# Reply Brief — Green v. Santa Fe Industries, Inc.

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_2160%3A3

## Record

- **Collection:** Supreme Court brief
- **Document type:** Reply Brief
- **Published:** January 1, 1984
- **Citation:** 469 U.S. 917

## Text

Office - Supreme Court, U.S.
FILED

OCT 9 1980

{ 3S

No. 84-303
ALEXANDER L. STEVAS.

CLERK

IN THE SUPREME COURT
OF THE UNITED STATES

OCTOBER TERM, 1984

S. WILLIAM GREEN, EVELYN GREEN and CYNTHIA
COLIN, as Executors of the Estate of Louis
A. Green, deceased and EVELYN GREEN, indi-
vidually, and as stockholders of Kirby Lumber
Corporation, suing on behalf of themselves
and for the benefit of said corporation and
for the penefit of said corporation and for
the class of all other stockholders of said
corporation similarly situated,

Petitioners,
|

SANTA FE INDUSTRIES, INC., SANTA FE NATURAL
RESOURCES, INC., KIRBY LUMBER CORPORATION.

Respondents.

REPLY BRIEF IN SUPPORT OF PLAINTIFFS'
PETITION FOR CERTIORARI

SIDNEY BENDER

Attorney for Petitioners
1205 Franklin Avenue
Garden City, NY 11530
(516) 742-4250

Of Counsel:
Janine L. Bender

i

TABLE OF CONTENTS

THE PETITION SEEKS TO CORRECT
BLATANT VIOLATIONS OF THE ERIE
DOCTRINE

CONTRA DEFENDANTS, THE LOWER
COURTS NULLIFIED DELAWARE‘S
REMEDY EXPLICITLY "PRESERVED"
FOR PLAINTIFFS IN CONTRAVENTION
OF ERIE V. TOMPKINS

DEFENDANTS CONCEDE THAT THE
FEDERAL COURTS BELOW APPLIED
THE LAW OF THE WRONG STATE,
NAMELY DELAWARE, TO A CLAIM
OF FRAUD UNDER NEW YORK'S
MARTIN ACT, CONTRARY TO ERIE

PLAINTIFFS' ISSUES WERE BOTH
RAISED BEFORE AND CONSIDERED
BY THE COURT OF APPEALS,
CONTRA DEFENDANTS (6-7)

DEFENDANTS’ CLAIM FOR DAMAGES
UNDER RULE 49.2 IS SHAM

CONCLUSION

10

14

17
18

a4
TABLE OF AUTHORITIES

Cases

Adickes v. S.H. Kress & Co., 398 U.S.
ee et ee eee ke se ee

Bishop v. Commodity Exchange Inc.,
2708 F.Supp. i557 (S.D.N.Y. 1983).....

Day & Zimmerman v. Challoner 423 U.S.
i Parra ra

Erie R. Co. v. Tompkins, 304 U.S. 64
Dee ee Cece keh a eee kes eee cee sees s

Halle & Stieglitz v. Kolen, [1978-
1981 Transfer Binder] Blue Sky L.
Rep. (CCH) para. 71,435 (Sup. Ct.
N.Y. County 1978), aff'd on the
Opinion below, 71 A.D.2d 554, 418
Datumeee gene (286 Dep't 1979)... cece

Harris v. Atchison T. S.F. Ry. Co.,
Bae Beem Cee Leen Cis. 1976) .cccccese

Klaxon Co. v. Stenton Elec. Mfg. Co.,
BRS Wes SOF LEBEL) ccc ccocesevssccces

People v. Barysh, 95 Misc.2d 616, 408
N.Y.S.2d 190 (Sup. N.Y.Cty 1978).....

People v. Concord Fabrics, Inc., 83
Misc.2d 120, 371 N.Y.S.2d 550 (Sup.
Ct. N.Y. County) aff'd on opinion
below, 50 A.D.2d 787, 377 N.Y.S.2d
eg Er eer eee eee

PAGE

15

12

passim

11,13,

14

iii

Powell v. Charles Offutt Co., 576 F.Supp.
272 (E.D.Tex. 1983) aff'd, 731 F.2d
SSG CSE CAF. LESS) ck ceca wesssvecssswcees 4

Santa Fe Industries, Inc. v. Green, 430
oo Mie Be es PPPS rrr eae rey eee 9

Shivers v. Amerco, 670 F.2d 826 (9th
Ca ee Ss Oe Ones ORR one haere Lk Pe

Singer v. Magnavox Co., 380 A.2d 969
[DRA DU. LOFT) ccc hee shee eee cease eee aaes passim

Sterling v. Mayflower Hotel Corp.,
DO@i. SURE. , 93 A. dG L107 (AFSSZ) occ cccscces 8

Vine v. Beneficial Finance Co., 374
Fue Gar tee SEs RT cate eee 4k hee he 13

Weinberger v. UOP, Inc., 457 A.2d 701
TOOL. SUSE. LIGA) sc crccevvevesessvsesseres passim

STATUTES AND OTHER AUTHORITIES

Martin Act, New York General Business
es SS er errr ee eer re passim

Rule 49.2, Rules of the Supreme Court
Of the United States. ...cccccvsscsssennes 17,18

Securities Exchange Act of 1934
Section 10(b), 15 U.S.C. 8 783 (b) 12

Wright, Federal Courts, 3a ed. (1976)
De EOS e ese ceases Gn seca eeeeeses east seeds 4

IN THE SUPREME COURT
OF THE UNITED STATES

OCTOBER TERM, 1984

S. WILLIAM GREEN, et al.,
Petitioners,

Vv.

SANTA FE INDUSTRIES, INC., et al.,
Respondents.

REPLY BRIEF IN SUPPORT OF PLAINTIFFS'
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

l. THE PETITION SEEKS TO CORRECT BLATANT
VIOLATIONS OF THE ERIE DOCTRINE

The petition raises "special and im-
portant reasons" for review, involving a

Gross misapplication of Erie v. Tompkins in

two instances.

(a). As to the Martin Act, defendants
concede that a New York State Court would
apply New York case law. Thus the District

Court sitting in New York, finding it "un-

necessary to address" New York case law,
blatantly violated Erie in dismissing plain-
tiffs' Martin Act claim on the sole "basis"

of Weinberger, a Delaware decision.* Since

the District Court's violation of Erie is
so clear, defendants simply ignore and thus,
concede this point.**

(b). As to the breach of fiduciary obli-
gation claim,*** the Federal District Court
engrafted a limitation onto the explicit

grandfather clause set forth in Weinberger,

thus nullifying the state created remedy

specifically preserved for these plaintiffs.

* It is undisputed that the Martin Act is
properly invoked because of the substan-
tial acts which occurred in New York.
This is not a conflicts-of-law question.

ee Reference to the District Court includes
the summary affirmance of the Court of
Appeals for the Second Circuit.

*** It is undisputed that Delaware law gov-
erns this breach of fiduciary obligation
claim.

ee et ei AER ae

<Aegate ~

3
Such abuse of power is in direct conflict
with the command of Erie as expressed by

this Court in Day & Zimmerman, Inc. v.

Challoner, 423 U.S. 3, 4 (1975):

"A federal court in a diversity

case is not free to engraft onto...
state rules exceptions or modifications
which may commend themselves to the
federal court, but which have not
commended themselves to the state...."*

Contra defendants (7), plaintiffs first
question presents an Erie issue. A federal
court cannot escape the command of Erie by
purporting to apply state law, yet create
its own exception to the unequivocal holding
of the recent decision by the states highest
court, directly on point. That is not a
matter of interpretation. A federal court's
mere claim that it is interpreting state law
cannot shield it from an improper abuse of
power in failing to apply the law "as it

finds it." Harris v. Atchison T. & S.F. Ry

* Emphasis supplied throughout unless other-
wise noted.

Co., 538 F.2d 682, 690 (5th Cir. 1976).

It is plain that the Federal District Court
did not have the power to "second guess the
highest court" of Delaware nor "inject itself
into the development of state substantive

law." Powell v. Charles Offutt Co., 576

F. Supp. 272, 278 (E.D.Tex. 1983), aff'd,
731 F.2d 886 (5th Cir. 1984) (citing Erie).
Contra defendants, the above Erie issues
have far-reaching effects. Erie “goes to
the heart of the relations between the fed-
eral government and the states." Wright,

Federal Courts, 3d ed. (1976) p. 255. fThis

petition, seeking to correct the federal abuse
of power in disregarding states' rights, has
Significance for all federal courts.

(c). Defendants misrepresent the facts
(5) by asserting that plaintiffs “were in
the virtually unique position of still liti-

gating a pre-1977 merger at the time the

Weinberger decision was announced." Defen-

dants fail to mention that shareholders other

than plaintiffs, who held 2,403 shares of

Kirby, have two separate actions pending

involving this 1974 merger: one in the South-

ern District of New York and another in

the Supreme Court, New York County.*

2. CONTRA DEFENDANTS, THE LOWER COURTS
NULLIFIED DELAWARE'S REMEDY EXPLICITLY

"PRESERVED" FOR PLAINTIFFS IN CONTRAVENTION
OF ERIE V. TOMPKINS

Defendants misrepresent the holding in

Weinberger, stating (5):

"The opinion in Weinberger clearly
indicated that the rule there
announced is not retroactive as to

* Loengard et al. v. Santa Fe et al., 82
Civ. 7919 (KTD). The case in New York
State Supreme Court involves the Borg
plaintiffs in addition to the petitioners,
herein, contra defendants (5).

6

persons who, like the plaintiff
in that case, had relied on the
Singer decision in deciding to
forego appraisal."

There is absolutely nothing said or indi-

cated in Weinberger that the grandfather

clause applied only to persons "who had
relied on the Singer decision." Rather,

Weinberger unequivocally stated (457 A.2d

714) that the “right to challenge the el-

ement of fair value must be preserved" in:

"(4) any case challenging a cash-out
merger, the effective date of which
is on or before February 1, 1983."

Notwithstanding the explicit language above,
the District Court transformed category (4)
by inserting the following underlined words:

"any case instituted after the decision
in Singer v. Magnavox, 380 A.2d 969
(Del. Supr. 1977) challenging a cash-
out merger, the effective date of

which is on or before February 1, 1983."

That significant qualification by the District

Court is not simply "interpretation", contra

7

defendants (8-9). By nullifying the Delaware
remedy for all persons who instituted such

Suits before Singer, the lower courts invent-

ed a "policy consideration" and revoked
Delaware's explicit policy. The proper
function of a federal court in a diversity
case “is to ascertain what the state law

is, not what it [thinks it] ought to be."

Klaxon Co. v. Stenton Elec. Mfg. Co., 313

U.S. 487, 497 (1941).

To demonstrate the District Court's blind
spot, it stated "plaintiffs would reap a
windfall that the Delaware Supreme Court

could not have intended." (A 13). Weinberger

clearly provides a remedy here since the
fiduciary fleeced its cestui stockholders
in a self deal by paying them $150 per share

where the established asset value is $456

per Kirby share.*

In addition to the quasi-appraisal remedy
"preserved" under the grandfather clause,

Weinberger also explicitly stated that the

Chancellor may fashion "any form of equit-

able and monetary relief" (457 A.2d at 714)

where:

"(t]he appraisal remedy we approve
may not be adequate...particularly
where fraud,...self-dealing,...or
gross and palpable overreaching
are involved."

Thus, under Weinberger, appraisal is not the

exclusive remedy in a cash-out merger; contra

defendants (4-5) and the District Court (All-

12).

* Weinberger citing Sterling v. Mayflower
Hotel Corp., Del. Supr., 93 A.2d 107,
110 (1952) held: "The requirement of
fairness is unflinching in its demand
that where one stands on both sides of a
transaction, he has the burden of estab-
lishing its entire fairness, sufficient
to pass the test of careful scrutiny by
the courts." Thus Weinberger confirms the
fact that the 1952 rule of Mayflower is
still the law in Delaware and has been at
least since 1952.

9
The District Court abrogated Delaware's
remedy for "fraud" and “gross and palpable
overreaching." It has effectively converted
a “fraud" against plaintiffs into a “wind-
fall" for defendants, not plaintiffs. That
unconscionable result is clearly not the

command of Weinberger and no federal court

has the power to change Delaware law.
Defendants flatly ignore pages 19-20 of
plaintiffs petition; thus thev have abandoned
the District Court's "first" ground for re-
fusing to apply the explicit grandfather
clause, namely that plaintiffs "did not ab-
jure an appraisal" within the language of

Weinberger (Al6). It is unrefuted that the

District Court's conclusion is directly con-

trary to this Court's determination that

"respondents [petitioners herein] .. . did

not pursue their appraisal remedy in the

Delaware Court of Chancery." 430 U.S. at 466-

10

467. Not pursuing an appraisal remedy is
plainly ecuivalent to an abjural of ap-
praisal.

3. DEFENDANTS CONCEDE THAT THE FEDERAL
COURTS BELOW APPLIED THE LAW OF THE
WRONG STATE, NAMELY DELAWARE, TO A
CLAIM OF FRAUD UNDER NEW YORK'S MARTIN
ACT, CONTRARY TO ERIE

Defendants abandon, as they must, the
District Court's reason for dismissing plain-
tiffs' Martin Act claim, namely that it was
based solely on the Delaware decision in

Weinberger. *

* The District Court simply stated (A5-A7):
"Defendants now move for summary judgment
on both causes of action on the basis of
the recent holding in Weinberger v. UOP,
Inc. Defendants argue that Weinberger is
binding on all cases sub judice and, there-
fore, acts as a bar to the plaintiffs'
action. For the following reasons, sum-
Mary judgment is granted in the defendants'
favor. Accordingly, it is unnecessary

to address the arguments asserted under
the Martin Act."

11

In fact, defendants agree with plaintiffs
that the claim under New York's Martin Act
is governed only "by the applicable New York
authorities" (9), without reference to Del-
aware case law. Defendants, simply ignoring
the Erie issue in plaintiffs' second question,
concede that the answer should be in the
affirmative.

Plaintiffs' claim under New York's Martin
Act is for fraud. Contra defendants, the
forced purchase of Kirby's minority shares,
without prior notice of the merger, at a
price of $150 per share where the undispu-
ted asset value is $456 per share, consti-
tutes a fraud.

Section 352-c l(a) of the Martin Act ex-
plicitly prohibits "any fraud" (A21). The

Court in Halle & Stieglitz v. Kolen* stated:

* Blue Sky L. Rep. (CCH) Para. 71,435 (N.Y.
Sup. Ct. 1978) aff'd 71 A.D.2d 544, 418
N.Y.S.2d 552 (lst Dept. 1979). :

12

"The private right of action under
General Business Law 8 352-c is
essentially a fraud action."

Shivers v. Amerco, 670 F.2d 826, at 831-832

(9th Cir. 1982) held:

"New York's blue sky law does not
parallel Rule 10b-5. N.Y. Gen. Bus.
Law § 352-c prohibits fraud or
misrepresentation...."

See also Bishop v. Commodity Exchange Inc.,

564 F.Supp. 1557, 1565 (S.D.N.Y¥. 1983).
Unlike § 10(b) of the Securities Exchange
Act of 1934, $ 352-c of the Martin Act ex-
pressly prohibits "fraud", and is not con-
fined to "deception" or "manipulation".
This Court in 1977 held that the Kirby
freeze-out at an unconscionable price was
not actionable under 8 10(b) because it did
not involve "deception" or "manipulation".
Since "fraud" is expressly included in
§ 352-c, plaintiffs clearly state a Martin

Act claim.

Ce Ahem

13

Defendants trifle with this Court in

stating (9): “deception and reliance .

are essential elements of any private damage

action under the Martin Act." In People v.

Barysh 95 Misc.2d 616, 620, 408 N.Y.S.2d
190, 193 (Sup. N.Y.Cty 1978), the Court
stated that the Martin Act "clearly does

not require several of the common law ele-

ments of fraud, namely, reliance and sci-

enter". It is plain that in a forced sale

Situation, where the wrongdoers preempt

plaintiffs from acting, reliance is “un-

necessary". Vine v. Beneficial Finance Co.,

af8 F.420 627, 635 (2a Cir. 1965).
Defendants (9-10) attempt to convert
plaintiffs' "fraud" claim into one of
"deception". In so doing, defendants dis-
tort the New York authorities. Shivers,

Supra, cited Halle & Stieglitz, supra, for

the "'fraud or deception' requirement".

° 14

People v. Concord Fabrics, Inc., 83 Misc.2d

120, 371 N.Y.S.2d 550 (Sup. Ct. N.Y.Co ),

aff'd on opinion below, 50 A.D.2d 787 (lst

Dept. 1975), involved a proposed freeze-out

merger, on notice to the sharenolders, with

full disclosure, at an unconscionable price.
It was enjoined under the Martin Act. On

the facts, our case is a fortiori.*

4. PLAINTIFFS' ISSUES WERE BOTH RAISED BEFORE
AND CONSIDERED BY THE COURT OF APPEALS,
CONTRA DEFENDANTS (6-7)

The proper legal standard is that the
issue be either raised or considered by the

Court of Appeals before this Court will con-

* Although the Court in Halle & Stieglitz,
distinguished Concord Fabrics, the fact
is that Halle & Stieglitz did not involve

a freeze out merger transaction; there,

plaintiffs accepted a tender offer which

they later claimed had unfair terms and

was coercive.

15

it. Adickes v. S.H. Kress & Co., 398 U.S.

144, 147 n.2 (1970). Plaintiffs satisfy
this standard.
Defendants fail to point out that they
themselves contended in the Court of Appeals:*
"The District Court correctly applied
Erie v. Tompkins in ascertaining how

the Delaware Supreme Court would have
decided the summary judgment motion."

Accordingly, the Court of Appeals had the
Erie question before it.** Plaintiffs' two
arguments below were the District Court's
(i) creation of an exception to the unambi-
guous grandfather clause set forth in Wein-
berger; thus destroying the state remedy

explicitly preserved for plaintiffs and

* Heading of Point I of Defendants' Ans‘ver-
ing Brief, p. 15, dated March 2, 1984.

** Moreover, the District Court's decision
specifically referred to "Erie v. Tompkins,
304 U.S. 64 (1938)" (AS).

16

(ii) erroneous application of Weinberger, a

Delaware decision, to New York's Martin Act.

The ground for both arguments was Erie.
Defendants obviously considered that to be
the issue inasmuch as they defended on that
ground in the first point of their argument.
Defendants erroneously assert (6) that

plaintiffs "did not argue, or even remotely
suggest, that the District Court had refused
to follow state law..." (original empha-
Sis). In fact, the very first sentence of
plaintiffs' "Point I", (p. 14) in their main
brief in the Court of Appeals (dated Feb-
ruary 10, 1984), asserted that the District
Court had failed to follow state law:

We submit that analysis of Weinberger

demonstrates that the District Court

misunderstood and failed to follow

its holdings applicable to our case,

thereby committing reversible error
or law."

Moreover, with respect to New York's Martin

17

Act, plaintiffs argued in their main brief
(p. 22) in the Court of Appeals:

"The Court simply stated that ‘it is
unnecessary to address the arguments
asserted under the Martin Act,'

(388a) apparently because it erron-
eously believed that Weinberger, a
Delaware decision, barred claims under
New York's Martin Act. That is clear
error of law."

That is precisely the same issue plaintiffs
raise in their second question in this Court.

Accordingly, defendants’ arguments that
the issues herein were never raised below
are without merit.

5. DEFENDANTS CLAIM FOR DAMAGES UNDER RULE
49.2 IS SHAM

The petition and this brief demonstrate
that the petition should be granted. Even
if it is not granted, it clearly is not
frivolous, where defendants fail to refute
the fact that the District Court applied the

law of the wrong state to plaintiffs' Martin

18

Act claim. Moreover, the District Court's
nullification of plaintiffs' state-created
remedy explicitly granted to them under Del-

aware law, is a plain violation of Erie v.

Tompkins. Thus, this case is clearly not

one of those highly unusual instances where
it can be said that plaintiffs are guilty of
bad faith. Accordingly, defendants' claim

under Rule 49.2 should be denied.

CONCLUSION

For the reasons stated in the Petition
and in this brief, The Petition for Writ of
Certiorari should be granted.

Dated: October 9, 1984
Respectfully submitted,

SIDNEY BENDER
Attorney for Petitioners
1205 Franklin Avenue
Garden City, NY 11530
(516) 742-4250
Of Counsel:
Janine L. Bender

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_2160%3A3. Public record. Not legal advice.