Howard v. Furst, 43

Citation238 F.2d 790
Decision Date13 November 1956
Docket NumberNo. 43,Docket 24131.,43
PartiesNorman HOWARD, on behalf of himself and other Stockholders of Circle Wire & Cable Corporation, Plaintiff-Appellant, v. Sol FURST, Max B. Cohn, Isadore J. Furst, Sol Cohn, Richard C. Noel, Mortimer Hays, F. Dewey Everett, Cerro de Pasco Corporation, and Circle Wire & Cable Corporation, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Lewis M. Dabney, Jr., New York City, for plaintiff-appellant.

Hays, Podell, Algase, Crum & Feuer, New York City (Mortimer Hays, Benjamin Algase, Mortimer Feuer and Martin Mensch, New York City, of counsel), for defendants-appellees Sol Furst, Max B. Cohn, Isadore J. Furst, Sol Cohn, Richard C. Noel, Mortimer Hays and Circle Wire & Cable Corp.

Milbank, Tweed, Hope & Hadley, New York City (A. Donald MacKinnon, New York City, of counsel), for defendant-appellee F. Dewey Everett.

Alexander & Green, New York City (Donald M. Dunn, William R. McDermott and J. Kenneth Campbell, New York City, of counsel), for defendant-appellee Cerro de Pasco Corporation.

Before HAND, MEDINA and HINCKS, Circuit Judges.

MEDINA, Circuit Judge.

Plaintiff, suing "on behalf of himself and other stockholders of Circle Wire & Cable Corporation," in a derivative action for the benefit of Circle, appeals from a judgment dismissing his complaint for lack of jurisdiction over subject matter.

Diversity of citizenship is not alleged or claimed. The jurisdiction to entertain and determine the action is said to derive from Section 27 of the Securities Exchange Act of 1934, as amended 15 U.S. C.A. § 78aa.1

The pivotal factor, about which the allegations of the complaint revolve, is a contract of October 27, 1955, by the terms of which Circle agreed to sell and Cerro de Pasco Corporation agreed to buy all the assets, property and business of Circle for $20,250,000 and the assumption of certain of Circle's liabilities and obligations. Under the applicable New York law, Stock Corporation Law, § 20, McKinney's Consol.Laws, c. 59, the sale required the consent of two-thirds of Circle's shareholders. A meeting for this purpose was scheduled for November 28, 1955, and on November 3, 1955, a notice of such meeting, and a proxy statement soliciting the votes of the stockholders in favor of the proposed sale, was mailed. This action was commenced on November 23, 1955; but no application was made for preliminary injunctive relief, and the sale was affirmed and consummated in due course.

At the time of the sale there were 750,000 shares of Circle stock outstanding, 200,000 of which were sold to the public in 1951. The holdings of the officers and directors of Circle, who, with Cerro, are sued as defendants in this action, amounted to 60.68% of the total outstanding shares. The number of shares owned by plaintiff is not stated; it is merely alleged that at and prior to the sale and at the time of the commencement of the action, he was a stockholder of Circle.

The substance of plaintiff's claim on behalf of Circle is that the individual defendants "to advance their private interests" negotiated the sale for substantially less than the assets of Circle were reasonably worth, and that "such sale will constitute a waste of Circle's assets." It is alleged that the votes of the individual defendants, both as directors and as stockholders are "void and voidable," by reason "of their abuse of their fiduciary position as directors and as controlling stockholders." There are allegations that the suit is not collusive and that no demand had been made upon the defendant directors to refuse to proceed with the sale, or to correct the misstatements and omissions in the proxy statement, hereinafter referred to, or "to bring an action to cancel said contract, or otherwise abandon their plans," as such demand would be futile.

The proxy statement is alleged to be false and misleading in that it understated the cost and present value of Circle's inventory and of its earnings, and by failing to disclose the private interests of the individual defendants, which are alleged in the complaint.

Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78n (a), provides:

"It shall be unlawful for any person, by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of any national securities exchange or otherwise to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered on any national securities exchange in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors."

Rule X-14A-9 (17 Code Fed.Reg. § 240.14a-9), promulgated pursuant to Section 14(a), reads:

"No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting, or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading."

The prayer for relief in the complaint is that proxies given by stockholders of Circle be declared void, that certain of the individual defendants be enjoined from voting as stockholders either in person or by proxy in favor of the sale, that the contract be declared void, and, if consummated pendente lite, be rescinded, and that, if restoration of the status quo be impossible, "Circle recover its damages from Cerro and from the individual defendants." In other words, appellant asserted a claim for an injunction against the sale, which, now that the sale has gone through, has become a claim for rescission or for the damages suffered by Circle, not by appellant.

As the case is said to be one "arising under" the laws of the United States, our first inquiry is addressed to appellant's contention that the statutory provisions above quoted create or give rise to a substantive civil right on behalf of Circle, which may be enforced in a derivative action by an individual stockholder. We reject this contention as unsound. We find nothing in the language of Section 14(a) or in the legislative history of the Securities Exchange Act of 1934 to warrant an inference that it was the intention of the Congress to create any rights whatever in a corporation whose stockholders may be solicited by proxy statements prepared in contravention of the statutory mandate.

Ambiguous or equivocal language would hardly be sufficient to support an innovation of such far reaching effects. Lauritzen v. Larsen, 345 U.S. 571, 73 S. Ct. 921, 97...

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25 cases
  • Dann v. Studebaker-Packard Corporation, 13940.
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • 6 de fevereiro de 1961
    ...of the federal "right" created by Section 14(a)? At the outset, we are faced with a decision by the Second Circuit in Howard v. Furst, 2 Cir., 1956, 238 F.2d 790, certiorari denied 1957, 353 U.S. 937, 77 S.Ct. 814, 1 L.Ed.2d 759, which indicated that even if Section 14(a) does create a righ......
  • Brown v. Bullock
    • United States
    • U.S. District Court — Southern District of New York
    • 31 de março de 1961
    ...in favor of those protected by the Act—the plaintiffs and the other shareholders of the Fund. Defendants rely heavily upon Howard v. Furst, 2 Cir., 1956, 238 F.2d 790, certiorari denied 353 U.S. 937, 77 S.Ct. 814, 1 L.Ed.2d 759. In reliance on that decision, defendants argue that plaintiffs......
  • Brouk v. Managed Funds, Incorporated
    • United States
    • U.S. Court of Appeals — Eighth Circuit
    • 6 de março de 1961
    ...contend that the courts have rejected implication of federal jurisdiction in director liability cases. They cite Howard v. Furst, 2 Cir., 1956, 238 F.2d 790, 793 affirming D.C.S.D.N.Y., 140 F.Supp. 507. That was a derivative suit on behalf of Circle Wire & Cable Corporation against officers......
  • Schwartz v. Bowman
    • United States
    • U.S. District Court — Southern District of New York
    • 19 de julho de 1965
    ...53 S.Ct. 586, 77 L.Ed. 1148 (1933); A. H. Bull S.S. Co. v. National Marine Engineers' Ass'n, 250 F.2d 332 (2 Cir. 1957); Howard v. Furst, 238 F.2d 790 (2 Cir. 1956), cert. den., 353 U.S. 937, 77 S.Ct. 814, 1 L.Ed.2d 759 I hold under this well settled principle that since subject matter juri......
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