. Further, the facts and

theories of this case place it “in the heartland of traditional

agency law.” App. A, 15a. Thus, it would do violence to the

10

statutory framework to hold that principles of vicarious liability

do not apply and Section 20(a) is the exclusive basis for impos-

ing secondary liability under the 1934 Act.

The First Circuit’s decision below is fully consistent with

this Court’s holding in American Society of Mechanical En-

gineers, Inc. v. Hydrolevel Corp., 456 U.S. 556, 570 (1982),

a case arising under the Sherman Act, 15 U.S.C. §§ 1 et seq.,

that “a principal is liable for an agent’s fraud though the agent

acts solely to benefit himself, if the agent acts with apparent

authority.” /d. at 566. This Court recognized that the “apparent

authority theory has long been the settled rule in the federal

system” and that liability has been imposed upon principals

based upon this theory in “a wide variety of areas.” Jd. at

567-568. In so holding this Court cited with approval two

federal securities laws cases which adhere to the majority view

that common law agency principles are available to impose

liability for violation of the securities laws. See Holloway v.

Howerdd, 536 F.2d 690 (6th Cir. 1976); Kerbs v. Fall River

Industries, Inc., 502 F.2d 731 (10th Cir. 1974).

B. The Scienter Requirement of Section 10(b) is Not

Vitiated by the First Circuit's Holding.

Faced with this Court’s affirmation of the vitality of the

common law agency principle of apparent authority in Hydro-

level, AZL incorrectly contends that imposition of liability

based on apparent authority in this case would be inconsistent

with this Court’s decision in Ernst & Ernst v. Hochfelder, 425

U.S. 185 (1976) (holding that scienter is a necessary element

of violations of Section 10(b) as implemented by Rule 10b-5).

Pet. 4. The First Circuit recognizes Hochfelder’s scienter re-

quirement, but correctly observes that the scienter requirement

— with respect to a corporation which employs those who

11

knowingly or recklessly make misrepresentations — can be

satisfied by the scienter of the agent. App. A, 5a-6a.

This Court has recognized that it is “elementary” that “im-

personal entities can be guilty of ‘knowing’ or ‘willful’ viola-

tions of regulatory statutes through the doctrine of respondeat

superior.” United States v. A & P Trucking Co., 358 U.S.

121, 125 (1958). The application of agency principles does

not undermine the elements of liability necessary to establish

a violation, but instead serves to identify those who may be

held vicariously liable for that violation. The scienter require-

ment of Section 10(b) is satisfied by the state of mind or

conduct of the agent, which may then, on appropriate facts,

be imputed to the corporation. Here, Strong’s willful and know-

ing violations of the 1934 Act must be imputed to AZL which

cloaked Strong, its chairman, with at least apparent authority.

C. Contrary to AZL’s Assertions, No Sharp Conflict

Exists Between the Circuits.

In Argument V. of its Petition (Pet. 18-21), AZL asserts

the existence of a “sharp conflict” between the circuits as

to the applicability of common law agency principles to

impose liability upon a principal for the securities fraud of

its agent. AZL’s assertion is inaccurate. By its decision

below, the First Circuit became the tenth circuit to address,

and the seventh to affirm, the applicability of common law

agency principles to violations of the securities laws. It

joined the clear majority of six other circuits — the Second,°

* Marbury Management, Inc. v. Kohn, 629 F.2d 705 (2d Cir.), cert. denied

449 U.S. 1011 (1980); SEC v. Management Dynamics, Inc., 515 F.2d 801,

812-813 (2d Cir. 1975).

12

Fourth,° Fifth,’ Sixth,* Seventh’ and Tenth"® Circuits — which

have expressly found those agency principles applicable. Only

three'' of the ten circuits appear to take a contrary view —

the Third, Eighth and Ninth — and, as the First Circuit noted

with respect to the Ninth and Third Circuits, the persuasive

force of the opinions of those circuits is limited by the fact

that those cases involved factual circumstances wherein trad-

itional agency principles prohibit or caution against liability.

App. A, 13a. Accordingly, there is no sharp conflict between

the circuits which would warrant this Court’s review.

*Carras v. Burns, 516 F.2d 251, 259, 261 (4th Cir. 1975); Johns Hopkins

University v. Hutton, 422 F.2d 1124, 1130 (4th Cir. 1970), cert. denied, 416

U.S. 916 (1974).

’ Paul F. Newton & Co. v. Texas Commerce Bank, 630 F.2d 1111, 1118-1119

(Sth Cir. 1980); Lewis v. Walston & Co., Inc., 487 F.2d 617, 623 (Sth Cir.

1973).

* Holloway v. Howerdd, 536 F.2d 690, 694-695 (6th Cir. 1976); Armstrong,

Jones & Co. v. SEC, 421 F.2d 359, 362 (6th Cir.), cert. denied, 398 U.S.

958 (1970).

*Fey v. Walston & Co., Inc., 493 F.2d 1036 (7th Cir. 1974); Carroll ~.

First National Bank of Lincolnwood, 413 F.2d 353, 358 (7th Cir. 1969), cert.

denied, 396 U.S. 1003 (1970).

Kerbs v. Fall River Industries, Inc., 502 F.2d 731 (10th Cir. 1974).

'' See, e.g., Sharp v. Coopers & Lybrand, 649 F.2d 175, 180-184 (3d Cir.

1981), cert. denied, 455 U.S. 938 (1982); Rochez Bros. v. Rhoades, 527 F.2d

880 (3d Cir. 1975); Thomas v. Duralite Co., Inc., 524 F.2d 577 (3d Cir.

1975); Myzel v. Fields, 386 F.2d 718, 738 (8th Cir. 1967), cert. denied, 390

U.S. 951 (1968); Christoffel v. E.F. Hutton & Co., 588 F.2d 665 (9th Cir.

1978); Zweig v. Hearst Corporation, 521 F.2d 1129, 1132-1133 (9th Cir.),

cert. denied, 423 U.S. 1025 (1975); Kamen & Co. v. Paul Aschkar & Co.,

382 F.2d 689 (9th Cir. 1967), cert. granted, 390 U.S. 942, cert. dismissed,

393 U.S. 801 (1968).

13

Conclusion.

For these reasons, a writ of certiorari should not issue to

review the judgment and opinion of the United States Court

of Appeals for the First Circuit.

Respectfully submitted,

PETER J. SCHNEIDER,

Counsel of Record

LAWRENCE G. CETRULO,

BURNS & LEVINSON,

50 Milk Street,

Boston, Massachusetts 02109.

(617) 451-3300

Of Counsel:

SAMUEL ADAMS,

WARNER & STACKPOLE,

28 State Street,

Boston, Massachusetts 02109.

(617) 725-1400

14

15 :

Supplemental Appendix.

IN RE: )

ATLANTIC FINANCIAL )

MANAGEMENT, INC. ) MDL DOCKET NO. 584

SECURITIES LITIGATION )

)

MARGARET HALL )

FOUNDATION, INC., ET AL, )

Plaintiffs ) CIVIL ACTION NO.

) 83-405-S

V. )

MAURICE STRONG, ET AL, )

Defendants )

== )

~

PLAINTIFFS’ AMENDMENT TO THEIR COMPLAINT

PURSUANT TO RULES 15 and 59 OF

TH L F CIVIL PROCEDURE

Plaintiffs hereby amend their Complaint by repeating and

realleging each and every allegation of Paragraphs 1-117, in-

clusive, and by adding:

(1) as Paragraphs 30a and 30b, to be inserted im-

mediately after Paragraph 30 and immediately pre-

ceding Paragraph 31, the following:

30a. During the period commencing at least as early as

April 1981 through at least March 1982, AZL was

actively seeking infusions of additional capital to

finance the exploitation and development of oil and

16

gas properties in which it held an interest. The

scheme and plan was calculated to assist AZL to

obtain the level of capital it needed because, by

increasing the market price of AZL stock, AZL (i)

increased its ability to obtain a favorable exchange

ratio in any stock-for-stock merger or acquisition

through which AZL would acquire a company pos-

sessing the requisite capital and/or (ii) increased the

amount of capital which AZL could raise directly

by selling or pledging its stock.

In disseminating the materially false and/or mislead-

ing information referred to in paragraph 30 Strong

acted with at least the apparent authority of AZL.

Plaintiffs by their attorney,

Lsi

Lawrence G. Cetrulo

BURNS & LEVINSON

50 Milk Street

Boston, MA 02109

(617) 451-3300