APPEAL OF UNITED STATES SECURITIES & EXCHANGE COM'N

• Decision Date: 19 October 1955
• Docket Number: No. 12503.,12503.
• Citation: 226 F.2d 501
• Parties: Appeal of the UNITED STATES SECURITIES AND EXCHANGE COMMISSION, and William H. Timbers, its General Counsel, from Oral and Written Orders of District Judge Arthur F. Lederle, adjudicating William H. Timbers in Contempt and Committing him to the Custody of the United States Marshal, Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

226 F.2d 501 (1955)

Appeal of the UNITED STATES SECURITIES AND EXCHANGE COMMISSION, and William H. Timbers, its General Counsel, from Oral and Written Orders of District Judge Arthur F. Lederle, adjudicating William H. Timbers in Contempt and Committing him to the Custody of the United States Marshal, Appellants.

No. 12503.

United States Court of Appeals Sixth Circuit.

October 19, 1955.

George E. Brand, Jr., and George E. Brand, Sr., Detroit, Mich., for plaintiffs, John P. Kinsey, and others.

Samuel D. Slade, Washington, D. C. (Warren E. Burger, Asst. Atty. Gen., Benjamin Forman, William H. Timbers, Alexander Cohen, Securities & Exchange Commission, Washington, D. C., Fred W. Kaess, Detroit, Mich., on the brief), for appellants.

Richard Ford, Detroit, Mich. (Kenneth B. McConnell, Fischer, Sprague, Franklin & Ford, Detroit, Mich., on the brief), for defendant Voting Trustees.

Before MARTIN, McALLISTER and MILLER, Circuit Judges.

MARTIN, Circuit Judge.

In a civil action to which the United States Securities and Exchange Commission was not a party, the Commission's General Counsel, William H. Timbers now appellant, came to Detroit with the court's approval to serve as attorney — at their request — for two Commission employees who had been threatened with punishment for contempt because of their refusal, as witnesses in the United States District Court for the Eastern District of Michigan, to divulge certain information concerning an investigation conducted by the Commission. The General Counsel brought with him the complete files of the Commission in relation to the particular investigation, but refused to introduce them in evidence or to surrender them, except conditionally as hereinafter set forth, in order to keep confidential the information and communications asserted to be privileged.

The United States District Judge compelled the General Counsel, over his protest, to be sworn as a witness and to submit for several days to rigid questioning, both by the judge and by the chief attorney for the plaintiffs in the case on trial. The Commission's counsel was by oral order of the judge committed instanter to the custody of the United States Marshal for contempt because of his refusal to obey the instructions of the judge to hand to the plaintiffs' attorney a document which the counsel claimed he was precluded from delivering by Rule 122 and Rule X-4 of the United States Securities and Exchange Commission, made pursuant to legislative authority, and by positive instructions of the Commission, no member of which was within the jurisdiction of the court. His immediate application for counsel to represent him was declined.

At the outset of his appearance in the district court and repeatedly thereafter, the General Counsel had respectfully and deferentially stated his position, assumed under direction of the Commission, and had briefed and presented the law upon which he and the Commission relied.

After the United States Marshal had taken appellant into physical custody, there was prepared by direction of the district judge an order in writing fixing the commitment of appellant to a definite period of sixty days, unless he should sooner purge himself of the adjudged contempt. Fortunately, for the protection of the personal liberty of an advocate in the respectful assertion of what he considered to be his lawful rights, the Chief Judge of this circuit was accessible and, upon application of appellant who came to his chambers in the custody of the marshal, entered an order staying the effectiveness of the oral and written contempt orders of the United States District Judge until such time as an appeal from his orders should be determined finally.

The cause in which the appellant general counsel was found guilty of contempt Kinsey, et al. v. Knapp, et al. was a stockholders' derivative and personal action brought in the United States District Court against the corporate officers and directors of Monroe Paper Products Company for alleged misuse of their fiduciary positions and of the corporate funds and facilities in a continuing conspiracy, which alleged the issuance and delivery of voting trust certificates in violation of the Federal Securities Act and of the Michigan Blue Sky Law, Comp.Laws 1948 Mich. § 451.1 et seq., and charged that the voting trust certificates were not lawfully registered with the Securities and Exchange Commission in compliance with the Securities Act of 1933, 15 U.S.C.A. § 77a et seq.

On or about February 1, 1954, Edward H. Rakow, who was in charge of the Commission's Detroit office, received from the attorney for plaintiffs a copy of the complaint filed in Kinsey, et al. v. Knapp, et al., following which, the Commission began an investigation and, through its representatives, interviewed and obtained confidential statements from numerous people, including the voting trustees and their attorneys, from whom the Commission's representatives received reasons for their failure to register the certificates in conformity with the Securities Act. The voting trustees held a conference with the Commission in Washington.

A subpoena was served on Rakow at his office in Detroit about two and one-half months after the trial in the district court had commenced. The issuance of this subpoena was instigated by the trial judge, who thus addressed the attorney for plaintiffs: "* * * why not subpoena Mr. Rakow who had charge of it here and find out what happened, then you have an additional evidence of the violation of their fiduciary duties in that they are spending their time when they ought to be working at the plant, trying to sustain their position when they know they are legally wrong." The judge said further: "It seems to me you are too cautious about a lot of things here." The attorney acquiesced and the subpoena was issued the following day.

A week later, Thomas G. Meeker, Assistant General Counsel for the Securities and Exchange Commission, appeared in court and stated that he had come with the understanding that he, the attorneys in the case, and the judge were to discuss the question of the Rakow subpoena in the hope that some of the problems involved might be ironed out. The agency counsel asserted that he desired to cooperate with and aid the court in every way possible; and that it not being clear from the transcript in what connection the judge considered the public interest to be involved, he desired to ascertain that and to report back to the Commission. The judge said: "I presently don't know of any public interest that would require your appearance." Considerable colloquy followed, during which the judge remarked: "If the records are useful to the plaintiff, they want them, unless you can show me that I have no authority to order them produced, they will be produced. The problem is up to Mr. Brand attorney for plaintiffs; it is not my problem."

Counsel Meeker again assured the court that he had come in an effort to do what the Commission instructed him to do, namely to cooperate with the court but that, at the same time, he desired to point out that service upon the agent is not valid service upon the Commission inasmuch as the agent is not the legal custodian of the agency records; that the only valid service which could be made upon the Commission in the instant case would necessarily be in the District of Columbia. He added that the agency desired to make available to the court all records not considered by it to be confidential, and that the Commission has discretion to decide what confidential material obtained by it is in the public interest to be disclosed. He said that he desired, "in order to avoid a head-on clash," to ascertain exactly what "the context of the court's request" was in asking Mr. Brand to issue the subpoena; and that it appeared that the material demanded by the subpoena went far beyond what the court suggested might be obtained from the Commission.

Further colloquy ensued, during which the judge stated his major premise to be that the business of any governmental agency is public business; and that, in a derivative action, stockholders should have access to all the information which the Securities and Exchange Commission has concerning the subject matter. He called attention to the fact that the Commission had performed very fine public service in his community; but he adhered to his position that the Commission should be willing to disclose everything in its possession concerning the instant case. He stated: "Now, of course that is entirely up to Mr. Brand; if he wants to settle for less than that, that is his problem. * * * I have no hesitancy in saying, and you may repeat it to the Commission, that in my opinion the Commission should disclose to both parties all of the information that it has in its files relating to this case."

The judge declared that he wanted it definitely understood that he would have no part in concealing any public record. When the Commission counsel stated that the Commission was attempting to cooperate with the court, the judge interrupted to say: "All right, let's see the documents then." The counsel responded that the documents were not in his, but in the Commission's, custody; but that he would transmit the judge's request to the Commission. The judge replied that it was not a request and that he did not want anything done as a favor to him. The counsel stood upon his proposition that the particular records were "private records developed in the course of an investigation which is still continuing." He added that he would report to the Commission as the court had directed him to do.

The judge reiterated that he did not want to be a party to any proceeding concealing public records, and that it must not be said that any agreement entered into was reached at his request. Attorney Meeker stated that neither did the Commission desire to conceal public records and that he assumed the question to be when certain records...