Portsmouth Square, Inc. v. Shareholders Protective Committee

Citation770 F.2d 866
Decision Date09 September 1985
Docket NumberNo. 84-2277,84-2277
PartiesFed. Sec. L. Rep. P 92,302, 3 Fed.R.Serv.3d 20 PORTSMOUTH SQUARE, INC., Plaintiff/Appellant, v. SHAREHOLDERS PROTECTIVE COMMITTEE; Palmer York, Jr.; George E. Croke; Eugene J. Marty; Rose Leah Jones; Kenneth R. Scott, Defendants/Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Linda E. Stanley, Dinkelspiel & Dinkelspiel, San Francisco, Cal., Michael S. Polan, Alex A. Harper, San Diego, Cal., for plaintiff/appellant.

Marvin J. Colangelo, Kerner, Colangelo & Imlay, San Francisco, Cal., for defendants/appellees.

Appeal from the United States District Court for the Northern District of California.

Before CANBY and NORRIS, Circuit Judges, and JAMESON *, District Judge.

CANBY, Circuit Judge:

Portsmouth Square, Inc. appeals from an adverse judgment on its claim against the Shareholders Protective Committee--a group of Portsmouth Square minority shareholders--and the individual members of the Committee. Portsmouth Square seeks injunctive and declaratory relief under section 13(d) of the Securities and Exchange Act of 1934, 15 U.S.C. Sec. 78m(d). After several years of litigation, the district court dismissed Portsmouth Square's suit sua sponte at the final pretrial conference. Portsmouth Square now challenges both the procedure by which the court entered judgment and the conclusion of law on which the judgment rests. We affirm the district court in all respects.

I. THE DISMISSAL AT THE PRETRIAL CONFERENCE

We begin by addressing Portsmouth Square's attack on the procedure by which the district court dismissed its claim. At the final pretrial conference, Judge Schwarzer raised sua sponte the question whether the plaintiff had stated a section 13(d) claim. He did not specifically notify the parties in advance that he intended to raise the issue. At the conference, the court pressed counsel for Portsmouth Square to show how the facts set forth in the plaintiff's proposed Findings of Fact stated a section 13(d) claim. After a lengthy dialogue with plaintiff's counsel, the court denied a motion for a continuance and indicated that it would enter judgment for the defendant. In its Amended Order and Judgment, the court labelled its action a "judgment on the pleadings treated as a Motion for Summary Judgment under Rules 12(c) and 56 of the Federal Rules of Civil Procedure." For purposes of the judgment, the court accepted the plaintiff's proposed Findings of Fact as true. It concluded that neither those facts nor the evidence set forth in the pretrial conference materials established a cause of action under section 13(d). 1

Portsmouth Square argues that the district court had no power to enter a summary judgment sua sponte. It also claims that the court violated Rule 56(c), which requires at least 10 days notice of a hearing on a summary judgment motion, and Local Rule 220-2 of the Northern District of California, which requires 28 days notice. Furthermore, Portsmouth Square tells us, the court denied it an opportunity to respond with affidavits and other evidence in support of its claim. Portsmouth Square implies that the district court and opposing counsel have obscured the absence of due process by characterizing the result as a Rule 12(c) judgment on the pleadings treated as a summary judgment. We reject all of these arguments. We are satisfied that the district court proceedings met the requirements of the Federal Rules and the demands of due process.

Under certain limited circumstances a district court may issue summary judgment on its own motion. For example, sua sponte summary judgment is appropriate where one party moves for summary judgment and, after the hearing, it appears from all the evidence presented that there is no genuine issue of material fact and the non-moving party is entitled to judgment as a matter of law. Cool Fuel, Inc. v. Connett, 685 F.2d 309, 311 (9th Cir.1982). We have also allowed summary judgment where a district court, on its own initiative, converted a Rule 12 motion to dismiss into a summary judgment motion by considering pertinent documents that the parties had not presented with their pleadings or motions. Townsend v. Columbia Operations, 667 F.2d 844, 848-50 (9th Cir.1982).

We believe that the district court has similar limited authority to grant summary judgment sua sponte in the context of a final pretrial conference. One purpose of the Rule 16 pretrial conference procedure is to promote efficiency and conserve judicial resources by identifying litigable issues prior to trial. Fed.R.Civ.P. 16 advisory committee note (1983). 2 If the pretrial conference discloses that no material facts are in dispute and that the undisputed facts entitle one of the parties to judgment as a matter of law, a summary disposition of the case conserves scarce judicial resources. The court need not await a formal motion, or proceed to trial, under those circumstances.

Where the district court grants summary judgment in the absence of a formal motion, we review the record closely to ensure that the party against whom judgment was entered had a full and fair opportunity to develop and present facts and legal arguments in support of its position. Cool Fuel v. Connett, 685 F.2d at 312. A litigant is entitled to reasonable notice that the sufficiency of his or her claim will be in issue. See Townsend v. Columbia Operations, 667 F.2d at 849; Portland Retail Druggists Assoc. v. Kaiser Foundation Health Plan, 662 F.2d 641, 645 (9th Cir.1981). Reasonable notice implies adequate time to develop the facts on which the litigant will depend to oppose summary judgment. Portland Retail, 662 F.2d at 645. Having reviewed this record, we conclude that Portsmouth Square was afforded a full and fair opportunity to make its case.

Although it would have been preferable for the district court specifically to notify the parties that it intended to consider granting a summary judgment at the pretrial conference, Portsmouth Square was adequately notified that it might have to defend the sufficiency of its claim. The merits of the parties' claims and defenses are a legitimate subject of discussion at a pretrial conference. Fed.R.Civ.P. 16(c)(1). 3 Throughout the course of this litigation the parties have disputed whether Portsmouth Square states a section 13(d) cause of action, and counsel should not have been surprised that the issue arose at the conference. Portsmouth Square also had a full opportunity to develop the facts in support of its case. Its discovery was complete at the time of the pretrial proceedings. Compare Portland Retail, 662 F.2d at 646 (cause remanded for further discovery where defendants filed affidavits in support of their motion to dismiss after plaintiff's opportunity to discover controverting facts had ended).

Moreover, Portsmouth Square had a full opportunity to present to the district court its section 13(d) theory and the facts supporting that theory. The court made clear from the outset of the pretrial conference that it intended to explore the merits of the plaintiff's claim, and that it was specifically concerned about whether the corporation could establish a violation of section 13(d). 4 In that connection the court considered all the evidence that Portsmouth Square planned to present at trial. 5 It repeatedly pressed Portsmouth Square's counsel to show that a genuine issue of material fact remained for trial, or that the facts set forth in the proposed Findings stated a claim. The court reached its decision only when it had become clear that counsel could not make the necessary showing.

On appeal Portsmouth Square presents essentially the same arguments in support of its section 13(d) claim that it presented in the district court. We now consider the merits of those arguments.

II. THE SECTION 13(d) CLAIM

Section 13(d) requires holders of relatively large amounts of a corporation's stock, when they acquire more of the same class of the stock, to file a statement with the SEC disclosing their intentions. Section 13(d)(1), 15 U.S.C. Sec. 78m(d)(1). 6 The disclosure requirement applies to any person who owns more than five per cent of the particular class of the issuer's stock after the new acquisition. 7

In section 13(d)(3), Congress imposed the section 13(d) disclosure obligation on groups of shareholders who "act as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding or disposing of securities of an issuer." 15 U.S.C. 78m(d)(3). The group is deemed a "person" for purposes of section 13(d). It therefore must file a Schedule 13(d) if the aggregate ownership of those who participate exceeds five percent of the relevant class of securities.

The SEC has interpreted section 13(d)(3) to encompass "two or more persons (who) agree to act together for the purpose of acquiring, holding, voting or disposing of equity securities of an issuer." Rule 13d-5(b)(1), 17 C.F.R. Sec. 240.13d-5(b)(1) (emphasis added). Under the SEC interpretation, section 13(d) applies even if none of the parties to the agreement has actually purchased any securities in connection with the agreement. The group formed by the agreement is deemed to have acquired beneficial ownership of all securities beneficially owned by any group member on the date of the agreement. Id.

The question now before us is whether the disclosure requirement of section 13(d) applies to the Shareholders Protective Committee. 8 Because the district court's disposition of the case amounts to a summary judgment, we set forth the facts in the light most favorable to Portsmouth Square, against which summary judgment was granted. Ybarra v. Reno Thunderbird Mobile Home Village, 723 F.2d 675, 677 (9th Cir.1984).

Five shareholders of Portsmouth Square, Inc. formed the Committee in 1979. Portsmouth Square is a publicly held California corporation, with its stock registered pursuant to section 12(g)...

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