493 F.2d 1027 (2nd Cir. 1974), 817, Glen-Arden Commodities, Inc. v. Costantino

Docket Nº:817, 818, 1001, 74-1039, 74-1069, 74-1236.
Citation:493 F.2d 1027
Party Name:GLEN-ARDEN COMMODITIES, INC., and Milbank Trading Co., Inc., et al., Petitioners, v. Hon. Mark A. COSTANTINO, U.S.D.J., Respondent. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. GLEN-ARDEN COMMODITIES, INC., et al., Defendants. SECURITIES AND EXCHANGE COMMISSION, Appellee, v. GLEN-ARDEN COMMODITIES, INC., and Milbank Trading Co., Inc., et al.,
Case Date:March 14, 1974
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 1027

493 F.2d 1027 (2nd Cir. 1974)

GLEN-ARDEN COMMODITIES, INC., and Milbank Trading Co., Inc., et al., Petitioners,

v.

Hon. Mark A. COSTANTINO, U.S.D.J., Respondent.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.

GLEN-ARDEN COMMODITIES, INC., et al., Defendants.

SECURITIES AND EXCHANGE COMMISSION, Appellee,

v.

GLEN-ARDEN COMMODITIES, INC., and Milbank Trading Co., Inc., et al., Appellants.

Nos. 817, 818, 1001, 74-1039, 74-1069, 74-1236.

United States Court of Appeals, Second Circuit.

March 14, 1974

Argued Jan. 23, 1974.

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Bradley R. Brewer, New York City (Brewer & Soeiro, New York City), for appellants.

Michael A. Macchiaroli, Securities and Exchange Commission, Washington, D.C. (Walter P. North, Associate Gen. Counsel, Robert E. Kushner, Asst. Gen. Counsel, Washington, D.C., Steven J. Shore, New York City, Atty., New York Regional Office), for appellee.

Before HAYS, MANSFIELD and OAKES, Circuit Judges.

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OAKES, Circuit Judge:

The case before us is a consolidation of two appeals and a petition for mandamus. One appeal and the petition relate to certain 'temporary restraining orders' entered by the United StatesDistrict Court for the Eastern District of New York. The second appeal is from a preliminary injunction entered by the same court on January 18, 1974.

The orders and injunction below were entered at the behest of the Securities and Exchange Commission in its suit to enjoin Glen-Arden Commodities, Inc., and Milbank Trading Co., Inc., together with certain individual officers and directors of these two closely related companies (the Glen-Arden defendants), from certain acts, practices and courses of conduct allegedly in violation of the Securities Act of 1933 and the Securities Exchange Act of 1934. On the merits, the question presented is essentially whether the Glen-Arden defendants were selling commodities consisting of casks of Scotch whisky, not subject to SEC regulation, or whether they were selling securities within the ambit of § 2(1) of the Securities Act, 15 U.S.C. § 77b(1) 1 On August 23, 1973, the Commission sued the petitioners to enjoin them from conduct in violation of§§ 5(a), 5(c) and 17(a) of the Securities Act of 1933, as amended, 15 U.S.C.§§ 77e(a), 77e(c) and 77q(a), and §§ 10(b), 15(a) and 15(b) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78o(a) and 78o(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5. At the same time the suit was begun, the Commission served the Glen-Arden defendants with a motion for a preliminary injunction returnable September 21, 1973. After a number of procedural fits and starts, which included an extension of the return date on the preliminary injunction motion, a denial of a Commission request for a temporary restraining order, various postponements of evidentiary hearings and the filing of motions for summary judgment, the Glen-Arden defendants filed a notice of motion seeking to prevent the commencement of an evidentiary hearing pending the convening of a three-judge court to consider whether the term 'investment contract' in the statutory definition of the term 'security' in the federal securities laws was void for vagueness. This motion was filed although this court had ruled in SEC v. Brigadoon Scotch Distributing Co., 480 F.2d 1047, 1052 (2d Cir.1973), cert. denied, 415 U.S. 915, 94 S.Ct. 1410, 39 L.Ed.2d 469 (1974), that the argument was 'untenable.' The district court on November 15, 1973, denied the motion to convene a three-judge panel and from this the defendants filed an application for a stay in the court of appeals. We heard the matter on November 16, 1973, treated the application as one for a writ of mandamus, and denied it from the bench (No. 73-2699). On that same day, the district court began its hearings on the SEC's motion for a preliminary injunction. At the close of the day's testimony the SEC again requested a temporary restraining order, and after oral argument the district court granted a temporary restraining order until the next hearing day, a week later.

On November 23, 1973, the hearing was continued and considerable testimony was heard from investor witnesses and approximately 40 documents were introduced into evidence, and again after the hearing the SEC requested and

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the court granted a temporary restraining order, this one 'pending determination of the plaintiff Commission's motion for injunctive relief.' The evidentiary hearing continued on November 30, 1973, and on December 5, 1973, the court granted another temporary restraining order pending determination of the SEC's motion for injunctive relief. On December 10, 11, 17 and 18, 1973, hearings continued, despite the trial judge's prediction that the case would be disposed of on November 23, and by that time almost 100 exhibits had been introduced and 800 pages of testimony taken. On December 18, after the final day of hearings, the court issued yet another self-styled 'Temporary Restraining Order' which was to continue pending determination of the Commission's motion for injunctive relief. This order, identical to those which preceded it, restrained defendants from, among other things, selling or offering for sale securities in the form of Scotch whisky warehouse receipts or any other securities of any other issuer in violation of the registration and anti-fraud provisions of the Securities Act and the Securities Exchange Act.

On January 10, 1974, the defendants filed this petition for mandamus regarding, and a notice of appeal from, the temporary restraining orders of November 23, December 5 and December 18, 1973 ('the order'). The defendants sought a stay by this court of the orders in effect and a prompt and expedited hearing of the issue presented by the petition and other relief. Thereafter, on January 17, 1974, the district court issued an opinion containing findings of fact and conclusions of law and on January 18, 1974, signed a preliminary injunction restraining defendants from violating the applicable sections of the Acts involved. On January 21, 1974, the Glen-Arden defendants filed a notice of appeal from that preliminary injunction. Thereafter, on oral argument, we granted the motion of the defendants, consented to by the SEC, to consolidate this latter appeal with the appeal and petition for mandamus then before us. We denied, however, a motion by the Glen-Arden defendants to file an additional brief in the latest appeal in light of the delay that this would cause and in light of the fact that the merits were fully briefed on both sides in the papers in the initial appeal.

The temporary restraining orders, attacked by the Glen-Arden defendants in the first appeal and the petition for mandamus, by their own terms were effective only 'pending determination of . . . the motion for injunctive relief.' This presumably referred to the motion for a preliminary injunction which was before the court. Thus, inasmuch as the court has now rendered its decision on the preliminary injunction, the temporary restraining orders, whether valid or not when entered, have now lapsed and any decision on them would be moot. 2

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Accordingly, then, we shall direct our attention to the appeal from the preliminary injunction of January 18, taking into account the findings of fact made by the district judge on the basis of the evidence presented. Essentially the facts may be stated as follows.

Milbank Trading Co., Inc. (Milbank), is a New York corporation and wholly owned subsidiary of First Credit Bank, Ltd., a Bahamian corporation. Glen-Arden Commodities, Inc. (Glen-Arden), which was known until early 1973 as Milbank Trading Co. of Connecticut, Inc., is a Connecticut corporation. Defendant Deeb is the president of Glen-Arden and was an officer of Milbank. Defendant Lamonica was a controlling person of Milbank and Milbank's Scotch buyer as well as a stockholder and president of Scotch Exchange, Ltd., a Bahamian corporation which supplies Milbank with Scotch whisky. Defendant...

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