Brief in Opposition to Petition for Writ of Certiorari — General Time Corp. v. Talley Industries, Inc.

SVIPREME COURT. th & Of ties Suarems Gurt, U

FIilED

NOV 20 1908

IN THE

Supreme Court of the Unite Miatesos. ci

——————

Octroper Term, 1968

| Docket No. 716

oe

GENERAL TiME CORPORATION,

Petitioner,

—against—

TALLEY INDustRiESs, INc., Franz G. TALLEY, M. Kimetman & Co.,

MICHAEL G. KIMELMAN, OscaR KINELMAN, Donatp D. Har-

RINGTON, individually, and as Chairman of the INDEPENDENT

STOCKHOLDERS’ COMMITTEE OF GENERAL TIME CORPORATION and

AMERICAN INVESTORS F'unp, INc.,

Respondents.

BRIEF OF RESPONDENTS TALLEY INDUSTRIES, INC.,

FRANZ G. TALLEY, M. KIMELMAN & CO., MICHAEL

G. KIMELMAN AND OSCAR KIMELMAN IN OPPOSI-

TION TO PETITION FOR CERTIORARI

Water L. Strarron

2 Wall Street

New York, New York 10905

Counsel for Respondents

Talley Indastries, Inc.,

: Franz G. Talley, M. Kimel-

man & Co., Michael G.

Kimelman and Oscar Kim-

elman

BENJAMIN VINAR,

Roger W. Kapp,

Donovan LersurE Newton & Irvine,

Of Counsel

TABLE OF CONTENTS

PAGE

elisa 1

ET cesta aoeeiinNaneMtinanaannninnannnennaACente 3

ARGUMENT

I. The Court Below Correctly Found that the

Comnittee’s Proxy Statement Was Not Mis-

leading and Further Correctly Found that the

Alleged Omissions Were Not Material .............. ll

Il. The Court of Appeals’ Passing Reference to

the SEC’s Lack of Objection to the §17(d)

Aspects of the Committee’s Proxy Statement

Was Not Erroneous “Reliance” .............. 15

III. There Was No Shifting of Any “Burden of

Disclosure” by the Court Below ............... 17

CONCLUSION .ececcscscecssesssssssesescsscencnscnnnveseavsnsnnensnenssnstananscnsesssens 18

I os cemesiieamnnieinnes - ; ~ la

TABLE OF CASES

Commissioner v. Duberstein, 363 U.S. 278 (1960) ........ 13

Dunn v. Decca Records, Inc, 120 F. inlet 1 (S.D.N.Y.

TQM) .rcercvccscveccerceccsccennscnsonsnssnsenssssonssnstensnsnssnesessessnsnene 138, 14, 16

Evans v. Armour & Co., 241 F.Supp. 705 (E.D, Pa.

1965) —

J. I. Case Co. v. Borak, 377 U.S. 426 (1964)

Sseesesesecseses

Kauder vy. United Bd. & Carton Corp,, 199 F.Supp.

420 (S.D.N.Y. 1961)

SSSSSSSKSS SH SSS SSSSHERSSHEESESSESS ESSE SESE SEES EEE ReEReEe

Mack vy. Mishkin, 172 F.Supp. 885 (S.D.N.Y. 1959) ....

Meccano, Ltd. v. John Wanamaker, 253 U.S. 136

SIN 7 <onsblicicaanciaiaenGsittaanmeunanth

Miller vy. Steinbach, 268 F.Supp. 255 (S.D.N-Y, 1967)

Millimet v. George F, Fuller Co., CCH Fed.See.L.Rep.

791,570 (S.D.N.Y, 1965) .

SSSOSEe cL eeeaeeeraeeese

Phillips v. United Corp.,, CCH Fed.See.L.Rep, 190,395

(S.D.N.Y. 1947) .

Richland v. Crandall, 262 F.Supp. 588 (S.D.N.Y. 1967)

Santos v. Bonanno, 369 F.2d 369 (2d Cir, 1966) ........

SEC v. Henwood, CCH Fed.Seec.L.Rep. 91,125 (S.D.

Cal. 1961), mod. and aff'd, 298 F.2d 641 (9th Cir.),

cert, dented, 371 U.S. 814 (1962)

SEC v. Okin, 58 F.Supp. 20 (S.D.N.Y, 1944) 000...

Sherman v. Posner, 266 F.Supp. 871 (S.D.N.Y. 1966)

Shvets v. Industrial Rayon Corp., 212 F.Supp. 308

(S.D.N.Y. 1960) ....

Subin v. Goldsmith, 224 F.2d 753 (2d Cit.), ceré.

denied, 350 U.S. 883 (1955)

United States v. National Ass'n of Real Estate Bds.,

339 U.S. 485 (1950)

iii

PAGE

Walpert v. Bart, 280 F.Supp. 1006 (D. Md.), afd, 390

F.2d 877 (4th Cir. 1968) ........0.. 14

Western Oil Fields, Inc. v. MeKnab, 232 F.Supp. 163

(D. Colo. 1964) .... : a 14

TABLE OF STATUTES AND RULES

SEC Rule 14a-9, 17 C.FLR. 240.14a-9(a) ............. 11, 18, la

TABLE OF AUTHORITIES

2 Loss, Securities Regulation 917-18 (2d ed. 1961) ........ 14

IN THE

Sunreme Court of the United States

Octroser Term, 1968

Docket No. 716

—<—_-—

GxeNERAL TIME CORPORATION,

Petitioner,

—against—

Tauiey INpustries, Inc., Franz G. Tattey, M. KIMELMAN

& Co. Micnarn G. Kimetman, Oscar KIMELMAN,

Donatp D, Harrineton, individually, and as Chairman

of the INpEPENDENT StocKHOLDERS’ COMMITTEE OF GEN-

eRAL Time Corporation and American Investors Funp,

ING.,

Respondents.

—<—-

BRIEF OF RESPONDENTS TALLEY INDUSTRIES,

INC., FRANZ G. TALLEY, M. KIMELMAN & CO.,

MICHAEL G. KIMELMAN AND OSCAR

KIMELMAN IN OPPOSITION TO

PETITION FOR CERTIORARI

Statement

The instant action is one of several which have arisen

out of an election contest between the management of

petitioner, General Time Corporation (“General Tirne”),

and an Independent Stockholders’ Committee (the “Com-

CUM ts ie sani ROR Sata Se RR eRe te er erene

2

mittee”) supported by those respondents on whose behalf

this Memorandum is submitted.

Proxies were solicited by both factions in March and

April 1968, and on April 22, 1968 the General Time stock-

holders’ meeting was convened. On that date, the stock-

: holders’ ballots were cast and the meeting was thereupon

| recessed to permit the inspectors of election to count the

vote and prepare their report. By reason of stays issued

in other litigation the meeting has not yet been recon-

vened to continue the transaction of business. Preliminary

indications are, however, that the Committee’s candidates

were elected by a margin of some 97,000 votes. As of this

writing, despite the passage of seven/twelfths of the term

to which the Committee’s slate was apparently elected,

management still remains in office.

Petitioner (i.e., management, suing in the name of the

corporation) filed its complaint in the United States Dis-

trict Court for the Southern District of New York on

April 5, 1968 in the middle of the proxy solicitation cam-

paign. The complaint charged that the Committee’s proxy

statement, both in what it said and in what it did not say,

was false and misleading and violated Rule 14a-9(a) of

the Proxy Rules (17 C.F.R. 240.14a-9(a)). Petitioner in

the District Court twice moved for, and was twice denied,

| preliminary injunctive relief. On appeal, the United

States Court of Appeals for the Second Circuit specifically

found both that the Committee’s proxy statement was not

false or misleading and that the alleged omissions (which

petitioner wants further reviewed in this Court) were not

material; and accordingly it affirmed (2-1) the District

Court’s findings to the same effect.

a eS ee Ne hte daggel S

RGF ection os

3

In reaching its conclusion of immateriality, the Court

of Appeals noted that its own view to that effect was rein-

forced by the fact that, although the additional informa-

tion had been disclosed to petitioner in ample time, peti-

tioner never made reference to it in its own proxy

solicitation literature. The Court of Appeals noted that

petitioner’s “failure to correct alleged misstatements or

rectify claimed omissions is some evidence that it does

not regard them as material....” (Pet. Appx. A, at 6a)*

As te one such claimed omission, the Court of Appeals

noted that “the point is apparently deemed more important

for litigation than it was for information.” (Pet. Appx. A,

at Sa)

Petitioner argues that the Court of Appeals should not

have decided what was or was not material but rather

should have required inclusion in the Committee’s proxy

statement of all additional matters that “may be material”

(Pet. 12).

Facts

On February 19, 1968, respondent Franz G. Talley

(“Talley”), the president of Talley Industries Inc. (“In-

dustries”), met with members of the management of Gen-

eral Time and expressed Industries’ desire to negotiate a

merger with General Time. Management considered the

matter but decided to fight against any such proposal and

so informed Talley. Five days later (in a companion

case) General Time sued Industries, American Investors

* Refers to the pages in the appendices to the petition for cer-

tiorari. References to pages in the petition itself are indicated

herein by “Pet. -......”.

4

Fund, Inc. (hereinafter the “Fund,” a registered invest-

ment company), and others, citing Fund’s ownership of

more than 5% of Industries’ common stock and charging

violation, inter alia, of §17(d) of the Investment Com-

pany Act of 1940 (hereinafter the “Act”). General Time

sought to enjoin Industries, the Fund and the other defen-

dants from voting their stock in General Time.*

Industries’ demand for a list of stockholders of General

Time was refused and Industries brought suit in the Chan-

cery Court of Delaware. After time-consuming attempts to

conduct oral examination on issues which the Chancery

Court (and subsequently the Supreme Court of Delaware)

ruled were irrelevant, General Time finally defaulted, an

order was entered against it and management was forced

to deliver a stockholder list to Industries. (One result of

these tactics was to give management a two-week lead

during which only its proxy material was before the stock-

holders.)

In March 1968, during the pendency of the stock-list liti-

gation, the Securities and Exchange Commission (the

“SEC”) commenced an investigation (pursuant to its stat-

utory authority under ¢ 42(a) of the Investment Company

Act) into General Time’s charges that Industries and the

Fund had violated §17(d) of the Act and the SEC’s Rule

17d-1 thereunder. These charges were made on the basis

of the following facts:

* General Time’s complaint in that action was dismissed by the

District Court. That dismissul was affirmed by the Court of Ap-

peals. (See Pet. Appx. A, at 10a-11a.) General Time has informed

the Court of Appeals that it does not intend to petition for certic-

rari from that dismissal.

5

On December 29, 1967, Talley telephoned George Chest-

nutt (“Chestnutt”), President of the Fund and told him

that Industries had purchased stock in Genera] Time, that

it intended to buy more and that it had in mind the pos-

sibility of a future merger with General Time. Talley

asked whether Fund might also wish to buy some General

Time stock. Chestnutt replied that if the Fund did so,

it would maintain its own independence and would make

no agreements as to voting, disposition, ete. After further

consideration of the matter Chestnutt determined that

Fund should take a position in General Time. He was

motivated both by study of the company’s earnings and by

a belief that if Industries sought a merger the stock would

rise as a result of that offer or of others it might stimu-

late. (See SEC v. Talley Induz., Inc., 399 F.2d 396, at

399 (2d Cir. 1968), the companion case to which Judge

Friendly alluded in the introduction to his opinion.) Fund

subsequently did buy 210,000 shares at an average price

of $28.49 per share. Industries’ 257,937 shares, most of

which were acquired after Fund had completed its pur-

chases, were acquired at an average cost of $36.76 per

share.

By reason of the Fund’s ownership of over 5% (viz., 9%)

of Industries’ outstanding voting stock, Industries is an

“affiliated person” of the Fund. (See §2(2)3(B) of the

Act.) Section 17(d) prohibits an affiliate from effecting any

“transaction” in which the registered investment company

is a joint or joint and several participant, in contraven-

tion of such rules as the SEC should prescribe “for the

purpose of limiting or preventing participation by such

registered . . . company on a basis different from or less

advantageous than” that of the affiliate. Rule i7d-1 re-

—_—

quires application vo and approval by the SEC of any such

proposed transaction prior to its effectuation. The SEC’s

investigation was into the question of whether the ac-

quisition by Industries and the Fund of their respective

holdings in General Time shares constituted a “transac-

tion” in which they jointly or jointly and severally par-

ticipated, and if so whether the Fund’s participation was

on a basis “different from or less advantageous than” that

of Industries.

During March, Industries organized and sponscred the

Independent Stockholders Committee and the Committee

submitted its proposed proxy statement to the SEC for

clearance. On March 25, Industries’ counsel received a

conference telephone call from four members of the Com-

inission’s staff: Ralph Hocker, the staff member in charge

of clearing both sides’ proxy solicitation material in the

General Time contest; John Dudley, Assoviate Director of

the Division of Corporate Regulation (the division in charge

of investment company regulation), who subsequently ar-

gued the Commission's case before the Court of Appeals in

the companion action referred to above (see 399 F. 2d 396, at

398) ; Sidney Mendelsohn, the Commission official in charge

of the investigation which had been conducted by the SEC;

and Richard Bandler, the associate regional administrator

in New York City who actually conducted the investiga-

tion. The discussion concerned the facts developed by the

investigaticn and the Committee’s preliminary proxy state-

ment, The staff of the Commission advised Industries’

counsel that the SEC would not clear the Committee’s

proxy statement unless Industries filed an application with

the Commission for approval of what the staff considered

a joint transaction under §17(d) of the Act,

7

On March 26, Industries did file such an application,

which was later joined in by the Fund, The application, as

the court below found, “made a detailed statement of the

facts” (Pet. Appx. A, at 8a) but disclaimed that the events

described therein fell within the ambit of §17(d) of the

Act. The Committee’s preliminary proxy statement as

originally filed with the Commission was amended to in-

clude reference to the application and the Commission then

“cleared” the Committee’s proxy statement and it was

thereupon mailed to the stockholders of General Time. A

copy of the application was immediately given to petitioner,

General Time.

The issues which evolved in the prexy contest were

many which are usual in such matters and some which are

not. They included General Time’s poor earnings record;

management’s recently executed long-term employment

contracts; Industries’ desire to effect a merger, its sponsor-

ship of the Committee and prospective conflict-of-interest

problems; management’s negligibie ownership interest; the

individual Committee members’ ownership (excluding the

three candidates who were members of Industries’ Board)

of 66 times as many shares of General Time as of Indus-

tries; the poor performance of General Time’s stock in

the marketplace; management’s belated increase, in late

February, of the dividend rate; management’s distrust of

the Committee and the Committee’s distrust of manage-

ment; the comparative business credentials of the candi-

dates; and management’s last-minute proposed bail-out

merger with a juke-box and vending machine company

from Tilinois (Seeburg Corp.).

On April 5, 1968, petitioner filed its complaint below and

immediately moved for preliminary injunctive relief, charg-

8

ing that the Committee’s proxy statement violated Rule

14(a)(9). Its motion was based on a broad array of

charges, all found to be without merit by the District

Court. (See Judge Tyler's Opinion of April 11, 1968, Pet.

Appx. P, at 2la-28a,)

On April 16th, 17th and ISth, hearings on Industries’

§17(d) application were had at the SHC, On April 19th

the Commission issued its Memorandum Opinion and

Order Denying Application (Pet. Appx. B, at 35a-39a) in

which it concluded that the transactions deserided in TIndus-

tries’ application did fall within the ambit of § 17(ad) and

that since no application had been filed prior to effectua-

tion of the transaction Industries had violated the Act

(Pet. Appx. FE, at 38a). Although making no finding as to

whether the Fund’s participation had been on a_ basis

“different from or less advantageous than” that of Indus-

tries—the Commission could hardly have done so in light

of the fact that the Fund had obtained its General Time

stock at a price about 70% of what Industries paid—the

Commission declined to grant retroactive approval.

The following Monday, April 22, 1968, four hours before

the annual stockholders’ meeting was to commence, peti-

tioner applied again to the District Court for preliminary

injunctive relief. Management wanted time to publicize

the Commission’s decision, and in order to obtain such

time again charged that the Committee's proxy statement

had been false and misleading, this time because it had not

set forth more detail with respect to the §17(d) applica-

tion. On the basis of all of the facts before the court,

which included voluminous proxy materials, newspaper re-

ports, testimony, ete, Judge Tyler again determined that

—<

the Committee’s proxy material had not been false or mis-

leading. Focusing on the reference in the Committee’s

proxy statement to Industries’ §17(d) application, Judge

Tyler noted:

“Of course, it didn’t prognosticate that Talley [Indus-

tries] and the Fund would be found in violation of

Section 17, but I don’t think that anybody under See-

tion 14 could have reasonably insisted that Talley

make such a prognostication.” (Pet, Appx. C, at 30a)

Judge Tyler declined to issue injunctive relief.

Accordingly, the stockholders’ meeting of General Time

was duly held that day (April 22nd) and the ballots were

cast. The preliminary (unofficial) count indicates a plural-

ity of some 97,000 votes for the Committee’s nominees, On

May Ist, before the count could be officially announced, the

SEC brought suit against Industries and Fund on the basis

of its determination that §17(d) had been violated, seek-

ing, inter alia, an order that Industries and Fund with-

draw the votes each had cast in favor of the Committee’s

slate on April 22nd. Proceedings were expedited and

plenary trial was had before District Judge Wyatt on May

22 and 23. On June 24, Judge Wyatt ruled that he was

not bound by the administrative determination and he, too,

concluded, as had Industries, that the events in question

did not violate §17(d). The Court of Appeals reversed

and remanded because it deemed itself concluded by the

finding of the SEC; but in so doing, the Court of Appeals

nonetheless went on to find that §17(d) had rarely been

construed: that no case had ever applied it to a situation

such as this; that conscientious counsel could well have

believed the Section inapplicable; and that Industries and

10

Fund could not be regarded as deliberate flouters of the

law. Hence it concluded that punitive relief that would

disfranchise them was not appropriate; that § 17(d)’s pur-

pose was to protect the stockholders of Fund, not General

Time’s management’s interest in maintaining itself in office,

and that the stockholders of the Fund had not yet been

hurt although they might be if the parties were deprived

of their rights to vote (899 F.2d at 405-06),

In the instant proceeding, petitioner seeks review on

certiorari of the denial of its applications for injunctive

relief in its Rule 14a-9 case, arguing that the Court of

Appeals should not have decided what was or was not mate-

rial but rather should have required inclusion in the Com-

mittee’s proxy solicitation literature of additional matters

which might have been material. Of the plethora of alleged

misrepresentations and omissions charged against the

Committee by petitioner below (see, eg., Pet. Appx. B),

there remain only the charges that respondents’ proxy

materials failed to disclose that Industries had violated

$17(d) of the Investment Company Act and that respon-

dents’ proxy materials did not pick up what petitioner had,

as early as February 24th, pat in its §17(d) complaint—

that Fund owned over 5% of Industries’ outstanding stock.

11

ARGUMENT

The Court Below Correctly Found that the Commit-

tee’s Proxy Statement Was Not Misleading and Further

Correctly Found that the Alleged Omissions Were Not

Material.

Rule 14a-9(a)* prohibits the solicitation of proxies by

means of a statement containing omissions of material

fact necessary in order to make the statements therein not

false or misleading. In order to run afoul of Rule 1d4a-

9(a), it is thus necessary (1) that the omitted facts com-

plained of be material and (2) that their inclusion be

“necessary in order to make the statements therein not

false or misleading.”

The Court of Appeals correctly concluded—as had the

District Court—that the Committee’s Proxy Statement was

not false or misleading: “We fail to see how the details

concerning the discussions between Industries and Fund

that were omitted from the proxy statement were ‘neces-

sary in order to make the statements therein not false or

misleading.’ (Pet. Appx. A, at Ta) Petitioner nowhere

disputes the correctness of that determination. The

court’s unchallenged determination that the proxy state-

ment was not false or misleading is dispositive of the in-

stant case, rendering moot any issue as to whether details

not included were or might have been material.

* The text of Rule 14a-9(a) is set out in Respondent’s Appendix

hereto, Petitioner’s Appendix F contains a printer’s error which

omits the eight kay outs.

12

Turning nevertheless to the question of materiality, peti-

tioner argues that the requirement should be that what-

ever “may be material” should have been required to be

included in the literature sent to the stockholders (Pet. 12)

even though neither the Committee nor management (nor,

for that matter, the SEC) deemed the additional facts in

question below to be worth publication curing the contest

itself.

How the details of the events above related could have

been material to the other stockholders of General Time

in the election contest, petitioner does not state. The

Committee did not include them, although the court below

was of the view that, if the further details had any rele-

vance at all, they would more likely have tended to help

the Committee than the petitioner which protests their

omission. Petitioner did not include them in its solicita-

tion literature and does not explain why, if they were as

important as petitioner now says, it did not publish the

facts itself. Petitioner’s contention that it did not learn

the facts in time, that is, not until they “were only reluc-

tantly disclosed in the course of the evidentiary hearing

before the SEC” (Pet. 17), is not true. A “detailed

statement of the facts” (see Pet. Appx. A, at 3a) was

contained in Industries’ application to the SEC, and the

court below specifically found that petitioner had knowl-

edge of them (Pet. Appx. A, at 6a).

Despite having chosen to make no reference to the ad-

ditional information itself, petitioner contends that the

court should have granted its application. The appro-

priate definition of materiality, petitioner argues, would

be a definition that included all that “may be material”

(Pet. 12). But one does not define a word by modifying

13

it. That which “is material” is only a part of that which

“may be material,” for the latter includes not only matter

which on final analysis is material, but also matter which

on final analysis is not. Petitioner would have the courts

abdicate the responsibility which is theirs under Rule 14a-9

(a) to make that final analysis.

A doctrine calling for preliminary injunctive relief to

be granted in cases where the moving party could do no

more than establish doubtful materiality would be the

converse of the existing rule which requires a “clear show-

ing” or a “clear and plain case.” Santos v. Bonanno, 369

F.2d 369, 370 (2d Cir. 1966) ; Dunn v. Decca Records, Inc.,

120 F.Supp. 1, 3 (S.D.N-Y. 1954).°

Rule 14a-9(a) does call for the court to make the analysis

of materiality and the majority below did make that anal-

ysis on the basis of its evaluation of all of the facts.

The standard used below was whether, taking a “prop-

erly realistic view,” there was a “substantial likelihood”

that the omitted fact would have “led” a stockholder to

vote one way rather than the other (see Pet. Appx. A, at

6a). The cases cited by petitioner (see Pet. 12-13) do

not apply a different test at ali, although they vary, from

one to the other, in form of expression. Thus, in Richland

vy. Crandall, 262 F.Supp. 538 (S.D.N.Y. 1967), the court

spoke of facts which “eould normally be expected to lead

® On appeal petitioner has the further burdens of showing that

the lower court committed “clear error” when it found that the

additional facts were not material (Fed. R. Civ. P. 52(a) ; United

(1950) ; Commissioner Vv. Duberstein, 363 U.S. 278, 291 (1960) ), and

that it abused its discretion when it declined to grant injunctive

relief in the circumstances. Meccano, Lid. v. John Wanamaker, 253

U.S. 186, 141 (1920).

14

a reasonable stockholder not to vote in favor of the pro-

posal” (262 F.Supp. at 553) or which “would normally be

expected to influence a reasonable stockholder in voting on

the proposal” (ibid.). In Western Oil Fields, Inc. v. Mc-

Knab, 232 F.Supp. 163 (D. Colo. 1964), the court spoke of

facts which “reasonably could have influenced, shareholders

to give their proxy in a situation where they would not

have done so had the alleged fraudulent statement or

statements not been made” (232 F.Supp. at 166). Many of

the authorities petitioner cites contain the requirement that

the additional facts “would influence,” unqualified by such

phrases as “substantial likelihood,” “could normally be ex-

pected” or “reasonably could,” and those cases could there-

fore be viewed as requiring a stronger showing of material-

ity than the test applied below. Walpert v. Bart, 280 F.

Supp. 1006, 1011 (D. Md. 1967), aff'd, 390 F.2d 877 (4th Cir.

1968); Miller v. Steinbach, 268 F.Supp. 255, 273-74 (S.D.

N.Y. 1967); Evans v. Armour & Co., 241 F.Supp. 705, 709

(E.D. Pa. 1965); Phillips v. United Corp., CCH Fed. Sec.

L. Rep. 190,395, p. 91,072 (S.D.N.Y. 1947) ; 2 Loss, Securi-

ties Regulation 917-18 (2d ed. 1961); cf. Dunn v. Decca

Records, Inc., 120 F.Supp. 1, 2 (S.D.N.Y. 1954); SEC v.

Okin, 58 F.Supp. 20, 24 (S.D.N.Y. 1944). In SEC v. Hen-

wood, CCH Fed.Sec.L. Rep. 191,125 (S.D. Cal. 1961), mod.

and aff'd, 298 F.2d 641 (9th Cir.), cert. denied, 371 U.S. 814

(1962), the court spoke of “essential facts waich may influ-

ence.” Id. at p. 93,712.

But these different means of expression do not express

different concepts, and petitioner’s argument is a quibble

over words where meanings do not differ. In any given

case the issue is really whether equity requires judicial

intervention, and both courts below have found that the

facts at bar did not warrant injunctive relief.

Il.

The Court of Appeals’ Passing Reference to the SEC’s

Lack of Objection to the § 17(d) Aspects of the Com-

mittee’s Proxy Statement Was Not Erroneous “Reli-

ance.”

Petitioner asserts that the Court of Appeals “relied

upon” the SEC’s clearance of the Committee’s proxy ma-

terials and that this was error warranting reversal (Pet.

14). Far from relying on the Commission’s position, the

Court of Appeals made its own determination that the

additional information was immaterial. The court then

wrote that “Finally, although this makeweight is scarcely

needed, we think that, despite Rule 14a-9(b), some force

can be given to the SEC’s clearance of the Proxy State-

ment in a case such as this where the omissions were of

facts well known to it as a result of the contemporaneous

Rule 17d-1 application.” (Pet. Appx. A, at 8a)

Actually, not only were the facts well known to the SEC

by reasons of Industries’ §17(d) application (which the

court below described as containing a “detailed statement

of the facts” (Pet. Appx. A, at 3a)), but also by reason of

the SEC investigation into the matter in early March which

had led to the conference telephone call (referred to supra,

p. 6) wherein both the SEC official responsible for clear-

ing both sides’ proxy solicitation materials and the SEC

officials in charge of investigation and enforcement of

“ §17(d) matters participated. For the Court of Appeals to

have completely ignored these circumstances would have

been unrealistic.

The court’s conclusion that the SEC’s consideration of

the Committeo’s Proxy Statement was of some significance

16

does not conflict with this Court’s opinion in J. I. Case Co.

vy. Borak, 377 U.S. 426 (1964). In Borak, the question was

whether or not a private right of action should be allowed

to enforce the Proxy Rules as a supplement to the Com-

mission’s responsibility for enforcement of those Rules. In

that case, this Court was guided by the SEC’s report (as

amicus curiae) that, in view of the great number of proxy

statements which confront it, the SEC must ordinarily take

factual representations contained therein at face value.

For that reason (among others), this Court held that “Pri-

vate enforcement of the proxy rules provides a necessary

supplement to Commission action.” 377 U.S. at 432. But

as this Court further noted, the SEC’s disavowal of re-

sponsibility for knowledge was qualified, t.e., facts were

accepted by the Commission at their face value “unless

contrary to other material on file with it,” 377 U.S. at 4382.

We do not suggest that because the Commission had “other

material” (to say the least) “on file with it” relating to the

§17(d) matter, the Commission’s failure to object to the

Committee’s Proxy Statement is determinative. See Subin

y. Goldsmith, 224 F.2d 753, 774 (2d Cir.), cert. denied,

950 U.S. 883 (1955) and Millimet v. George F. Fuller

Co., CCH.Fed.Sec.L.Rep. 191,570 (S.D.N.Y. 1965). But it

would be absurd not to give “some force” to this “make-

weight” (as it was referred to below, see Pet. Appx. A, at

8a). See Kauder v. United Bd. & Carton Corp., 199 F.Supp.

420, 423-24 (S.D.N.Y. 1961); Dunn v. Decca Records, Inc.,

120 F.Supp. 1, 2 (S.D.N.Y. 1954). See also Sherman v.

Posner, 266 F.Supp. 871, 874 (S.D.N.Y. 1966); Mack v.

Mishkin, 172 F.Supp. 885, 888 (S.D.N.Y. 1959) ; Shvetz v.

Industrial Rayon Corp., 212 F.Supp. 308 (S.D.N.Y. 1960).

There Was No Shifting of Any “Burden of Disclosure”

by the Court Below.

Petitioner alleges that the Court of Appeals improperly

“shifted” to it the “burden of disclosure” of facts that

petitioner claims should have been disclosed by the Com-

mittee (Pet. 16-18). Petitioner’s reference is to the Court

of Appeals’ reasoning that the failure of petitioner in its

own proxy materials at any time to correct what it now

claims were misleading statements or omissions is “some

evidence” that petitioner did “not regard them as material”

(Pet. Appx. A, at 6a). This was no “shifting” by the Court

of Appeals of any burden of disclosure onto petitioner,

but instead merely the drawing of an inference plainly sug-

gested by petitioner’s course of conduct.

Petitioner seeks to escape the implication of its own non-

action by the oblique statement that it did not know “all

the facts” until later (Pet. 17). This argument is specious.

In addition to whatever information petitioner had when

it filed its own §17(d) complaint on February 24th, peti-

tioner had in its possession from first to last in the proxy

contest—that is, from the day the Committee’s proxy state-

ment first went out (March 27) through all the period of

subsequent mailings by both sides in the ensuing 314 weeks

—a copy of Industries’ § 17(d) application, a document

which, the Court of Appeals found, contained “a detailed

statement of the facts” (Pet. Appx. A, at 3a). Yet during

this entire period petitioner mentioned none of these facts.

Its belated protest evidences, as the Court of Appeals

found, management’s belief that the issue is “apparently

deemed more important for litigation than it was for in-

formation” (Pet. Appx. A, at 8a).

= & OO ee ee ee ee Oe oe

18

CONCLUSION

Wherefore the petition for a writ of certiorari should

be denied.

Respectfully submitted,

Water L. Srrarron

Commsel for Respondents

Talicy Industries, Inc.,

Franz G. Talleu, M. Kimel-

man & Co., Michael G.

Kimelman avd Oscar Kimel-

man

Two Wall Street

New York, New York i0v05

BengsaMin Vrinar,

Rocer W. Karp,

Donovan LaeisurE Newton &

TRVINR,

Of Counsel

November 19, 1968

APPENDIX

la

APPENDIX

SEC Rule 140-9(a), 17 C.F.R. 240.140-9(a)

False or Misleading Statements.

(a) No solicitation subject to this regulation shall be

made by means of any proxy statement, form of proxy,

notice of meeting or other communication, written or

oral, containing any statement which, at the time and

in the light of the circwnstances under which it is

made, is false or misleading with respect to any mate-

rial fact, or which omits to state any material fact

necessary in order to make the statements therein not

false or misleading or necessary to correct any state-

ment in any earlier communication with respect to the

solicitation of a proxy for the same meeting or sub-

ject matter which has become false or misleading.