Petition for Writ of Certiorari — Provident Life Insurance v. Reserve Life Insurance
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=—"4 L ED
NOV 19 1974
IN THE
Supreme Court of the Gnited sox nene ——
OcTOBER TERM, 1974
No 74-617
RESERVE LIFE INSURANCE COMPANY anp MIDLAND
NATIONAL LIFE INSURANCE COMPANY,
Petitioners,
vs.
PROVIDENT LIFE INSURANCE COMPANY, R. W. EDICK,
ET AL., AS TRUSTEES OF THE PROVIDENT LIFE INSURANCE
COMPANY VOTING TRUST DATED NOVEMBER 15, 1955, AND
EXTENDED TO NOVEMBER 14, 1980,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR
THE EIGHTH CIRCUIT
ALAN L. AUSTIN
IRVING A. HINDERAKER
J. DOUGLAS AUSTIN
DARWIN SHAPIRO
P. O. Box 766
Watertown, South Dakota 57201
RICHARD P. RAUSCH
320 North Fourth Street
Bismarck, North Dakota 58501
Counsel for Respondents
— $$$ ee a
Dia ae LT |
PAGE
I eas Bee Sn ee a oN te 2
ee OU ae ar ed at Fe 2
ER EAA REID, SE APE AE 2
esate yale Ghrelin geen exe =
I Rr a ed be 5
Reasons for Granting the Writ ....................... 11
re a eee ere og NT 14
ei 8 et Bena IO CO ee EB 31
Appendix A Relevant Statutory Provisions ............. Al
CITATIONS
Cases
Abercrombie vs. Davies, (Del.) 130 A. 2d 338......... 20, 22
Belle Isle Corporation vs. Corcoran, 29 Del. Ch. 554.
ae a eae i 18
Bernhardt vs. Polygraphic Co., 350 U.S. 198, 100
I I Ee orcas ona sce dens 12,15
Commonwealth vs. Commissioner of Banks, 240 Mass.
ME I 6 veo cc cn wa cncecss sce oe 17
Corporation Trust Co. vs. Logan, 52 F.Supp. 999 ... 14, 24, 31
Deckert vs. Independence Corp., 311 U.S. 282, 61
S. Ct. 229, 233, 84 L.Ed. 189 ........ er Pree 14
Erie Railroad Company vs. Tompkins, 304 U.S. 64, 58
S.Ct. 817, 82 L.Ed. 1188, 114 ALR 1487 ........... 22
Fry vs. Equitable Trust Company, 264 Mich. 165, 249
8, ee 17
Gertenbach vs. Rodnon et al., 171 Misc. 302, 12 N.Y.S.
DE ete Geeta er 17
Hoeliinger vs. Molzohon, 41 N.W. 2d 217, 77 N.D. 108,
I at r aw a wie one yah oka eens 15
Hummel vs. Kranz, (N.D.) 126 N.W. 2d 786 ............ 27
Kinnear-Weed Corp. vs. Humble Oil & Refining Co., 259 ,
FR IRR Re ES peererespememecsareye ae ey ner ret ae 15
Kinsey vs. Knapp, 154 F. Supp. 263, same case on
appeal, 249 F. 2d 797, cert. den. 356 U.S. 936,
pe Oe eS > BR a ree 14
Luke vs. American Family Mutual Insurance Company,
EI UA A ai apael Cie ee onan a Ene 15
Mannheimer vs. Keehn, 41 N.Y.S.2d 542 ............. 18
Morse, in re, 247 N.Y. 290, 160 N.E.374 ............. 16
O’Leary vs. Liggett Drug Co., 150 F.2d 656 ............ 15
Oppenheimer vs. Cassidy, 345 Ill. App. 212, 102 N.E.
I as eer ee i tig a a aE is Te ay 22
Pacific R.R. vs. Baldwin, 89 F.2d 269 ................. 21
Perry vs. Missouri-Kansas Pipeline Co. (Del.), 191 A. 823 .. 19
Smith vs. Biggs Boiler Works Co., 91 A. 2d 193, 34
TI Soe te ee ge ere a ey 4 eg 21
State vs. Keystone Life Insurance Company, (La.),
I a ei ea 19
United States vs. Forness, 125 F. 2d 922,942 .......... 15
White, in re, 69 N.D. 61, 284 N.W. 357................ 17
Wolf vs. Roosevelt, et al, 290 N.Y. 400, 49 N.E. 2d
ARRESTS Ss AEE op) ee ete a i a Ce 21
Statutes
North Dakota Century Code (NDCC)
ili
Ne I sii as iiay Sack 3-6 da oda ama ae 4, 26
I Tiina G a kG KAKA wR eames eae 4, 27
ys eh edie ws Benen eeu 4, 8,9, 15, 16
Securities Act of 1933, 15 U.S.C. 77c et seq.
SR IE io ee ae tN ee Bo a? 4,9,11, 24
DE ae Eas cia Wo pe chal s wm Gapanewe ie bare aba eed 4
SG re ees ot yO sao oe Grew ake se eek 4
I 4
Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq.
RN a Te ee ne ire ae 5
INE Sree ener Pais REC eR ay SR Sr, 5
RAR ed EE ROL a Se 5
Texts and Annotations
Business Organizations, Sowards, The Federal Securities
I ee eco Le a et 28
Loss on Securities, Chap. 313, page 580 ............... 29
Model Business Corporation Act, Annotated, (Ist
I ha oar tk re oe 7
Model Business Corporation Act, Annotated, (2nd
I oe i erate a) ae re a 7
98 ALR 2d 376
SF Beer hk aed Chee Ronee aban eke
IN THE
Supreme Court of the Gnited States
OCTOBER TERM, 1974
No.
RESERVE LIFE INSURANCE COMPANY anp MIDLAND
NATIONAL LIFE INSURANCE COMPANY,
Petitioners,
VS. .
PROVIDENT LIFE INSURANCE COMPANY, R. W. EDICK,
ET AL., AS TRUSTEES OF THE PROVIDENT LIFE INSURANCE
COMPANY VOTING TRUST DATED NOVEMBER 15, 1955, AND
EXTENDED TO NOVEMBER 14, 1980,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR
THE EIGHTH CIRCUIT
Petitioners pray that a cross writ of certiorari be issued to
review the judgment of the United States Court of Appeals for
the Eighth Circuit entered June 21. 1974, as amended
July 29, 1974.
2
OPINIONS BELOW
The findings of fact, conclusions of law, order for judgment
and the judgment of the United States District Court for the
District of North Dakota, Southwestern Division, are unre-
‘ported and are printed in Appendix A of the petition for
writ of certiorari filed by Provident Life Insurance Company,
R. W. Edick, et al., as trustees of the Provident Life Insurance
Company voting trust in case number 74-423. Since this is a
cross petition for writ of certiorari and will probably be con-
sidered simultaneously with the petition in case number 74-423
the same are not reprinted in connection with this petition but
references will be made to Appendix A pp. Al-A18 of the
petition in case number 74-423. The opinion of the Court of
Appeals for the Eighth Circuit is reported in 499 F.2d 715
and since it is printed in’ Appendix B to the petition in said
_ case number 74-423, pp. Al 9-A38, the same is not again printed
in connection with this cross petition.
' JURISDICTION
The judgment of the Court of Appeals was entered ‘on
June 21, 1974 and amended July 29, 1974. The jurisdiction of
- this Court is invoked under 28 U.S.C. 1254 (1). Petition for
rehearing and for rehearing en banc were denied by order
entered on July 29, 1974. By order of this Court entered on
November 2, 1974, the time for filing of this cross petition for
writ, of certiorari was extended to November 20, 1974.
QUESTIONS PRESENTED
I
' Whether the extension of the Provident Life Insurance
Company voting trust agreement was invalid under NDCC
3
10-19-35, the North Dakota statute regulating voting trust agree-
ments and a judgment so declaring should be entered by the
Court.
II
Whether registration of the proposed extension of the
Provident Life Insurance Company voting trust agreement under
the provisions of the Securities Act of 1933 was a condition
precedent to valid solicitation of consents to the extension.
Ii
Whether the failure to register the original voting trust
certificates in 1955 under the provisions of NDCC 10-04-02,
the North Dakota statute requiring registration of securities and
similar statutes in other States invalidated the subsequent
solicitation of consents to the extension of the voting trust
certificates.
IV
Whether the District Court should have allowed the plaintiffs
to offer proof that all expenses in connection with the
extension of the voting trust, including the expenses of solici-
tation of the consents. were paid for by Provident Life Insurance
Coimpany and if so, did such payments constitute remuneration,
direct or indirect for solicitation of an exchange, actually
being solicited by the voting trustees, withi: the meaning of
Section 3 (a) (9) of the Securities Act of 1933 and related
State laws.
Vv
Whether, since the trustees of the voting trust failed to
register the Provident Life voting trust agreement under the
prcvisions of the Securities Exchange Act of 1934 as amended
and no compliance was made with the proxy regulations under
the Act, the Court should have held that since proper solici-
4
tation was not made before the expiration of the voting trust __
agreement on November 15, 1970, all consents to the extension
of the voting trust agreement were void, instead of permitting
resolicitation, if the voting trustees are so advised, under the
direction of the District Court.
VI
Whether the petitioners as stockholders of Provident Life
Insurance Company and voting trust certificate holders have
standing to maintain this declaratory judgment action under the
provisions of the Securities Act of 1933 and corresponding
securities laws of the various States.
STATUTES INVOLVED
North Dakota Century Code (NDCC) Sections 10-04-02,
10-04-04, 10-04-17, and 10-19-35, App Al and A2.
Section 2 (1) (2) (3) (4) of the Securities Act of 1933,
48 Stat. 74, 15 U.S.C. Section 77 (b) (1) (2) (3) (4) set forth in
Appendix A, Page A2.
Section 3 (a) (9) of the Securities Act of 1933, 48 Stat. 75,
15 U.S.C. Section 77 (c) (a) (9) set forth in Appendix C page
A39 of the petition in case number 74-423.
Section 5 of the Securities Act of 1933, 48 Stat. 77,
15 U.S.C. Section 77 (3) set forth in Appendix A, infra,
page A2.
Section 12 of the Securities Act of 1933, 15 U.S.C. Section
77 (1), 48 Stat. 84 and Section 16 of the Securities Act of
1933, 48 Stat. 84, 15 U.S.C. Section 77p,both set forth in
Appendix A, infra, page A3, A4.
Section 12 (g) (1) and 12 (g) (2) (G) of the Securities
Exchange Act of 1934, 78 Stat. 565, 567, 568, 15 U.S.C.
5
Section 78 (1) (g) (1) and 78 (1) (g) (2) (G) set forth in
Appendix C pages A39 and A40 of the petition in case number
74-423.
Section 14 (a) (78 Stat. 569) and 14 (d) (1) (82 Stat. 455
and 84 Stat. 497), of the Securities Exchange Act of 1934, 15
U.S.C. Section 78 (n) (a) and 88 (n) (d) (1) set forth in Appen-
dix C pp. A41, A42 of the petition in case number 74-423.
Section 29 of the Securities and Exchange Act, 48 Stat. 903,
15 U.S.C. 78cc set forth in Appendix A, infra, page A4.
STATEMENT
In the portion of this petition entitled “Opinions Below”
this petition is stated to be a petition for a cross writ of
certiorari. The petitioners herein have filed a brief opposing
the petition for writ of certiorari filed by the respondents herein
in case number 74-423. Since the petitioner herein is Opposing
the grant of the petition for writ of certiorari upon the grounds
stated in said brief, the said petitioners herein do not desire that
a writ of certiorari be granted on this cross writ unless the
Court should determine that the petition will be granted in
case number 74-423. If the petition is denied in said éase
number 74-423, the petitioner herein will be satisfied to have
this petition denied. Should the petition in case number 74-423
be granted, then it is submitted that the decision of the Circuit
Court of Appeals of the District Court on the matters herein-
after set forth justify the granting of a cross writ.
The statement set forth in the petition in case number
74-423, commencing on page 4, as added to by the supplement
to statement of petitioner as to the facts and history of the
action commencing on page 2 of the respondents’ brief in
case number 74-423, is adopted as a part of the statement in
support of this petition supplemented by the following ad-
ditional statement required to cover the questions raised in
this petition.
6
As shown by the petition in case number 74-423 the
petitioners in said case have filed as the record in this Court a
two volume printed appendix filed and used as the record in the
Court of Appeals and said record and a copy of the docket
entries is now on file in this Court in connection with case
number 74-423 and as this is a cross petition references are
hereby made to said two volume printed appendix designated
R and RII and the docket entries.
While registration was made of the voting trust agreement
dated November 15, 1955 and the voting trust certificates
issued thereunder, with the Securities and Exchange Commission
pursuant to the requirements of Section 6 of the Securities
Act of 1933, Title 15 U.S.C. 77 (f) after their failure to do so
in November, 1955 was called to the attention of the trustees of
the voting trust, no registration was ever made with the
Securities Commissioner or other applicable officer in any
State and particularly no such registration was made in North
Dakota (RI pages 54, 63 and 68).
The original voting trust agreement dated November 15,
1955 was made at a time when there was no statutory provision
in North Dakota relating to voting trusts affecting shares in
corporations. The agreement was to run for a term of 15 years
and was to expire on November 15, 1970. Paragraph 13 of the
trust agreement (RII, 4) provided as follows:
“The trustees and any or all of the stockholders becoming
parties hereto may, by mutual consent, and from time to
time, agree to extend this trust and the terms of this
agreement. Any individual stockholder not caring to join
in the extension of said trust and the terms of this agree-
ment may, on the expiration date, surrender his or her
voting trust certificate or certificates and receive a certifi-
cate of stock of Provident Life Insurance Company for
the number of shares which she or he is entitled.”
Paragraph 19 of the same agreement provided as follows:
“Duplicate originals. This agreement may be executed in
7
several counterparts, each of which so executed shall be
deemed to be an original and such counterparts shall
together constitute but one and the same instrument.”
Effective July 1, 1957, by Chapter 102 of the Session Laws
for the year 1957 North Dakota adopted the then existing
version of the Model Business Corporation Act being proposed
by the cooperative efforts of the Committee on Corporate
Laws, Section of Corporation, Banking and Business Laws of
the American Bar Association and the American Bar Foundation.
Note the unusual finding of fact number 21 prepared by counsel
for the respondents and adopted by the District Court in
making its findings (finding number 21, Appendix A page A8
of the petition in 74-423) in which the Court purported to
find how the section of the Model Act dealing with voting
trusts became the law and then later was codified as NDCC
Section 10-19-35, set forth in the Appendix hereto A2. The
statement is believed to be incorrect and reference to the first
edition of Model Business Corporation Act, Annotated, pub-
lished by the American Bar Foundation shows that Section 32
as finally proposed by the American Bar Foundation in 1960
was exactly the same as Section 31 of Chapter 102 of the
North Dakota Session Laws for 1957 now NDCC 10-19-35,
referred to above. Reference to the second edition of the Model
Business Corporation Act, Annotated, published by the Ameri-
can Bar Foundation shows that the original Section 32 was
changed to be Section 34 (see page 732 of the second edition
of the Model Business Corporation Act. Annotated, Volume 1,
where the statement is made:
“In 1969 Section 34 was amended to require the trustees
under a voting trust to maintain a record of holders of
voting trust certificates comparable to that required to be
kept by a corporation for its shareholders and to make
such record subject to inspection and like fashion. This
requirement codifies what has come to be regarded as
good practice.”
After the passage of the North Dakota Business Corporation
FOS REE BRN ie PRR, Oe + ME SOAR NR tet ay ET CELE - . SIIp at
Act, and particularly NDCC 10-19-35, there was no provision
in effect for extending a voting trust agreement.
All consents to the extension were signed and the extension
agreement was in fact made by the voting trustees before the
expiration of the original voting trust agreement and therefore
provided for a term extending for more than 10 years. See the
certificate issued to Midland National Life Insurance Company
in February, 1970, which provided for a termination date of
November 14, 1980 (RII, page 46). Except where there were
transfers before November 14, 1970, in which event new certifi-
cates were issued like the one issued to Midland, all certificates
were stamped with a rubber stamp legend:
“Voting trust agreement has been amended and the termi-
nation date extended to November 14, 1980 by consent of
the registered holder thereof.” (See RII, page 45)
Although Section 10-19-35 required the filing\or depositing
with the corporation of a counterpart of the voting trust agree-
ment, only copies, as distinguished from a counterpart, were
filed and the copies were not complete copies because of the
omission of the name and address that was on the left-hand
side of each consent form at the time of execution by the
voting trust certificate holder. (Brief of respondents in op-
position to petition in case number 74-423 page 5.)
Although the North Dakota law regulating voting trusts,
effective July 1, 1957, made no provision for extensions the
amended agreement (RII, 28, paragraph 11, page 30) again
provided.
“The trustees and any and all of the stockholders becoming
parties hereto may, by mutual consent, and from time to
time agree to extend said trust and the terms of this
agreement.”
1,343 consents to the amendment of the voting trust agree-
ment were obtained but none of the shares of Provident Life
Insurance Company stock held by the voting trustees were
9
returned to the voting trust certificate holders so that the
shares could be retransferred to the trustees for the purpose of
the voting trust agreement as contemplated by Section 10-19-35,
supra.
As to the question as to whether the voting trustees were
entitled to a Section 3 (a) (9) of the Securities Act of 1933
exemption because an exchange of new securities between an
existing issuer and the existing security holders was involved,
on the ground that there was no commission or other remuner-
ation paid, directly or indirectly, and the right to go into what
had been paid by Provident Life Insurance Company for the
benefit of the voting trustees had been denied by the District
Court, an offer of proof was made. At page 83 of RI of the
record filed in 74-423, R. W. Edick, President of Provident Life
and one of the voting trustees, was on the witness stand under
cross-examination by counsel for the petitioner and an effort
was being made which was rejected by the District Court, to
show that remuneration was paid directly or indirectly which
destroyed the Section 3 (a) (9) exemption. After the objection
was sustained, the following offer of proof was made and
rejected, to-wit:
“Now, may it please the Court, so as to shorten this up
then, I now make an offer of proof to show by this wit-
ness that in connection with the arrangements for the
solicitation for this extension agreement beginning some-
time in the early part of 1969 and down to and including
November 12, 1970, when the copies, as distinguished
from the counterparts, were filed with Provident Life
Insurance Company, that Provident Life Insurance Com-
pany, of which the Trustees were all members of the board
of directors, paid the law firm represented by Mr. Sugrue,
of which Mr. Sugrue is a partner, paid all of their expenses
in connection with advising on preparing the prospectus
preparing the consent form, and advising as to whether
registration was necessary in the various states or not.
That that was all paid by Provident Life Insurance Com-
pany.
10
That Provident Life Insurance Company paid the printing
bill for the prospectus, the consent forms, paid the postage
bill on all solicitation letters, including the repeat solici-
tation letters. That it prepared and caused and had pre-
pared and filed with the Commissioner of Insurance of the
State of North Dakota forms of conversations or of the
language to be used by persons using the telephone to
solicit the various certificate holders to sign the consents.
That it paid all of those telephone bills. That it caused
its agents to go and make contacts with the Voting Trust
Certificate holders located in the various states and located
in North Dakota to sign consents and send them in.
And that offer is made on the theory that that constitutes
into these circumstances where the company and the
board — members of the board of directors were also the
Voting Trustees were tied together. That there was com-
pensation paid indirectly so that the exemption under
Section 3 (a) (9) of the federal statute and the similar
exemption in the various states that have similar exemp-
tions do not apply because there was compensation paid
direct or indirect.”
The Securities and Exchange Commission in its amicus
curiae brief in the Circuit Court of Appeals took the position
that when the voting trust agreement expired on November 15,
1970 and there was a solicitation of extension thereof that a
new trust was involved so that there was not a proposed ex-
change of securities between an existing issuer and existing
security holders so that there was no Section 3 (a) (9) exemption
available. The Commission’s brief stated:
“The terms of the original trust agreement seem unam-
biguous that the trust would and did expire on November
15, 1970. While the original trust agreement contemplated
the possibility that some or all of the participants might
join in a voting trust arrangement beyond the original
term, no certificate-holder could have been compelled
under its provisions to participate in any renewal (RI-106,
RII-4). In these circumstances, the investment decision
that each offeree was asked to make in 1969 and 1970
was substantially identical to the decision investors had
11
been asked to make in 1955 when the original voting
trust was created. Just as in 1955, the solicitors were
seeking by consent of sufficient Provident Life security-
to retain control of the company through the
trust; investors were equally free to accept or refuse the
In view of the ‘need of the offerees for the protections
afforded by registration,’ Ralston Purina, supra, we believe
this Court should conclude that, as a matter of federal
law, the new and the old trusts must be considered
separate legal entities for purposes of Securities Act
registration, regardless of whether they might for some
purposes under state law be treated as a single continuing
entity. When the new voting trust is viewed as the
issuer of entirely new certificates, it is apparent that it
had no ‘existing security holders’ with which to exchange
securities when it was formed. Accordingly, the exemp-
tion from the registration requirements of the Securities
Act of 1933 provided by Section 3 (a) (9) was not
available, and the offer and sale of interests in the new
voting trust without registration violated Section 5 of
that Act, 15 U.S.C. 77e.”
REASONS FOR GRANTING THE WRIT
(1) The question whether the extension of the Provident
Life Insurance Company voting trust agreement was valid under
North Dakota law so that the extended voting trust certificates
were void and should not be allowed to circulate in the securities
markets, raises important questions of law as to interpretation
of a provision of the Model Business Corporation Act. The
12
Court of Appeals, although this was a model law, gave almost
no consideration, in the absence of directly applicable North
Dakota decisions, to the case law of other States and said in
its opinion (App. A page 27 of the petition in 74-423):
“We defer to the trial court’s experience in interpreting
North Dakota law and its construction of the statute
here in question.”
The petitioners were entitled to have the view of the
Court of Appeals on North Dakota law and particularly where
2 provision of a model law was involved. See Justice Frank-
furter’s statement in his concurring opinion in Bernhardt vs.
Polygraphic Co., 350 U.S. 198, 100 L.Ed. 199, 76 S.Ct. 273
where he said:
“But the defendant is entitled to have the view of the
Court of Appeals on Vermont law and cannot, under the
Act of Congress be foreclosed by the District Court’s
interpretation.”
This Court should re-examine the important question as to
the obligation of Courts of Appeal to consider decisions in
other Courts in determining what the law is of a particular
State, particularly where a model or uniform law is involved.
(Z) The question as to whether the solicitation of an
extension of a voting trust involves in effect a new voting
trust agreement and not just an exchange of securities between
an existing issuer and its security holders, raises an important
question involving interpretation of Section 3 (a) (9) of the
Securities Act. The decision of the Court of Appeals is contrary
to the position of the Commission. The question is an important
public issue and should be disposed of by this Court.
(3) The District Court and the Court of Appeals both
failed to give any consideration to the effect of the failure
of the trustees of the Provident Life Insurance Company voting
trust to register the original voting trust certificates in 1955
under the provisions of NDCC 10-04-02 and similar statutes in
SR
Himscienes ey
13
other States and determining whether a Section 3 (a) (9) type
exemption is available. This is an important public question of
considerable importance to the entire securities industry and
should be disposed of by this Court.
(4) What constitutes the payment of remuneration direct
or indirect for soliciting an exchange of securities so as to
destroy the Section 3 (a) (9) exemption, if it was available, is
likewise is an important question of securities law. The offer of
proof proposed to establish that instead of the voting trustees
paying the expenses in connection with the extension of the
voting trust, including legal printing and the actual expenses of
solicitation that the same was all paid by Provident Life In-
surance Company. Even if the payment of such expenses by
the voting trustees might have been considered only incidental
expenses, when the same was paid by a third party and the
obligation was the obligation of the trustees, then it is sub-
mitted that this constitutes the payment of remuneration direct
or indirect and t's question ought to be decided by this Court.
(5) Both Reserve Life Insurance Company and Midland
National Life Insurance Company had acquired common stock
of Provident Life Insurance Company and voting trust certifi-
cates on which the term purported to be extended as to theiz
expiration date to November 14, 1980. Both companies desire
to make further purchases of stock of the company and they
are entitled to know whether voting trust certificates can be
canceled and stock demanded because of the invalidity of the
voting trust agreement. The standing of the petitioners to seek
a declaratory judgment as to violations of the Securities Act of
1933 was denied by both the District Court and the Court of
Appeals.
(6) There appears to be a diversity of decisions as to who
is a purchaser entitled to assert remedies under the Securities
Act of 1933 and particularly as to whether a private person
can maintain a declaratory judgment action such as was brought
14
in this case and was similar in nature to the action for rescission
as was involved in the leading case on veting trusts of Corpor-
ation Trust Co. vs. Logan, 52 F.Supp. 999. In that case the
Court held that remedies other than money judgment were
permissable and that the owner of a voting trust certificate
could raise the question as to the validity of the voting trust
certificates in the face of the failure to register under the 1933
Act. The Court in the Logan case cited Deckert vs. Indepen-
dence Corp., 311 U.S. 282, 61 S.Ct. 229, 233, 84 L.Ed. 189
where that Court said:
‘OW think the Securities Act does not restrict purchasers
seeking relief under its provision to a money judgment.
On the contrary, the Act as a whole indicates an intention
to establish a statutory right which the litigant may
enforce in designated Courts by such legal or equitable
actions or proceedings as would normally be available
to him.”
Also in footnote 17, the Court in the Logan case cited
Section 16 of the Act, 15 U.S.C. Section 77p, which provides:
“The rights and remedies provided for by this subchapter
shall be in addition to any and all other rights and remedies
that may exist at law or in equity.”
The Court of Appeals in our case recognized the existence
of an important problem as to the rights of private litigants
under the 1933 Act and pointed out differences in decisions in
Corporation Trust Co. vs. Logan, supra, including Kinsey vs.
Knapp, 154 F.Supp. 263, same case on appeal, 249 F.2d 797,
cert denied 356 U.S. 936, 78 S.Ct. 778, 2 L.Ed. 2d 812. This
Court should take jurisdiction so as to settle the apparent
differences in the various Courts on this subject.
ARGUMENT
I
Whether the extension of the Provident Life Insurance
Con:pany voting trust agreement was invalid under NDCC
15
10-19-35, the North Dakota statute regulating voting trust
agreements and a judgment so declaring should be entered
by the Court.
In this case the District Court did not render an Opinion of
any kind as to either the facts of the law. Both sides sub-
mitted proposed findings of fact and conclusions of law and the
set submitted by the respondents were adopted without change.
While we recognize the rule is that even though the findings of
fact and conclusions of law are prepared by counsel that they
are nevertheless the findings and decisions of the Court when
adopted, O’Leary vs. Liggett Drug Co. (C.C.A. Ohio 1945)
150 F.2d 656, note has been taken by various Courts that
findings and conclusions which represent a trial judge’s “‘inde-
pendent judicial labors and study” are far more helpful than
the mechanical adoption of the successful attorney’s ‘‘suggested
findings”. See Kinnear-Weed Corp. vs. Humble Oil & Refining
Co., 259 F.2d 398, 400, and United States vs. Forness, 125
F.2d 928, 942. At this point we again refer to the language in
Justice Frankfurter’s concurring Opinion in Burnhardt vs.
Polygraphic Co., cited supra in the statement of Reasons for
Granting the Writ portion of this petition where Justice
Frankfurter said:
“But the defendant is entitled to have the view ot the
Court of Appeals on Vermont law and cannot, under the
Act of Congress, be foreclosed by the District Court’s
interpretation.”
See also Luke vs. American Family Mutual Insurance Com-
pany, 476 F.2d 1015 where the Court of Appeals for the Eighth
Circuit said:
“You give great weight to the view of the State law taken
by the District Judge experienced in the law of that State,
although, of course, the parties are entitled to review by
us of the Trial Court’s determination of State law just as
they are of any other legal question in a case.”
In Hoellinger vs. Molzohon, 41 N.W. 2d 217, 77.N.D. 108,
19 ALR 2d 1147, the Court said:
; 16
“In determining such intent (legislative intent in adopting
a statute) the,meaning of the words used and the language
of the statute as a whole must be considered. Other aids
in construction of the subject matter are the purpose of
the statute, the reason for its enactment, the evils at
which the legislation is aimed, the historical background,
the construction of similar statutes by other Courts and
consideration of other statutes on related subjects.”
It is the position of the petitioners that the Court of Appeals
did not give adequate consideration to the decisions of other
Courts relating to statutes regulating voting trusts particularly
since this statute was part of a Model Law.
In the absence of statutes the length of time that the
power to vote corporate stock could be suspended was a matter
on which the Courts differed and to provide regulation in this
field statutes similar to NDCC 10-19-35 (see App. A page 2)
were adopted. :
The leading case on the subject of the effect of statutes
being passed by the legislature regulating voting trusts or
changing: the terms of the statutory law relating to voting
trusts is the case of in re Morse, 247 N.Y. 290, 160 N.E. 374.
It appeared that the statute on voting trusts did not make an
exception as to stockholders of banks. The trust agreement
relating to stock of a bank was entered into on December 31,
1924. On March 12, 1925 a new public policy was declared
by the legislature in providing that the section on voting trusts
shall not apply to a banking corporation. The question presented
was to the effect of this' amendment as to an existing valid
voting trust agreement involving bank stock.
The Court said:
“Whatever the rule of the common law may have been,
when the legislature, the source of corporate power and
authority acts, voting trusts become legal when organized
in conformity with the statute and not otherwise. * * *
Public policy, although an aid to the interpretation of
ambiguous statutes, is powerless to create an exception
——
“~~
17
when their language is plain and all comprehensive.”
The Court further said:
“In New York voting trusts do not stand or fall on com-
mon-law theories of public policy. They are recognized
and regulated by statute. Whether they wee:id be valid at
common law in the absence of a statute defining and
regulating them is immaterial. Public policy in regard
thereto is defined by the legislature. Between the con-
flicting rules of the common law, a choice has been made.
No voting trust not within the terms of the statute is
legal, and any such trust, so long as its purpose is legiti-
mate, coming within its terms, is legal. The test of validity
is the rule of the statute. When the field was entered by
the legisiature, it was fully occupied and no place was
lefto for other voting trusts. * * * Constitutional questions
seem simple. The separation of the voting power from the
beneficial ownership of stock of banking corporations is a
matter for regulation by the police power of the State.
Banking is a business affected with the public interest.”
This holding is not different from the North Dakota deci-
sions. In in re White, 69 N.D. 61, 284, N.W. 357, the Court
quoted with approval from Commonwealth vs. Commissioner
of Banks, 240 Mass. 244, 133 N.E. 625,.628, as follows:
“It is the general principle that, when legislation covers
the entire field, previous provisions of either the common
or statutory law in conflict therewith become iio longe:
operative.”
Also cited was Fry vs. Equitable Trust Company, 264 Mich.
165, 249 N.W. 619, 90 ALR 175.
The Court then discussed statutes of North Dakota as to
there being no common law in any case where the law is
declared by the codes and then said:
“It follows from these sections that if a particular statute
is so designed that it covers the entire field to which it
relates, it does so to the exclusion of the common law.”
See also to the same effect as the Morse decision Gertenbach
18
vs. Rodnon et al, 171 Misc. 302, 12 N.Y.S. 2d 518 and Mann-
heimer vs. Keehn, 41 N.Y.S. 2d 542, also citing the Morse
case. In that case it appeared that there was a previous voting
trust which was entered into on March 1, 1926 and expired
at the end of February, 1936, which was the date when the
term of the new agreement was to commence. The solicitation
occurred as it did in the Provident Life case before the effective
date of the new agreement. A new agreement and not an
extension agreement was made. The old voting trust certificates
were called in and the trustees under the new agreement issued
new voting trust certificates and finally the voting trustees
themselves did not sign until March 1, 1936. In the Provident
Life case the trustees signed prior to December 2, 1969. See
the solicitation letter of December 2, 1969 (RII, 9) where Mr.
Edick said:
“The trustees have agreed to extend the term to November
14, 1980 * * *. All of the trustees, directors and officers
holding voting trust certificates have consented to renewal.”
In the Mannheimer case the claim that the voting trust ran
more than ten years was defeated by the finding that the
trustees did not sign until March 1, 1936. Here the voting
trust agreement clearly ran more than ten years and was
therefore contrary to the North Dakota statute that came into
effect in 1957.
In Belle Isie Corporation vs. Corcoran, 29 Del. Ch. 554,
49 A.2d 1. 2 suit was brought to have a voting trust agreement
declared invalid. The Delaware Court held that a voting trust
agreement which was not extended in the manner provided by
the Delaware Corporation Law was invalid and could not be
considered to be a new voting trust agreement. The Delaware
law specifically provides for extension agreements and teh
extension must be sought within one year prior to the time of
expiration of the original voting trust agreement. The voting
trust agreement involved was to expire on January 22, 1944.
On May 27, 1939 an extension agreement was entered into and
the Court held the extension was invalid.
19
Under the North Dakota law adopted in 1957 an extension
could not be had and yet that is exactly what was attempted.
Only a new agreement could have been made and if there were a
new agreement there would be new trustees whereas in this case
it is contended the old trustees issued a new security. This is
not possible under the effective North Dakota statute.
See also Perry vs. Missouri-Kansas Pipeline Co., 191 A.823,
the Chancery Court of Delaware considered a voting trust which
by the terms thereof was to run for eleven years. Citing tiie
New York cases, the Court held that the voting trust was void
in its entirety and not good for ten years with only the excess
period being invalid and the Court quoted from the Morse
case as follows:
““Whatever the rule of common law may have been, when
the legislature, the source of corporate power and authority,
acts, voting trusts become legal when organized in con-
formity with the statute and not otherwise.”
On the subject of filing a counterpart of the voting trust
agreement with the company as required by NDCC 10-19-35
it is the position of the petitioners that this means something
other than a copy and must mean either the Original or a
duplicate original. If a copy had been intended, it would have
been easy to so specify.
In State vs. Keystone Life Insurance Company (La.) 93 So.
2d 565, the Court considered a voting trust agreement and the
fact that a “duplicate” had not been placed on file as required
by the Louisiana statute with the corporation, the stock of
which was involved. The Court indicated that a duplicate was
in effect the same as a counterpart. The Court pointed out
that only a photostat of the agreement was placed of record
with the corporation and said:
“This type of copy does not contain the signatures of the
subscribers nor does it afford others the opportunity to
sign and our opinion is that it does not have the legal
effect and validity of a duplicate and does not satisfy the
20
The Louisiana Court quoted further from Vurrill’s Dictionary
discussing the definition of a duplicate and the quotation was
as follows:
executed by the several parties, respectively, each party
affixing his or her seal to only one counterpart and dupli-
Because of the failure to file the duplicate of the trust
agreement with the corporation, the Louisiana Court said that
the inevitable conclusion must be that the Keystone Trust had
no legal standing.
In Abercrombie vs. Davies, 130 A. 2d 338, the Delaware
Court considered an agreement as to voting shares of stock of a
corporation that was to run for a term of ten years. Following
Perry vs. Missouri-Kansas Pipeline Co., supra, and the New York
cases, the Court said:
field was entered by the legislature, it was fully occupied
and no place was left for other voting trusts. The statute
lays down for voting trusts ‘the law of their life’, com-
pliance with its provisions is mandatory. Voting trusts not
sO complying are illegal.”
Further, the Delaware Court found that a copy of the
voting trust agreement was not on file with the corporation and
that the stock was not transferred on the books of the corp-
oration to the trustees. The Court said further:
“Now, the provisions of the statute that were not com-
plied with are the requirements that the shares be trans-
CREE, SE LOTR OS eR ape ree * FEEL PSE ES RNR Rea EEE LEIP EF LITTER Tey Ty PO
21
ferred on the books and the requirements that a copy of
the agreement shall be filed in the corporation’s principal
office in Delaware. * * * If the validity of a stockholder’s
pooling agreement of the kind here presented were to be
sustained, the way is clear for the creation of secret
voting trusts. The statute clearly forbids them.”
See also Smith vs. Biggs Boiler Works Co., 91 A.2d 193,
34 ALR 2d 1125 and the annotstion on the validity of voting
trusts in 98 ALR 2d 376.
In Wolf vs. Roosevelt et al., 290 N.Y. 400, 49 N.E. 2d 502, the
Court of Appeals of New York considered a case that involved
the reduction of the term for which voting trusts would be
valid from ten years to five years as it applied to a voting trust
that had been made for a term of ten years. The majority of
the Court held that the statute was prospective only and that
a voting trust that was valid for ten years could continue for
the term but that any new voting trust thereafter made could
be made only for a term and on the conditions provided by the
new law. Three of the Judges dissented, holding that when the
legislature reduced the period for which voting trusts could
exist that the same applied to even existing voting trust agree-
ments. The point, of course, if from the standpoint of the
petitioners that there was no provision in the new law for
extension agreements. When the trustees of the Provident Life
Insurance Company voting trust agreement proposed to take
action in 1969 they had to reckon with the new law. At this
point the law had eliminated extension agreements and no
extension agreement was possible. The only thing that could be
done was the adoption of the new voting trust agreement and
the new voting trust agreement should not have contained
provisions for further extension beyond ien years.
The Court of Appeals in citing Pacific R.R. vs. Baldwin,
89 F.2d 269, (Eighth Cir. 1937) (See Appendix B A25 of@he
petition in case 74-423) missed the point of the argument of the
appellants. Our contention is that after the passage of NDCC
Recaps PRIAER A hae - wz IOP Sy Re Re 1 OS os n OO? ae.
22
NDCC 10-19-35 no extension agreement could thereafter be
made. In the Baldwin case the Eighth Circuit Court of Appeals
was considering a Delaware corporation. Approximately a year
after the voting trust agreement involved was made the Delaware
law was amended to limit the maximum term of any voting
trust agreement to ten years. It was contended, citing the Morse
case, supra, that although there was nothing in the amendatory
act which specifically made it applicable to voting trust agree-
ments executed prior to its adoption, it must be so applied. The
Court of Appeals said that it should not be given a retrospective
operation. We believe the Court of Appeals have overlooked the
fact that the Supreme Court of Delaware in Abercrombie vs.
Davies, supra, subsequently held otherwise and the decision of
the Eighth Circuit Court of Appeals in the Baldwin case was
made before the decision cf this Court in 1938 in Erie Rail-
road Company vs. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82
L.Ed. 1188, 114 ALR 1487, which requires federal courts to
follow in matters of general jurisprudence the unwritten law
of the state as declared by its highest court. We suggest that the
decision -vould have been different if the case were before the
court today.
We also believe that in citing Oppenheimer vs. Cassidy,
345 Ill. App. 212, 102 N.E. 2d 768, to the effect that there can
be an extension agreement although the law of Illinois did not
provide for extension agreements, the Court of Appeals missed
the point. The Court in that case found that there was a new
voting trust agreement. Accordingly we do not believe that the
case is applicable.
To summarize the contentions of the petitioners, it is urged
that the voting trust agreement and the extended certificates
attempted to be put into effect were invalid for the following
reasons:
(1) The extension agreements were made and signed by all
the parties, including the trustees long before the expiration
date on the original trust agreement and bound the parties to an
‘Yeetarr, Wem,
23
agreement extending more than ten years contrary to the statutes.
Certificates were regularly traded, dated more than ten years
prior to November 14, 1980, thus covering a period of more
than ten years contrary to the statute.
(2) No counterpart, which is something more than a copy,
was ever filed with Provident. To have been effective the
original consents, since the parties did not sign duplicates or
counterparts, should have been filed. The address labels on the
consent forms were a part of the forms. If a copy could be
filed then an important part of the copy was deliberately left
off and what was filed was not a true copy, even assuming a
copy would suffice as a counterpart.
(3) No extension agreement could be made since the statute
did not provide for extensions under the law that was in effect
in 1969.
(4) Even if the extension was otherwise valid, it is illegal
and void because of the provisions for further extension beyond
ten years.
(S) Since only a new voting trust agreement could be made
in 1969, the law was not complied with as to transferring the
shares to the trustees for the purpose of the agreement. In
order that a valid voting trust agreement could be made in 1969
the trustees of the old trust should have transferred the stock
to the individual owner so that they could again transfer the
same to the trustees under the new agreement. Clearly this was
not done.
Il
Whether registration of the proposed extension of the
Provident Life Insurance Company voting trust agreement
under the provisions of the Securities Act of 1933 was a con-
dition precedent to valid solicitation of consents to the
extension.
As pointed out supra, the Commission takes the view that a
LOE AE IGP Rat 30r e 7y 7 SN ee Eee
*- PREY PLATE CT TES
24
new voting trust agreement was involved. If it was a new voting
trust agreement then the issuers were a new entity and obviously
registration was required. A new trust was being created and
therefore the old trust and the new trust and the old trustees
and the new trustees were separate legal entities. Accordingly
the offer and sale of interests in the new voting trust without
registration violated Section 5 of the Securities Act of 1933,
15 U.S.C. Section 77e.
In connection with this subject it is pointed out that there
were originally 188 persons that signed the 1955 agreement.
In 1969 when the solicitation was begun on the new voting
trust or so-called extension there were 1,808 certificate holders
of whom 1,343 executed the consent forms. The new certificate
holders had not signed the old voting trust agreement and were
not even furnished with a copy thereof in connection with the
solicitation.
We urge that Corporation Trust Co. vs. Logan, 52 F.Supp.
1002, clearly points out the need for registration of voting
trust certificates where the number of persons solicited is sub-
stantial. Further we urge that the view of the Commission that
@ new trust agreement was involved should be followed and that
since a new agreement was involved the trustees were a new legal
entity and registration under the Securities Act of 1933 was
required and there was no Section 3 (a) (9) exemption available.
®
Ill
Whether the failure to register the Original voting trust
certificates in 1955 under the provision of NDCC 10-04-02, the
North Dakota statute requiring registration of securities and
similar statutes in other States invalidated the subsequent solici-
tation of consents to the extension of the voting trust certifi-
cates.
.
25
All of the major items necessary to the creation of a voting
trust occurred in North Dakota. All but two of the trustees of
the voting trust were North Dakota residents, (see RII page 12).
The stock was deposited in North Dakota and a great many of
the parties signing consents, including all but two of the trustees,
signed in North Dakota.
It is also clear that the original voting trust agreement was
never registered in North Dakota and it is conceded that the
voting trust agreement and the voting trust certificates were
never registered in any other State in which solicitation was
made and we believe it is conceded that if a new voting trust
agreement was involved that registration was required every-
where.
Under the North Dakota law, NDCC 10-04-02 (App. Al)
dealing with definitions subsection 12 provides:
“ ‘Security’ shall mean * * * voting trust certificate.”
NDCC 10-04-04 (App. A1) provides:
“It shall be unlawful to sell or offer for sale, any securities
in this State except those exempt under Section 10-04-05
or those sold in transactions exempt under Section
10-04-06 (neither of these sections are applicable) * * *.”’
The only possible provision listed in NDCC 10-04-06 dealing
with exempt transactions that would have any application to an
exchange of securities was subsection 7 thereof.
This section, including the beginning of the section, reads as
follows:
“Except as hereinafter in this section expressly provided,
Sections 10-04-04 * * * shall not apply to any of the
following transactions: (7) The issuance and delivery of
any securities in exchange for any other securities of the
same issuer pursuant to a right of conversion entitling the
holder of the securities surrendered in exchange to make
such conversion.”
a 7 FPL IMIG fee Fir Tg pemate Cine Ae PR ned PERSO
26
Mr. Sugrue of counsel for the trustees obviously had doubts
as to whether there was an exemption available similar to
Section 3 (a) (9) of the Securities Act of 1933. See his letter to
John A. Zuger dated September 11, 1969, RII 89-91, where
he stated:
“We are, of course, particularly concerned with the
requirements of South Dakota, the laws of which do not
appear to provide any exemption for the proposed solici-
tation, and of North Dakota, the laws of which provide an
exemption for the issuance of securities pursuant to a
‘right of conversion’. Because the proposed solicitation
does not technically involve any right of conversion, we
believe that the matter should be taken up informally with
the North Dakota Securities Commissioner to determine
whether he would be inclined to take the position that a
tight of conversion is involved or that, in any event, if the
solicitation is undertaken in North Dakota without quali-
fication under its Blue Sky Law, he would not be
inclined to take any action with respect thereto.
We also believe that a similar discussion should be had
with the South Dakota Commissioner for the purpose of
determining whether any administrative relief in the
qualification requirements of the laws of that State are
available.”
We then have the situation that the original solicitation of
signatures to the voting trust agreement was made of more than
188 persons without any registration in North Dakota or any
other State. Further whether a new Agreement was involved or
an extension of the old agreement, there was no Section 3(a)(9)
exemption available in North Dakota, the home State, nor in
South Dakota, the adjoining State. Obviously, the original solici-
tation in 1955 was illegal and certainly the solicitation made sub-
sequently in 1969 and 1970 was contrary to state law since
there had never been any original registration and there could be
no basis for a so-called Section 3 (a) (9) exemption where the
original solicitation was itself illegaland there was no subsequent
registration.
a LANL IY LPB DOING Dr ens PG POND NA PEE MOREE OYE Sa ee Se eee eee SoReoTOUTA ETERS AMER ES . eet
27
Further, if a new agreement was involved, the solicitation
everywhere was concededly contrary to the laws of the various
States.
NDCC 10-04-17 provides in part as follows:
“Every sale or contract for sale made in violation of any
of the provisions of this chapter * * * shall be voidable at
the election of the purchaser * * *. (3) Nothing in this
chapter shall limit any statutory or common law right of
any person in any Court for any act involved in the sale
of securities.”
We think this means that in addition to recovering the
purchase price any person interested may bring actions for
declaratory judgment or employ other equitable or statutory
remedies to determine rights under or in securities. Since the
securities were issued illegally under North Dakota law the
plaintiffs as purchasers or persons who have acquired such
securities from purchasers are entitled to maintain actions for
declaratory judgment establishing the invalidity of the securi-
ties issued.
North Dakota by virtue of this statute is in the class of
States that treats transactions effected in violation of the Blue
Sky Law as being void at the option of the purchaser. See
Hummel vs. Kranz, 126 N.W. 2d 786.
In 87 ALR 98 is a long annotation on the subject of State
Blue Sky Laws with the cases set out which hold in some
States that the sales are void and others that the sales are
voidable.
IV
Whether the Distirct Court should have allowed the plaintiffs
to offer proof that all expenses in connection with the exten-
sion of the voting trust, including the expenses of solicitation of
the consents, was paid for by Provident Life Insurance Company
and if so, did such payments constitute remuneration, direct or
28
indirect, for solicitation of an exchange, actually being solicited
by the voting trustees, within the meaning of Section 3 (a) (9)
of the Securities Act of 1933 and related State laws.
Even if it is determined that the solicitation of the consents
to the so-called extension agreement constituted the exchange
between an existing issuer and its security holders, there is still
the question as to whether the Section 3 (a) (9) exemption is
available if there was remuneration paid, direct or indirect. The .
petitioners take the position that the contribution by Provident
Life Insurance Company of all the expenses of arranging for the
extension agreement and the payment of all the expenses of
solicitation for and on behalf of the trustees of the voting
trust constituted remuneration directly or indirectly for soliciting
the exchange.
In Section 3.10 (4) in Business Organizations, Sowards, The
Federal Securities Act, the text writer says:
“The language of Section 3 (a) (9) expressly limits the
availability of the exemption to situations “where no
commission or other remuneration is paid or given directly
or indirectly for soliciting such exchange’. Accordingly
the payment of commission or other remuneration for
soliciting the exchange of any part of the issue will result
in the loss of the exemption * * *. The meaning of
‘commission or other remuneration’ has been accorded
realistic treatment. It is obvious that ‘commission or other
remuneration’ must mean something different from such
a term as ‘expenses’. Otherwise, no such exchange could be
effected, for engraving fees, clerical expenses and the like
are necessary in order to effect almost any such exchange.
The dividing line would thus distinguish between payments
which are in essence for promotional activity as dis-
tinguished from payments which cover the expenses
incident to such an exchange.
These expenses would, of course, include such matters as
engraving costs, clerical costs but in addition could include
a payment to third persons for services in connection
with effecting but not promoting such an exchange. * * *
29
Finally, inasmuch as the section’s language includes
payments made ‘directly or indirectly’, the fact that such
payments are made by an officer of the issuer or some
_ other person will not cure the unavailability of the exemp-
tion.” |
Our contention is that since Provident paid all these
expenses ‘not only the incidental expenses but the expenses of
promotion of the exchange, constituted a remuneration, direct
or indirect to or for the benefit of the trustees who were
personally benefited and therefore because of such remuneration,
direct or indirect, for expenses that should have been borne by
the trustees, the exemption is not available.
The above is an important point affecting securities laws and
if this Court should determine to grant certiorari in case 74-423
then certiorari should be granted on this petition so that this
question can be considered.
See also Loss on Securities, Chapter 3B page 580 where the
text writer said:
“The exemption will still be destroyed, however, when
any remuneration is paid ‘directly or indirectly’ for solici-
ting exchanges. This presumably covers remuneration
received by the soliciturs from sources other than the
issuer.”
The above is directly applicable to this situation since the
solicitors (the trustees) received remuneration from sources
other than themselves. The offer of proof should have been
_ allowed and the petitioners permitted to develop the subject by
cross-examination of Mr. Edick, President of Provident.
Vv
Whether, since the trustees of the voting trust failed to
_ register the Provident Life voting trust agreement under the
provisions of the Securities Exchange Act of 1934 as amended
and no compliance was made with the proxy regulations under
30
the Act, the Court should have held that since proper solici-
tation was not made before the expiration of the voting trust
, agreement on November 15, 1970, all consents to the extension
of the voting trust agreement were void, instead of permitting
resolicitation, if the voting trustees are so advised, under the
direction of the District Court. .
The point intended to be made under this heading is that
since the original voting trust agreement expired by its own
terms on November 15, 1970, that if the solicitation was
improper and in violation of the proxy regulations of the Securi-
ties and Exchange Act of 1934, it is now too late when the
voting trust agreement expired by its own terms, to now order ‘
and direct that the respondents may, if so advised, under the
direction of the Court, resolicit consents to extension of the
votiig trust agreement. We urge that the ruling should have
been that because the proxy provisions were violated that the
consents were invalid and that it is now too late to permit a
resolicitation.
VI
Whether the petitioners as stockholders of Provident Life
Insurance Company and voting trust certificate holders have
standing to maintain this declaratory judgment action under the
' provisions of the Securities Act of 1933 and corresponding
securities laws of the various States.
At the time of the amendment of the complaint in September,
1972, before the commencement of the trial, Reserve Life
Insurance Company had voting trust certificates purporting
to expire November 14, 1980 in the amount of 16,123.769
shares and Midland National held 717.15 voting trust certifi-
cates purporting to expire November 14, 1980. (RI pages 50
and 51) Therefore, it is the position of the petitioners that
they qualified as purchasers of securities having succeeded to
said securities by'purchase. |
31
In Corporation Trust Co. vs. Logan, supra, the action was
one to rescind the exchange of stock for voting trust certifi-
cates for failure to comply with the Securities Act of 1933. We
urge that the Logan case is good law and its application to this
situation should be declared by this Court. This issue was not
resolved by the Court of Appeals in this case because it dis-
posed of the matter on the ground that there was a Section
3 (a) (9) exemption available. Since it appears that the Section
3 (a) (9) exemption is not available, the issue of standing under
the Securities Act of 1933 should be resolved.
CONCLUSION
As previously stated in this petition the petitioner herein has
opposed the granting of a writ of certiorari in case number
74-423 and if certiorari is denied in that case then the petitioner
has no objection to this petition likewise being denied but if the
petition is granted in 74-423 then for the reasons stated herein,
this petition for writ of certiorari should be granted.
Respectfully submitted,
ALAN L. AUSTIN
IRVING A. HINDERAKER
J. DOUGLAS AUSTIN
DARWIN SHAPIRO
P. O. Box 766
Watertown, South Dakota 57201
RICHARD P. RAUSCH
320 North Fourth Street
Bismarck, North Dakota 58501
Counsel for Petitioners
Al
APPENDIX A
North Dakota Statutes — North Dakota Century Code.
Section 10-04-02:
“When used in this chapter, unless the context or sub-
ject matter otherwise required: * * *
4. ‘Issuer’ shall mean every person who issued or proposes
to issue any security, except that,
a. With respect to certificates of deposit, voting trust
certificates, collateral trust certificates, certificates of
interest or shares in an unincorporated investment trust,
whether or not of the fixed, restricted management, or
unit type, issuer means the person or persons performing
the acts and assuming the duties of depositor or manager
pursuant to the provisions of the trust or other agree-
ment or instrument under which such securities are
issued; * * *
12. ‘Security’ shall mean any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, dertificate of
interest or participation, certificate of interest in oil, gas,
or other mineral rights, collateral trust certificates, pre-
organization certificate or subscription, transferable share,
investment contract, voting trust certificate, or beneficial
interest in title to property, profits or earnings, or any
other instrument commonly known as a security, including
any guarantee of, temporary or interim certificate of
interest or participation in, or warrant or right to sub-
scribe to, convert into or purchase, any of the foregoing.”
Section 10-04-04:
“It shall be unlawful to sell or offer for sale, any securities
in this state, except those exempt under section 10-04-05
or those sold in transactions exempt under section
10-04-06, or those registered by description under section
10-04-07 or by announcement under section 10-04-07.1,
unless such securities shall have been registered. by quali-
fications as hereinafter provided in section 10-04-08.”
OEE
ree ae
~:
a -—---- =
A2
Section 10-4-17:
“Every sale or contract for sale made in violation of any of
the provisions of this chapter * * * shall be voidable at
the election of ihe purchaser * * * provided * * * (3)
nothing in this chapter shall limit any statutory or common
law right of any person in any Court for any act involved
in the sale of securities.”
Section 10-19-35:
Any number of shareholders of a corporation may create a
voting trust for the purpose of conferring upon a trustee
or trustees the right to vote or otherwise represent their
shares, for a period of not to exceed ten years, by
entering into a written voting trust agreement specifying
the terms and conditions of the voting trust, by depositing
a counterpart of the agreement with the corporation at its
registered office, and by transferring their shares to such
trustee or trustees for the purpose of the agreement. The
counterpart of the voting trust agreement so deposited
with the corporation shall be subject to the same right of
examination by a shareholder of the corporation, in
person or by agent or attorney, as are the books and
records of the corporation, and shall be subject to exam-
ination by any holder of a beneficial interest in the voting
trust, either in person or by agent or attorney, at any
reasonable time for any proper purpose.”
Securities Act of 1933 and U.S.C. citations:
Section 15, 15 U.S.C. Section 77 (e):
(1) Unless a registration statement is in effect as to a
security, it shall be unlawful for any person, directly or
indirectly —
(1) to make use of any means or instruments of
transportation or communication in interstate com-
merce or of the mails to sell such security through the
use or medium of any prospectus or otherwise; or
(2) te carry or cause to be carried through the
mails or in interstate commerce, by any means or
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instruments of transportation, any such security for
the purpose of sale or for delivery after sale.
(b) It shall be unlawful for any person directly or
indirectly —
(1) to make use of any means or instruments of
transportation or communication in interstate com-
merce or of the mails to carry or transmit any pros-
pectus relating to any security with respect to which
a registration statement has been filed under this
subchapter, unless such prospectus meets the require-
ments of section 77j of this title; or
(2) to carry or cause to be carried through the
mails or in interstate commerce any such security
for the purpose of sale or for delivery after sale,
unless accompanied or preceded by a prospectus
that meets the requirements of subsection (a) of
section 77j of this title.
(c) It shall be unlawful for any person, directly or
indirectly, to make use of any means or instruments of
transportation or communication in interstate commerce
or of the mails to offer to sell or offer to buy through the
use or medium of any prospectus or otherwise any
security, unless a registration statement has been filed as
to such security, or while the registration statement is the
subject of a refusal order to stop order or (prior to the
effective date of the registration statement) any public
proceeding or examination under section 77h of this title.
Section 12, 15 U.S.C. Section 77 (1):
Any person who —
(1) offers or sells a security in violation of section 773 of
this title, or
(2) offers or sells a security (whether or not exempted
by the provisions of section 77c of this title, other than
paragraph (2) of subsection (a) of said section), by the
use of any means or instruments of transportation or
communication in interstate commerce or of the mails,
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by means of a prospectus or oral communication, which
includes an untrue statement of a :naterial fact or omits to
state a material fact necessary in order to make the
statements, in the light of the circumstances under which
they were made, not misleading (the purchaser not know-
ing of such untruth or omission), and who shall not sus-
tain the burden of proof that he did not know, and in the
exercise of reasonable care could not have known, of such
untruth or omission,
shall be liable to the person purchasing such security from
him, who may sue either at law or in equity in any court of
competent jurisdiction, to recover the consideration paid for
such security with interest thereon, less the amount of any
income received thereon, upon the tender of such security,
or for damages if he no longer owns the security.
Section 16, 15 U.S.C. Section 77 (p):
“The rights and remedies provided by this subchapter
shall be in addition to any and all other rights and reme-
dies that may exist at law or in equity.”
Securities and Exchange Act citations:
Section 29, 15 U.S.C. Section 78cc:
“(a) Any condition, stipulation or provision binding any
person to waive compliance of any provision of this
chapter or of any rule or regulation thereunder or of any
rule of an exchange required thereby shall be void.
(b) Every contract made in violation of any provision of
this chapter or of any rule or regulation thereunder, and
every contract * * * heretofore or hereafter made, the
performance of which involves the violation of, or the
continuance of any relationship or practice in violation of,
any provision of this chapter or any rule or regulation
thereunder shall be void (1) regard the rights of any
person who, in violation of any such provision, rule or
regulation shall have made or engaged in the performance
of any such contract, shall have acquired any right there-
under with actual knowledge of the facts by reason of
which the making or performance of such contract was
in violation of any such provision, rule or regulation. * * *”
SET
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.