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Ramsburg v. American Investment Co.

January 27, 1956

ELLA RAMSBURG, ORIGINAL PLAINTIFF, AND EARL H. C. LURKINS, VERNON LURKINS, EDWARD F. MUELLER AND HAZEL F. MUELLER, RALPH ROHLFING AND LILLIAN GARNET ROHLFING, AVE L. VICO AND CHARLOTTE VICO, FRANK RILLE, HERBERT E. FRANK, BERNICE LURKINS AND MARY RILLE, INTERVENORS
v.
AMERICAN INVESTMENT COMPANY OF ILLINOIS AND DOMESTIC FINANCE CORPORATION.



Author: Lindley

Before DUFFY, Chief Judge, and LINDLEY, Circuit Judge.

LINDLEY, Circuit Judge: Defendants move to dismiss the appeal from an order denying the motion of plaintiffs, for a temporary injunction which they sought as stockholders of defendant Domestic Finance Corporation, to restrain a proposed merger of that Company with defendant American Investment Company of Illinois. Both are incorporated under the laws of Delaware. The complaint averred that American had, through divers means, obtained some 80 per cent of the common stock of Domestic thereby gaining control; that American had utilized its stock to effectuate election of a board of directors of Domestic composed of officers of American, who were serving as Domestic's officers, and that American, through its control, had so operated Domestic as to reduce its effective position as a competitor of American in various cities and states where both corporations transact business. On August 17, 1955, Domestic mailed to its stockholders a notice of a special meeting to be held September 15, 1955, to consider and vote on a proposed merger of the two corporations. The complaint herein was filed September 7, 1955, charging that the merger would constitute a violation of Section 7 of the Clayton Act, in that its effect would be to lessen substantially competition in commerce. It was further averred that Domestic would be seriously injured by the proposed action.

The complaint prayed a preliminary injunction restraining American from voting its Domestic stock in favor of the merger at the September 15 meeting or at any other time, and that, after hearing on the merits, the temporary injunction be made final, and a decree entered directing American to divest itself of the Domestic stock it owns and granting such other and further relief as to the court might seem just.

A second count repeated all allegations of count one and averred that Domestic had suffered injury in the amount of $2,000,000 by reason of American's allegedly illegal acts in exercising control of the former, and prayed treble damages in the amount of $6,000,000, costs and attorneys' fees.

On September 14, at a hearing on the motion for a preliminary injunction, the court ordered it continued to September 20 to permit filing of briefs. During the course of the September 14 hearing, the parties reached a "standstill" agreement which had the effect, in part, of amending the prayer for relief. At that time plaintiffs asserted that they had no objection to a vote being taken the following day in accord with the August 17 notice, if defendants would agree to take no further action to implement the merger until the court had ruled on the application for injunctive relief. Thus, their prayer for relief was changed to a request for an order restraining implementation of the proposed merger during the pendency of the cause.

On September 20, the court denied the motion for a temporary injunction. This appeal followed. On or about the same date, defendants completed the merger by filing certificates of approval with the Secretary of State of Delaware. Plaintiffs, on or about December 1, 1955, filed a supplemental complaint which alleged that the merger had been implemented as aforesaid, and prayed additional relief.

The several grounds on which defendants rely for dismissal are particularized herein as each is considered. It is first urged that the cause is moot and that, accordingly, the appeal should be dismissed. The argument on this point, in essence, is that the appeal is taken from an interlocutory order denying plaintiffs' prayer for a temporary injunction restraining implementation of the merger; that the merger has been completed under the controlling provisions of Delaware law, and that, inasmuch as the only act sought to be restrained has been accomplished since the judgment was entered, no relief can be granted plaintiffs.

This argument must be examined in the light of the inherent power of a court of equity to afford mandatory relief. As stated in Porter v. Lee, 328 U.S. 346, at 351, "where a defendant with notice of an injunction proceeding completes the acts sought to be enjoined the court may by mandatory injunction restore the status quo." Cf. Jones v. Securities & Exchange Commission, 298 U.S. 1, 17-18. In Turney v. Shriver, 269 Ill. 164, 109 N.E. 708, the rule is framed thus:

"Where a bill for an injunction has been filed, and the court has acquired jurisdiction of both the person and the subject matter of the suit, and the defendant does any act which the bill seeks to enjoin, such party acts at his peril and subject to the power of the court to compel a restoration of the status, or to grant such other relief as may be proper under the particular circumstances of the case." 269 Ill. at 172, 109 N.E. at 711.

This mandatory power is a useful tool frequently employed by equity courts in conjunction with a final decision on the merits. Eg., Texas & N.O.R. Co. v. Northside Belt Ry. Co., 276 U.S. 475; Welton v. Forty East Oak Street Bldg. Corp., 70 F.2d 377, cert. denied Chicago Title & Trust Co. v. Welton, 293 U.S. 590 (C.C.A. 7); Turney v. Shriver, supra; New Haven Clock Co. v. Kochersperger, 175 Ill. 383, 51 N.E. 629; Konig v. Mayor, etc. of Baltimore, 95 A. 478 (Md.); Ives v. Edison, 83 N.W. 120 (Mich.).

Applying these decisions we may formulate the question for determination where, as here, a cause for injunctive relief is met by a contention of mootness because the status of the parties and of their relationship to the subject matter has changed. The decisive issue is whether the subject matter may yet be reached by the mandatory power of equity and the status quo restored. If so, the cause is not moot. Texas & N.O.R. Co. v. Northside Belt Ry. Co., supra; Welton v. Forty East Oak Street Bldg. Corp., supra; Turney v. Shriver, supra; New Haven Clock Co. v. Kochersperger, supra; Ives v. Edison, supra . And even where the subject matter has been so completely destroyed as to preclude restoration of the status quo, the court still has jurisdiction to grant incidental relief and the cause is not moot. Barrett v. Denver Tramways Corp., 146 F.2d 701 (C.C.A. 3); United States v. Bates Valve Bag Corp., 39 F.2d 162.

Were this an appeal on the merits, therefore, clearly the cause would not be moot. As the court has jurisdiction of the parties and American has possession and control of the assets of Domestic, we would have jurisdiction to compel restoration, if ultimately we should determine that the circumstances of the case require that result.

And we must conclude, we believe, that our mandatory power is rendered no less effective by the fact that the appeal is taken from an interlocutory order. In Jones v. Securities & Exchange Commission, 298 U.S. 1, the Court was faced with the question of the effect of a temporary stop-order against a securities registration statement on actions done pursuant to the statement while a hearing on a restraint proceeding was pending. The court said the proceeding was analogous to a suit for an injunction and held that any action taken by petitioner was subject to a restoration of the status quo, saying, 298 U.S. at pages 17-18: "The conclusion to be drawn from all the cases is that after a defendant has been notified of the pendency of a suit seeking an injunction against him, even though a temporary injunction be not granted, he acts at his peril and subject to the power of the court to restore the status, wholly irrespective of the merits as they may be ultimately decided."

"All the cases" to which the court referred included the leading cases of Daniel v. Ferguson, L.R. (1891) 2 Ch. 27, and Von Joel v. Hornsey, L.R. (1895) 2 Ch. 774. In Daniel, defendant, after notice of a motion for a temporary injunction forbidding construction of a building, hurried the work to near completion before the injunction could be entered. Without considering the merits of the case, the court entered a mandatory injunction to restore the status quo until the action could be finally decided. Likewise in Von Joel, the court, without regard to the ultimate rights of the parties, by mandatory injunction, ordered a building to be pulled down, it ...


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