# Opposition Brief — Schuyt v. Rowe Price Prime Reserve Fund, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1988
- **Citation:** 485 U.S. 1034

## Text

No. 87-1500
: —Supsame-Gourt, US,
| FILED
APR 6 1988
IN THE JOSEPH F. SPANIOL, UR, :

Supreme Court of the United

OCTOBER TERM, 1987

-

GERTRUDE BROOKS SCHUYT,

Petitioner,

ROWE PRICE PRIME RESERVE FUND, INC., T. ROWE PRICE
ASSOCIATES, INC., CARTER O. HOFFMAN, EDWARD A.
TABER, III and GEORGE J. COLLINS,

Respondents.

BRIEF IN OPPOSITION TO CERTIORARI

DANIEL A. POLLACK

61 Broadway (Suite 2500)
New York, New York 10006
(212) 952-0330

Attorney for Respondents

Of Counsel:

POLLACK & KAMINSKY
DANIEL A. POLLACK
MARTIN I. KAMINSKY
EDWARD T. MCDERMOTT

HENRY H. HOPKINS

BRIEF OF RESPONDENTS

Question presented for review:

Did the courts below err in
denying petitioner a jury trial
On equitable claims under
§ 20(a) and § 36(b) of the

Investment Company Act of 1940?

The parties to the proceeding in the
United States Court of Appeals for the

Second Circuit were:

Gertrude Brooks Schuyt

Rowe Price Prime Reserve Fund, Inc.
T. Rowe Price Associates, Inc.
Carter O. Hoffman

Edward A. Taber III

George J. Collins.

TABLE OF CONTENTS

Statement of the Case

Summary of the Argument.

The standard: Tull v. United States,
481 U.S. (1987)

Point I —

Point II —

Conclusion

There is no right to
jury trial for a claim
under § 36(b) of the
Investment Company Act
of 1940 .. oe

There is no right to
jury trial for a claim
under § 20(a) of the
Investment Company Act
Of 2940 . +4 * «

Page

14

ai

TABLE OF CASES AND AUTHORITIES

Page
Cases:

Amer. Met. Enterprises v.
Warner Bros. Records, 389
F.2@ 903 (24 Cir. 1968) .....-.- 10

Arber v. Essex Wire Co.,

490 F.2d 414 (6th Cir.),

cert. denied, 419 U.S. 830

PSPES Oak eke eee ee ee

Crews v. Central States SE
and SW Areas Pension Fund,
788 F.2d 332 (6th Cir. 1986) a 16

Curtis v. Loether, 415 U.S.
ee! | err reer ae Se

Daily Income Fund, Inc. v. Fox,
464.0.4.-308 (19003... 6 4 & + 5) x Oe

Dairy Queen, Inc. v. Wood,
369 U.S. 469 (1962) .« «© «© «© «© «© « «@ 11

Dasho v. Susquehanna Corp.,

461 F.2d 11 (7th Cir.),

cert. denied, 408 U.S. 925

er) a ee ee er ee eee ee

Gartenberg v. Merrill Lynch
Asset Management, Inc., 487
F.Supp. 999 (S.D.N.¥. 1980) ... 8, 11

In re Evangelist, 760 F.2d 27
(26t Cin. 1906) « «+ 8; 8, i2, 335.58

In re Gartenberg, 630 F.2d 16
(2d Cir. 1980), cert. denied,
451 U.S. 910 (1981) . 7, 9, 10, 12, 13

In re Seatrade Corp., 345
F.2d 785 (2d Cir. 1965) ...... #17

Jerozal v. Cash Reserve

Management, Inc., [1982-83

Transfer Binder) Fed.Sec.L.Rep.

(CCH) para. 99,019 (S.D.N.Y.

Dec. 29, 1982) oer eeeeewneewesne FY

Kalish v. Franklin Advisers,

Inc., 87 Civ. 6919 (S.D.N.Y.

Feb. 29, 1988) (unpublished

Opinion of Hon. Charles S.

Haight) .....++«+.-« +. e« «© 2 «2 B

Kamen v. Kemper Financial

Services, Inc., 659 F.Supp.

1153 (N.D. Ill. 1987), mandamus

denied No. 87-1455 (7th Cir.

April 13, 1987), cert. denied,

__ U.S. ___s- 556 «*U.S.L.W. 3606

(March 8, 1988) .........2.2.7

Krinsk v. Fund Asset Management,
Inc., 654 F.Supp. 1227 (S.D.N.Y.
1987) o 2 © © © © «© «© « 8, 15, 19, 20

Maldonado v. Flynn, 477 F.Supp.

1007 (S.D.N.Y. 1979) (Weinfeld,

J.), mandamus denied and decision
adhered to, 671 F.2d 729 (2d Cir.

1982) . .. . . d1l, 15, 17, 18, 19, 20

Mallory v. Citizens Utilities
Co., 342 F.2d 796 (2d Cir. 1965) . . 17

Markowitz v. Brody, 90 F.R.D.
542 (S.D.N.Y. 1981)

Philips v. Kaplus, 764 F.2d
807 (llth Cir. 1985), cert.
denied, 474 U.S. 1059 (1986).

SCM Corp. v. Xerox Corp., 507
F.2d 358 (2d Cir. 1974)

Securities & Exchange Commis-
sion v. Commonwealth Chemical
Securities, Inc., 574 F.2d 90
(2d Cir. 1978) so 8© © @ 6 10,

Tarlov v. Paine Webber Cash-
fund, Inc., 559 F.Supp. 429

(D.Conn. 1983) oe ee e@
Tull v. United States, 481
U.S. , 95 L.Ed.2d 365
+. y) eee ee ee

Weissman v. Alliance Capital
Management Corp., [1985-86
Transfer Binder] Fed.Sec.L.Rep.
(CCH) para. 92,396 (S.D.N.Y.
Dec. 30, 1985), mandamus denied,
788 F.2d 5 (2d Cir. 1986) .

Statutes:
Section 20(a), Investment

Company Act of 1940, 15
U.S.C. Section 80a-20(a)

Section 36(b), Investment
Company Act of 1940, 15
U.S.C. Section 80a-35 ..

17

10

11, 15

14

Other Authorities:

5 Moore's Federal Practice
para. 38.23

5 Moore's Federal Practice

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Statement of the Case

Plaintiff owned shares valued at
approximately $1,000 (at time of trial) in
a money-market fund called Rowe Price

Prime Reserve Fund, Inc.

She challenged the compensation
received for the years 1979 and 1980 by
the investment adviser, T. Rowe Price
Associates, Inc., as violative of § 36(b)
of the Investment Company Act of 1940. In
addition, she claimed that the proxy
statement by which the investment advisory
fee was approved by shareholders of the
Fund in 1981 was misleading. She also

asserted a common law claim under Maryland

law which is not germane here.

Shortly before trial, defendants
moved to strike plaintiff's jury demand on
the ground that the relief sought was
equitable, not legal. The District Court
granted the motion and that grant was

later affirmed by the Court of Appeals.

The case was tried on the merits in
1987 and all claims were dismissed in a
lengthy and detailed Opinion by the
District Court. That Opinion was affirmed
in all respects by the Court of Appeals

later in 1987.

Summary of Argument

Aa The question presented for
review by petitioner is not worthy of
review by this Court because the decision
of the Court of Appeals for the Second
Circuit is not in conflict with the
decision of any other federal court of
appeals on the point, i.e. the right to
trial by jury. Nor was the decision in
conflict with any decision of any state
court of last resort. Nor did the Court
of Appeals for the Second Circuit depart
from the accepted and usual course of

judicial proceedings in any way.

2 In any and all events, the
decision of the District Court denying a
jury trial, affirmed by the Court of

Appeals, was correct.

In a well-reasoned Opinion, dictated
into the record several weeks before the
trial, District Judge Robert J. Ward
granted defendants' motion to. strike
plaintiff's demand for a jury trial. On
appeal, plaintiff pressed her claim that
her Section 36(b) claim and her proxy
Claim were triable to a jury, and the

Court of Appeals rejected her contention.

The standard: Tull v. United States,
481 U.S. (1987)

In its most recent statement on the

right to jury trial, this Court stated:

To determine whether a
statutory action is more similar
to cases that were tried in
courts of law than to suits
tried in courts of equity or
admiralty, the Court must
examine both the nature of the
action and of the remedy sought.
First, we compare the statutory
action to 18th-century actions
brought in the courts of England
prior to the merger of the
courts of law and equity
[citations omitted]. Second, we
examine the remedy sought and
determine whether it is legal or
equitable in nature [citations

omitted].
Tull v. United States, 481 U.S. , 95
L.Ed.2d 365, 373 -(1987). This Court then

added an important caveat:

We reiterate our previously
expressed view that character-
izing the relief sought is
"(mjore important than finding a
precisely analogous common law
cause of action in determining
whether the Seventh Amendment
guarantees a jury trial" [cita-
tion omitted].

(95 L.Ed.2d at 375). This Court in Tull
upheld the defendant's right to a jury
Since the remedy sought there (a statutory
penalty for money damages) was more
analogous to a suit for damages than to
one for "disgorgement of improper profits,
traditionally considered an equitable
remedy" (95 L.Ed.2d at 377). Here, of

course, quite the reverse is true.

Point I —
There is no right to jury
trial for a claim under

§ 36(b) of the Investment
Advisory Act of 1940

This Court, several weeks ago, denied
certiorari on the precise issue presented
here: Kamen v. Kemper Financial Services,
Inc., 659 F.Supp. 1153 (N.D. Ill. 1987),
mandamus denied No. 87-1455 (7th Cir.
April 13, 1987), cert. denied, __ U.S.

56 U.S.L.W. 3606 (March 8, 1988).

The Second Circuit, from which
certiorari is sought in the instant case,
had already passed upon this precise issue
and held that there is no jury right ina

Section 36(b) claim. In re Gartenberg,

630 F.24 16, 18 (24 Cir. 1980), cert.
denied, 451 U.S. 910 (1981), aff'g,

7

Gartenberg v. Merrill Lynch Asset Manage-

ment, Inc., 487 F.Supp. 999 (S.D.N.Y.

1980).

Every other court which has passed
upon the issue of whether a claim under
Section 36(b) of the Investment Company
Act is triable to a jury has also con-
cluded that such a claim is equitable in
nature, affording the plaintiff no right
to a jury trial. In re Evangelist, 760
F.2d 27, 29-30 (ist Cir. 1985); Kalish v.

Franklin Advisers, Inc., 87 Civ. 6919

(S.D.N.Y. Feb. 29, 1988) (unpublished
Opinion of Hon. Charles S. Haight); Krinsk

v. Fund Asset Management, Inc., 654

F.Supp. Laai, 1236 (5 .D.N.Y¥. 1987);

Weissman v. Alliance Capital Management

Corp., [1985-86 Transfer Binder] Fed.Sec.

L.Rep. (CCH) para. 92,396 at 92,439-40
(S.D.N.Y. Dec. 30, 1985), mandamus denied,

8

788 F.2d 5 (2d Cir. 1986); Tarlov v. Paine

Webber Cashfund, Inc., 559 F.Supp. 429,
441 (D.Conn. 1983); Jerozal v. Cash
Reserve Management, Inc., (1982-83
Transfer Binder] Fed.Sec.L.Rep. (CCH)

para. 99,019 at 94,827 (S.D.N.Y. Dec. 29,
1982); Markowitz v. Brody, 90 F.R.D. 542,

547-48 (S.D.N.Y. 1981).

The reasoning in these cases, and, in
particular, in the Second Circuit's
Opinion in In re Gartenberg, was clear and
unassailable. There is no reason or
justification for this Court to review

this question. 1+

1 None of the cases cited by
petitioner involves a jury right under
Section 36(b). Curtis v. Loether, 415
U.S. 189 (1974) merely recognized that a
statutory claim may be subject to a jury
trial if Congress so intended; here, as
the Second Circuit and the First Circuit
recognized in In re Gartenberg and In re
Evangelist, Congress intended otherwise
(viz., that a Section 36(b) claim is

9

Plaintiff's self-styling of her
remedy as "damages", of course, does not
make her Section 36(b) claim a "bona fide
claim for damages" within the meaning of
In re Gartenberg. As the late Chief Judge
Friendly explained in Securities &
Exchange Commission v. Commonwealth

Chemical Securities, Inc., 574 F.2d 90, 95

(24 Cir. i976):

(NJot all money claims are
triable to a jury. A historic
equitable remedy was the grant
of restitution "by which the
defendant is made to disgorge
ill-gotten gains or to restore

equitable, not legal). SCM Corp. v. Xerox
Corp., 507 F.2d 358 (2d Cir. 1974), and
Amer. Met. Enterprises v. Warner Bros.
Records, 389 F.2d 903 (2d Cir. 1968) had
nothing to do with jury rights; they
involved only the question whether
equitable relief will be granted where
there is an adequate remedy at law, a

question not involved at bar. Daily
Income Fund Inc. v. Fox, 464 U.S. 523
(1984), involved the issue of director

demand, not the right to jury trial.

10

the status quo, or to accomplish
both objectives." And "({wjhen
restitution is sought in the
form and in the situations
allowed in equity prior to the
rules or authorized by valid
statutes there is no right to
jury trial." Disgorgement of
profits zn an action brought by
the SEC[? } to enjoin violations

of the securities laws appears
to fit this description; the
court is not awarding damages to
which plaintiff is legally
entitled but is exercising the
chancellor's discretion to
prevent unjust enrichment.
(citations omitted].

Accord: Dair ueen, Inc. v. Wood, 369

U.S. 469, 477-78 (1962) ("the consti-

2 As the late Judge Weinfeld noted
with regard to Commonwealth Chemical
Securities, Inc., "{t]he fact that the
action in that case was an SEC enforcement
action was considered by the Court of
Appeals but was not a factor essential to
its holding which turned simply on
recognizing the relief sought as restitu-
tionary in nature and on the finding that
restitution was an equitable remedy."
Maldonado v. Flynn, 477 F.Supp. 1007, 1011
n.14 (S.D.N.Y. 1979), mandamus denied and
decision adhered to, 671 F.2d 729, 732 (2d
Cir. i982). Accord: Gartenberg, supra
(487 F.Supp. at 1007).

tutional right to trial by jury cannot be
made to depend upon the choice of words
used in the pleadings"); Arber v. Essex

Wire Co., 490 F.2d 414, 423 (6th Cir.),

cert. denied, 419 U.S. 830 (1974) (denying
jury trial in 10b-5 action where relief
requested by plaintiff, though denominated
damages, was the "monetary equivalent of

rescission").

The purported distinction from In re
Gartenberg which petitioner here argues
(i.e. that she asked for money damages in
her Third Amended Complaint) was expressly

argued to and rejected by the First

Circuit in In re Evangelist:

-.- (T)he right to a jury trial
cannot turn on the simple
substitution of a different word
[citations omitted]. Otherwise,
any equitable action for money,
say for restitution, could
become a legal action by the use
of the word "damages" in place

12

of “restitution".

(760 F.2d at 31).2

In short, irrespective of how
plaintiff seeks to describe her claim, it
is an equitable claim which is triable to

the Court, not to a jury.

3 petitioner acknowledged that the
relief she sought in this action was
a repayment to the Fund of the excessive
advisory fees paid", which she denominates
"legal restitution" (Appellant's Brief to
the Second Circuit, p. 41). The cases
which have dealt with this question have
recognized that this remedy is, in truth,
a remedy for restitution, which is an
equitable remedy, not a legal remedy.
See, e.g. In re Evangelist, supra (760
F.2d at 29-30):

‘ [Tjhe remedy Congress
created - the payment of any
excess fee to the company - is
similar to the traditional
equitable remedy of an "“account-

ing". Like other remedies of

restitution, that remedy

requires one owing a fiduciary

duty ... to "“disgorge” ... money

taken in derogation of the duty.
Accord: In re Gartenberg, supra (630 F.2d
at 18).

13

Point II —
There is no right to jury

trial for a claim under
§ 20(a) of the Investment

_._Company Act of 1940

Petitioner claimed a proxy violation
in connection with the approval of the
Investment Advisory Agreement for 1981.
Petitioner sought, as relief, a declara-
tion that the Investment Advisory Agree-
ment was void and repayment to the Fund of
"the Fund's damages", including "all of
the payments made by the Fund to the
defendants" under the agreement and "all
of the profits earned by the defendants"
under the agreement (Appendix in the

Second Circuit : A-2q — A-2r).

In essence, petitioner sought

rescission and restitution on her proxy

14

clain. Such a claim is equitable in
nature, and is not analogous to a claim
for legal relief, regardless of whether
plaintiff asked (in her pleading) for
"damages". Krinsk, supra (654 F.Supp. at
1236); Maldonado v. Flynn, 477 F.Supp.
1007, 1011 (S.D.N.Y. 1979) (Weinfeld, J.),
mandamus denied and decision adhered to,

671 F.2d 729, 732 (2d Cir. 1982).4

The remedies sought on petitioner's
proxy claim are clearly analogous to
historically equitable, not legal reme-

dies. For example, the "damages" sought

4 Following the late Judge
Friendly's reasoning in Commonwealth
Chemical Securiti -, quoted above,
ee Weinfeld also held in Maldonado,

upra (a proxy case), that “the fact that
Saunas of 'money damages' is sought does
not change the basic nature of the claims"
for purposes of analyzing whether there is
a right to a ~~ trial (477 F.2d at

1011). Accord: In re Evangelist, supra
(760 F.2d at 31); Krinsk, supra (654
F.Supp. at 1236).

15

en

by plaintiff were, in truth, a disgorge-

ment or repayment of monies which Price
Associates, as an allegedly faithless
fiduciary, had improperly taken and
allegedly should have been compelled to
return to Prime Reserve Fund. AS ex-

plained by Professor Moore:

[T]he common law remedies,
particularly debt and account,
were often inadequate, and
equity early assumed jurisdic-
tion to compel the payment of

— money, especially by but not
limited to fiduciaries, the
restoration or return of a
specific thing

5 Moore's Federal Practice para. 38.24[2]

at 38-194. See also: Crews v. Central

States SE and SW Areas Pension Fund, 788

F.2d 332, 338 (6th Cir. 1986) ("histori-
cally, an action for restitution seeks an
equitable remedy for which there is no

Seventh Amendment right to a jury trial");

16

In re Seatrade Corp., 345 F.2d 785, 787

(2a Cir. 1965) ("Restitutionary remedies

are basically equitable in nature ...").

Similarly, a declaration that the
Investment Advisory Agreements were void
is essentially an equitable remedy. Thus,
Professor Moore has explained:

An action for rescission or

cancellation of a contract
is traditionally equitable.

5 Moore's Federal Practice para. 38.23 at

38-187. See also: Philips v. Kaplus, 764
F.2d 807, 812-13 (lith Cir. 1985), cert.

denied, 474 U.S. 1059 (1986); Arber, supra

(490 F.2d at 422); Mallory v. Citizens

Utilities Co., 342 F.2d 796, 797 (2d Cir.

1965); Maldonado, supra (477 F.Supp. at
1011) (restoration to status prior to

wrongdoing is a "historic equitable

17

remedy").

In Maldonado, supra (477 F.Supp.
1007), Judge Weinfeld struck plaintiff's
jury demand on a proxy claim. Plaintiff
there contended that a proxy solicitation

in connection with the election of

directors was tainted, so that the
election should be nullified and damages
awarded to the corporation (477 F.Supp. at

1011). Judge Weinfeld stated:

Each claim, whether for printing
and mailing expenses or recap-
ture of compensation and
expenses paid to directors,
basically seeks restitution for
the benefit of the corporation.
Despite plaintiff's reiterated
assertion that the claims are to

recover "money damages", they
are essentially equitable in
nature. The fact that recovery

of "money damages" is_ sought
does not change the basic nature
of the claims.

* * *

18

In the event that plaintiff
prevails, it is clear that to
the extent it is established
that the corporation was
damaged, restitution would be
the remedy.

(477 F.Supp. at 1011). Like the plaintiff
in Maldonado, plaintiff here also sought
damages which were, in effect, merely
restitution of the profits and payments
made under the Investment Advisory
Agreement. > Such a claim is equitable and
is not triable to a jury. Judge Ward
correctly followed this reasoning (at A-4
and A-5), as did the District Court in

Krinsk, supra (654 F.Supp. at 1236) ("a

5 Significantly, the factual core of
petitioner's proxy claim is basically the
same as that of her Section 36(b) claim.
Indeed, by incorporating the allegations
of her Section 36(b) and state law
fiduciary duty allegations into her proxy
claim (Third Amended Complaint, para. 34
at A-2k of Appendix in the Second Cir-
cuit), plaintiff effectively conceded that
the proxy claim is equitable.

19

proxy misrepresentation that results in
the continuation of a contract for
advisory fees ... would lead to equitable

TOLIGE 2.57}.

The authority principally relied on
by plaintiff, Dasho v. Susquehanna Corp.,
461 F.2d 11 (7th Cir.), cert. denied, 408
U.S. 925 (1972), was also cited to the

courts in Maldonado and Krinsk, and to

Judge Ward in this case. All three judges
rejected Dasho, a corporate merger case,
as inapposite, on the grounds explained by
Judge Weinfeld in Maldonado, supra (477
F.Supp. at 1010-1011). Indeed, Judge
Weinfeld stated: "It is not altogether
clear that a definitive holding was made
[in Dasho) that a Section 14(a) [proxy]
Claim entitled one to a jury trial." (477
F.Supp. at 1011, n.i2). Dasho, decided
over 15 years ago, is also of doubtful

20

validity today since it is devoid of any
remedy-based analysis, as is now clearly
required by this Court in Tull, supra (95

L.Ed.2d at 375).

Conclusion

The Petition should be denied.

Respectfully submitted,

Daniel A. Pollack
Attorney for Respondents
61 Broadway (Suite 2500)
New York, New York 10006
(212) 952-0330

Of Counsel:

Pollack & Kaminsky
Daniel A. Pollack
Martin I. Kaminsky
Edward T. McDermott

Henry H. Hopkins

aa

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