519 F.2d 1001 (2nd Cir. 1975), 704, IIT v. Vencap, Ltd.
|Docket Nº:||704, 705 and 865, Dockets 74-1969, 74-2366 and 74-2341.|
|Citation:||519 F.2d 1001|
|Party Name:||IIT, an International Investment Trust, et al., Plaintiffs-Appellees-Cross-Appellants, v. VENCAP, LTD., et al., Defendants-Appellants-Cross-Appellees, and Walter Blackman et al., Defendants.|
|Case Date:||April 28, 1975|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
[Copyrighted Material Omitted]
Argued March 26, 1975.
Eugene R. Anderson, New York City (Richard W. Collins, Neal J. Morse, Leon B. Kellner, and Anderson, Russell, Kill & Olick, New York City, of counsel), for plaintiffs-appellees-cross-appellants.
Gerald E. Paley, New York City (Paley & Miller, New York City, of counsel), for defendants-appellants-cross-appellees Vencap, Ltd., Intervent, Inc., and Intercapital, N. V.
Arthur A. Munisteri, New York City, for defendant-appellant-cross-appellee Richard C. Pistell.
Peter K. Leisure, New York City (John E. Sprizzo, Robert S. Lipton, John F. Egan, and Curtis, Mallet-Prevost, Colt & Mosle, New York City, of counsel), for defendants-appellants-cross-appellees Charles E. Murphy, Jr., David Taylor and Havens, Wandless, Stitt & Tighe.
Securities & Exchange Commission, Washington, D. C. (David Ferber, Charles E. H. Luedde, and David K. Ginn, Washington, D. C.), amicus curiae.
Before FRIENDLY, MULLIGAN and TIMBERS, Circuit Judges.
FRIENDLY, Circuit Judge:
This action, for fraud, conversion, and corporate waste, was brought on June 10, 1974 in the District Court for the Southern District of New York by IIT, an international investment trust organized under the laws of Luxembourg and currently in the process of liquidation there, 1 and three citizens of that country who have been appointed by the District Court of Luxembourg as its liquidators, Order of Liquidation of IIT (D.C.Lux. 1st Sec., Jan. 28, 1974). The action is another product of the troubled existence of Investors Overseas Services (IOS). It presents still further variations on the recurring theme of the extent
to which the federal securities laws apply to transnational transactions, with which we have dealt in Bersch v. Drexel Firestone, Inc., 2 Cir., 519 F.2d 974, this day decided.
On the same day that the complaint was filed, the plaintiffs moved for a preliminary injunction, the appointment of a receiver, and for a temporary restraining order. After reviewing the motion papers and hearing brief argument by counsel, the district court entered a temporary restraining order, subsequently modified in respects not relevant to this appeal, enjoining certain of the defendants from utilizing or exercising any control over the assets of IIT or the defendant corporations in which IIT held an investment interest. Commencing on June 14 the district court held six days of hearings on plaintiffs' application for the preliminary injunction and the appointment of a receiver. These resulted in a record of 774 pages of transcript and over 120 exhibits, filling in excess of 3,680 pages, including about 967 pages of testimony recorded at other judicial and administrative proceedings and in depositions relating thereto, concerning other aspects of the now fallen IOS empire and the activities of those who controlled it. Despite this prodigious undertaking, the court's findings, required by Fed.R.Civ.P. 52(a), are not sufficient to enable us to make a definitive determination on the issue of subject matter jurisdiction or, if that bridge can be crossed, on the question whether plaintiffs showed a sufficient probability of success on the merits to warrant its order issuing a temporary injunction and appointing a receiver, from which defendants appeal.
I. The Facts.
The leading player in the drama here unfolded is the defendant Richard C. Pistell, whom the court found to be "a United States citizen who resides in the Bahamas." 2 Early in 1972, Pistell, who at that time had over 24 years of experience in the investment and finance business, first as a financial analyst and then as an investment banker with his own firm, met with Stanley Graze, a United States citizen resident in London, president of International Capital Investments (Sterling) Ltd., also known as Incap, an English corporation, which had overall responsibility for managing various IOS mutual funds, including IIT, in Nassau, Bahamas, in connection with the sale of a resort named Paradise Island by Resorts International, Ltd. to the IOS Group. Over a period of several weeks, in a number of meetings, all but one of which apparently were conducted outside the United States, 3 they discussed financial subjects in which they each had a strong interest, including "the philosophy of money markets, the perils of the stock market and particularly whether monetary parity could be maintained." During one of Pistell's visits to London in the early part of 1972, Graze told Pistell that he intended to put the funds managed by Incap in a more liquid position if the Dow Jones Industrial Average fell below 1040 and solicited Pistell's views. Pistell presciently took a bearish attitude and advised that if he were in Graze's position, he would invest in Japanese yen, Deutschmarks, and gold. From April through October 1972 IIT had net sales of $121,708,019 in United States securities.
During that same period Pistell, who had extensive experience in locating and financing new ventures, finalized his plans to form a venture capital firm, an idea which he claims to have had at the end of 1971. One of the individuals with whom he discussed his plan and certain
of the ventures in which the proposed firm likely would invest, was Graze, who, according to Pistell, indicated that IIT would be interested in holding an interest in such a firm.
In June 1972, Pistell, with the help of his lawyer, Charles E. Murphy, Jr., a member of the New York law firm of Havens, Wandless, Stitt and Tighe (Havens Wandless) and a Bahamian law firm, Carson, Lawson & Co. (Carson Lawson), set about to organize a venture capital firm. On July 4 Vencap Limited (Vencap) was incorporated under the laws of the Bahamas. Five thousand common shares were initially authorized, with 2,000 being issued to Pistell, and one share each to the four other incorporators, apparently at $1 per share. Pistell became chairman of the board, president, and treasurer. On July 31, 2,000 common shares were issued to Count Armoury de Reincourt, a French citizen, publisher, financial consultant, and private investor, residing in either Paris or Geneva; 4 again, the issue price was $1 per share, or $2,000.
During August 1972 Graze and Pistell, apparently in London, 5 came to an understanding in principle that IIT would invest in Vencap. Shortly thereafter, a three-page undated memorandum was prepared at Pistell's instructions. Because of the central importance of the memorandum, we shall follow Judge Stewart's example and annex a copy of that document, as well as the shareholders resolution which it incorporates by reference, as an appendix to this opinion; understanding will be facilitated if the memorandum is read at this point. It is reasonably clear that the memorandum which ultimately found its way into the hands of IIT or its attorneys Willkie, Farr, & Gallagher of New York (Willkie Farr) and Higgs & Johnson of Nassau was prepared in the Bahamas mainly by Vencap and/or its lawyers. However, if it was prepared by Vencap's lawyers, as seemingly it must have been at least in part, there is conflicting evidence as to which lawyer. Also the evidence is unclear as to just what was done with it. Moreover, there is testimony, which is in part contradicted, that this memorandum itself was based on a prior memorandum outlining the purposes of Vencap, which had been prepared by Murphy at the request of Pistell. Assuming this to be true, it is unclear when and where this earlier document was prepared, whether it was prepared with the expectation that portions of it would later be transmitted to potential investors, what was done with it, and to what extent, if any, the final memorandum varied in substance from this earlier document. 6 The district
court did not resolve these conflicts or uncertainties.
Willkie Farr in New York proceeded to draft an agreement for IIT's subscription to the 30,000 redeemable preference shares at $100 per share described in the memorandum, these to be accompanied by warrants to purchase an additional 30,000 such shares exercisable at the same price within three years of the closing. Defendants contend, relying on the uncontradicted testimony of a number of witnesses, that the essential terms and conditions of the preference shares had been prepared "jointly in Nassau, Bahamas, by Bahamian counsel and Willkie, Farr . . . ." Although plaintiffs state that "(t)he terms and conditions of the preference stock were formulated, drafted and negotiated by Taylor in New York after Pistell and Graze agreed on broad outlines", the portions of the record which they cite in support of that conclusion indicate only that the Havens, Wandless firm reviewed the agreement, particularly the provisions relating to the preferred shares, and did exchange drafts with Willkie Farr in New York. David Taylor, a member of the Havens, Wandless firm, who admitted to having authored in New York a draft of the redemption provision of the preference shares, see App. A, Shareholders' Resolution of August 31, 1974, P (5), testified that "the entire contract was negotiated and the essential terms all determined and arranged in the Bahamas before I even saw the document." Despite this testimony it is not entirely clear whether the substance of the drafts exchanged in New York related only to certain technical aspects of the preference share terms or to broader matters...
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