Securities and Exchange Commission v. Barraco

• Decision Date: 05 March 1971
• Docket Number: No. 85-70.,85-70.
• Citation: 438 F.2d 97
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. Paul BARRACO, Joan Barraco and Jerry Strand, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

438 F.2d 97 (1971)

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. Paul BARRACO, Joan Barraco and Jerry Strand, Defendants-Appellees.

No. 85-70.

United States Court of Appeals, Tenth Circuit.

March 5, 1971.

Richard E. Nathan, Special Counsel, Chicago, Ill. (Philip A. Loomis, Jr., Gen. Counsel, David Ferber, Sol., and Stuart A. Morse, Atty., Securities & Exchange Commission, Washington, D. C., on the brief) for appellant.

Daniel L. Berman, Salt Lake City, Utah (Mary Lou Godbe, Salt Lake City, Utah, on the brief) for appellee Jerry Strand.

L. R. Gardiner, Jr., Salt Lake City, Utah (Norman S. Johnson, Salt Lake City, Utah, on the brief) for appellees Paul Barraco and Joan Barraco.

Before LEWIS, Chief Judge, JOHNSEN^*, Senior Circuit Judge, and HOLLOWAY, Circuit Judge.

JOHNSEN, Senior Circuit Judge.

The Securities and Exchange Commission brought suit under section 21(e) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78u(e), for an injunction against Barraco & Co., a Utah corporation, as a registered broker and dealer, on some violations by it of the Act, and against Paul Barraco, Joan Barraco and Jerry Strand, as officers of the corporation, and also against them in their individual capacity as having personally been aiders and abettors in the commission of the violations.

The court issued a preliminary injunction, and later a permanent one, against the corporation and against the officers as such, on both of the claimed violations. That order has not been appealed. It refused, however, to give consideration to the issuance of any injunction against the three officers in their individual capacity, on the ground that there was no authority under the Act to enjoin acts of aiders and abetters in broker-dealer violations. It accordingly, on motion of the three defendants, dismissed the action with prejudice as to them in their individual capacity. The Commission has appealed from this dismissal. We reverse and remand.

Traditionally in equity, "* * * whenever an injunction, whatever its nature may be, is directed to a corporation, it also runs against the corporation's officers * * *". 10 Fletcher Cyclopedia Corporations Perm.Ed. § 4875. All that is necessary is that they have knowledge of it. "A command to the corporation is in effect a command to those who are officially responsible for the conduct of its affairs." Wilson v. United States, 221 U.S. 361, 376, 31 S.Ct. 538, 543, 55 L.Ed. 771. In other words, the officers of the corporation are realistically regarded as being the doers of the act or acts sought to be enjoined and as thus being directly subject to the injunction's prohibition.

But also traditionally in equity, where there is a right to issue a general injunction in a situation, the court has the power inherently to impose upon any persons, who have contributingly played a part in the doing or committing of the enjoinable action involved (where they are made party to the suit), such reasonable and relevant individual restraint as may be necessary to enable the decree to accomplish its preventive purpose. And under this general power, the courts have always permitted the plaintiff in an injunction suit against a corporation to make the officers thereof defendants in their individual capacity, as well as official capacity, and so to be afforded an opportunity to demonstrate the need for such an enjoinder of them in the particular situation.

While the courts have exercised a sound restraint as to enjoining officers in their individual capacity, they have in particular not hesitated to do so where the enjoinable action has consisted of violation of a public-protection statute, and where this deeper contempt shadow over them has appeared to be necessary to insure a full refrainment by them. The consideration by which they seem primarily to have been guided has been whether such conduct, attitude or other indication on the part of the officers has been involved as to present a threat or likelihood of an evasion attempt by them. Cf. Hartford-Empire Co. v. United States, 323 U.S. 386, 434, 65 S.Ct. 373, 89 L.Ed. 322 (1945); Federal Trade Commission v. Standard Education Society, 302 U.S. 112, 119-120, 58 S.Ct. 113, 82 L.Ed. 141 (1937), Doyle v. Federal Trade Commission, 356 F.2d 381, 384 (5 Cir. 1966). The last two cases involved cease and desist orders, but the question of restraint upon the corporation's officers as individuals was dealt with on the same basis as in injunction.

The court here gave no consideration to the inherent power which we have discussed and to the possible need for exercising it to issue an injunction against the three officers as individuals. It afforded the Commission no opportunity to make any showing as to the circumstances involved in the violations, the attitude or conduct of the officers, and the threat of probable evasion which might be inferable therefrom or which might be capable of being given other indication. It predicated its dismissal on the naked ground that it was without any authority to enjoin actions of aiders and abettors in violations of the Act.

The statute granting injunctive authority is section 21(e) of the Act, 15 U.S.C. § 78u(e), whose pertinent part provides:

"Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this chapter here the Act, or of any rule or

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