# Brief for the Respondents in Opposition — Bangor Punta Operations, Inc. v. Bangor & Aroostook R. Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Brief for the Respondents in Opposition
- **Published:** January 1, 1974
- **Citation:** 417 U.S. 703

## Text

bs baa SIF ET NISBET

No. 73-718

IN THE

Supreme Court of the United States

October Term, 1973

BANGOR PUNTA OPERATIONS, INC. and
BANGOR PUNTA CORPORATION,
Petitioners
v.

BANGOR & AROOSTOOK RAILROAD COMPANY and
BANGOR INVESTMENT COMPANY,
Respondents

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

Epwarp Q. Proctor
Avan L. LerKow!tTz
Epwarp T. Rosinson
Exy, Barttett, Brown & Proctor
225 Franklin Street
Boston, Massachusetts 02110
Counsel for Respondents
VerriLL, Dana, PHILBRICK,
Putnam & WILLIAMSON,
Of Counsel.
November 29, 1973

Opinions WOUOW oe os ao coy en 6s beens eee nk een aens

TeReOe: x x55 s oan sce eee eeeseense ceeds LICL DOOM 2 5 FG on x

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13

Conclusion

Since the decision below correctly applies traditional
equitable principles and does not conflict with existing law,
the petition for a writ of certiorari should be denied.

Epwarp O. Proctor
Avan L. LerKowitTz
Epwarp T. Rosixson
Attorneys for Respondents
Of Counsel:
VerRILL, Daxa, PHILBRICK,
Putxam & WILLIAMSON

eee e————————————eeeeE

14

Appendix A —

Rule 10b-5 (17 C.F.R. § 240.10b-5), adopted by the Seeuri-
ties and Exchange Commission pursuant to §10b of the
Securities Exchange Act of 1934 [15 U.S.C. § 78}(b)], reads
as follows:

It shall be unlawful for any person, directly or indi-
rectly, by the use of any means or instrumentality of
interstate commerce, or of the mails or of any facility
of any national securities exchange,

(a) To employ any device, scheme, or artifice to
defraud,

(b) To make any untrue statement of a material fact
or to omit to state a material fact necessary in order to
make the statements made, in the light of the circum-
stances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of busi-
ness which operates or would operate as a fraud or

deceit upon any person

in connection with the purchase or sale of any security.

Appendix B

Section 10 of the Clayton Act [15 U.S.C. § 20] reads in

- pertinent part as follows:

No common carrier engaged in commerce shall have
any dealings in securities, supplies, or other articles of
commerce, or shall make or have any contracts for con-

15

struction or maintenance of any kind, to the amount of
more than $50,000, in the aggregate, in any one year,
with another corporation, firm, partnership, or associa-
tion when the said common carrier shall have upon its
board of directors or as its president, manager, or as
its purchasing or selling officer, or agent in the particu-
lar transaction, any person ‘who is at the same time a
director, manager, or purchasing or selling officer of,
or who has any substantial interest in, such other cor-
poration, firm, partnership, or association, unless and
except such purchases shall be made from, or such
dealings shall be with, the bidder whose bid is the most
favorable to such common carrier, to be ascertained by
competitive bidding under regulations to be prescribed
by rule or otherwise by the Interstate Commerce Com-
mission. No bid shall be received unless the name and
address of the bidder or the names and addresses of the
officers, directors, and general managers thereof, if
the bidder be a corporation. or of the members, if it be a
partnership or firm, he given with the bid.

Appendix C

Section 104 of the Maine Public Utilities Act [35 M.R.S.A.
§ 104] reads as follows:

No publie utility doing business in this State shall
extend credit or make loans to or make any contract or
arrangement, providing for the furnishing of manage-

_Ment, supervision of construction, engineering, account-
ing, legal, financial or similar services, or for the fur-
nishing of any service other than those enumerated,
with any corporation, person, partnership or trust,
holding, controlling or owning in excess of 25% of the

EE ES ES eae

16

: voting capital stock of such public utility, or with any
4 other corporation which is itself owned or controlled by
é or affiliated with any corporation, person, partnership
or trust, holding, controlling or owning a majority of
the voting capital stock of such public utility, unless and
until such contract or arrangement shall have been
found by the commission not to be adverse to the public
interest and shall have received their written approval.
The commission shall in the case of any utility have the
d power to exempt herefrom, from time to time, such
classes of transactions as it may specify in writing in
3 advance and which in its judgment will not affect the
public interest.

ee pe eee es

4 Section 15 of the Maine Publie Utilities Act [35 M.R.S.A.
; § 15] reads as follows:

Wherever used or referred to in chapters 1 to 17,
unless a different meaning clearly appears from the
context:

3. Common carrier. ‘*Common carrier’’ includes
every railroad company, express company, dispateh,
sleeping car, dining car, drawing-room car, f reight line,
refrigerator, oil, stock, fruit, car loaning, car renting,
car loading and every other car corporation or person,
their lessees, trustees, receivers, or trustees appointed
by any court whatsoever, operating for compensation
within this State: and every corporation or person,
their lessees, trustees, receivers or trustees appointed
by any court whatsoever, owning, controlling, operating
or managing any vessel regularly engaged in the trans-

¢

allel Se eae x
LOL ELLE Fe LOTS PRICED POM ELT SL I _ —_ —

17

portation of persons or property for compensation upon
the waters of this State or upon the high seas, over
regular routes between points within this State. 1961,
e. 395, § 23.

13. Public utility. ‘‘Public utility’’ includes every
common carrier, gas company, natural gas pipeline
company, electrical company, telephone company, tele-
graph company, water company, public heating com-
pany, wharfinger and warehouseman, as those terms are
defined in this section, and each thereof is declared to be
a public utility and to be subject to the jurisdiction,
control and regulation of the commission, and to chap-
ters 1 to17. 1955, c. 127, § 1.

Appendix D
Rule 23.1, F.R.Civ.P., reads 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 there-
after 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 other-
wise have. The complaint shall also allege with par-
ticularity the efforts, if any, made by the plaintiff to

Seo ne eae SIDR TIE IIE, baa aay

18

obtain the action he desires from the directors or com-
parable authority and, if necessary, from the share-
holders 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 adequately repre-
sent the interests of the shareholders or members sim-
ilarly 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.

ey ee eee

veins

i,

MICHAEL RODAK,
——

In THE

Supreme Court-of the United State

Octoser Term, 1973

No. 718

BANGOR PUNTA OPERATIONS, INC. and BANGOR
PUNTA CORPORATION,
Petitioners,

Vv.
BANGOR & AROOSTOOK RAILROAD COMPANY and

BANGOR INVESTMENT COMPANY,
Respondents.

On Wait or CERTIORARI TO THE UNITED STATES
Court or APPEALS FOR THE First Circuit

BRIEF FOR THE PETITIONERS

James V. Ryan
Rocer L. WaLpMAN
Auuan J. Gar
One Rockefeller Plaza
New York, New York 10020.
Counsel for Petitioners

Wesster SHEFFIELD FLEISCHMANN

Hircucock & BrooKFIELD

Begystein Sour Sawyer & NELson,
Of Counsel.

February 21, 1974.

9 OD ASME ty ERT ORES 99 TO RES SRT TOPE S EE RE LO a

INDEX

PAGE
dicen cetsaiansiiin sh 1
ii Mlctc incite ia . 1
oie Peeeied —...__-_-___--.} 2
Statutes and Regulations Involved _______________ 2
NE OE TRO RD oii ici btnncencheannate 2

Argument :
I. The decision below disregards the funda-
mental principle that a litigant that has it-
self suffered no injury lacks standing to bring
an action to vindicate the rights of the public 6

II. The decision below creates a new public right
of action unsanctioned by common law or
statute and based on a totally speculative
I eis rciteiscnninn 11

III. The Court of Appeals rejected a universally
recognized principle correctly applied by the

See TENORIO R UTS FATE 17
eee en paleesiconems 21
Appendix :

United States Constitution art. ITI § 2 ____-_____ A-1
United States Constitution amend. XI __________ A-1
Clayton Act § 10, 15 U.S.C. § 20 ___ see A-1
Securities Exchange Act of 1934, §10(b), 15
Uae 8 ee A-2
SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 __-_-_____ A-2
Interstate Commerce Act, Part I, §1(14), 49
RE OE it ecw A-3

Interstate Commerce Act, Part I, §1(18), 49
U.S.C. § 1(18)

PAGE
Interstate Commerce Act, Part I, §1(21), 49
TER Ay © ROD ii i hw ;
Interstate Commerce Act, Part I, §5(2)(a), 49
U.S.C. § 5(2) (a) — A4

Interstate Commerce Act, Part I, § 8, 49 U.S.C.48 A5
Interstate Commerce Act, Part I, §15(1), 49

VE 6A) nk A5
Interstate Commerce Act, Part I, §20a(2), 49
TAL SU 2 ee As
Maine Public Utilities Act § 104, 35 M.R.S.A. § 104 A-7
Federal Rule of Civil Procedure 23.1 __________- AS
CITATIONS
Cases:
Amen v. Black, 234 F.2d 12 (10th Cir. 1956) _____- 18

Asbury v. Chesapeake & Ohio Ry., 314 F. Supp.
310 (D.D.C. 1970) _----- " ‘

Atlantic Coast Line v. Riverside Mills, 219 U.S.
186 (1911)... oe... 15

Barlow v. Collins, 397 U.S. 159 (1970) _-----__--- 7

Billy Baxter, Inc. v. Coca-Cola Co., 431 F.2d 183
(2nd Cir. 1970), cert. denied, 401 U.S. 923 (1971) 1B

Birnbaum v. Newport Steel Corp., 193 F.2d 461
(2nd Cir. 1952), cert. denied, 343 U.S. 956 (1952) 18

Bivens v. Sia Unknown Narcotics Agents, 403 U.S.
388 (1971) —-- iicaisinceonst anced 12

Calderone Enterprises Corp. v. United Artists
Theatre Circuit, 454 F.2d 1292 (2nd Cir. 1971),
cert. denied, 406 U.S. 930 (1972) ______-------- 13

Cohen v. Beneficial Loan Corp., 337 U.S. 541 (1949) 19

PAGE

Commonwealth Edison Co. v. Allis-Chalmers

Mfg. Co., 315 F.2d 564 (7th Cir. 1963), cert.

denied sub nom., Illinois v. Commonwealth

Edison Co., 375 U.S. 834 (1963) -------------- 12
Data Processing Service v. Camp, 397 U.S. 150

(1970) ae 7
Eason v. General Motors Acceptance Corp., C.C.H.

Fed. Sec. L. Rep. (Current Transfer Binder)

O6, O56 C7 Cee. TOS) ok. 13
First State Bank v. Morton, 146 Ky. 287, 142 S.W.

694 (1912) ms 18

Hawaii v. Standard Oil Co., 405 U.S. 251 (1972) __ 9,13
Herpich v. Wallace, 430 F.2d 792 (5th Cir. 1970) __ 13

Home Fire Ins. Co. v. Barber, 67 Neb. 644, 93 N.W.
1024 (1903) icin ee a, 17, 18, Zh

In re Ayers, 123 U.S. 443 (1887) _--------------- 20

Iroquois Industries, Inc. v. Syracuse China Corp.,
417 F.2d 963 (2nd Cir. 1969), cert. denied, 399

U.S. 909 (1970) ___- 13
J.I. Case v. Borak, 377 U.S. 426 (1964) _-_------ 10, 12
Joint Anti-Fascist Refugee Committee v. McGrath,

341 U.S. 123 (1951) _- 15

Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir. 1970),
cert. denied sub nom., Glen Alden Corp. v.
Kahn, BE US. EOS) 13

Linda R. S. v. Richard D., 410 U.S. 614 (1973) __10, 16
Mathews v. Fort Valley Cotton Mulls, 179 Ga. 580,

16 ER, Oe OO 2... 18
Matthews v. Headley Chocolate Co., 130 Md. 523,
AONE 18

Miller & Luz v. East Side Canal Co., 211 U.S. 293
sindcieacateiaiheatupaiei eo ae

Montana Dakota Utilities Co. v. Northwestern
Public Service Co., 341 U.S. 246 (1951) -------

National Railroad Passenger Corp. v. National
Association of Railroad Passengers, No. 72-1289

(U.S. Sup. Ct., January 9, 1974) ------------ 1), 16

New Hampshire v. Louisiana, 108 U.S. 76 (1883)
O’Shea v. Littleton, 42 U.S.L.W. 4139 (U.S. Sup.

20

ye Jannary 15, 1974) __._____-_-__--------- 10, 16
a

rk Terrace, Inc. v. Burge, 249 N.C. 308, 106 S.E.
2d 478 (1959)

Perma Life Mufflers, Inc. v. International Parts
Corp., 392 U.S. 134 (1968) “s

Poindexter v. Greenhow, 114 U.S. 270 (1885) __--

Productive Inventions,.Inc. v. Trico Products
- Corp., 224 F.2d 678 (2nd Cir. 1955), cert. denied,
350 U.S. 936 (1956) __ Cae pte oe diieaoba

Pueblo Foundry & Machine Co. v. Lannon, 68 Colo.
131, 187 P. 1031 (1920) ~---------___---------

S. H. & W. Lumber Co. v. California & Oregon
Coast R.R., 154 F. Supp. 152 (D. Oregon 1957)

SierflClub v. Morton, 405 U.S. 727 (1972) ------

Simmons v. Wolfson, 428 F.2d 455 (6th Cir. 1970),
cert. denied, 400 U.S. 999 (1971) sa

Southern Realty Co. v. Walker, 211 U.S. 603 (1909)

State Trust & Savings Bank v. Hermosa Land &
Cattle Co., 30 N.M. 566, 240 P. 469 (1925) ----

Superintendent of Insurance v. Bankers Iife €
Casualty Co., 404 U.S. 6 (1971) -----==-------

T.1.M_E. Inc. v. United States, 359 U.S. 464 (1958)

PAGE
Constitution:
United States Constitution art. III $2 _--------- 7, 20
United States Constitution amend. XI ____-___- 20
Rules:
Federal Rule of Civil Procedure 23 _______-_____ 13
Federal Rule of Civil Procedure 23.1 _________ 5, 19, 20
Federal Rule of Civil Procedure 56 _____________ 3
SEC Rule 10b-5, 17 C.F.B. § 240.10b-5 _-_________ 3, 13
Statutes
Administrative Procedure Act §§ 701 et seq., 5
US8.C. §§ 701 ef seq. ------ ~
Clayton Act § 10, 15 U.S.C. § 20 3
Interstate Commerce Act, Part I, §1(14), 49
U.S.C. § 1(14)
Interstate Commerce Act, Part I, §1(18), 49
U.S.C. §1(18) - seine 15
Interstate Commercg) Act, Part I, $1(21), 49
U.S.C. §1(21) 15
Interstate Commerce Act, Part I, §5(2)(a), 49
U.S.C. § 5(2) (a) 15

Interstate Commerce Act, Part I, § 8,49 U.S.C.§8 15
Interstate Commerce Act, Part I, §15(1), 49

BE CEE cided ee 15
Interstate Commerce Act, Part I, §20a(2), 49
US.C. §20a(2) ----- 15

‘Maine Public Utilities Act 4 15,35M.BS.A.§15_. 3
Maine Public Utilities Act § 104,35 M.R.S.A.§104 3

Securities Exchange Act of 1934, §10(b), 15
US.C. § 78j(b) 3

Miscellaneous :
Davis, Administrative Law Text (3d ed. 1972) __ 11
Henn, Law of Corporations (2d ed. 1970) ______- 12

In THE

Supreme Court of the Anited States
October Term, 1973
No. 718

Bancor Punta Orgrations, lye. and
Bancor Punta Cogporation,
Petitioners,

v.

Bancor & Aroostook Ramzoap Company and

Bancor Investment Company, -
Respondents.

On Wait or CERTIORARI TO THE UNITED STATES
Court or APPEALS FOR THE First Cracuir

BRIEF FOR THE PETITIONERS

Opinions Below

The opinion of the District Court is reported at 353
F. Supp. 724 (D. Me. 1972) and is reproduced at pp. 30-41
of the Appendix (App.). . The opinion of the Court of
Appeals for the First Circuit (App. 54-67) is reported at

482 F. 2d 865.
Jurisdiction

The Judgment of the First Circuit, reversing the decision
of the District Court, was entered on August 3, 1973. The
Petition for a Writ of Certiorari was filed October 31, 1973,
and was granted January 7, 1974. The jurisdiction of this
Court is invoked pursuant to 28 U.S.C. § 1254(1).

2

Questions Presented

(1) Whether a litigant who has himself suffered no
injury can bring suit in a federal court to vindicate the
rights of the general public.

(2) Whether the fact that a corporation is a railroad
or other ‘‘public’’ or ‘‘quasi-public’’ corporation changes
the applicable rules with respect to standing so as to
permit actions by the general public for alleged violations
of the federal securities and anti-trust laws and for common
law corporate waste and mismanagement.

(3) Whether the requirement of contemporaneous share
ownership embodied in Rule 23.1 of the Federal Rules of
Civil Procedure may be evaded in actions involving corpo-
rations whose business affects the public welfare.

Statutes and Regulations Involved

The following statutes and regulations are involved:
U.S. Const. art. III, § 2; U.S. Const. amend. XI; Clayton
Act § 10, 15 U.S.C. § 20; Securities Exchange Act of 1934,
§10(b), 15 U.S.C. §78j(b); SEC Rule 10b-5, 17 C.FR.
§ 240.10b-5; Interstate-Commerce Act, Part I, §$1(14),
1(18), 1(21), 5(2) (a), 8, 15(1), 20a(2), 49 U-S.C. §§1(14),
1(18), 1(21), 5(2)(a), 8, 15(1), 20a(2) ; Maine Public Util -
ities Act § 104, 35 M.R.S.A. §104; and Bule 23.1 of the
Federal Rules of Civil Procedure. The text of pertinent
parts of the statutes and regulations are set forth in an
appendix to this brief. :

Statement of the Case

Plaintiff-respondent Bangor and Aroostook Railroad
(‘*BAR’’) is a Maine corporation which operates a rail-
road within the State of Maine. Plaintiff-respondent Ban-
gor Investment Company (‘‘BIC’’) is its wholly owned
subsidiary. Both companies are controlled by Amoskeag
Company, (‘‘Amoskeag’’), a Delaware corporation which
owns 99.3% of the outstanding capital stock of BAR.

‘

3

Defendant - petitioners Bangor Punta Corporation
(“Bangor Punta’’), a publicly held Delaware corporation,
and Bangor Punta Operations (‘‘BPO”’’), its wholly owned
subsidiary, are former owners of a controlling interest in
BAR. BPO owned 98.3% of the capital stock of BAR prior
to October 2, 1969, on which date it sold its holdings of BAR
stock to Amoskeag for approximately $5,000,000.

The instant action, brought nominally by BAR and BIC,

was commenced on December 30, 1971 and seeks damages
of $7,000,000. Although the complaint frames various
causes of action under the common law of Maine; Section
10(b) of the Securities and Exchange Act of 1934, 15 U.S.C.
§78j(b) and SEC Rule 10b-5 (17 C.F.R. § 240.10b-5) there-
under; Section 10 of the Clayton Act, 15 U.S.C. 4 20; and
Sections 104 and 15 of the Maine Public Utilities Act (35
M.B.S.A. §§ 104 and 15), all the counts essentially allege mis-
management and waste of BAR’s corporate assets during
the time Defendant-petitioners controlled BAR, claims .
customarily found in the usual shareholders derivative ac-
tion. The complaint makes no allegation of injury to the
public, nor does it allege the suit is brought on the public’s
behalf. ;
On September 14, 1972, Defendant-petitioners moved for
summary judgment pursuant to Rule 56 of the Federal
Rulés of Civil Procedure. By order dated December 29,
1972, the United States District Court for the District of
Maine (Edward T. Gignoux, D.J.) granted Defendant-
petitioners summary judgment and dismissed the action on
the ground that, from the undisputed facts of the case,
Plaintiff-respondents were precluded by well established
equitable principles from maintaining the action.

The District Court’s opinion emphasized three crucial
and uncontested facts (App. 32-33) :

(1) the real plaintiff and party in interest, and
the beneficiary of any recovery, was Amoskeag, the
more than 99% owner of the corporate plaintiffs ;

(2) Amoskeag has made no claim that it was
defrauded or received less than full value for its

---

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