SECURITIES & EXCHANGE COMM. v. GLASS MARINE INDUS.

• Decision Date: 24 October 1961
• Docket Number: Civ. A. No. 2276.
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. GLASS MARINE INDUSTRIES, INC., a Delaware corporation, Defendant.
• Court: U.S. District Court — District of Delaware

199 F. Supp. 18

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. GLASS MARINE INDUSTRIES, INC., a Delaware corporation, Defendant.

Civ. A. No. 2276.

United States District Court D. Delaware.

October 24, 1961.

Thomas B. Hart, John J. Enright, and John W. Vogel, Chicago, Ill., and John Frohling, Washington, D. C., for Securities and Exchange Commission.

H. James Conaway, Jr., Morford, Young & Conaway, Wilmington, Del., and Lawrence A. Coles, Jr., Thompson, Raymond, Mayer, Jenner & Bloomstein, Chicago, Ill., for defendant.

Hayden Leason, intervenor, pro se.

Arthur J. Sullivan, Morris, James, Hitchens & Williams, Wilmington, Del., and Saul S. Nevins, Levy & Nevins, New York City, for special intervenor, Lancer Industries. Inc.

LEAHY, Senior District Judge.

The Securities and Exchange Commission brought this action under § 20(b) of the Securities Act of 1933, 15 U.S.C.A. § 77t(b) and § 21(e) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78u (e), and charges Glass Marine Industries, Inc., with certain violations in connection with the public offering on July 6, 1960 of the defendant's securities. The SEC seeks injunctive relief against defendant and the appointment of a liquidating receiver. Defendant denied all charges of violations and has resisted the issuance of an injunction and the appointment of a liquidating receiver. A temporary restraining order was entered in this cause on December 7, 1960, has been extended from time to time and has been amended and modified at various times throughout the pendency of this litigation. It remains in full force, as modified and amended, as of this date. No findings have been made thus far as to the alleged violations by defendant. All the evidence is in and the trial of the cause has been had. The Court awaits defendant's brief and proposed findings of fact.

Defendant has moved the Court to permit defendant to reorganize and merge with other companies in the boat construction industry. It has further moved the Court to approve a settlement agreement negotiated with Lancer Industries, Inc., a debtor of the company, or in the alternative, to modify the outstanding restraining order to permit the effectuation of that settlement agreement and the merger without specific judicial approval. Defendant contends both motions, if granted, could be supported under the inherent power of this Court, sitting as a court of equity, to use its "inherent power * * * to mold * * * decrees in a manner that best serves the equities of a particular case, wholly apart from the relief sought therein if such relief would not serve the equitable interests involved in such a suit."¹ While the issues involved in the present two motions are similar, sufficient differences are present to call for their separate discussion.

1. Few legal niceties bind a court of equity in its attempt to do "right and justice."² It functions through "flexibility rather than rigidity,"³ in framing its decrees, and it recognizes "there is no limit to the various forms and kinds of specific remedy which * * it may grant, adapted to novel conditions of right and obligation, which are constantly arising from the movements of society."⁴ The Supreme Court has recently repeated that "District Courts, in the framing of equitable decrees, are clothed `with large discretion to model their judgments to fit the exigencies of the particular case.' International Salt Co. v. United States, 332 U.S. 392, 400-401 68 S.Ct. 12, 17, 92 L.Ed. 20."^4a

However wide its freedom in framing decrees, a court is not free to issue any decree where it has decided no justiciable issue brought to it for decision. Here, a law suit has begun, and been tried. The SEC has charged violations by defendant Glass Marine of the Securities Acts of 1933 and 1934. Extensive testimony has been heard and documentary proof offered.⁵ No compromise has been reached between the parties, thus eliminating the necessity of making a final judgment on the merits. In fact, the SEC not only opposes the two present motions for lifting the restraining order in order to effect a merger and settle the Lancer claim, but urges the Court to direct defendant to file its argumentative papers and have the Court make its decision in the main cause. Defendant requests the Court to make no decision on the issue presented as to whether there has been a violation of the Securities Acts, but instead to permit the proposed merger and reorganization as negotiated by defendant. This Court has no such power. Whatever form of relief may be ordered should a finding be made that defendant has violated the Acts, none may be made until that determination has been made.

2. Defendant argues, since a court of equity may withhold relief sought by a plaintiff even if it should decide on the merits in favor of a plaintiff, "A fortiori that Court has the right to withhold such relief and grant alternative relief without findings on the merits * * * when such findings are not in the best interest of the public interest to be served."⁶ In support of this proposition it cites Hecht Co. v. Bowles, 321 U.S. 321, 64 S.Ct. 587, 588, 88 L.Ed. 754, in which the Supreme Court affirmed the decision of the trial judge in his discretion to refuse to grant injunctive relief, under the Emergency Price Control Act, where a violation had been found even though the statute provided that upon a showing of violation by the Administrator "a permanent or temporary injunction * * * shall be granted * * *." In that case the Court stated:

"The historic injunctive process was designed to deter, not to punish. The essence of equity jurisdiction has been the power of the Chancellor to do equity and to mold each decree to the necessities of the particular case. Flexibility rather than rigidity has distinguished it. The qualities of mercy and practicality have made equity the instrument for nice adjustment and reconciliation between the public interest and private needs as well as between competing private claims." Ibid., 321 U.S. at page 330, 64 S.Ct. at page 592.

The Hecht case, however, involved the nature of equitable decrees after a decision on the merits had been reached. Other cases cited by the defendant are similarly limited in scope⁷ or otherwise unpersuasive.⁸

Defendant's motion that the Court make no findings in this case and instead permit it to reorganize and merge with another firm, is denied.

3. Defendant's motion that the Court either grant approval of the terms of settlement negotiated with Lancer Industries or lift the restraining order to permit such settlement, is also denied. The temporary restraining order issued by this Court preventing the consummation of the proposed settlement, is in effect on a pendente lite basis.⁹ Throughout this litigation the Court has attempted to avoid assuming administration of the internal affairs of the corporate defendant, Glass Marine. The decision whether the negotiated Lancer settlement is a beneficial one for the corporation is not within this Court's competence to affirm or negate. Such decision is company business, to be allowed or disallowed as the legal considerations may determine, but not to be approved or disapproved by the Court on the basis of its substituted personal business judgment.

4. The request that the restraining order be amended so as to allow the settlement raises different questions of such nature as to require a review...