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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Brief in Opposition to Petition for Writ of Certiorari
- **Published:** January 1, 1969
- **Citation:** 393 U.S. 1026

## Text

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385604_0313%3A2. Public record. Not legal advice.