Opposition Brief — In Re Kauffman Mutual Fund Actions (Joseph B. Kauffman, Petitioner)

Supreme Court brief1973

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FILE COPY AUG 31 1973

IN THE

Supreme Court of the United States

October Term, 1973

No. 73-99

IN RE KAUFFMAN MUTUAL FUND ACTIONS

(Josepx B. Kaurrman, Petitioner)

JOINT BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

(For List of Counsel, See Pages 25-34)

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INDEX

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TABLE OF AUTHORITIES ............................ iii

QUESTION PRESENTED ............................. 2

PROCEDURAL RULE INVOLVED .................... 3

STATEMENT OF THE CASE ........................., 3

A. History of the Litigation Prior to Transfer to the

District of Massachusetts ...................... 3

B. Action of the District Court and Court of Appeals

on the Rule 23.1 Motions ....................... 6

REASONS FOR DENYING THE WRIT ................ 10

I. THE FIRST CIRCUIT CORRECTLY DECIDED

THE DIRECTOR DEMAND ISSUE IN ACCOR-

DANCE WITH CONTROLLING PRECEDENT. .... 10

II. THE DECISION OF THE FIRST CIRCUIT DOES

NOT CONFLICT WITH DECISIONS OF THIS

COURT OR OF OTHER COURTS OF APPEALS... 12

III. NO IMPORTANT ISSUES ARE RAISED BY THE

DECISIONS BELOW. ......................0...... 15

A. Both Lower Courts Correctly Concluded That

Plaintiff Failed to Plead With Sufficient Particu-

larity Reasons For Excusing Demand on Directors.

This Court Should Not Review That Finding. .... 15

B. The District Court’s Additional Holding on Share-

holder Demand Was Correct and Does Not Present

an Appropriate Question For Review. ........... 16

C. Refusal By the Court of Appeals to Grant Plain-

tiff Leave to File an Affidavit or to Amend His

Complaint Was Within the Court’s Discretion. ... 19

1. The facts which plantiff sought to assert would

not cure the defects in his complaint.

2. The First Circuit’s refusal on rehearing to con-

sider new factual matters presented by plaintiff

Was correct and constituted a sound exercise of

SP. Peas sccc cass 20

D. The Decision Below Does Not Impair Private En-

forcement of the Antitrust Laws.

Pace

ee on kK uk wc ekn wun conn sani 25

Certificate of Service .................0 0. cece cece eeeey 35

APPENDIX:

Proposed Agenda for Conference of April 18,1969 ..... Ia

Notice of Motion ...........................08. 12a

Letter of Hon. Mitchell H. Cohen to counsel dated April il 29, "

Ee en win cas G ha beck ensiensa seine a a

Motion of Defendants, The Dreyfus Fund, Inc., ete., to Dis-

eee I6a

Affidavit of Richard M. Cutler ................ eer 18a

Affidavit in Support of Rule 12(b)(6) Motion ..........__ 22a

Affidavit of Caleb Loring, Jr. ....................0..... 24a

Affidavit on Behalf of Manhattan Fund, Inc. ............ 26a

Excerpts from transcript of hearing before Pettine, C. J., d

a a a 2% OF

Letter of David H. Pittinsky, Esq. to Russel H. Peck, Esq.

I 5 on on ns can cc nsentecens 29a

—

TABLE OF AUTHORITIES

Cases

Pace

Ash v. International Business Machines, Inc., 353 F.2d 491

(3d Cir. 1965), cert. denied, 384 U.S. 927 (1966) ........ 24

Ballou v. General Electric Co., 393 F.2d 398 (1st Cir. 1968) 22

Barr v. Matteo, 355 U.S. 171 (1957) ©... 00... 16

Bartlett v. New York, N.H. & H.R.R., 221 Mass. 530, 109

eg dg ee ccc tee Noe ee. 17

Berenyi v. Immigration Director, 385 U.S. 630 (1967) ...... 16

Brooks v. Yawkey, 200 F.2d 663 (1st Cir. 1953) ............ 22

Cathedral Estates, Inc. v. Taft Realty Corp., 228 F.2d 85 (2d

Sc at cet ne Sep eee oe creek ine 12, 21

deHaas v. Empire Petroleum Co., 435 F.2d 1223 (10th Cir.

i RM TIS PR a ee Be 7 Re A trea 24

Delaware & Hudson Co. v. Albany & S.R.R., 213 U.S. 435

ere pyre CR ae eka Tee 10, 11, 13, 24

DePinto v. Provident Security Life Ins. Co., 323 F.2d 826

(9th Cir. 1963), cert. denied, 376 U.S. 950 (1964) ........ 13

Dodge v. Woolsey, 59 U.S. (18 How.) 331 Ce cas 10

Feddersen Motors, Inc. v. Ward, 180 F.2d 519 (10th Cir.

TRIOS Sie ERAS) ie RR ea eas 22

Foman v. Davis, 371 U.S. 178 (1962) .... ............... 21-23

Foss v. Harbottle, 2 Hare 461, 67 Eng. Rep. 189 (Ch. 1843) .. 10

Grifin v. Locke, 286 F.2d 514 (9th Cir. Seep ee ete 22

Hawes v. Oakland, 104 U.S. 450 ae 10, 11, 18, 19

In re Kauffman Mutual Fund Actions, 337 F. Supp. 1337

ig oe one ee

Kauffman v. The Dreyfus Fund, Inc., 434 F.2d 727 (3d Cir.

1970), cert. denied, 401 U.S. 974 (1971) ............. 4, 6, 7, 24

_— v. The Dreyfus Fund, Inc., 51 F.R.D. 18 (D.N.J.

Fe ROMAN iM GER ey Sais add wea K unhe bE alae bo oo cick 6

Klebanow v. New York Produce Exchange, 344 F.2d 294 (2d

Cir. 1965)

;

Bei Leah in ie iis oe lg es a is as

Page

Levitt v. Johnson, 334 F.2d 815 (1st Cir. 1964), cert. denied,

I i A Ore yack eens eres Sian key 18

TAboff v. Wolfson, 437 F.2d 121 (5th Cir. 1971) ............ 13

Lucking v. Delano, 117 F.2d 159 (6th Cir. 1941) .......... ll

MacDougall v. Gardiner, L.R. 1 Ch. 13 (1875) ............ 10

Meltzer v. Atlantic Research Corp., 330 F.2d 946 (4th Cir.),

cert. denied, 379 U.S, 841 (1964) .....................,. 13

Moses v. Burgin, 445 F.2d 369 (1st Cir.), cert. denied, 404

EC he en Mads ccs We SEE ORK teks oc 5

Moviecolor, Ltd. v. Eastman Kodak Co., 288 F.2d 80 (2d Cir.

ee ang ace arc Ca od ain a eN Regs ROLE PHEW ia 8s 23

Munich v. United States, 330 F.2d 774 (9th Cir. 1964) .... 29

Oil Workers Union v. Delta Refining Co., 277 F.2d 694 (6th

SI Ste rey en Ce ee es cick 22

Quirke v. St. Louis-S.F. Ry., 277 F.2d 705 (8th Cir.), cert.

denied, 363 U.S. 845 (1960) ...................000002.. 18

Robison v. Caster, 356 F.2d 924 (7th Cir. 1966) ........... 11

S. Solomont & Sons Trust, Inc. v. New England Theatres

Operating Corp., 326 Mass, 99, 93 N.E.2d 241 (1950) ...... 17

Sawyer v. Piper, 189 U.S. 154 (1903) ................... 23

Smith v. Sperling, 354 U.S. 91 (1957) ................ 12, 14, 15

Swanson v. Traer, 354 U.S. 114 (1957) ............... 12, 16, 18

Swanson v. Traer, 249 F.2d 854 (7th Cir. 1957) .. ........ 12

222 East Chestnut St. Corp. v. Lakefront Realty Corp., 256

F.2d 513 (7th Cir.), cert. denied, 358 U.S. 907 (1958) .... 22

United Copper Securities Co. v. Amalgamated Copper Co.,

sy rn 2,17, 18, 24

United States v. Dickinson, 331 U.S. 745 (1947) .......... 16

United States ex rel. Kellogg v. McBee, 452 F.2d 134 (7th Cir.

Res Ane eee tein ser

Venner v. Great Northern Ry., 209 U.S. 24 (1908) ........ 12

Wathen v. Jackson Oil & Refining Co., 235 U.S. 635 (1915) .. 11

Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321

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PaGE

RuLEs

Federal Rules of Appellate Procedure

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Federal Rules of Civil Procedure

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Rules of the Supreme Court

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STATUTES

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OrHeER AUTHORITIES

Note, Demand on Directors and Shareholders as a Prerequisite

to Derivative Suit, 73 Harv. L. Rev. 746 (1960) .......... 11

Moody’s Bank & Finance Manual (1968) .................. 4

3 J. Moore, Federal Practice {| 15.08[4] (2d ed. 1948) ...... 19

3 J. Moore, Federal Practice J 15.09 (2d ed. ree 19

3B J. Moore, Federal Practice {| 23.1.19 (2d ed. 1948) ..... 11, 16

SEC, Public Policy Implications of Investment Company

Growth, H. R. Rep. No. 2337, 89th Cong., 2d Sess. (1966) 23

A. Wiesenberger, Investment Companies, Mutual Funds and

Other Types (28th ed. 1968) .......................... +

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IN THE

Supreme Court of the United States

October Term, 1973

No. 73-99

IN RE KAUFFMAN MUTUAL FUND ACTIONS

(Josep B. Kaurrman, Petitioner)

JOINT BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

These derivative actions were dismissed by the United

States District Court for the District of Massachusetts be-

cause of the failure of petitioner (hereinafter “plaintiff”)

to allege with sufficient particularity excuse for not making

demand upon the directors of each of the four mutual funds

(the “Kauffman funds”) on whose behalf he seeks to sue.’

The decision of the District Court was affirmed by the

* Plaintiff is a shareholder in The Dreyfus Fund, Ine., Man-

hattan Fund, Inc., Fidelity Trend Fund, Inc., and The Putnam

Growth Fund. Fidelity Trend Fund, Inc., is a Massachusetts

corporation; The Putnam Growth Fund is a Massachusetts business

trust. These two funds are sometimes hereinafter referred to as the

“Massachusetts Kauffman funds.” The word “directors” as used in

this brief includes the trustees of The Putnam Growth Fund.

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Court of Appeals for the First Cireuit, which did not reach

the District Court’s further holding that the complaint also

failed to allege sufficient excuse for not making demand

upon the shareholders of the Massachusetts Kauffman

funds.

QUESTION PRESENTED

Only one question need be reached to determine whether

the Petition should be granted:

Should this Court review a case in which none of the

considerations set forth in Rule 19 of the Rules of the

Supreme Court is present and in which both Courts

below found that the complaint failed to allege with

the particularity required by Fed. R. Civ. P. 23.1

sufficient reasons to excuse plaintiff’s failure to make

demand upon the directors?

The Petition seeks to raise two other issues, both resolved

in favor of respondents (hereinafter “defendants”) by the

Courts below, neither of which need be reached unless this

Court answers the foregoing question in the affirmative. In

that event the additional issues presented are as follows:

1. Should this Court review the exercise of disere-

tion by the Court of Appeals (a) in refusing to accept

as an enlargement of the record on appeal an affidavit

tendered with a petition for rehearing, and (b) in re-

fusing permission to amend the complaint in accord-

ance with the affidavit, where the proffered affidavit

and the proposed amendment would not cure defects

in the complaint found by the Courts below?

2. Should this Court review the determination of

the Distriet Court that demand upon the shareholders

of two Massachusetts-based funds was also required,

where the District Court correctly followed United

ag Securities Co. v. Amalgamated Copper Co., 24

U.S. 261 (1917), in holding that demand upon share-

holders is required in a derivative action under the

Sherman Act, 15 U.S.C. § 1, and where the Court of

Appeals found it unnecessary to pass upon that issue!

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PROCEDURAL RULE INVOLVED

The Petition involves Rule 23.1 of the Federal Rules of

Civil Procedure (“Rule 23.1”). The full text of this Rule

is as follows:

In a derivative action brought by one or more share-

holders or members to enforce a right of a corporation

or of an unincorporated association, the corporation or

association having failed to enforce a right which may

properly be asserted by it, the complaint shall be veri-

fied and shall allege (1) that the plaintiff was a share-

holder or member at the time of the transaction of

which he complains or that his share or membership

thereafter devolved on him by operation of law, and

(2) that the action is not a collusive one to confer

jurisdiction on a court of the United States which it

would not otherwise have. The complaint shall also

allege with particularity the efforts, if any, made by

the plaintiff to obtain the action he desires from the

directors or comparable authority and, if necessary,

from the shareholders or members, and the reasons for

his failure to obtain the action or for not making the

effort. The derivative action may not be maintained if

it appears that the plaintiff does not fairly and ade-

quately represent the interests of the shareholders or

members similarly situated in enforcing the right of

the corporation or association. The action shall not

be dismissed or compromised without the approval of

the court, and notice of the proposed dismissal or

compromise shall be given to shareholders or members

in such manner as the court directs.

STATEMENT OF THE CASE

A. History of the Litigation Prior to Transfer to the

District of Massachusetts

Plaintiff, who is also a counsel of record, is a shareholder

in the four Kauffman funds. His complaint, filed in Decem-

ber 1968, contained three counts. Count I, which is the only

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count before the Couri, alleges that defendants, in contra-

vention of the antitrust laws, conspired to fix the manage-

ment fees paid by each mutual fund to its investment ad-

viser, to limit competition in the business of providing in-

vestment advisory services and to refrain from providing

internal investment management. Counts II and III,

which allege various causes of action under the federal se-

curities laws, have been severed.

Plaintiff’s suit was instituted in a variety of capacities?

against 141 defendants, comprising each of the Kauffman

funds and 61 other funds in which plaintiff owned no

shares,® their investment advisers, directors affiliated with

both funds and advisers, and the Investment Company In-

stitute, the trade association for the mutual fund industry,

Each named defendant other than the Investment Company

Institute was also sued as a representative of a class of

other funds, advisers and affiliated directors.

? Plaintiff sought to maintain this action (a) in his own right as

a shareholder in the four Kauffman funds, (b) as a class repre-

sentative on behalf of all other shareholders of the 65 defendant

funds and all other funds affiliated therewith or related thereto,

(ce) derivatively on behalf of the four Kauffman funds, (d) by

virtue of his representative status, derivatively on behalf of the 61

non-Kauffman funds and all other funds affiliated therewith or

related thereto and (e) by virtue of his derivative status, repre-

sentatively on behalf of the 61 non-Kauffman funds and all other

funds affiliated therewith or related thereto. See Kauffman v. The

Dreyfus Fund, Inc., 434 F.2d 727, 732 (3d Cir. 1970), cert. denied,

401 U.S. 974 (1971).

3 It would appear that the selection of these fund defendants was

based upon their size since plaintiff chose to name only funds with

assets in excess of $100,000,000. Moody’s Bank & Finance Manual

a53 (1968); A. Wiesenberger, Investment Companies, Mutual Funds

and Other Types 104-109 (28th ed. 1968).

AG MCAS MEA CY

In each of the Kauffman funds the unaffiliated directors ¢

constituted a majority of the board. (Respondents’ Appen-

dix [hereinafter “Resp. App.”] 18a-27a). No unaffiliated

director of any of these funds (or of any other fund) was

joined either as a named defendant or as a member of any

defendant class, and none was named as a co-conspirator.

(Compl. ff 30-31 at Petitioner’s Appendix [hereinafter

“Pet. App.”] B9-B10). Nevertheless, plaintiff admittedly

made no prior demand upon the directors or shareholders

of the Kauffman funds.

Faced with this monumental complaint, defendants, in

April 1969, filed a detailed schedule of motions. (Resp.

App. la-13a). Included were motions challenging the

standing and capacity of plaintiff, motions addressed to

jurisdiction, venue and process, and motions under Rule 23.1.

*The Investment Company Act of 1940, 15 U.S.C. §§ 80a-1

et seq. (herein referred to as the “Act”), closely regulates and

controls the mutual fund industry. The Act defines an investment

company (herein referred to as a “fund”) as a business pri-

marily engaged in investing, reinvesting or trading in securities, 15

U.S.C. § 80a-3(a), and an investment adviser (herein referred

to as an “adviser”) as one who furnishes investment advice to a

_ Ee to a Basen ——— > —— § ae (20).

ost are “exte y managed” by the adviser which generally

has formed the fund and some of whose directors are also directors

of the fund. This mode of management is contemplated by the Act.

During the period in question, any fund director was deemed

“affiliated” with the adviser if he was an officer, director, partner,

or employee of the adviser or owned 5 per cent or more of the

voting securities of the adviser. 15 U.S.C. § 80a-2(a)(3). See-

tion 10(a) of the Act, at the time this action was commenced, pro-

vided that at least 40 per cent of the directors of a fund must not be

“affiliated” with the fund’s adviser, subject to certain specific excep-

tions. 54 Stat. 806. It was the intent of Congress that these un-

affiliated directors would be “independent, watch-dog directors.”

Moses v. Burgin, 445 F.2d 369, 376 (1st Cir.), cert. denied, 404

US. 994 (1971).

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The District Court directed that the motions addressed to

plaintiff’s standing as a class representative be briefed and

argued first (Resp. App. l4a-15a), denied these motions,

and certified them for interlocutory appeal. Kauffman vr.

The Dreyfus Fund, Inc., 51 F.R.D. 18 (D.N.J. 1969). The

Third Cireuit reversed and ordered the complaint dismissed

except to the limited extent that it alleged derivative claims

on behalf of the four Kauffman funds. Kauffman v. The

Dreyfus Fund, Inc., 434 F.2d 727, 738 (3d Cir. 1970), cert.

denied, 401 U.S. 974 (1971). See clause (c) of footnote 2

at page 4, supra.

After the action was remanded to the New Jersey Dis-

trict Court, plaintiff consented to the granting of defend-

ants’ motions directed to jurisdiction, venue and process.

The District Court severed Count I from the other counts,

divided Count I into ten separate actions, retained one of

those actions in the District of New Jersey and transferred

the others to nine other districts. Plaintiff thereafter ap-

plied to the Judicial Panel on Multidistrict Litigation for

pre-trial consolidation pursuant to 28 U.S.C. § 1407(a).

The Panel transferred the actions based upon Count I to

the District of Massachusetts for consolidated pre-trial

proceedings. In re Kauffman Mutual Fund Actions, 337

F. Supp. 1337 (J.P.M.L. 1972).

B. Action of the District Court and Court of Appeals on the

Rule 23.1 Motions

Pursuant to a pre-trial order, defendants promptly

brought on in the District of Massachusetts the Rule 23.1

motions, which had been held in abeyance by the District

Court in New Jersey, and two other motions.» The mo-

tions now before this Court sought dismissal of the com-

plaint for failure to make a demand upon either (a) the di-

rectors of each of the four Kauffman funds (the “director

demand motion”) or (b) the shareholders of the two Mas-

sachusetts Kauffman funds (the “shareholder demand mo-

tion”). (Resp. App. 16a-17a; Pet. App. A25).

Plaintiff filed a lengthy affidavit in opposition to these

motions. On the director demand issue he made no attempt

to supplement his complaint; on the shareholder demand

issue he contented himself with statements as to the num-

ber of shareholders in the Massachusetts Kauffman funds.

Defendants filed reply affidavits setting forth, as of the

date of filing of the complaint, the number and identi-

ties of the directors of each of the Kauffman funds, speci-

fying those who were at that time unaffiliated within the

meaning of § 2(a)(3) of the Act, 15 U.S.C. § 80a-2(a) (3).

(Resp. App. 18a-27a).

*The other two motions — a motion to dismiss because of

plaintiff's inability to provide fair representation and a waiver

motion — were denied by the District Court. Plaintiff’s complaint,

as originally filed, sought monetary damages from the very funds

on whose behalf he was purporting to sue. Confronted with charges

of disabling conflicts of interests on the initial set of motions before

the District Court of New Jersey, he “relinquished any claim for

monetary damages against the funds.” Kauffman v. The Dreyfus

Pund, Inc., 434 F.2d 727, 737 (3d Cir. 1970), cert. denied, 401

US. 974 (1971). The fair representation motion before the Dis-

triet Court of Massachusetts asserted that this relinquishment was

undertaken simply to preserve plaintiff’s own standing and em-

phasized his inability to represent fairly and adequately the inter-

ests he purported to represent. The waiver motion, filed by the 61

funds in which plaintiff owned no shares, asserted that those de-

fendants were no longer proper parties to the action because of

Plaintiff's relinquishment and that the action should therefore be

dismissed as to them.

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Plaintiff filed no affidavit contesting any of the matters

contained in these reply affidavits. At the argument on these

motions he reasserted his reliance upon the sufficiency of his

complaint.®

The District Court granted both the director demand

and the shareholder demand motions, and dismissed the

complaint without prejudice.” The District Court held that

“[i]f Rule 23.1 is to be more than a nicety of pleading and

is to safeguard corporations from abuse [citation omitted],

it must mandate that there be some merit to allegations of

‘futility’ of demand”, and found that plaintiff had “not sufi-

ciently shown the merits of his allegations of futility.” (Pet.

App. Al8). The District Court noted that the complaint

failed to charge unaffiliated directors with specific miscon-

duct and that a majority of each of the boards was unaffili-

ated at the time demand should have been made. Consider-

ing, among other things, the allegations of the complaint

upon which plaintiff sought to rely and noting the statutory

role of the unaffiliated directors of mutual funds and the

presumption set forth in § 2(a)(9) of the Act, 15 U.S.C.

§ 80a-2(a)(9), the District Court held that the conclusory

allegation of domination and control of the funds’ diree-

* The following colloquy occurred:

THE COURT: You are asking the Court then to look just

to the face of the complaint?

MR. PITTINSKY: That is correct, your Honor.

THE COURT: And apply the basic rule that [the allegations]

must be accepted as truthful for the purpose of these motions.

MR. PITTINSKY. That is correct, your Honor... .

THE COURT: You also represent that your complaint is

sufficient in making the same allegation that you now argue?

MR. PITTINSKY: That is correct, your Honor. (Resp. App.

28a).

* Pet. App. A22; Resp. App. 29a-30a.

torates by the affiliated directors was insufficient under

Rule 23.1 to demonstrate futility of demand. (Pet. App.

A18-A19).

Plaintiff, again choosing to stand upon his complaint

without seeking to amend, appealed to the First Circuit,

which affirmed the judgment of the District Court upon the

director demand motion. The Court of Appeals rested its

decision on the grounds that (1) plaintiff’s “allegation of

domination and control [of the unaffiliated majority of the

directors of each Kauffman fund], unsupported by under-

lying facts, does not satisfy the requirement of particu-

larity” of Rule 23.1; (2) “the complaint does not allege that

those who were unaffiliated directors at the time of suit par-

ticipated” in the alleged conspiracy; and (3) even if the

same unaffiliated directors at the time of suit had partici-

pated in the transactions complained of, “ [a]pproval by the

directors of action alleged to be injurious to the corporation

is not sufficient to excuse demand . . . absent self-interest or

other indication of bias.” (Pet. App. A29-A32). In light

of that resolution, the Court of Appeals found it unneces-

sary to reach the question whether the District Court had

properly granted the shareholder demand motion.

Plaintiff filed a petition for rehearing and tendered an

affidavit purporting to show that substantially all of the

unaffiliated directors of the Kauffman funds at the time of

commencement of the action had been in office for several

years. That petition requested that the ease be remanded

to the District Court to permit the complaint to be amended

in accordance with the proffered affidavit. The Court of

Appeals accepted the affidavit for identification purposes

only, and denied the petition in a Memorandum and Order

which gave full consideration to each of plaintiff’s argu-

ments and requests. (Pet. App. A42-A44).

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REASONS FOR DENYING THE WRIT

The Court of Appeals’ decision follows long-standing and

controlling precedent, does not conflict with decisions of

this Court or of any Court of Appeals, and does not pre-

sent any issue worthy of review by this Court.

I. THE FIRST CIRCUIT CORRECTLY DECIDED THE

DIRECTOR DEMAND ISSUE IN ACCORDANCE WITH

CONTROLLING PRECEDENT.

Plaintiff is asking this Court to examine anew the allega-

tions of his complaint despite the determinations by the

Courts below that those allegations were insufficient to ex-

cuse a demand upon directors prior to the commencement of

the original action. The decisions of the Courts below are

supported by well-settled precedent. E.g., Foss v. Har.

bettle, 2 Hare 461, 67 Eng. Rep. 189 (Ch. 1843) ; Dodge v.

Woolsey, 59 U.S. (18 How.) 331, 341-46 (1855) ; MacDougall

v. Gardiner, L.R. 1 Ch. 13 (1875); Hawes v. Oakland, 104

U.S. 450 (1881); Delaware & Hudson Co. v. Albany € 8.

R.R., 213 U.S. 435 (1909). The general rule was stated by

the Court in Hawes:

“(A derivative plaintiff must demonstrate that] the

board of directors, or a majority of them, are acting

for their own interest, in a manner destructive of the

corporation itself, or of the rights of the other share-

holders; [or that] . . . the majority of shareholders

themselves are oppressively and illegally pursuing a

course in the name of the corporation, which is in viola-

tion of the rights of the other shareholders, and which

can only be restrained by the aid of a court of equity.”

104 U.S. at 460.

The Court in Hawes further held that the “cause of failure

[to induce corporate action] ... should be stated with

BR Bane AS He ah ict a

particularity.” Id. at 461. Rule 23.1 embodies this prin-

ciple. See 3B J. Moore, Federal Practice 7 23.1.19 at

23.1-251 (2d ed. 1948).

This rule of pleading is based upon the reluctance of

courts to interfere in the internal affairs of a corporation

before all intracorporate remedies have been exhausted by

the complaining shareholder. See Hawes, 104 U.S. at

460-61; Note, Demand on Directors and Shareholders as a

Prerequisite to Derivative Suit, 73 Harv. L. Rev. 746, 748-49

(1960). The demand requirement has an additional pur-

pose:

“[R]emoval of the suit from the would-be plaintiff's

exclusive control has the additional effect of eliminat-

ing the danger of a secret settlement between him and

the alleged wrongdoers. Moreover, the mere possi-

bility of such removal discourages one of the major

abuses in the use of the derivative suit, namely, its

employment as a device to enable plaintiff’s counsel

to earn substantial fees.” Id. at 749 (Footnote

omitted ).*

In applying these fundamental principles the Court of

Appeals relied on Hawes, Delaware & Hudson and such

other cases as Lucking v. Delano, 117 F.2d 159, 160 (6th

Cir. 1941), in which it was held that “[{a] bare allegation

of the futility of such a demand is not sufficient without

allegations of fact showing how and why the demand

would be futile.” Accord, Wathen v. Jackson Oil & Refin-

ing Co., 235 U.S. 635, 639-40 (1915); Robison v. Caster,

356 F.2d 924, 926-27 (7th Cir. 1966).

*This latter rationale is highlighted by the fact that, as origi-

nally framed, plaintiff’s complaint sought to force the Kauffman

funds and 61 other funds to sue one another and nearly everyone

else in the mutual fund industry except, notably, the unaffiliated

directors of the various funds.

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II. THE DECISION OF THE FIRST CIRCUIT DOES NOT

CONFLICT WITH DECISIONS OF THIS COURT OR OF

OTHER COURTS OF APPEALS.

Plaintiff argues, erroneously, that the First Circuit

reached a result that conflicts with specified decisions of this

Court and various other Courts of Appeals. The cases

which he cites in support of his contention are not in point.

Plaintiff is actually asking this Court to overturn well-

settled precedent embodied in the requirement of Rule 23.1

that demand be made on directors by a derivative plaintiff

unless he can demonstrate with particularity sufficient ex-

cuse for failure to make the demand.

Plaintiff relies heavily on Smith v. Sperling, 354 US. 91

(1957). But the First Circuit recognized that that case in-

volved the very different issue whether the corporate bene-

ficiary of a derivative action is a real, or only a nominal,

defendant for the purposes of determining diversity of

citizenship. (Pet. App. A33 n.5)° As its opinion clearly

states, this Court made no decision on the director demand

requirement; moreover, it deferred to the lower court in

making the necessary factual determination. 354 US. at

93-95.

Plaintiff also relies on Cathedral Estates, Inc. v. Taft

Realty Corp., 228 F.2d 85, 8€ (2d Cir. 1955). There the

holders of 92 per cent of the corporate stock — obviously

sufficient to elect a majority of the board of directors—

were named as defendants and alleged to have made a

® This is made clear by Swanson v. Tracer, 354 U.S. 114 (1957)

(the companion case to Smith v. Sperling), in which the Court,

after aligning the derivative corporation as a defendant for diver-

sity purposes, remanded the case to the Court of Appeals for con-

sideration of the director demand issue. The Court of Appeals then

dismissed the complaint for failure to comply with the demand re-

quirements, 249 F.2d 854 (7th Cir. 1957). See Venner v. Great

Northern Ry., 209 U.S. 24 (1908).

—

fraudulent conveyance to a corporation wholly owned by

them. In Delaware & Hudson Co. v. Albany & S.R.R., 213

U.S. 485, 450 (1909), the directors and officers of the alleged

corporate wrongdoer constituted a majority of the direc-

tors of the derivative corporate defendant. In DePinto v.

Provident Security Life Ins. Co., 323 F.2d 826, 829-30 & n.8

(9th Cir. 1963), cert. denied, 376 U.S. 950 (1964), the Court

made an express finding that the derivative corporate de-

fendant did not act in good faith in seeking to bar the de-

rivative plaintiff from prosecuting his action. In Liboff v.

Wolfson, 437 F.2d 121, 122 (5th Cir. 1971), all of the diree-

tors were named as defendants, and it was expressly ad-

mitted that the alleged principal wrongdoer controlled the

board. In the other case cited by plaintiff in support of his

contention of a conflict of decisions, all of the members of

the board of directors were named as defendants. Meltzer

v. Atlantic Research Corp., 330 F.2d 946, 947-48 (4th Cir.),

cert. denied, 379 U.S. 841 (1964). No such facts were alleged

nor are they to be found in the present case. It has not

been claimed (nor could it be) that the affiliated directors

of the Kauffman funds —a minority of each of their re-

spective boards — controlled sufficient stock to elect the

boards of the Kauffman funds.

Moreover, the complaint does not allege any wrongdoing

by the unaffiliated directors (see Compl. {1 28 & 30 at Pet.

App. BS-B9), who at all relevant times comprised a majority

of the boards of each of the Kauffman funds. (Pet. App.

C1-C7; Resp. App. 18a-27a). Significantly, none of the un-

affiliated directors has been named as a defendant, as a mem-

ber of a class of defendants or as a co-conspirator. Rather,

in conclusory fashion, plaintiff alleges that the boards

of all 65 funds named as defendants are “dominated and

controlled” by their respective advisers and certain of their

affiliated directors. Judge Aldrich’s analysis of para-

Sones oe

{

;

graphs 10, 22-25 and 27-30 of the complaint establishes the

failure of those paragraphs to allege with sufficient par-

ticularity that the unaffiliated majority of any Kauffman

fund was “controlled” by the aftiliated minority. (Pet,

App. A25-A29),

In an attempt to cure this insufficiency, plaintiff inaceu-

rately asserts that his complaint alleges that all the men.

bers of the boards of directors participated in, approved

of, and acquiesced in the claimed antitrust violations. (Pet,

pp. 3-4, 17). The complaint, however, only makes such alle-

gations concerning named defendants. (Compl. 30 at Pet,

App. B9). None of the unafliliated directors was named as

a defendant or as a co-conspirator, nor was any such diree-

tor included within any of the classes of defendants in this

action, As found by the Court of Appeals:

“Apart from [the conclusory allegation of] ‘control,’

only the affiliated directors — a minority of each board

— are alleged to have ‘acquiesced, encouraged, coopera-

ted and assisted in the effectuation and maintenance’

of the conspiracy. The unaffiliated directors are not

named as defendants, or even as the ones who approved

the acts complained of.” (Pet. App. A830) (Emphasis

added).

“Various other corporations, individuals and _ entities”,

whose identities were allegedly “presently unknown to

plaintif’’, are also accused of having participated in the

conspiracy. (Compl. {31 at Pet. App. B9-B10) (Emphasis

added). However, the identity of the unaffiliated directors

of the Kauffman funds was public information and was

certainly known to plaintiff as a shareholder in these four

funds. Had he intended to charge the unaffiliated directors

with participation in this supposed conspiracy, it seems

clear that he would have named them in the complaint.

Plaintiff also attempts to use Smith v. Sperling, 354 US.

91 (1957), for the proposition that the Kauffman funds’

procedural motions demonstrate “antagonism” sufficient to

excuse the necessity of making demand. Even though de-

monstration of procedural antagonism may be sufficient

under Smith v. Sperling to support diversity jurisdiction,

its acceptance for purposes of Rule 23.1 would render the

demand requirement a nullity. If the corporation on whose

behalf the suit was brought did not raise the question of

failure to make demand, that would be the end of the matter.

If it did raise the question, the plaintiff could seize upon

that very action to excuse his failure to have made demand.

Such a result is totally inconsistent with Rule 23.1, for it

would permit every derivative plaintiff to ignore the de-

mand requirement with impunity. As Judge Aldrich

pointed out, plaintiff’s argument for excusing demand is

“classic bootstrap.” (Pet. App. A30).?°

Ill, NO IMPORTANT ISSUES ARE RAISED BY THE

DECISIONS BELOW.

A. Both Lower Courts Correctly Concluded That Plaintiff

Failed to Plead With Sufficient Particularity Reasons For

Excusing Demand on Directors. This Court Should Not

Review That Finding,

In this case, both the District Court and the Court of

Appeals applied to the complaint accepted rules and found

that the allegations purporting to show reasons for a fail-

ure to make demand were inadequate. This issue is not

Similarly, the fact that plaintiff was not afforded discovery

on the issue of demand (e.g., Pet. pp. 8-9), should be given no

weight whatsoever. In the Courts below, he insisted that he was

relying solely on the allegations of his complaint. (See pp. 7-9

=: footnote 6, supra.) In any event, as Judge Aldrich recog-

n J

“(T]he stockholder may not plead in general terms, hoping

that, by discovery or otherwise, he can later establish a case.

Indeed, if the requirement could be met otherwise, it would

be meaningless.” (Pet. App. A29).

one of great moment or precedential value. It is simply

a pleading question which this Court has indicated should

be entrusted to the lower courts. See, e.g., Swanson v,

Traer, 354 U.S. 114 (1957) (remand for a determination

whether the complaint justified failure to make demand).

See also 3B J. Moore, Federal Practice {| 23.1.19 at 23.1-254

(2d ed. 1948). The detailed review afforded this complaint

by the two Courts below, both reaching the same result, is

more than sufficient. Cf. Berenyi v. Immigration Dir., 385

U.S. 630, 635 (1967); United States v. Dickinson, 331 US.

745, 749 (1947). In essence all the Petition seeks is to have

this Court rummage once again through the twice-rejected

4 allegations of plaintiff’s conclusory and plainly defective

complaint.

;

; B. The District Court’s Additional Holding on Shareholder

: Demand Does Not Present an Appropriate Question For

‘ Review.

One half of plaintiff’s argument in the Petition is devoted

to an issue which the Court of Appeals properly found un-

necessary to reach — the effect of plaintiff’s failure to com-

ply with the shareholder demand requirements of Rule 23.1.

The First Cireuit’s holding on the issue of director demand

resulted in the dismissal of the entire case. If this Court

concludes that the director demand issue should not be re-

viewed, it would be inappropriate to grant review on the

shareholder demand issue — an alternative holding of the

District Court — since a determination of that issne would

not change the result in the case: the complaint would still

stand dismissed. To review the shareholder demand ques-

a tion under such circumstances would be tantamount to ren-

; dering an advisory opinion on a moot question. See, e.g.

Barr v. Matteo, 335 U.S. 171, 172 (1957).

ONL les MII ile ot ee at

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e°.)

Both Fidelity Trend Fund, Inc., and The Putnam Growth

Fund are organized under Massachusetts law. It is well-

settled under Massachusetts law that so long as a majority

of the shareholders are disinterested they must be given an

opportunity to decide whether, in their sound business

judgment, it is in the interest of the corporation to pro-

ceed with a derivative suit. S. Solomont & Sons Trust,

Inc. v. New England Theatres Operating Corp., 326 Mass.

99, 112-14, 93 N.E.2d 241, 248 (1950); Bartlett v. New

York, NU. & H.R.R., 221 Mass. 580, 532-33, 109 N.E. 452,

453-54 (1915). The rule applies with respect to charges that

the federal antitrust laws have been violated as well as

to all other corporate causes of action. Solomont, 326

Mass. at 104-05, 93 N.E.2d at 244.

The District Court found that under the shareholder de-

mand provisions of Rule 23.1 these principles of Massachu-

setts law were controlling. In so doing, it concluded that

the law of the state of incorporation determines the extent

to which it is “necessary” (within the meaning of the Rule)

for a plaintiff to make demand on his fellow shareholders,

when the applicable federal statute (in this case the Sher-

man Act) is silent.

The District Court acted in accordance with the control-

ling precedent of United Copper Securities Co. v. Amalga-

mated Copper Co., 244 U.S. 261, 264 (1917), in which this

Court specifically declared its concern that intracorporate

remedies be observed in Sherman Act cases:

“No application appears to have been made to the stock-

holders as a body or indeed to any other stockholders

individually; nor does it appear that there was no

opportunity to make it, and no special facts are shown

which render such application unnecessary. For aught

that appears, the course pursued by the directors

has the approval of all the stockholders except the

Decoders stares; Som

plaintiffs. The fact that the cause of action is based on

the Sherman Law does not limit the discretion of the

directors or the power of the body of stockholders; nor

does it give to individual shareholders the right to

interfere with the internal management of the corpo-

ration.” *

Nothing turns on plaintiff’s argument that federal law

controls the shareholder demand issue since, even if federal

law does apply, his complaint plainly fails to meet the fed-

eral shareholder demand requirement. I/awes v. Oakland,

104 U.S. 450, 461 (1881), holds that a shareholder who in-

tends to bring a derivative suit

“must show, if he fails with the directors, that he has

made an honest effort to obtain action by the stock-

holders as a body, in the matter of which he complains.

And he must show a case, if this is not done, where it

could not be done, or it was not reasonable to require

See United Copper Securities Co. v. Amalgamated Copper

Co., 244 U.S. 261, 264 (1917). Swanson v. Traer, 354 US.

114, 116-17 (1957), makes it clear that any “federal” de-

mand requirement is that set forth in Hawes. See also

Quirke v. St. Louis-S.F. Ry., 277 F.2d 705, 707-08 (Sth

Cir.), cert. denied, 363 U.S. 845 (1960). Plaintiff made not

the slightest effort to obtain shareholder action and his

complaint is devoid of any justification for his failure to

do so.

't Plaintiff's use of ellipsis and italicization (Pet. p. 30) distorts

the rule of United Copper. As that case makes clear, demand must

be made separately on the directors and on the shareholders

unless plaintiff alleges with sufficient particularity an excuse for

failure to make demand upon both directors and shareholders.

Moreover, plaintiff cites Levitt v. Johnson, 334 F.2d 815 (1st Cir.

1964), cert. denied, 379 U.S. 961 (1965), without making any ref

erence to footnote 5 of that decision. There the First Circuit

recognized the applicability of the rule of United Copper to anti-

trust cases. 334 F.2d at 820 n.5.

C. Refusal By the Court of Appeals to Grant Plaintiff Leave

to File an Affidavit or to Amend His Complaint Was

Within the Court’s Discretion.

1. The facts which plaintiff sought to assert would not

cure the defects in his complaint.

In support of his petition for rehearing by the First Cir-

cuit, plaintiff tendered his affidavit and sought to amend his

complaint in a belated attempt to state no more than that

the unaffiliated directors of the Kauffman funds at the time

he filed his complaint were substantially the same as those

in office at the time of the alleged wrongdoing. This asser-

tion would not, as the First Circuit observed (Pet. App.

A483), have cured his inability to plead, as required by

Hawes v. Oakland, 104 U.S. 450, 460 (1881), that the un-

affiliated directors were biased or acting in their own self-

interest or in a manner destructive of the corporation or

of the rights of the other shareholders. The First Circuit

stated:

“Even if we could assume that there had never been a

change in the complement of the boards of directors,

and that those who were the directors at the time of the

suit had approved of the transactions presently at-

tacked, it would not follow that mere prior participation

would excuse making the demand. Where mere appro-

val of the corporate action, absent self-interest or other

indication of bias, is the sole basis for establishing the

directors’ ne and hence for excusing demand

on them, plaintiff’s suit should ordinarily be dismissed.”

(Pet. App. A31-A32).

Plaintiff’s attempt to overturn the dismissal of his com-

plaint based on the refusal of the Court of Appeals to ac-

cept his affidavit or to remand with leave to amend is not

germane since both the District Court and the Court of

Appeals would, in any event, have reached the same de-

cision. See 3 J. Moore, Federal Practice 9] 15.08[4] at

905 & 15.09 at 958-59 (2d ed. 1948).

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2. The First Circuit’s refusal on rehearing to consider

new factual matters presented by plaintiff was correct

and constituted a sound exercise of its discretion.

The action of the First Cireuit in rejecting plaintiff's

affidavit and denying leave to amend was within its discre-

tion and in accordance with settled legal principles. Plain-

tiff adamantly insisted throughout these lengthy proceed-

ings upon the sufficiency of his complaint. See pp. 7-9 and

footnote 6, supra. There was no abuse of discretion when

the Court of Appeals concluded plaintiff should be bound

by the determination of the District Court that demand was

necessary before he could proceed further.

The power of a court of appeals to modify or enlarge the

record is defined by Fed. R. App. P. 10(e). That rule per-

mits the district court or the court of appeals to supply

or correct “anything material . . . omitted . . . by error or

accident or... misstated....” Plaintiff cannot claim that

his proffered affidavit was omitted from the record by error

or accident or that the allegations of his complaint were

misstated. Several courts have held that the further pro-

vision in Fed. R. App. P. 10(e) that “[a]ll other questions

as to the form and content of the record shall be presented

to the court of appeals” does not permit additions to the

record of any material not before the district court. Eg,

United States ex rel. Kellogg v. McBee, 452 F.2d 134, 137

(7th Cir. 1971) ; Munich v. United States, 330 F.2d 774, 776

(9th Cir. 1964).

In any event, whatever power a court of appeals has to

allow additions to the record of material not before the

district court is plainly discretionary. Cf. Zenith Radio

Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 331-32

(1971) (motion before trial judge to reopen record to admit

additional proof “is addressed to his sound discretion”).

a Fas EOE oe ee,

_—_

Moreover, here the affidavit was not tendered until after the

Court of Appeals’ adverse decision. In these circumstances

this Court should not be asked to utilize its certiorari power

to review an exercise of discretion.

The First Cireuit’s concomitant refusal on well-articu-

lated grounds to grant leave to amend was also proper. Cf.

Foman v. Davis, 371 U.S. 178, 182 (1962). Plaintiff

made no attempt to amend his complaint after he had been

put on notice at the outset of the action of defendants’ in-

tention to bring on Rule 23.1 motions. Nor did he attempt

to amend his complaint after the decision of the Third

Cireuit limiting the action to a derivative suit on behalf of

the Kauffman funds. Finally, he made no attempt to amend

his complaint after the decision of the District Court on the

present motion."* Indeed, plaintiff repeatedly insisted that

he was relying on the allegations of his complaint as filed.

® As Judge Aldrich stated:

“[We are not] moved at this time to permit an amendment to

the complaint. Surely plaintiff must have realized his obliga-

tion to show an excuse extending to the majority of the Board.

Cathedral Estates v. Taft Realty Corp., 2 Cir., 1955, 228 F.2d

85. Defendants’ brief abundantly pointed out that the un-

affiliated directors constituted the majority of each board, and

there was ample time for plaintiff to make its now proffered

assertion. This is particularly so as to a plaintiff who com-

plains that the case has been vigorously defended for four

years.” (Pet. App. A43) (Footnote omitted).

** Plaintiff's suggestion (Pet. p. 18) that the District Court’s

opinion made amendment impossible is based on a distorted

reading of that decision. The District Court did not hold that

| the statutory presumption contained in § 2(a)(9) of the Act con-

clusively determined the issue of director demand. It simply

referred to that presumption in the context of emphasizing the

basie requirement of Rule 23.1 that facts relating to the question of

director demand be pleaded “with particularity.” (Pet. App.

Al8) (Emphasis added).

oblate Ries —

aM Nett

;

In cases where an appellant raises the issue of amendment

for the first time after electing to appeal and losing, it has

been held that no amendment will be considered. See 222

East Chestnut St. Corp. v. Lakefront Realty Corp., 256 F.2d

513, 515 (7th Cir.), cert. denied, 358 U.S. 907 (1958) ; Fed-

dersen Motors, Inc. v. Ward, 180 F.2d 519, 523 (10th Cir,

1950).** This rule is appropriate to prevent unsuccessful

suitors from barraging courts of appeals with requests for

advisory opinions on the sufficiency of their pleadings, se-

cure in the belief that an adverse decision would do no

more than require them to amend their pleadings. Its appli-

cation is especially appropriate here since plaintiff must have

** The only cases concerning amendment cited by plaintiff (Pet,

20) involved situations where the appellants had sought and been

denied leave to amend in the District Court. Foman v. Davis,

371 U.S. 178, 179 (1962) and Ballou v. General Electric Co., 393

F.2d 398, 399 (1st Cir. 1968). That important distinction explains

the courts’ language in those cases concerning liberality of amend-

ment. As Judge Aldrich stated:

“Plaintiff's citation of [Ballou] in which we recognized there

would be a right to amend on a quite different set of facts does

not mean that the right exists at all stages of a case or

regardless of the type of pleading deficiency.” (Pet. App.

A43 n.1) (Emphasis added).

The few other cases which have permitted post-appeal amendment

turn on facts not present in this case. For example, the Court of

Appeals was not faced with a curable defect in the allegations

establishing diversity jurisdiction, made correctable by 28 U.S.C.

§ 1653, Brooks v. Yawkey, 200 F.2d 663, 664 (1st Cir. 1953); nor

with the possibility of affirming a dismissal on a second issue, not

passed upon below, on which the District Court might have per-

mitted amendment, Alebanow v. New York Produce Erchange, 344

F.2d 294, 299-300 (2d Cir. 1965); nor with an order of dismissal in

the District Court which failed to state its ground and, therefore,

left the plaintiff unable to offer a correcting amendment, Griffin v.

Locke, 286 F.2d 514, 515 (9th Cir. 1961); nor did the Court of

Appeals affirm the decision of the District Court for reasons

different from those relied on by the District Court, as to which the

plaintiff might have offered an amendment which would have eured

the defects in his complaint, Oil Workers Union v. Delta Refining

Co., 277 F.2d 694, 696-98 (6th Cir. 1960).

realized from the outset his obligation to plead with par-

ticularity an excuse running to a majority of the boards

of directors of the Kauffman funds. See Moviecolor, Ltd.

v, Eastman Kodak Co., 288 F.2d 80, 88 (2d Cir. 1961).

In any event, the Court of Appeals’ decision on amend-

ment, like its decision on the affidavit, is one committed to

its discretion. It is not appropriate to ask this Court to

review the manner in which that discretion was exercised in

this instance. See Sawyer v. Piper, 189 U.S. 154, 157

(1903). As the First Circuit recognized, plaintiff in this

case has simply been guilty of undue delay. (Pet. App.

A43). Foman v. Davis, 371 U.S. at 182.

D. The Decision Below Does Not Impair Private Enforcement

of the Antitrust Laws.

Plaintiff extravagantly contends that the First Circuit’s

decision in this case “will immunize the mutual fund indus-

try from the salutary proscriptions of the antitrust and

securities laws”, and that he should accordingly receive this

Court’s dispensation from well-established procedural rules

so that he can proceed with his alleged derivative antitrust

claims in spite of fatal flaws in his complaint. (Pet. p. 14).

This contention is without merit.*®

Plaintiff is in fact urging that the time-tested procedural

requirements of Rule 23.1 be held inapplicable to antitrust

** Neither the selective quotations from the testimony of Hamer

H. Budge (Pet. pp. 13-14) nor the legislative history of the 1970

amendments to the Act reflect any suggestion by Congress or the

SEC of antitrust violations. Indeed, the Commission in its study

of the industry concluded “that on the whole investment companies

have been diligently managed by competent persons and that

the general record of the industry is one of which it can be justly

proud.” SEC, Public Policy Implications of Investment Company

Growth, H.R. Rep. No. 2337, 89th Cong., 2d Sess. viii (1966).

rE aR 4

ealittististrinncshisniusinskncorsisvenss

cases. But this Court has expressly held that the demand

requirement incident to the bringing of shareholder deriva-

tive suits is applicable to such cases. United Copper Securi-

ties Co. v. Amalgamated Copper Co., 244 U.S. 261, 263-64

(1917). See also Ash v. International Business Machines

Corp., 353 F.2d 491, 492-93 (3d Cir. 1965), cert. denied,

384 U.S. 927 (1966). The First Cireuit held in accordance

with United Copper that the procedural requirements inci-

dent to a derivative suit instituted under Rule 23.1 are as

applicable to an action instituted under the antitrust laws

as they are to other derivative actions brought in the fed-

eral courts.”

If in this instance plaintiff’s ability to enforce the anti-

trust laws has been impaired, he has only himself to blame.

As pointed out by the Court of Appeals:

“We recognize the social desirability of bona fide,

well founded minority suits. We also recognize the tre-

mendous waste involved in suits that are not well

founded. We do not accept the dictum in de/laas v.

Empire Petroleum Co., 10 Cir., 1970, 435 F.2d 1223, at

1228, that ‘[e]ourts have generally been lenient in ex-

eusing demand’ if it is to be applied to allegations as

substantively deficient as the present. Such easy re-

marks overlook the requirement that the directors’

‘antagonism... be unmistakable.’ Delaware & Hudson

Co. v. Albany R.R. [213 U.S. 485 (1909) ]. If, as plain-

tiff suggests, this frustrates his ability to prosecute a

worthwhile suit, the answer is that he was not entitled

to bring it.” (Pet. App. A35).

** Nor are traditional rules suspended, as urged by plaintiff, sim-

ply because the derivative defendants happen to be mutual funds.

The Third Cireuit has already held in this case that “the public

policy based strictures” on derivative actions apply to antitrust

suits brought on behalf of mutual funds just as they do with re

spect to any other corporation. Kauffman v. The Dreyfus Fund,

Inc., 434 F.2d 727, 732-34, 735 n.3 (3d Cir. 1970), cert. denied,

401 U.S. 974 (1971).

w lipeilia NU: ith abas Aton toss

CONCLUSION

For the foregoing reasons the Petition should be denied.

Respectfully submitted,

78-1

ae of Massachusetts)

Attorneys Respondents

Wuuiam J. Speers, JR., Esq. Vance, Sanders Investors Fund, Inc.

- Warner & Stackpole (formerly, Boston Fund, Inc. )

28 State Street

Boston, Massachusetts 02109

(617) 523-6250

GaEL Manony, Esq.

Reginatp C. Linpsay, Esq.

Hill & Barlow

225 Franklin Street

Boston, Massachusetts 02110

(617) 423-6200

Lewis H. WernstEIn, Esq.

Cristian M. Horrman, Ese.

- Foley, Hoag & Eliot

10 Post Office Square

Boston, Massachusetts 02109

(617) 482-1390

_ Joun R. Haury, Esq.

- Nutter, McClennen & Fish

: 75 Federal Street

Boston, Massachusetts 02110

(617) 423-7011

- Tuomas D. Burns, Esq.

_ Enix Lunp, Esa.

_ Burns & Levinson

: 45 School Street

Boston, Massachusetts 02108

(617) 723-9300

~ Joun F. GRODEN, a

a Joun M. Reep,

_ 13 Tremont Street

Boston, Massachusetts 02108

_ (617) 227-0185

Boston Management & Research

Company, Inc.

Vance, Sanders & Company, Inc.

The Colonial Fund, Inc.

Colonial Management Associates,

Ine.

James H. Orr

Eaton & Howard Stock Fund

Eaton & Howard Balanced Fund

Eaton & Howard, Inc.

Charles F. Eaton, Jr.

SOY ita CR SBD ty Oe

ae Space S

MDL.-78-1

(Cont’d.)

Attorneys

SuMNER H. Bascock, Esq.

JOHN J. CurTIN, JR., Esq.

RicHarp F, McCartuy, Esq.

Bingham, Dana & Gould

100 Federal Street

Boston, Massachusetts 02110

(617) 357-9300

Epwarp B. Haniry, Esq.

GEORGE T. FINNEGAN, Esq.

Ropes & Gray

225 Franklin Street

Boston, Massachusetts 02110

(617) 423-6100

and

ANSEL B. CHapLin, Esa.

Roger M. Barzun, Esa.

MicHaEt G. Tracy, Ese.

Gaston, Snow, Motley & Holt

82 Devonshire Street

Boston, Massachusetts 02109

(617) 227-3180

Patrick T. Ryan, Esq.

Drinker, Biddle & Reath

1100 Philadelphia National

Bank Building

Broad and Chestnut Streets

Philadelphia, Pa. 19107

(215) 491-7200

FRANKLIN R. JoHNSON, Esq.

99 High Street

Boston, Massachusetts 02110

(617) 726-1335

and

Marvin Scuwartz, Esq.

RicHarp E. Caruton, Ese.

Mark I. FisHMAN, Esq.

Sullivan & Cromwell

48 Wall Street

New York, New York 10005

(212) 422-8100

Respondents

Fidelity Fund, Inc.

Fidelity Capital Fund, Inc.

Puritan Fund, Ince.

Salem Fund, Inc. (formerly, Dox

Theory Investment Fund, Inc.)

Fidelity Management & Research

Company

Edward C. Johnson 2d

Fidelity Trend Fund, Inc.

Keystone Custodian Funds, Inc.

Wilfred Godfrey

—

MDL-78-1

(Cont’d.)

Attorneys

DanteL B. Bickrorp, Esq.

Ely, Bartlett, Brown & Proctor

225 Franklin Street

Boston, Massachusetts 02110

(617) 482-2310

SamueL Hoar, Esq.

Goodwin, Procter & Hoar

28 State Street

Boston, Massachusetts 02109

(617) 523-5700

DaniEL F, FEATHERSTON, JR., Esq.

Featherston, Homans & Klubock

45 School Street

Boston, Massachusetts 02108

(617) 227-7830

Ricnarp F. Barrett, Esq.

Dovetas DaNNER, Esq.

Powers & Hall

30 Federal Street

Boston, Massachusetts 02110

(617) 482-6010

C. Taomas Swaim, Esq.

Sherburne, Powers & Needham

225 Franklin Street

Boston, Massachusetts 02110

(617) 482-1545

JEROME P. FacHEr, Esq.

Hale & Dorr

28 State Street

Boston, Massachusetts 02109

(617) 742-9100

_ Lawrence T. Perera, Esa.

' dJerrrey Swope, Esq.

+ Palmer & Dodge

28 State Street

Boston, Massachusetts 02109

(617) 227-4400

Respondents

Loomis-Sayles Mutual Fund, Inc.

Loomis-Sayles & Co., Inc.

Maurice T. Freeman

Massachusetts Fund

The Massachusetts Company, Inc

Henry R. Guild

Pioneer Fund, Inc.

Pioneer Management Corp.

Philip L. Carret

The Putnam Growth Fund

The George Putnam Fund of Boston

Putnam Investors Fund, Inc.

MDL-78-1

(Cont’d.)

Attorneys

SaMUEL E. Gates, Esq.

Joun H. Hatt, Esq.

Debevoise, Plimpton, Lyons & Gates

299 Park Avenue

New York, New York 10017

(212) 752-6400

HasKE.LL Coun, Esq.

Mintz, Levin, Cohn, Glovsky & Popeo

Suite 600, One Center Plaza

Boston, Massachusetts 02108

(617) 742-5800

Harotp M. Wittcox, Esq.

NorMAN A. Hus.ey, Esq.

Herrick, Smith, Donald, Farley

& Ketchum

100 Federal Street

Boston, Massachusetts 02110

(617) 357-5830

Rosert M. Bucnanan, Esq.

Cuares C. Casot, Jr. Esq.

Sullivan & Worcester

225 Franklin Street

Boston, Massachusetts 02110

(617) 423-7474

MDL-78-2

(Southern District of New York)

MicHae. O, FINKELSTEIN, EsQ.

Barrett, Smith, Schapiro & Simon

26 Broadway

New York, New York 10004

(212) 422-8180

Respondents

Putnam Management Co., Inc.

Charles M. Werly

State Street Investment Corp.

Federal Street Fund, Inc.

State Street Rescarch & Manage.

ment Company

Paul C. Cabot

Wellington Fund, Inc.

Windsor Fund, Inc.

Wellington Management Company

Walter L. Morgan

Are-Houghton Fund B, Inc.

Scudder, Stevens & Clark Commm

Stock Fund, Inc.

Scudder, Stevens & Clark Balancéi

Fund, Inc.

Channing Shares, Inc.

Channing Growth Fund

Channing Balanced Fund

th)

MDL-78-2

(Cont’d.)

Attorneys

SamvEL E. Gates, Esq.

Joux H. Hau, Esq.

Debevoise, Plimpton, Lyons & Gates

299 Park Avenue

New York, New York 10017

(212) 752-6400

Isaac SHapiro, Esq.

Milbank, Tweed, Hadley & McCloy

1 Chase Manhattan Plaza

New York, New York 10005

(212) 422-2660

STEPHEN R. STEINBERG, Esq.

Reavis & MeGrath

1 Chase Manhattan Plaza

New York, New York 10005

(212) 269-7600

E. Roger Friscu, Esq.

Walsh & Frisch

250 Park Avenue

New York, New York 10017

(212) 687-7161

- Marvin Scuwartz, Ese.

~ Ricuarp E. Carton, Ese.

Mark I. Fisman, Esq.

Sullivan & Cromwell

48 Wall Street

New York, New York 10005

(212) 422-8100

— Larry M, Lavinsky, Esq.

CS Oe 2s

Proskauer, Rose, Goetz & Mendelsohn

300 Park Avenue

New York, New York 10022

(212) 688-7300

~ Evgar H. Brenner, Esq.

_ Jerrrey A. Burt, Esq.

Amold & Porter

1229 Nineteenth Street, N.W.

Washington, D. C. 20036

(202) 223-3200

Respondents

E. W. Axe & Co., Inc.

Louis K. Hyde, Jr.

Scudder, Stevens & Clark

Ronald T. Lyman, Jr.

Van Strum & Towne, Inc.

Bullock Fund, Ltd.

Dividend Shares, Inc.

Chemical Fund, Inc.

Calvin Bullock, Ltd.

Hugh Bullock

F. Eberstadt & Co.

Francis S. Williams

Distributors Group, Inc.

Herbert R. Anderson

Energy Fund, Incorporated

Ralph E. Samuel & Co.

Donald C. Samuel

Investment Company Institute

A La EER RA Pe Re Dh Le nba AF ng RL IMSL AS ORR TSA LL BOLE RE ORNS

(eh Geld OH

ee: SOREL

uaa eters

nlahtte

Oe Siege IE DORR AGERE

FEES EAST ETE Os!

NES tas Oe Me BE

oe OME be

PVR DORIS

RSNA SI i AY IN ENGR WR Te A tal Vee HENS:

MDL-78-2

(Cont’d.)

Attorneys

Pau M. O'Connor, JR., Esq.

Whitman & Ransom

522 Fifth Avenue

New York, New York 10036

(212) 867-1700

W. Foster WOoLLEN, Esq.

Shearman & Sterling

53 Wall Street

New York, New York 10005

(212) 483-1000

Davip HarTFIELD, JR., Esq.

White & Case

14 Wall Street

New York, New York

(212) 732-1040

Tuomas B. Fenton, Esa.

Emmet, Marvin & Martin

48 Wall Street

New York, New York

(212) 422-2974

Rosert J. Sisk, Esq.

Hughes Hubbard & Reed

One Wall Street

New York, New York

(212) 943-6500

Stuart A. Jackson, Esq.

Royall, Koegel & Wells

200 Park Avenue

New York, New York

(212) 972-7000

J. Epwarp Meyer, IIT, Esq.

Roth, Carlson & Spengler

280 Park Avenue

New York, New York 10017

(212) 682-4444

JaMEsS J. HaGan, Esq.

Simpson, Thacher & Bartlett

One Battery Park Plaza

New York, New York 10004

(212) 483-9000

10005

10017

Respondents

Manhattan Fund, Inc.

Tsai Management & Research

Corporation

Gerald Tsai, Jr.

National Securities Series

National Securitics Stock Series

National Securities Growth Series

National Securities & Research

Corporation

Philip C. Smith

The Dreyfus Fund, Inc.

The Dreyfus Corporation

Howard M, Stein

The One William Street Fund, In.

Lehman Brothers

Allan B. Hunter

MDL-78-2

(Cont’d.)

Attorneys

~ Arpert D. Jorvon, Esq.

- Yalicenti, Leighton, Reid & Pine

437 Madison Avenue

New York, New York

(212) 593-3434

10022

MDL-78-3

(Northern District of Illinois)

Eowarp H. Hatton, Esq.

Lynne E. McNown, Esq.

Jenner & Block

One IBM Plaza

Chicago, Illinois 60611

(312) 222-9350

~ Ons H. HAL.EEN, Esq.

_ Sonnenschein, Levinson, Carlin,

Nath & Rosenthal

69 West Washington Street

Chicago, Illinois 60602

(312) 443-5000

_ Francis EB. Scutax, Ese.

ae,

Ae teei ay

~ Mevers & Matthias

230 West Monroe Street

Chicago, Illinois 60606

(312) 263-7722

MDL-78-4

(District of Colorado)

LeLanp E. Mopesirr, Esa.

Gorsueh, Kirgis, Campbell,

Walker and Grover

1900 Security Life Building

Denver, Colorado 80202

(303) 893-1000

area i

go oe —

REESE 1.

Respondents

The Value Line Special Situations

Fund, Inc.

Arnold Bernhard & Co., Inc.

Arnold Bernhard

United Funds, Ince.

United Accumulative Fund

United Income Fund

United Science Fund

Waddell & Reed, Inc.

Joe Jack Merriman

Selected American Shares, Inc.

Security Supervisors

Edward P. Rubin

Stein, Roe & Farnham Balanced

Fund, Inc.

Stein, Roe & Farnham

Harry H. Hagey, Jr.

Technology Fund, Inc.

Supervised Investors Services, Inc.

John Hawkinson

Financial Industrial Fund, Inc.

Financial Programs, Inc.

Thomas J. Herbert

MDL-784

(Cont’d.)

Attorneys

James A. Ciark, Esa.

Berge, Martin & Clark

500 Capitol Life Center

Denver, Colorado 80203

(303) 292-5030

Roserts B. Owen, Ese.

Covington & Burling

888 16th Street, N.W.

Washington, D.C. 20006

(202) 293-3300

MDL-78-5

(District of Columbia)

Joun A. Beck, Esq.

Frost, Towers, Haves & Beck

Southern Building

Washington, D.C. 20005

(202) 393-5360

MDL-78-6

(District of Maryland)

Stan.ey J. FriepMan, Esg.

Shereff, Friedman, Hoffman

& Goodman

919 Third Avenue

New York, New York 10022

(212) 758-9500

Dantet A. Potiack, Esq.

Pollack & Singer

61 Broadway

New York, New York 10006

(212) 952-0330

MDL-78-7

(District of Minnesota)

A. Vernon CARNAHAN, Eso.

Donovan, Leisure, Newton & Irvine

30 Rockefeller Plaza

New York, New York 10020

(212) 489-4100

Respondents

Hamilton Funds, Inc.

Hamilton Management Corp.

we Mutual Investors

, Inc.

Johnston, Lemon & Co.

James H. Lemon

T. Rowe Price Growth Stock

Fund, Inc.

Rowe Price New Horizons Fund, |

Ine.

T. Rowe Price Associates, Inc.

Charles W. Schaeffer

Rowe Price Management Company. |

Ine.

T. Rowe Price

Investors Diversified Services, Im.

Stuart F. Silloway

ee iaiet of California)

Attorneys

Wuuam W. Vauesn, Esq.

O'Melveny & Myers

611 West Sixth Street

Los Angeles, California 90017

(213) 620-1120

Can J. Scuuck, Esq.

Overton, Lyman & Prince

550 South Flower Street

Los Angeles, California 90017

(213) 485-8500

Max L. Grtiam, Esq.

555 South Flower Street

Los Angeles, California 90017

(213) 485-1234

_ MDL-78-9

(Northern District of California)

_ Rosert D. Raven, Esq.

_ Morrison, Foerster, Holloway,

Clinton & Clark

Crocker Plaza

San Francisco, California 94104

(415) 986-1310

_ Ricnarp Murray,

Esq.

_ MeCutehen, Doyle, Brown & Enersen

601 California Street

San Francisco, California 94108

(415) 981-3400

MDL-78-10

(District of New Jersey)

Corneuius J. MoynHan, Jr., Esq.

Peabody, Brown, Rowley & Storey

One Boston Place

Boston, Massachusetts 02108

(617) 723-8700

Respondents

American Mutual Fund, Inc.

The Investment Company of

America

Capital Research and Management

Company

Jonathan B. Lovelace

American Express Investment

Fund, Inc.

American Express Investment

Management Company

Fred H. Merrill

Anchor Growth Fund, Inc. (for-

merly Diversified Growth Siock

Fund, Inc.)

Anchor Income Fund, Inc.

(formerly Diversified Investment

Fund)

Fundamental Investors, Inc.

MDL-78-10

(Cont’d.)

Attorneys

Danteu A. Potiack, Esq.

Pollack & Singer

61 Broadway

New York, New York 10006

(212) 952-0330

Howarp F. OrpMan, Esq.

Putney, Twombly, Hall & Hirson

250 Park Avenue

New York, New York 10017

(212) 661-8700

Ratpn M. Carson, Esq.

Ricuarp E. Nouan, Esq.

Frank S. MoseEtey,

Davis, Polk & Wardwell

1 Chase Manhattan Plaza

New York, New York 10005

(212) 422-3400

Respondents

Anchor Corporation

John R. Haire

Group Securities, Inc.

Investors Mutual, Inc.

Investors Stock Fund, Inc,

Investors Variable Payment Fur

Ine.

batts, Py gee $5

Rte seed Mk Py a VEN

Certificate of Service

I, Ansel B. Chaplin, a member of the Bar of the Supreme

Court of the United States, hereby certify that on this 31st

day of August, 1973, Joint Brief in Opposition to Peti-

tion for Writ of Certiorari was served upon petitioner on

behalf of all of the respondents in this proceeding whose

names have been subscribed to pages 25-34 of that document,

by mailing three copies of the same, first class, postage pre-

paid, to each of the following attorneys:

Witu1am T. Coteman, Jr., Eso.

2600 The Fidelity Building

Philadelphia, Pennsylvania 19109

Bruce W. Kaurrmay, Eso.

2600 The Fidelity Building

Philadelphia, Pennsylvania 19109

Davi H. Prrtinsxy, Eso.

2600 The Fidelity Building

Philadelphia, Pennsylvania 19109

Harorp E. Kouny, Eso.

1214 IVB Building

1700 Market Street

Philadelphia, Pennsylvania 19103

Aaron M. Fixz, Eso.

1200 IVB Building

1700 Market Street

Philadelphia, Pennsylvania 19103

Joserx B. Kaurrman, Esq.

1421 Atlantic Avenue

Atlantic City, New Jersey 08401

REIS EE COR LEREAR PA 9 5 LEIPATEIRBI INS Br carb a Bie Nee nt BORE,

I further certify that all parties required to be served

have been served.

/s/ Awnset B. Cuap.in

AwseEL B. CHapiin

82 Devonshire Street

Boston, Massachusetts 02109

Co-counsel for Respondents

Fidelity Management & Research

F Company, Inc.

5: Edward C. Johnson, 2d

Qmaher bi nailescten nn)

APPENDIX

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

JOSEPH B. KAUFFMAN,

Plaintiff,

—against— Civil Action

THE DREYFUS FUND, INC., No. 1348-68

et al.,

Defendants.

Proposed Agenda for Conference of

April 18, 1969

Pursuant to the Court's direction at the conference of

February 21, 1969, the following agenda and attached

papers have been circulated among defense counsel, and are

submitted in connection with the conference scheduled for

April 18, 1969. This submission is without prejudice to any

defendant’s right to suggest other items for the Court’s

consideration on April 18th.

1. Discussion of the entry of an Order providing that

neither this submission nor the participation by any defen-

dant in any conference or other proceedings in this Court

shall be deemed a waiver of the right of any defendant to

plead or otherwise move with respect to jurisdiction, venue,

process or service ; and providing further that participation

in any motion by any defendant shall not be deemed a

Proposed Agenda for Conference of April 18, 1969

waiver of any rights of such defendant which may be raised

by one or more subsequent motions.

2. Further identification of all counsel of record for each

named defendant.

3. Report and discussion concerning the implementation

of the Court’s suggestion at the conference of February 21st

that defense counsel consider the formation of a Steering

Committee. For the convenience of the Court, the member.

ship, purposes and functions of such a Steering Committee

established by defendants are set forth in Attachment “A”.

4. Scheduling of preliminary motions listed on Attach-

ment “B”.

uP REY a ate te OE ENB RON RL BAe ESO a OW

—

Seah ba adie te Lies Nhe GREY, Md 2 ME GTAP ERMA EAPO RNS MUGEN AL BEE

5. Consideration of previous suggestion that Court and

counsel set aside a certain day or days in every month for

the handling of matters requiring the Court’s attention.

6. Continued stay of all proceedings not specifically

scheduled by the Court.

Dated: Camden, New Jersey

April 8, 1969

[Names of counsel omitted]

Eg Stes ee Leoteas

ATTACHMENT “A”

[Omitted]

SIScEe

Pouerw

Proposed Agenda for Conference of April 18, 1969

ATTACHMENT “B”

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

[Caption Omitted]

List of Preliminary Motions

The following list has been prepared and circulated

among defense counsel to assist the Court in the scheduling

of preliminary motions, and describes in a general, rather

than a definitive manner, the motions which are now con-

templated by one or more defendants.

Closely related motions have been grouped together for

simultaneous filing and three groups have been arranged in

sequence. These groups should be filed and taken up in

series as set forth herein, since the disposition of one or

more motions proposed for early filing should make it un-

necessary to consider one or more of the motions proposed

for later submission.

With the exception of the first group of motions, all

groups are tentative, and subsequent developments may

dictate revision. Accordingly, the list is submitted without

prejudice to the rights of any defendant to file any appro-

priate additional motions upon proper notice, and without

prejudice to the rights of any one or more defendants to

determine not to participate in any motion, or to withdraw

any motion altogether.

In order to proceed in the manner suggested, defendants

request the Court to enter an Order providing: (i) that the

a ——

Proposed Agenda for Conference of April 18, 1969

5 4

”

filing of motions according to the schedule established by

the Court shall not operate to waive or bar, under Ruies

12(g) and 12(h) of the Federal Rules of Civil Procedure,

any defense or objection; and (ii) that the participation by

any defendant in any motion shall not be deemed a waiver of

any right of such defendant which may be raised by one or

more subsequent motions.

A. FIRST GROUP:

MOTIONS ADDRESSED TO CAPACITY

The first group of five motions raises fundamental legal

questions designed to determine the capacity or capacities

in which plaintiff may sue, and the capacities in which de-

fendants may be sued. These motions should be determined

before there are any further proceedings in the case.

Motion No. 1: To dismiss the complaint by reason of

plaintiff’s inability to provide fair and adequate representa-

tion.

The complaint places the mutual funds on both sides of

the case — they are sued both as nominal defendants upon

whose behalf derivative claims are asserted and damages

are sought, and as actual defendants who allegedly have

participated in the unlawful conduct complained of. Asa

result plaintiff and his attorney purport to protect the

interests of the very funds from which they seek monetary

a damages. Defendants, accordingly, will move to dismiss

i the action on the grounds that plaintiff cannot fairly and

adequately represent either the interests of the share-

holders in enforcing the rights of the mutual funds, or the

interests of the funds themselves.

Pus

Br A

oe Tae an a0

Proposed Agenda for Conference of April 18, 1969

Motion No. 2: T'o dismiss all claims on behalf of indi-

vidual shareholders.

In addition to suing in a derivative capacity to assert

corporate causes of action allegedly belonging to defendant

mutual funds, plaintiff also purports to sue in a representa-

tive capacity to assert causes of action allegedly belonging

to himself and all other shareholders of such funds indi-

vidually. This motion will raise the fundamental legal ques-

tion whether the injury alleged in the complaint vests any

individual shareholder with a personal cause of action for

damages, or whether the alleged injury gives rise only to

corporate causes of action which belong solely and exclu-

sively to the various defendant mutual funds.

In defendants’ view the purported injuries complained of

have been sustained, if at all, only by the mutual funds, and

they alone are possessed of any causes of action for recov-

ery. Accordingly, defendants will move to dismiss all

claims upon behalf of individual shareholders. If this mo-

tion is granted, plaintiff will be restricted to suing solely

in a derivative capacity for the assertion of corporate

claims on behalf of the mutual funds.

Motion No. 3: To dismiss all claims asserted deriva-

tively on behalf of funds in which plaintiff is not a share-

holder.

Plaintiff purports to sue derivatively on behalf of all

sixty-five defendant mutual funds, although he alleges him-

self to be a shareholder in only four. In defendant:’ view,

Rule 23.1 of the Federal Rules of Civil Procedure explicitly

i precludes plaintiff from derivatively asserting corporate

ree — - ABI Me PMN SO END aE ——_—

Proposed Agenda for Conference of April 18, 1969

claims on behalf of funds in which he is not a shareholder,

and an appropriate motion for dismissal will be made.

If granted, this motion would restrict plaintiff to the as.

sertion of derivative claims on behalf of the four funds in

which he owns shares.

Motion No. 4: T'o dismiss all conspivacy claims under

Counts II and III.

Under Counts II and II] each defendant is sued in two

capacities: (i) as an individual whose conduct has allegedly

violated the Securities Exchange Act, the Investment Com.

pany Act and the Investment Advisers Act; and (ii) asa

co-conspirator who has aided and abetted such violations

by each of the other defendants. This motion will raise the

question as to whether, under the statutes alleged, there is

a cause of action for conspiracy.

Defendants are of the view that even if a remedy may be

implied under the federal securities laws against any per-

son who has breached a duty created by those statutes and

owing to plaintiff or to those whose interests plaintiff may

properly represent, no such remedy may be implied as

against any person who does not stand in such a relation-

ship. Accordingly, defendants will move to dismiss the

conspiracy claims in Counts II and III for lack of subject

matter jurisdiction, and failure to state a claim.

| Motion No. 5: To dismiss representative claims on be-

4 half of shareholders of funds in which plaintiff is not a

shareholder.

Should the Court determine that the complaint states in-

dividual or representative claims, defendants will move to

Bitasinisiceciiimcarriic. enolate

RD TUE in NOES, Ent RES et SL a

Proposed Agenda for Conference of April 18, 1969

dismiss all representative claims asserted on behalf of

shareholders of the 61 mutual funds in which plaintiff is not

himself a shareholder. In defendants’ view, as a matter of

law, a nov-shareholder lacks standing to sue on behalf of

shareholders.

SUMMARY: If the case is dismissed on the grounds

set forth in Motion No. 1, all other motions will become

moot. Lf Motion No. 1 is denied, but the other motions

presented in this group are granted, the action will be re-

duced to a derivative suit on behalf of the four funds in

which plaintiff claims to be a shareholder (or at most a

derivative suit on behalf of such funds and a representative

suit on behalf of the shareholders of such funds) against all

defendants under Count I, and against the defendants owing

a statutory duty to those four funds under Counts II and

Il.

B. SECOND GROUP: MOTIONS ADDRESSED TO

PLAINTIFF’S COMPLIANCE WITH STATUTORY

REQUIREMENTS AND RELATED MOTIONS

After decision of the first group of motions has settled

the basie structure of the case, the second group of motions

will (if necessary) challenge the continuation of the action

against some or all of the remaining defendants.

Motion No. 6: Motion challenging the foundation of the

complaint.

The Federal Rules of Civil Procedure require that there

be sufticient foundation for the commencement of any action

ina Federal District Court. This motion will challenge the

Proposed Agenda for Conference of April 18, 1969

basis for the allegations in the complaint with respect to

some or all of the defendants; if it is determined to be j in-

sufficient dismissal will be moved.

, 1 Lay ae ha Daw ab

; Motion No. 7: To dismiss remaining derivative claims

for failure to comply with the demand requirements. |

Rule 23.1 FRCP requires a shareholder bringing suit de. |

rivatively on behalf of his corporation either to allege that

unsuccessful demand was made upon the directors (and, if

necessary, upon the shareholders) to assert the corporate

claim, or to allege “with particularity” the reasons for his

failure to make such demands. Motion No. 7 will challenge

the sufficiency of the complaint in this respect. If the ,

motion is granted all remaining derivative claims under all

Counts will be eliminated from the case.

PRINT eye Fe

RLS Fh Pe Mio Ea he By Cee ale lw a

Motion No. 8: To dismiss Count I as to certain indi-

vidual defendants for lack of personal jurisdiction.

Service of process upon individual defendants has been '

attempted throughout the nation, and this motion will chal-

lenge the sufficiency of such service to confer jurisdiction

over the person of individuals not served within the Dis-

trict of New Jersey.

NE te Mal lite fice 0 Pe bend Pena,

Assuming proper venue, nationwide service upon indi-

viduals may be authorized under the statutes alleged in

Counts IT and IL, but it is not authorized with respect to

Count I. Accordingly, this motion will seek dismissal of

Count I with respect to any individual not served within this

District. The granting of the motion would reduce the

number of defendants remaining subject to the antitrust

——7"_—

Proposed Agenda for Conference of April 18, 1969

conspiracy charge, and would remove from the case entirely

any moving defendant with respect to whom Counts II and

III have been dismissed by prior motion and Order.

Motion No. 9: Other motions raising questions of ser-

vice of process, jurisdiction or venue.

All other appropriate motions relating to service of

process, jurisdiction and venue will be included in the sec-

ond group of motions. Since these motions will depend in

part upon the particular circumstances or methods of doing

business of each of the defendants, whether individual or

corporate, it is not practicable to attempt to complete

enumeration at this time.

Motion No. 10: To dismiss or stay on the basis of other

litigation.

Various defendants sued in this action have previously

been or are currently involved in litigation raising ques-

tions which are also presented in this case. This motion

will raise certain questions as to the impact of such other

litigation (e.g., collateral estoppel, the effect of stay orders

entered therein by other District Courts, ete.) upon the con-

tinuation of all or any part of the present action.

C. THIRD GROUP: CLASS ACTION AND OTHER

PRELIMINARY MOTIONS

After the first two groups of motions addressed to the

major function of paring down the parties and issues in the

case have been decided, the third group of motions will deal

STS Ce paeen 7+ eras - ESOT De FOES 2 Shr beoeewer,

10a

Proposed Agenda for Conference of April 18, 1969

with remaining issues, if any, related to the ultimate form

of the action.

Motion No. 11: To dismiss claims against unnamed

defendants.

The complaint purports to allege causes of action not |

only against the named defendants but also against ciasses

represented by such named defendants as follows:

(a) each named defendant mutual fund “as a repre.

sentative on behalf of all other externally managed mu-

tual funds affiliated therewith or related thereto”;

(b) each named defendant investment adviser “as a

representative on behalf of all other investment advisers '

affiliated therewith or related thereto”; and

tive of all other . . . directors similarly situated.”

This motion will attack the appropriateness of the de-

fendant classes — in particular, but without limitation, the |

appropriateness of defendant classes of “conspirators”. If

granted, this motion will eliminate the unnamed defendants

from the case.

Motion No. 12: To determine whether the case may be

appropriately maintained as a class action.

If decision on the first group of motions relating to the

capacity in which plaintiff may sue has not precluded the

possibility of a class action for the reasons upon which

those motions are based, one or more motions based upon

the requirements of Rule 23 will be required to determine

Proposed Agenda for Conference of April 18, 1969

lla

whether all or any portion of plaintiff’s case is suitable for

maintenance on a class basis against any or all defendants.

These motions may result in dismissal of the class action

under any of the standards set forth in the Rule.

Motion No. 13: To strike impertinent or scandalous

matter.

The complaint contains certain impertinent or scandalous

matter, such as the designation of the individual defendants

as “self-dealing directors”. Defendants will move to strike

such allegations.

Motion No. 14: To require plaintiff to post security for

expenses.

With the filing of a broad and far-reaching complaint,

the single plaintiff has exposed 141 named defendants to

substantial expense. Defendants should be assured that in

the event they prevail, those expenses can be recovered

from plaintiff, and a motion will be made for the posting of

security in an appropriate amount.

Motion No. 15: To dismiss demand for jury trial with

respect to derivative claims.

Derivative and class actions are equitable in nature, and

accordingly defendants will move to strike the demand for

jury trial with respect to all such claims.

D. FURTHER PRELIMINARY ACTION

At a subsequent stage of the proceedings it may be appro-

priate to have another pre-trial conference.

Dated: Camden, New Jersey

April 8, 1969

[Names of counsel omitted]

TD ae EE I ITI ELLIS CRS Piet BE SPR: SENET le tei - eee

’ Waa id oor eS

eich ain bhi eisiceait oe

Asn Aa tat edie

oe Lyte ah

Tle OA a ake alt lat 2

Phat hie ie Vance SRSA Aad bit AKI adindd-cee

l2a

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

[Caption Omitted]

Notice of Motion

PLEASE TAKE NOTICE that the undersigned defen.

dants will, on a date to be fixed by the Court, make motions

for the following orders:

(1) Pursuant to Rules 23 and 23.1 of the Federal

Rules of Civil Procedure, dismissing the action on the

grounds that, on the face of the Complaint, plaintiff

does not fairly and adequately represent the interests

of the funds or their shareholders ;

(2) Pursuant to Rule 12(b)(6) of the Federal Rules

of Civil Procedure, dismissing all claims asserted indi-

vidually, or representatively on behalf of individual

shareholders, on the ground that all of the claims

asserted are necessarily derivative in nature;

(3) Pursuant to Rules 12(b) (6), 23 and 23.1 of the

Federal Rules of Civil Procedure, dismissing each of

Counts I, II and III to the extent they seek relief (a)

on behalf of funds of which plaintiff is not a share-

holder, and (b) on behalf of shareholders of funds of

which plaintiff is not a shareholder, on the ground that

a party may not maintain an action on behalf of a

corporation, or shareholders of a corporation unless he

himself is a shareholder of that corporation;

(4) Pursuant to Rule 12(b)(6) of the Federal Rules

of Civil Procedure, dismissing Counts II and III for

failure to state a claim upon which relief can be

granted on the ground the conspiracy alleged therein

does not constitute a violation of the statutes under

which relief is sought;

_—_

13a

Notice of Motion

(5) Pursuant to Rule 12(b)(2) of the Federal Rules

of Civil Procedure, dismissing the action on the ground

that the Court does not have jurisdiction over the

persons of defendants;

(6) Pursuant to Rule 12(b)(3) of the Federal Rules

of Civil Procedure, dismissing the action on the ground

that it was brought and is pending in the wrong dis-

trict;

(7) Pursuant to Rule 12(b)(4) of the Federal Rules

of Civil Procedure, dismissing the action on the ground

of insufficiency of process;

(S) Pursuant to Rule 12(b)(5) of the Federal Rules

of Civil Procedure, dismissing the action on the ground

of insufficiency of service of process;

(9) Pursuant to Rule 12(b)(6) of the Federal Rules

of Civil Procedure, dismissing the Complaint and each

count thereof on the ground that it fails to state a

claim upon which relief can be granted; and

(10) For such other and further relief as to the

Court may be just and proper.

PLEASE TAKE FURTHER NOTICE that the defen-

dants will make, on a date to be fixed by the Court, all other

motions described as “Second Group” and “Third Group”

in Attachment B to the “Proposed Agenda for Conference

of April 18, 1969”, heretofore filed herein.

[Names of counsel omitted]

DATED:

Camden, New Jersey

April 25, 1969.

cigrataats ee

AR uae

SAR ARE RIAL AL REAL tated MIKI acd lve i,

i aie

——

Letter of Hon. Mitchell H. Cohen to counsel

dated April 29, 1969

l4a

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

U. S. Courthouse

Camden, New Jersey 08101

April 29, 1969

Re: Josep B. Kaurrman v. Toe Dreyrus Funp, Ivc., £7 at,

Civil Action No. 1348-68

James Hunter, Esquire

518 Market Street

Camden, New Jersey 08102

Harotp E. Koun, Esquire

123 South Broad Street

Philadelphia, Penna. 19109

Gentlemen:

The Clerk of our Court has brought to my attention the

filing of a Notice of Motions on Friday, April 25, 1969, in

the above entitled cause.

In view of my heavily congested calendar, I am request-

ing that you brief the first 4 Motions only attacking the

capacity of the plaintiff to sue and maintain his action. The

Briefs are to be filed in accordance with the time schedule

established at the informal conference held on Friday,

April 18, 1969.

—_

15a

Letter of Hon. Mitchell H. Cohen to counsel

dated April 29, 1969

After these Motions have been briefed, argued and deter-

mined, you will be further advised as to the time within

which Briefs are to be filed in the remaining Motions.

Would you both be good enough to have copies made of

this letter for distribution to the appropriate counsel?

Yours very sincerely,

/s/ MrrcHe.tt H. Conen

MitrcHeLL H. Conen

Judge, U. S. District Court

MHC:R

ee: Clerk, U. S. District Court

Pa RIE nD TEE DRL, ay

l6a

ies itr cn

N UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

[Caption Omitted]

Motion of Defendants The Dreyfus Fund, Inc.,

Fidelity Trend Fund, Inc., Manhattan Fund, Ine.

and The Putnam Growth Fund To Dismiss The Complaint

The above-named defendants move the court pursuant to

Rule 12 (b)(6) of the Federal Rules of Civil Procedure:

9 1. To dismiss the complaint for failure to state a cause

; of action inasmuch as the complaint does not allege with

particularity the efforts made by the plaintiff to obtain the

action he desires from their directors or comparable auth-

ority and the reasons for his failure to obtain such action or

his failure to make such efforts, as required in derivative

actions by shareholders under Rule 23.1 of the Federal

Rules of Civil Procedure.

SOBA ths Aarne. ee

2. In addition, The Putnam Growth Fund and Fidelity

Trend Fund, Inc., move to dismiss the complaint as to them,

on the ground that the plaintiff has failed to state a cause

of action inasmuch as the complaint does not allege with

lat trek Pe MCAT ies WO.

17a

Motion of Defendants The Dreyfus Fund, Inc. etc.,

to Dismiss the Complaint

particularity the plaintiff’s efforts to obtain the action he

desires from their shareholders.

Tue Dreyrus Funp, Inc.

Fipetity Trenp Funp, Inc.

Manuattan Fvunnp, Inc.

Tue Putnam GrowtH Funp

By /s/ Lawrence T. PERERA

LawrENCE T. PERERA

Pautmer & DopceE

28 State Street

Boston, Mass. 02109 (227-4400)

Attorney for The Putnam Growth

Fund and with permission on be-

half of the others for purposes of

this motion only.

ORAL ARGUMENT IS REQUESTED AND IT IS

ESTIMATED THAT TWENTY MINUTES SHOULD

BE SUFFICIENT FOR THE ABOVE-NAMED

DEFENDANTS.

THE DEFENDANTS LISTED IN SCHEDULE A

(ATTACHED) JOIN IN THIS MOTION.

s *

[Schedule A omitted]

sires . 7

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

[Caption Omitted]

18a

Affidavit of Richard M. Cutler

CoMMONWEALTH OF MASSACHUSETTS

County or SuFFOLK

SS. :

Ricuarp M. Cuter, being duly sworn, deposes and says:

’ ’ )

1. I am clerk of the Putnam Growth Fund, a mutual fund

offices at 265 Franklin Street, Boston, Massachusetts, named herein}

a defendant.

I am personally familiar, by reason of my official duties, or by:

made due and diligent inquiry with respect to the facts and inform

tion hereinafter set forth and such facts and information are sal

and accurate to the best of my knowledge and belief.

2. On December 18, 1968 the Trustees of the Putnam Gror:

Fund were as follows:

Name and Address Occupation Company, in

*Vannevar Bush Trustee of Carnegie Institution of No

104 Marsh Street Washington and Honorary Chairman

Belmont, Mass. 02178 and life member of the Corporation

of Massachusetts Institute of Tech-

nology. Trustee of The George Put-

nam Fund of Boston, and director of

Putnam Investors Fund, Ine., The

Putnam Income Fund, Inc., Putnam

Equities Fund, Inc. and Putnam

Vista Fund, Inc.

Copy B

19a

Affidavit of Richard M. Cutler

Name and Address

Charles Devens

1702 Canton Ave.

Milton, Mass. 02186

Robert H. Gardiner

jardiner, Maine 04345

William M. Hunt

70 Jerusalem Road

Cohasset, Mass, 02025

Louis J. Hunter

172 Beacon Street

Boston, Mass, 02116

‘ ta vite

see Se

Occupation

Director of Development, Groton

School. Trustee of The George Put-

nam Fund of Boston and director of

Putnam Investors Fund, Ine. and The

Putnam Income Fund, Ine. Also di-

rector of Northern Pacific Railway

Company and trustee of The Provi-

dent Institution of Savings.

President of Fiduciary Trust Com-

pany, Boston. Trustee of The George

Putnam Fund of Boston and director

of Putnam Investors Fund, Ine., The

Putnam Income Fund, Ine., Putnam

Duofund, Ine. and Putnam Vista

Fund, Ine. Also Treasurer and Trus-

tee of Radcliffe College.

Vice President and director of The

Putnam Management Company, Ine.

Also director of International Utili-

ties Corp. and General Waterworks

Corp., and Trustee and member of the

Investment Committee of Brown Uni-

versity.

Owner of Louis J. Nunter Associates,

which provides trustee and financial

services to corporations and individu-

als. Trustee of The George Putnam

Fund of Boston, and director of Put-

nam Investors Fund, Ine., The Put-

nam Income Fund, Inc., Putnam Duo-

fund, Ine., Putnam Equities Fund,

Ine. and Putnam Vista Fund, Ine.

Also Treasurer and director of The

Carter’s Ink Company, Treasurer and

Trustee of University Hospital, Inc.

and Vice President and director of

Alfran Co., Ine.

UND Cc

tae IN CEN

_ TER

Management

Company, Inc.

Yes

waa

| RS tec esti eae Ee

20a

Affidavit of Richard M. Cutler

*Donald J. Hurley

11 Aberdeen Road

Weston, Mass, 02193

George Putnam

Proctor Street

Manchester, Mass. 01944

Occupation

Partner of Goodwin, Procter & Hoar,

counsellors at law. Trustee of The

George Putnam Fund of Boston, and

director of Putnam Investors Fund,

Inc., The Putnam Income Fund, Ine.,

Putnam Duofund, Ine., Putnam Equi-

ties Fund, Ine. and Putnam Vista

Fund, Ine. Also director of Boston

Safe Deposit and Trust Company and

of Stop & Shop, Inc., Trustee and

member of the Board of Investment

of Charlestown Savings Bank, and

President, Committee of the Perma-

nent Charity Fund, Inc., Boston.

Vice Chairman of the Trustees. Pres-

ident and director of The Putnam

Management Company, Ine. Vice

Chairman of the Trustees of The

George Putnam Fund of Boston, and

President and director of Putnam In-

vestors Fund, Inc., The Putnam In-

come Fund, Inec., Putnam Duofund,

Ine., Putnam Equities Fund, Ine. and

Putnam Vista Fund, Ine. Also diree-

tor of American Mutual Liability In-

surance Co., Boston Safe Deposit and

Trust Company, The Gorton Corpora-

tion and Package Machinery Com-

pany, Member of Board of Overseers,

Harvard College and Trustee of Mas-

sachusetts General Hospital and

Wellesley College.

Yes

—

2la

Affidavit of Richard M. Cutler

Officer, Director

The Putnam

Management

Name and Address Occupation Company, Inc.

Charles M. Werly Chairman of the Trustees. Director Yes

King Caesar Road of The Putnam Management Com-

Duxbury, Mass. 02332 pany, Ine. Chairman of the Trustees

of The George Putnam Fund of Bos-

ton and Chairman of the Board of

Directors of Putnam Investors Fund,

Ine., The Putnam Income Fund, Ine.,

Putnam Duofund, Ine., Putnam Equi-

ties Fund, Ine. and Putnam Vista

Fund, Ine. Also Trustee of Cornell

University and of Charlestown Sav-

ings Bank.

*Howard W. Johnson President of Massachusetts Institute No

111 Memorial Drive of Technology. Trustee of The George

Cambridge, Mass. 02178 Putnam Fund of Boston, and director

of Putnam Investors Fund, Ine. Also

director of Federated Department

Stores and Hitchiner Manufacturing

Corp. and Chairman of the Board of

Directors of the Federal Reserve Bank

of Boston.

3. The Trustees whose names are marked by an asterisk (*) were

not affiliated Directors within the meaning of Section 2(a)(3) of the

Investment Company Act of 1940.

Dated: May 2, 1972

/s/ Ricuarp M, Cut er

Ricuarp M. Cutter, Clerk

The Putnam Management Company

Subseribed to and sworn before me this 2d day of May, 1972.

/s/ JEFFREY SwoPE

Notary Public

[ NoTARY STAMP AND SEAL OMITTED]

“

a»

ar » | . .

= RAIN,

22a

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

[Caption Omitted]

Affidavit in Support

of Rule 12(b) (6) Motion

Strate or New York

County or New York

Lawrence M. Greene, being duly sworn, deposes and

says:

1. I am Secretary of the Dreyfus Fund, Inc. (“Dreyfus

Fund”), a corporation organized under the laws of Mary-

land with its principal place of business in the City,

County, and State of New York and one of the defendants

named herein. I make this affidavit in support of the mo-

tion by the Dreyfus Fund, Putnam Growth Fund, Manhat-

tan Fund, Inc. and Fidelity Trend Fund, Ine. to dismiss the

complaint on the ground that plaintiff, a shareholder in

each of the defendants making this motion, has failed to

meet the requirements set forth under Rule 23.1 of the Fed-

eral Rules of Civil Procedure.

2. On December 18, 1968, the Board of Directors of the

Dreyfus Fund were:

Jack J. Dreyrus, Jr. Haroip A. WEIssMAN

Lester R. BacHNner Dr. Rosert B. Woopwarp

Dr. Hersert M. DiaMonp WituiaM P. Rocers

Howarp Stein

23a

Affidavit in Support of Rule 12(b)(6) Motion

3. Of the aforesaid directors, the following were not af-

filiated directors of the Dreyfus Fund within the meaning

of Section 2(a)(3) of the Investment Company Act of 1940:

Lester R. BacHNER Dr. Rosert B. Woopwarp

Dr. Hersert M. DiamMonp Wituiam P. Rocers

Harotp A. WEISSMAN

/s/ Lawrence M. GREENE

LawrENcE M. GREENE

Sworn to before me this

ist day of May, 1972.

/s/ Srecta FREEBURG

Notary Public

[NoTaRy STAMP AND SEAL OMITTED]

eR SETS 6 Bit yoreaaape? aaa.

24a

DISTRICT COURT OF THE UNITED STATES

FOR THE DISTRICT OF MASSACHUSETTS

[Caption Omitted]

Affidavit of Caleb Loring, Jr.

1. Lam Clerk of Fidelity Trend Fund, Ine.

2. On December 18, 1968, the composition of the Board

of Directors of Fidelity Trend Fund was as follows:

Epwarp C. Jounson 2d, President and Director of

the Fund; President and a Director of Fidelity Man-

3 agement & Research Company, the investment adviser

of the Fund; Director of The Crosby Corporation.

; C. Ropcers Burerx*, Director and private trustee;

; was Chairman of the Board of New England Mer.

chants National Bank of Boston, from 1961 to 1964.

; Gerorce R. Harpixe*, a Director, has been a private

trustee for many years.

Gitsert H. Hoop, Jr.*, a Director; Chairman of the

Executive Committee of H. P. Hood & Sons, Inc., and

: from 1962 to 1966 was President.

: Epwarp C. Jounson 3d, Vice President and Direc.

j tor; Vice President and Director of Fidelity Manage-

ment & Research Company, the investment adviser of

: the Fund; Director of The Crosby Corporation.

te ee ee wee PY eee

Grorce K. McKenzir*, a Director; management con-

sultant and during 1966 was a Vice President of U.S.

Plywood Corp.

Horace ScHERMERHORN*, a Director: retired and

was until 1963 Chairman of the Board of The National

Shawmut Bank of Boston.

25a

Affidavit of Caleb Loring, Jr.

D. Georce Suuiivan, Executive Vice President and

a Director; Vice President of Fidelity Management &

Research Company, the investment adviser of the

Fund; Director of The Crosby Corporation.

The Directors whose names are marked by an aster-

isk (*) were not affiliated Directors of Fidelity Trend

Fund within the meaning of Section 2(a)(3) of the In-

vestment Company Act of 1940. All of the Directors

may be reached at Fidelity Trend Fund, Inc., 35 Con-

gress Street, Boston, Massachusetts 02109.

Dated: May 3, 1972

/s/ Caves Lorine, Jr.

Clerk, Fidelity Trend Fund, Inc.

CoMMONWEALTH OF MASSACHUSETTS

SUFFOLK, ss. May 3, 1972

Then personally appeared before me Caleb Loring, Jr.,

and made oath that the above statements were made to the

best of his knowledge, information and belief.

/s/ Ernest V. Kiem

Notary Public

[ Norary STAMP AND SEAL OMITTED ]

RE ee en

DANN Asides baie basitletart al Mab be Balt ese ii atte ella belie ite all

er! deh, Laka oie het iN

Mad RA ANP sett atric dead sitemeter A AWrrnat eae akin Get

Ca eS ae

26a

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

Affidavit on Behalf of Manhattan Fund, Inc.

State or New York

County or New York

James H. Exuis, being duly sworn, deposes and says:

1. I am the Vice President and Secretary of Manhattan Fy’

Ine.

2. On December 18, 1968, the composition of the Board of Dir.

[Caption Omitted]

tors of Manhattan Fund, Inc. was as follows:

Name

Gerald Tsai, Jr.

Joseph Auerbach

John S. Fielden*

Robert W. Purcell*

Laurence A. Tisch*

Occupation

President and Chairman of the Invest-

ment Committee, Tsai Management

& Research Corporation

Partner in the law firm of Sullivan &

Worcester, Boston, Mass.

Dean of College of Business Adminis-

tration and Professor of Business Ad-

ministration, Boston University

Chairman of the Finance Committee,

International Basic Economy Corpo-

ration

Chairman of the Board and Chief Ex-

ecutive Officer, Loews Corporation

—_

Fi!

Dir et;

~—

27a

Affidavit on Behalf of Manhattan Fund, Inc.

3. The Directors whose names are marked by an asterisk (*) were

not affiliated directors of the Manhattan Fund, Inc. within the meaning

of Section 2(a)(3) of the Investment Company Act of 1940.

Dated: New York, New York

/s/ James H. Exxis

James H. Enis, Secretary

Manhattan Fund, Inc.

Sworn to before me this

%th day of April, 1972

Vincent A. McIntyre

Notary Public

[NoraRY STAMP OMITTED]

MB NY Aiba he HEIN dK GAAS AMIN SRD nn CIS A NIN GEN BA A His SA SA aed 202 SN ONDA oe Stee i beat int cla itd as SURE, Miia RAS hid NS sper:

Excerpts from transcript of hearing before Pettine, C. J

on May 12, 1972

28a

”

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

[Caption Omitted]

Before: Chief Judge R. J. Pettine

Friday, May 12, 1972

* * *

[32] THe Court: You are asking the Court then to look

just to the face of the complaint?

Mr. Pirrinsxy: That is correct, your Honor.

Tue Court: And apply the basic rule that must be

accepted as truthful for the purpose of these motions.

Mr. Pirrinsky: That is correct, your Honor. And

that is exactly what the Court did in the cases we have

cited. It’s what the Court did in Leavitt v. Johnson and

I will point that out on p. 817 they discuss the fact that

there were some other papers filed, and this could have

been treated as a motion for summary judgment, but they

chose not to do it because they said, “We can’t do that with-

out a well developed, factual record, therefore, we limit

ourselves to the face of the complaint.” That’s what they

held in Leavitt v. Johnson.

Tue Court: You also represent that your complaint

is sufficient in making the same allegation that you now

argue?

Mr. Pirrixsxy: That is correct, your Honor.

29a

Letter of David H. Pittinsky, Esq., to Russell H. Peck, Esq.,

dated June 26, 1972

June 26, 1972

RusseLt H. Peck, Esquire

Clerk, United States District Court

District of Massachusetts

1525 Post Office and Courthouse

Boston, Massachusetts 02109 _

In Re KMF Actions, MDL-78 (All Cases)

Dear Mr. Peck:

We have received a copy of the proposed form of Order

submitted by liaison counsel on behalf of all defendants.

On behalf of plaintiff, we object to paragraph 5 of defen-

dants’ proposed form of Order because said paragraph

omits the words “without prejudice.”

Insofar as the form of Order entered by Judge Pettine

to reflect the rulings contained in his Opinion of June 7,

1972 is concerned, our reading of Judge Pettine’s Opinion

indieates the aforesaid action was dismissed for failure to

make a demand upon the shareholders of two of the four

Kauffman funds and the directors of all four Kauffman

funds. In short, the commencement of the aforesaid action

was held to be premature by Judge Pettine.

Accordingly, plaintiff respectfully suggests that para-

graph 5 of defendants’ proposed form of Order be amended

to read as follows:

“5. The cause be and the same hereby is dismissed

without prejudice as to all defendants and final judg-

ment be and the same hereby is entered in their favor;

Tea Ran ates eliecs ea. |

Ds il ATi SOLER AROS RN OE LAT

Pa enh svn aE ae en PE

30a

Letter of David H. Pittinsky, Esq., to Russell H. Peck, Esq.,

dated June 26, 1972

and the Clerk of this Court shall give prompt notice

hereof by mailing copies of this Order and the Court’s

Opinion to the Clerk, Judicial Panel on Multidistriet

Litigation, and to the Clerks of each of the transferor

District Courts herein.”

Very truly yours,

/s/ Davin H. Prrrinsxy

Davin H. Pirrinsxy

DHP :jd

ec: Hon. Raymonp J. Perrine (3)

All Defendants’ Counsel on Master List R-4

Aaron M. Fivg, Esquire

JoserH B. Kaurrman, Esquire

Anse. B. Cuapuin, Esquire

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.