McGarry v. Securities and Exchange Commission

• Citation: 147 F.2d 389
• Decision Date: 07 February 1945
• Docket Number: No. 3058.,3058.
• Parties: McGARRY et al. v. SECURITIES AND EXCHANGE COMMISSION.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

147 F.2d 389 (1945)

McGARRY et al. v. SECURITIES AND EXCHANGE COMMISSION.

No. 3058.

Circuit Court of Appeals, Tenth Circuit.

February 7, 1945.

John R. Wolff, of Boulder, Colo. (Charles T. Mahoney and William H. Scofield, both of Denver, Colo., on the brief), for appellants.

A. Marvin Lungren, Atty., Securities and Exchange Commission, of Denver, Colo. (Roger S. Foster, Sol., and Robert S. Rubin, Sp. Counsel, both of Philadelphia, Pa., John L. Geraghty, Regional Adm'r, of Denver, Colo., Arnold R. Ginsburg, of Philadelphia, Pa., and Alec J. Keller, of Denver, Colo., Attys., all of Securities and Exchange Commission, on the brief), for appellee.

Before PHILLIPS, HUXMAN, and MURRAH, Circuit Judges.

PHILLIPS, Circuit Judge, delivered the opinion of the court.

On April 27, 1944, the Securities and Exchange Commission,¹ pursuant to §§ 19 (b) and 20(a) of the Securities Act of 1933,² 15 U.S.C.A. §§ 77s(b), 77t(a), issued an order directing an investigation in the matter of W. E. McGarry and Industrial Loan Corporation.³ The order stated that members of the Commission's staff had reported to it information tending to show that during the period from May, 1941, to June, 1943, McGarry and the Loan Corporation had sold to the public stock and other securities of the Commonwealth Industrial Bank⁴ and the Loan Corporation by means of misrepresentations with respect to the dividends to be paid by the Loan Corporation during 1941, the necessity of exchanging securities of Fidelity Loan and Investment Company⁵ for securities of the Loan Corporation in order to "recover a prior investment in Fidelity," "the recovery of the entire investment in securities of Fidelity" within two years by so exchanging such securities, and the value of the stock of the Bank.

The order further stated that such information, if true, tended to show that McGarry and the Loan Corporation had violated §§ 5(a) and 17(a) of the Act, 15 U.S.C.A. §§ 77e(a), 77q(a). An investigation was ordered by the Commission to determine if such information was true and officers were designated⁶ by the Commission to administer oaths, subpoena witnesses, and require the production of any books, papers, or other records deemed relevant or material to the inquiry.

Pursuant to such order, John L. Geraghty, a duly designated officer of the Commission, on May 3, 1944, issued subpoenas duces tecum to the Loan Corporation, McGarry, and the Bank, respectively, which required the production of certain books, papers, and documents before another officer of the Commission at its Denver office on May 9 and 10, 1944. These subpoenas also contained the usual ad testificandum clause.

The subpoena directed to the Loan Corporation required it to produce (1) books reflecting receipts and disbursements "from April 1, 1941, to the present time," including supporting data; (2) correspondence between it and its stockholders and stockholders of Fidelity during such period relating to offers to exchange its stock for the stock of Fidelity and offers to exchange stock of the Bank for stock of the Loan Corporation, and relating to the financial condition of the Loan Corporation; (3) minutes of stockholders' and directors' meetings during such period; (4) copies of its articles of incorporation and by-laws; (5) its stock certificate books and the stock transfer books containing entries during such period; and (6) copies of advertising material used in connection with the sale of its securities from April 1, 1941, to April 1, 1942.

The subpoena directed to the Bank required it to produce (1) ledgers reflecting the book or actual value of its outstanding stock during the period from August 1, 1943, to January 31, 1944, and (2) correspondence and other memoranda relating to a contract "whereby McGarry and/or the Industrial Loan Corporation acquired stock" of the Bank, together with the contract and minutes of stockholders' and directors' meetings mentioning such transaction.

The subpoena directed to McGarry required him to produce the same books, records, and documents of the Loan Corporation and the Bank described in the subpoenas directed to the Loan Corporation and the Bank, and, in addition, required him to produce similar books and records of Fidelity for the period "from May 1, 1940, to the present time."

The subpoenas were all served approximately one week before the production of such records was required. The subpoenas were not obeyed.

Pursuant to § 22(b) of the Act, 15 U.S.C.A. § 77v(b), the Commission thereupon filed with the district court an application for an order requiring the production of the documentary evidence specified in the subpoenas. In response to the court's order to show cause, McGarry and the Loan Corporation filed a joint response in which it was alleged that neither of them was in possession of any records of Fidelity described in the subpoena directed to McGarry; that McGarry was in possession of some, but not all, of the records of the Loan Corporation called for in the subpoena directed to him; that he had access to some, but not all, of the records of the Bank called for in the subpoena directed to him. In the same response the Loan Corporation moved to quash the subpoena on the ground that it is a corporation and, therefore, may not be subpoenaed as a witness. In a separate response, the Bank moved to quash the subpoena directed to it on the same ground set up by the Loan Corporation, and averred that the facts stated in the application were insufficient under the Act to authorize the Commission to conduct an investigation into its books, records, and affairs. The Bank further averred that it did not have and never has had in its custody or possession any written contract whereby McGarry or the Loan Corporation acquired shares of the Bank and had had no transactions with the Loan Corporation and McGarry other than transactions whereby McGarry had bought certain of the Bank's shares on the foreclosure of stock pledged with it as collateral for loans to others.

The district court entered its order requiring the Loan Corporation, the Bank, and McGarry to appear before the designated officer of the Commission on August 22, 1944, and to produce the documentary evidence described in the subpoenas. This is an appeal from that order.

It is true that a corporation is incapable of testifying, except through its duly authorized officers and agents. Nevertheless, a subpoena duces tecum may be directed to a corporation. An ad testificandum clause is not essential to the validity of such a subpoena, and, where it is included in such a subpoena, it is separable from the duces tecum clause and may be disregarded as surplusage.⁷

In Wilson v. United States, 221 U.S. 361, 374, 31 S.Ct. 538, 542, 55 L.Ed. 771, Ann.Cas.1912D, 558, the court said:

"Treating the requirement to produce as separable from the requirement to testify generally what one knows in the cause, it follows that the latter may be omitted from the subpoena without invalidating the former. This course does not impair any right either of the opposing party or of the person responding to the subpoena. The latter may still have the opportunity to which he has been held entitled (Aikin v. Martin 11 Paige, N.Y., 499), of showing under oath the reasons why he should not be compelled to produce the document. For this right does not depend upon the ad testificandum clause, but is incident to the requirement to produce."

In Duncan v. Carson, 127 Va. 306, 103 S.E. 665, 668, 105 S.E. 62, the court said:

"The subpoena duces tecum usually also contains the ad testificandum clause, but this is not at all necessary. The two clauses have separate and distinct objects, and either may be enforced without the other; and, even where both clauses are contained in the same subpoena, it is not necessary for the party suing out the writ to avail himself of both objects."

The fact that the order instituting the investigation did not indicate that the Bank had violated or was suspected of violating any provision of the Act is not material. The question is whether the books and records of the Bank sought by the subpoena called for matter relevant and pertinent to the inquiry. The...