432 F.2d 659 (D.C. Cir. 1970), 23105, Medical Committee for Human Rights v. S.E.C.

Docket Nº:23105.
Citation:432 F.2d 659
Case Date:July 08, 1970
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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432 F.2d 659 (D.C. Cir. 1970)




No. 23105.

United States Court of Appeals, District of Columbia Circuit.

July 8, 1970

Argued March 9, 1970.

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[Copyrighted Material Omitted]

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Mr. Roberts B. Owen, Washington, D.C., with whom Messrs. Edwin M. Zimmerman, Richard B. Herzog and Paul S. Hoff, Washington, D.C., were on the brief, for petitioner.

Mr. Richard E. Nathan, Special Counsel, Securities and Exchange Commission, of the bar of the Court of Appeals of New York, pro hac vice, by special leave of court, with whom Messrs. Philip A. Loomis, Jr., General Counsel, and David Ferber, Solicitor, Securities and Exchange Commission, were on the brief, for respondent.

Before McGOWAN, TAMM, and ROBINSON, Circuit Judges.

TAMM, Circuit Judge:

The instant petition presents novel and significant questions concerning implementation of the concepts of corporate democracy embodied in section 14 of the Securities Exchange Act of 1934, and of the power of this court to review determinations of the Securities and Exchange Commission made pursuant to its proxy rules. For reasons to be stated more fully below, we hold that the Commission's action in the present case is reviewable, and that the cause must be remanded for further administrative proceedings.


On March 11, 1968, Dr. Quentin D. Young, National Chairman of the Medical Committee for Human Rights, wrote to the Secretary of the Dow Chemical Company, stating that the Medical Committee had obtained by gift several shares of Dow stock and expressing concern regarding the company's manufacture of the chemical substance napalm . 1 In part, Dr. Young's letter said:

After consultation with the executive body of the Medical Committee, I have been instructed to request an amendment to the charter of our company, Dow Chemical. We have learned

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that we are technically late in asking for an amendment at this date, but we wish to observe that it is a matter of such great urgency that we think it is imperative not to delay until the shareholders' meeting next year. * * *

We respectfully propose the following wording to be sent to the shareholders:

'RESOLVED, that the shareholders of the Dow Chemical Company request the Board of Directors, in accordance with the laws of the State of Delaware, and the Composite Certificate of Incorporation of the Dow Chemical Company, to adopt a resolution setting forth an amendment to the Composite Certificate of Incorporation of the Dow Chemical Company that napalm shall not be sold to any buyer unless that buyer gives reasonable assurance that the substance will not be used on or against human beings.'

(App. 1a-2a.) The letter concluded with the following statement:

Finally, we wish to note that our objections to the sale of this product (are) primarily based on the concerns for human life inherent in our organization's credo. However, we are further informed by our investment advisers that this product is also bad for our company's business as it is being used in the Vietnamese War. It is now clear from company statements and press reports that it is increasingly hard to recruit the highly intelligent, well-motivated, young college men so important for company growth. There is, as well, an adverse impact on our global business, which our advisers indicate, suffers as a result of the public reaction to this product.

(App. 2a.) Copies of this letter were forwarded to the President and the General Counsel of Dow Chemical Company, and to the Securities and Exchange Commission. (App. 3a.)

By letter dated March 21, 1968, the General Counsel of Dow Chemical replied to the Medical Committee's letter, stating that the proposal had arrived too late for inclusion in the 1968 proxy statement, but promising that the company would 'study the matter and * * * communicate with you later this year' regarding inclusion of the resolution in proxy materials circulated by management in 1969. (App. 4a.) Copies of this letter, and of all subsequent correspondence, were duly filed with the Commission.

The next significant item of record is a letter dated January 6, 1969, noting that the Medical Committee was 'distressed that 1968 has passed without our having received a single word from you on this important matter, ' and again requesting that the resolution be included in management's 1969 proxy materials. (App. 7a-8a.) The Secretary of Dow Chemical replied to this letter on January 17, informing the Medical Committee that Dow intended to omit the resolution from its proxy statement and enclosing an opinion memorandum from Dow's General Counsel, the contents of which will be discussed in detail in part III, infra. (App. 9a-12a.) On February 3 the Medical Committee responded to Dow's General Counsel, asserting that he had misconstrued the nature of their proposal in his opinion memorandum, and averring that the Medical Committee would not 'presume to serve as draftsmen for an amendment to the corporate charter.' (App. 15a.) The letter continued:

We are willing to bend * * * to your belief that the management should be allowed to decide to whom and under what circumstances it will sell its products. Nevertheless, we are certain that you would agree that the company's owners have not only the legal power but also the historic and economic obligation to determine what products their company will manufacture. Therefore, (we submit) * * * our revised proposal * * * requesting the Directors to

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consider the advisability of adopting an amendment to the corporate charter, forbidding the company to make napalm (any such amendment would, of course, be subject to the requirements of the 'Defense Production Act of 1950, ' as are the corporate charters and management decisions of all United States Corporations), (and) we request that the following resolution be included in this year's proxy statement:

'RESOLVED, that the shareholders of the Dow Chemical Company request that the Board of Directors, in accordance with the laws (sic) of the Dow Chemical Company, consider the advisability of adopting a resolution setting forth an amendment to the composite certificate of incorporation of the Dow Chemical Company that the company shall not make napalm.'

(App. 16a.) On the same date, a letter was sent to the Securities and Exchange Commission, requesting a staff review of Dow's decision if it still intended to omit the proposal, and requesting oral argument before the Commission if the staff agreed with Dow. (App. 17a.)

On February 7, 1969, Dow transmitted to the Medical Committee and to the Commission a letter and memorandum opinion of counsel, which in essence reiterated the previous arguments against inclusion of the proposal and stated the company's intention to omit it from the proxy statement. (App. 18a-19a.) Shortly thereafter, on February 18, 1969, the Commission's Chief Counsel of the Division of Corporation Finance sent a letter to Dow, with copies to the Medical Committee, concluding that 'for reasons stated in your letter and the accompanying opinion of counsel, both dated January 17, 1969, this Division will not recommend any action * * * if this proposal is omitted from the management's proxy material. * * *' (App. 20a.) In a letter dated February 28--which contains the first indications of record that petitioners had retained counsel-- the Medical Committee again renewed its request for a Commission review of the Division's decision. (App. 24a.) On the same day, the Medical Committee filed with the Commission a memorandum of legal arguments in support of its resolution, urging numerous errors of law in the Division's decision. (App. 26a-32a.) Several other documents were filed by both the company and the Medical Committee; finally, on April 2, 1969, both parties were informed that 'the Commission has approved the recommendation of the Division of Corporation Finance that no objection be raised if the Company omits the proposals from its proxy statements for the forthcoming meeting of shareholders.' (App. 44a-45a.) The petitioners thereupon instituted the present action, and on July 10, 1969, the Commission moved to dismiss the petition for lack of jurisdiction. On October 13 we denied the motion 'without prejudice to renewal thereof in the briefs and at the argument on the merits.'

In its briefs and oral argument, the Commission has consistently and vigorously urged, to the exclusion of all other contentions, that this court is without jurisdiction to review its action. We find this argument unpersuasive.


A. Timeliness

The Commission's first argument on the jurisdictional point is that the instant petition was untimely filed, thereby depriving this court of power to adjudicate the controversy. This argument is based upon the provision of section 25(a) of the Securities Act, 15 U.S.C. § 78y(a) (1964), which requires that a petition for review must be filed 'within sixty days after the entry' of a Commission order.

In the instant case the Commission's minutes reflect that the decision which was reached after reviewing the petitioner's proxy claim was made on March 24, 1969 (App. 46a), whereas the petition to review in this court was not filed until

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May 29, 1969-- some 66 days thereafter. It also appears uncontroverted that the Commission gave the Medical Committee some notification by telephone on March 24 that a decision had been reached, although the substance of this conversation is not reproduced in the briefs or record. (Cf. Supp. App. 3.) However, as we noted in the preceding section...

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