Dann v. Studebaker-Packard Corporation, 13940.

• Citation: 288 F.2d 201
• Decision Date: 06 February 1961
• Docket Number: No. 13940.,13940.
• Parties: Sol A. DANN, John H. Neville and Louise A. Turek, Plaintiffs-Appellants, v. STUDEBAKER-PACKARD CORPORATION, Harold E. Churchill, Hugh J. Ferry, and A. J. Porta, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

288 F.2d 201 (1961)

Sol A. DANN, John H. Neville and Louise A. Turek, Plaintiffs-Appellants, v. STUDEBAKER-PACKARD CORPORATION, Harold E. Churchill, Hugh J. Ferry, and A. J. Porta, Defendants-Appellees.

No. 13940.

United States Court of Appeals Sixth Circuit.

February 6, 1961.

COPYRIGHT MATERIAL OMITTED

Sol A. Dann, Dann, Rosenbaum & Bloom, Detroit, Mich., for appellants.

Thomas G. Meeker, General Counsel, Walter P. North, Associate General Counsel, David Ferber, Asst. General Counsel, Theodore Zimmerman, Attorney, Securities and Exchange Commission, Washington, D. C., on brief, amicus curiæ for Securities and Exchange Commission.

Ralph L. McAfee, New York City, Louis F. Dahling, Richard D. Rohr, Bodman, Longley, Bogle, Armstrong & Dahling, Detroit, Mich., and Arnold I. Roth, Cravath, Swaine & Moore, New York City, on brief, for appellees.

Before MILLER and O'SULLIVAN, Circuit Judges,^* BOYD, District Judge.

BOYD, District Judge.

Appellants, suing on behalf of themselves as well as "on behalf of each and every other shareholder of Studebaker-Packard Corporation similarly situated," appeal from a judgment dismissing their amended complaint without any comment by the District Judge.

The present appeal brings this case for a second time before this court, appellants previously having appealed unsuccessfully from an order of the District Court dismissing their original complaint and denying leave to amend. On February 20, 1958, this court dismissed that first appeal on the ground that the order appealed from was not a final order. Dann v. Studebaker-Packard Corp., 6 Cir., 1958, 253 F.2d 28. Subsequently, the District Court permitted these appellants to file the present amended complaint. Upon motion by the appellees, this complaint also was dismissed, and the appellants now prosecute the present appeal.

In substance, the amended complaint here under consideration charges "a fraud upon the stockholders" of the appellee, Studebaker-Packard Corporation. Such fraud allegedly was occasioned by certain "arrangements" between Studebaker-Packard and the Curtiss-Wright Corporation, the effect of which constituted a "waste and dissipation" of Studebaker-Packard assets. These "arrangements" were alleged to be the result of false and misleading proxy solicitation by the appellees, in violation of the Securities Exchange Act of 1934, as well as the result of an inaccurate count of the votes cast at a special stockholders' meeting in 1956 at which said "arrangements" were approved. There is also a claim that Studebaker-Packard and Curtiss-Wright conspired with the Utica-Bend Corporation to violate the Exchange Act and thereby to defraud Studebaker-Packard and its stockholders. Diversity of citizenship is neither alleged nor claimed. Jurisdiction to entertain and determine the action is said to exist by virtue of the Securities Exchange Act of 1934, § 14 et seq., 48 Stat. 895 (1934), 15 U.S.C.A. §§ 78n et seq., or more specifically, Title 15 U.S.C.A. § 78aa.¹ Jurisdiction also is asserted under the more general provisions of 28 U.S.C. § 1331 (1948),² this allegedly being the action "arising under the laws of the United States."

It further appears from the face of the amended complaint that these appellants own "in excess of fifteen hundred" shares in the defendant corporation, and that there are "in excess of 100,000 shareholders of the same class" as appellants. The relief sought, in effect, is that the Court declare void any proxies improperly solicited pursuant to the Securities Exchange Act of 1934, § 14(a) 48 Stat. 895 (1934), 15 U.S.C.A. § 78n (a) 1958,³ or the regulations thereunder,⁴ and, further, that the Court recount all the votes and proxies submitted at the Studebaker-Packard stockholders' meeting of October 31, 1956. If, discounting invalid proxies, the recount should show that the "arrangements" with Curtiss-Wright were not approved by two-thirds of the outstanding stock as allegedly required by the corporation law of Michigan, the appellants demand that the Court return Studebaker-Packard to its pre-1956 economic position which obtained before said "arrangements" with Curtiss-Wright were consummated.

The appellees attacked this complaint below by motion to dismiss predicated upon the following grounds:

1. The District Court lacked jurisdiction of the subject matter of the instant controversy, and/or

2. The amended complaint failed to state a claim upon which relief could be granted, and/or

3. The amended complaint failed to comply with the mandatory requirements of Fed.R.Civ.P. 23(a) and (b), 28 U.S. C.A., and/or

4. The plaintiffs below failed to join indispensible parties to this lawsuit.

The District Judge granted the motion to dismiss without so much as a hint as to his reason for doing so. As a result, we are now considerably handicapped by not knowing which of the above grounds he relied upon. The first question for us to determine, therefore, is whether or not we are warranted in proceeding to review the decision below without first remanding it for further proceedings at the trial level. The rule has long been settled that where a decision of a lower court is correct, it must be affirmed on appeal even though the lower tribunal gave a wrong reason for its action.⁵ We have, ourselves, on numerous occasions, announced this rule for the Sixth Circuit.⁶ A more difficult problem is presented, however, in deciding how far to extend this general rule to the case where, as here, the lower court has assigned no reasons whatever for its decision. Of course, it is axiomatic that an appellate court is not designed to perform the functions of a trial court having original jurisdiction and it must, of necessity, limit its consideration of the questions involved to the record on appeal. However, in the interests of judicial economy, the federal courts generally have held that where a full understanding of the issues presented may be garnered from the record on appeal, without knowledge of the specific grounds upon which the trial court acted, then the appellate court would consider and pass on those issues.⁷ We frequently have followed this procedure ourselves in proper cases.⁸ In the case before us, the issues for our consideration all come up on a motion attacking the form of the pleadings. Therefore, the only material necessary for the proper disposition of such a motion are the pleadings themselves, which, of course, are a part of this record. Although it would be helpful, it is by no means necessary that we have the benefit of the trial court's thinking on these matters. Accordingly, we will proceed to a full consideration of the questions here presented.

Turning, then, to the "merits" of the motion to dismiss, we first must deal with the question of subject matter jurisdiction. Broadly speaking, the amended complaint charges that these appellees have "violated" Section 14(a) of the Exchange Act, and the regulations thereunder, and that the appellants have suffered injury as a result of such violation. In view of this, it is clear that Section 27 of the Act,⁹ in giving the federal courts "exclusive jurisdiction of violations of this title or the rules and regulations thereunder," established federal jurisdiction, quite apart from diversity of citizenship, at least to consider the allegations of this complaint. But it should be noted at this juncture that jurisdiction to consider the allegations of the complaint does not necessarily mean that such allegations, if established, will state a claim for the relief demanded under federal law, or, indeed, for any relief at all. In Bell v. Hood, 1946, 327 U.S. 678, 682, 66 S.Ct. 773, 776, 90 L.Ed. 939, the United States Supreme Court held:

"Jurisdiction, therefore, is not defeated * * * by the possibility that the averments might fail to state a cause of action on which the petitioners could actually recover. For it is well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction. Whether the complaint states a cause of action on which relief could be granted is a question of law and * * * must be decided after * * * the Court has assumed jurisdiction over the controversy."

To say federal courts have jurisdiction of the subject matter herein, therefore, means merely that they may consider the merits of any federal question involved. Therefore, a dismissal at this stage of the proceedings on the broad ground of lack of jurisdiction of the controversy would be improper.

We move now to the much more difficult task of determining what relief, if any, can be granted for violation of the federally protected rights alleged in this complaint. The first question which confronts us in this regard is whether or not Section 14(a) of the Exchange Act creates a right of action on the part of individual stockholders as well as on the part of the Securities and Exchange Commission. Because of the relative sparsity of decisions involving this precise point at the appellate level, it is helpful first to examine the background and general purposes of the Act itself, and particularly, of Section 14(a). The Securities Exchange Act of 1934 was the product of intensive investigation into the abuses of the securities markets and the need of investors' protection against the abuses of insiders.¹⁰ After the staggering losses suffered by investors between 1929 and 1932, the feeling was paramount that basic changes in the securities markets and the relationship between directors and stockholders were necessary if our traditional economic institutions were to survive.¹¹ The Act provides generally for control of the exchanges,¹² for the regulation of credit employed in connection with securities transactions,¹³ for the registration of brokers and dealers,¹⁴ for the elimination of various fraudulent, manipulative, and deceptive practices,¹⁵ for the filing of public reports,¹⁶ and for the...