Stockton v. Lucas, 2-8.

• Decision Date: 15 August 1973
• Docket Number: No. 2-8.,2-8.
• Citation: 482 F.2d 979
• Parties: Milton I. STOCKTON and Rose R. Stockton, Appellants, v. Marilyn LUCAS and Norman LeBeau, Appellees.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

482 F.2d 979 (1973)

Milton I. STOCKTON and Rose R. Stockton, Appellants, v. Marilyn LUCAS and Norman LeBeau, Appellees.

No. 2-8.

Temporary Emergency Court of Appeals.

August 15, 1973.

Jacob W. Friedman, New York City, for appellants.

Joseph Gaier, Luster, Gaier & Luster, New York City, for appellees.

Before TAMM, Chief Judge, and HASTIE and VAN OOSTERHOUT, Judges.

VAN OOSTERHOUT, Judge.

Plaintiffs Milton I. Stockton and Rose R. Stockton have taken this timely appeal from order of the United States District Court for the Southern District of New York, entered March 14, 1973, dismissing their amended complaint upon defendants' motion for summary judgment and from order entered March 29, 1973, denying plaintiffs' motion for reargument and reaffirming the dismissal order. Plaintiffs in their complaint sought damages of $9,000.00 for defendants' alleged violation of Phase I price regulations.

Defendants' motion for summary judgment asserts many grounds for dismissal. We will hereinafter elaborate on the grounds thereof which we deem pertinent to this appeal.

Defendants filed a cross-appeal from the judgment to the extent that it denied relief upon grounds urged in the motion which were not sustained by the trial court. Such notice was filed on May 17, 1972. This court properly dismissed the cross-appeal upon the ground that it was not filed within the time required by Rule 4(a) F.R.A.P.

The fact that no valid cross-appeal was taken is of no significance under the record made in the case before us. It is well-established law that if the decision of the trial court is sustained by applicable law, the judgment must be affirmed although the trial court relied upon a wrong ground or gave a wrong reason for its decision. Riley v. Commissioner, 311 U.S. 55, 59, 61 S.Ct. 95, 85 L.Ed. 36 (1940); Helvering v. Gowran, 302 U.S. 238, 245, 58 S.Ct. 154, 82 L.Ed. 224 (1937); Barrett v. Baylor, 457 F.2d 119, 122 (7th Cir. 1972). Our jurisdiction is established by § 211(b)(2) of the Economic Stabilization Act of 1970 as amended.

Defendants filed an affidavit in support of the motion for summary judgment. Plaintiffs filed a resistance to the motion, supported by affidavit. There is no dispute as to any material relevant fact pertinent to the decision of this case. Such facts are summarized by the trial court in its memorandum opinion (not reported) as follows:

"On September 9, 1971, plaintiffs purchased from defendants, for the sum of $18,000.00, 143 shares of a New York corporation, \'360 East 72nd Street Owners Incorporated\'. Stock certificate No. 582, acquired by plaintiffs, on its face limited transferability in accordance with the by-laws of the corporation, and `the Proprietary Lease appurtenant thereto\'. An endorsement thereon contained the following provisions:

`The rights of any holder of this Certificate are subject to the provisions of the By-Laws of the Corporation and to all the terms, covenants, conditions and provisions of a certain Proprietary Lease made between the Corporation, as Lessor, and the person in whose name this Certificate is issued, as Lessee, for an apartment in the apartment house in the City of New York which is owned by the Corporation and operated as a "co-operative", which Proprietary Lease limits and restricts the title and rights of any transferee of this Certificate.

`The shares represented by this Certificate are transferable only as an entirety and only as to an assignee of such Proprietary Lease approved in writing in accordance with the provisions of the Proprietary Lease.\'

"Ownership of the stock entitles plaintiffs to a proprietary lease of an apartment in the building owned by the Corporation, on paying a ratable share of the expenses and carrying charges, and otherwise complying with all provisions of the corporate bylaws, and after obtaining approval of an owners' committee of the Corporation."

Based upon such facts, plaintiffs sought to recover $9,000.00 from the defendants as damages inflicted upon them by defendants' alleged violation of Phase I of economic laws established by the President by Executive Order No. 11615, effective August 15, 1971, for a period of ninety days under authority of the Economic Stabilization Act of 1970.

Subsequent to the purchase, on December 7, 1971, plaintiffs filed a complaint with the Internal Revenue Service seeking a determination to the effect that the sale price was in excess of that permitted under the Phase I Economic Stabilization Program rules governing real estate transactions. E.S.Reg.No.1, § 2(d), 36 F.Reg. 16515 (Aug. 21, 1971), CCH Economic Controls ¶ 8024.45. On or about March 13, 1972, the IRS ruled by letter that there had been no violation because the transaction in question involved the sale of a stock, exempt from controls under Phase I.¹ E.S.Reg.No.1, § 4, 36 F.Reg. 16515 (Aug. 21, 1971), CCH Economic Controls ¶ 82555. See also CCH Economic Controls ¶ 8060, 8075, 8289.900.²

Plaintiffs originally filed this suit in April 1972 as a joint action against the present defendants, Marilyn Lucas and Norman LeBeau, and the Internal Revenue Service. The trial court dismissed the suit upon the ground plaintiffs had failed to exhaust their administrative remedies. Plaintiffs appealed to this court from such order.

Subsequent to the filing of the notice of appeal, plaintiffs moved this court "to remand the case . . . for the purpose of permitting plaintiffs to seek . . . an amendment or modification of the July 24 order . . . ." The basis for this motion was plaintiffs' then recent discovery of 6 C.F.R. § 300.513(c), 36 F.Reg. 23972 (Dec. 16, 1971), deleted in 37 F.Reg. 1007 (Jan. 21, 1971), which limited the scope of IRS rulings to "prospective transactions." Plaintiffs stated this provision "was apparently overlooked by those concerned, including the District Court." We granted the motion to remand.

On October 24, 1972, the District Court, with the consent of all parties, modified its July 24 order by adding the following provisions:

"The plaintiffs shall have leave, if so advised, to serve and file an amended complaint, on or prior to November 14, 1972, setting forth such claims, if any, as they may have against defendants Marilyn Lucas and Norman LeBeau only, arising out of the transactions referred to in the original complaint. Defendant Internal Revenue Service is dropped as a party defendant, and all future proceedings shall be conducted without notice to it. The amended complaint shall set forth the basis of jurisdiction of this Court, as required by Rule 8(a)(1), F.R.Civ. P. and shall disclose the basis for plaintiffs\' claims."

Upon stipulation of the parties, the prior appeal to this court was dismissed on November 6, 1972.

On November 3, 1972, plaintiffs filed the amended complaint now before us, which we have heretofore summarized, against defendants Lucas and LeBeau.

Defendants' motion for summary judgment is based upon many grounds, including: (1) Failure to state a claim upon which relief can be granted; (2) the alleged complained of transaction was not within the prohibition of the Economic Stabilization Law and/or the Phase I regulations promulgated thereunder in that the sale of the stock in a co-operative corporation was not a regulated transaction.

The trial court's dismissal of the action is based upon its determination that no private right of action in favor of a party was created by the Economic Stabilization Act of 1970 or the Phase I Executive Order issued thereunder and the accompanying regulations issued pursuant thereto. The court also implicitly determined that § 210(a) of the Economic Stabilization Act Amendments of 1971, adopted subsequent to the transaction here in question, does not create a remedy through retroactive application.

In our view, the threshold issue here presented is whether the defendants were in fact guilty of Phase I violations in making the transfer hereinabove described. For the reasons hereinafter stated, we hold that under the undisputed facts the transaction here involved constituted a sale of stock and that no violation has been established. Consequently, we deem it unnecessary for us to reach the more complex and controversial problem of whether the dismissal was proper upon the ground stated by the trial court.

Section 4 of E.S.Reg.No.1, effective August 21, 1971, to the extent here pertinent, holds:

"Prices of the following categories of goods and services are not subject to the provisions of Executive Order No. 11615 and this regulation:

* * * * * * (2) Stocks and bonds." 36 F.Reg. 16515 (Aug. 21, 1971) CCH Economic Controls ¶ 8255.

Such exemption regulation was in full force at the time of the transaction here involved.

The sale price of real estate is frozen for the Phase I period here applicable. Economic Stabilization Regulation No. 1, Chapter I, § 2(d), supra. Thus, if the subject matter of the sale here involved is stock, it is exempt from prior controls. Coverage exists only if the subject matter is real estate.

The trial court held the subject matter of the sale to be real estate. We disagree with such conclusion. The decisions cited by the trial court do not support its conclusion and the reasoning underlying the decision is not persuasive.

Stock has been described "as an `interest or right which the owner has in the management, profits and assets of a corporation . . .'" or as "`an individual interest giving the stockholder a right to a proportional part of the dividends if any and the effects of the corporation when dissolved, after payment of its debts.'" Federal Employees' Dist. Co. v. United States, 206 F.Supp. 330, 334 (S.D.Cal.1962). "`The characteristics of stock are a right to participate proportionately in all profits if any, and in management, and in the distribution of net assets on liquidation. . . .'" United States v. Evans, 375 F.2d 730 (9th Cir. 1967). See also Prentis v. United States, 273 F.Supp. 449, 476 (S.D.N.Y.1964); ...