Willheim v. Murchison
| Decision Date | 22 June 1964 |
| Parties | Else WILLHEIM and Randolph Phillips, Plaintiffs, v. John D. MURCHISON and Clint W. Murchison, Jr., copartners, doing business as Murchison Brothers, Investors' Diversified Services, Inc., and Investors Mutual, Inc., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Leonard I. Schreiber, New York City, for plaintiff Willheim.
Randolph Phillips, pro se.
Debevoise, Plimpton, Lyons & Gates, New York City, Samuel E. Gates, J. Asa Rountree, New York City, of counsel, for Investors Diversified Services, Inc.
Davis, Polk, Wardwell, Sunderland & Kiendl, New York City, Philip C. Potter, Jr., and Dennis H. Allee, New York City, of counsel, for Investors Mutual, Inc.
Townley, Updike, Carter & Rodgers, New York City, Stuart N. Updike, Lee W. Meyer, New York City, of counsel, for John D. Murchison.
George E. MacKinnon, Minneapolis, Minn., General Counsel for Investors Mutual, Inc. DAWSON, District Judge.
This is a motion for summary judgment pursuant to Rule 56 of the Rules of Civil Procedure. Pursuant to the provisions of subsection (d) of this rule, the Court by interrogating counsel ascertained what material facts exist without substantial controversy and what material facts were actually and in good faith controverted.
The following facts appear to exist without substantial controversy:
1. The action is brought by the plaintiffs derivatively on behalf of Investors Mutual, Inc., a registered investment company.1
2. Investors Diversified Services, Inc. (hereinafter called "IDS") has acted as principal underwriter and investment adviser for Investors Mutual, Inc., pursuant to written contracts dated April 6, 1960.
3. At all times after April 6, 1960, control of IDS was and still is held by Alleghany Corporation.
4. No controlling block of IDS's outstanding voting securities was transferred after April 6, 1960.
5. After April 6, 1960, and on May 23, 1961, there was a change of control of Alleghany Corporation.
6. At all times from January 1, 1960 until May 23, 1961, Allan P. Kirby controlled Alleghany Corporation. He was the largest single stockholder of Alleghany and at all such times the board of directors of Alleghany was composed of persons personally selected by Allan P. Kirby. No transfer was made by Kirby of his controlling block of stock.
7. Prior to May 23, 1961, a proxy contest was instituted by defendants John D. Murchison and Clint W. Murchison, Jr., for control of Alleghany Corporation. They organized a committee to solicit proxies for directors of a new board of Alleghany Corporation at the annual meeting of shareholders held on May 1, 1961. The committee denominated themselves as the "Committee for Better Management of Alleghany Corporation" and thereafter changed its name to "Stockholders Committee for Better Management of Alleghany Corporation." There were eventually 25 members of this stockholders committee.
8. As of April 14, 1961, the record date for the annual meeting, Allan P. Kirby, his "associates" and "participants" (as such terms are defined in the SEC proxy rules) beneficially owned an aggregate of 3,303,289 shares of Alleghany common stock, 4,200 shares of preferred stock, and 2,000 unexercised warrants. As of the same date the 25 members of the stockholders committee, their "associates" and "participants," beneficially owned an aggregate of 2,853,970 shares of common stock, 9,660 shares of preferred stock and 24,501 unexercised warrants. The total outstanding stock of Alleghany Corporation at the record date consisted of 9,844,970 shares of common stock and 522,875 shares of preferred stock. Each share of common stock was entitled to one vote for each of 7 directors and each share of preferred stock was entitled to one vote for each of 2 additional directors. It thus appears that neither Kirby and his associates, nor the Murchison committee and their associates, owned a majority of the stock of Alleghany Corporation.
9. At the annual meeting of Alleghany shareholders which was convened on May 1, 1961 and adjourned from time to time until May 23, 1961, 9,201,005 shares of common stock and 388,632 shares of preferred stock were represented. As a result of the votes of the stockholders at the said meeting the nominees of the stockholders committee (Murchison) were elected as directors of Alleghany. The votes for the 7 Kirby directors totaled 4,172,013 shares. The votes for the committee shareholders (the Murchison slate) totaled 5,026,011 (with the exception of one of the nominees who received 10 less votes than the others). The outcome of the election was determined by the fact that over 37% of the common stock was not owned by either Kirby and his associates or the members of the stockholders committee and their associates, and that 70% of this group voted for nominees of the stockholders committee supported by the Murchisons. The result of the voting was a change of management of Alleghany Corporation from Kirby management to Murchison management.
The above facts appear to exist without substantial controversy. The facts set forth in the 9(g) statement filed by the moving party on these points were not controverted by the 9(g) statement submitted by Mr. Phillips, and the moving papers seem to indicate that these facts exist without substantial controversy. The issue which exists is not one of fact but one of law which involves an interpretation of the provisions of the Investment Company Act of 1940, 15 U. S.C. § 80a-1 et seq. Mr. Phillips stated at the oral argument that under his construction of the statute there wasn't any issue of fact. (Tr. p. 25-26.)
Section 15(b) (2) sets up a similar requirement for the distribution agreement except that no vote of the security holders is necessary.
Plaintiffs in this case contend that by reason of the transfer of control of the Alleghany Corporation at the 1961 annual meeting there was an "assignment" which automatically terminated the written contract dated April 6, 1960 with IDS under which IDS had acted as principal underwriter and investment adviser for Investors Mutual, Inc. This issue involves one of law, i. e., what is meant by that part of the definition of "assignment" in 15 U.S.C. § 80a-2(a) (4) which defines it as "any direct or indirect transfer * * * of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor." Since there is no dispute as to the underlying facts in this matter, and since the dispute is a matter of law, it is appropriate that summary judgment be considered.
There is no dispute that there was not a transfer of a block of stock of the investment adviser, IDS. The Securities and Exchange Commission, in a letter to the Court dated June 3, 1964, takes the position that there should be an automatic termination of the advisory contract whenever there is a transfer of any block of stock which is, in fact, a controlling block, even if it is not the stock...
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...such an issue prove relevant) is a question of law: the legal effect to be given an undisputed set of facts. See Willheim v. Murchison, 231 F.Supp. 142, 144 (S.D.N.Y.1964), aff'd, 342 F.2d 33 (2d Cir. In view of the foregoing, there are no genuine issues of fact. The court is, therefore, fr......
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