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March 5, 1974


The opinion of the court was delivered by: Decker, District Judge.


This is the final chapter in an action by the Trustees of the McCormick-Patterson Trust ("M-P Trust") seeking a declaratory judgment to affirm their rights, as Trustees, to vote the shares of stock of Tribune Company ("Company"), held by the Trust, in favor of certain amendments to the Company's articles of incorporation and by-laws. The defendants are two beneficiaries of the Trust who, in correspondence to the Trustees, objected to the amendments and requested that the Trustees refrain from voting in favor of their adoption.

After an unfavorable disposition of their challenge to this court's jurisdiction, the defendants answered and filed several counterclaims. Counterclaims Four, Five and Six sought removal of the Trustees on the ground that they had violated section 12(g) of the Securities and Exchange Act, 15 U.S.C. § 78l,*fn1 by failing to cause the Company to register its common stock or to file proxy information with the Securities and Exchange Commission ("SEC"), and by failing to disclose material information to the beneficiaries. The Securities and Exchange Act applies only to companies with, inter alia, a class of equity security held of record by 500 or more persons. The Trustees moved to dismiss the counterclaims in their entirety; asserting with respect to the SEC matters that the Company had fewer than 500 shareholders of record. All counterclaims except those involving the Securities and Exchange Act were dismissed in an opinion filed on February 5, 1974, 374 F. Supp. 538. In light of the allegations in and proof presented on Counterclaims Four, Five and Six, however, rulings on plaintiffs' motion for summary judgment on their complaint and to dismiss those counterclaims were postponed to allow defendants an opportunity to present evidence to demonstrate the existence of a genuine issue of material fact as to whether the Company shareholders of record numbered 500 or more.

The matter is now before the court on the question whether the documents submitted by the defendants at a hearing held on February 27, 1974, create such an issue of fact.*fn2 As presented by the parties, this question divides into two components: (1) whether the 225 beneficiaries of the Tribune-News Employees Trust are to be added to the Company's 253 shareholders of record,*fn3 and (2) whether an alleged increase of 54 shareholders to be derived from an examination of certain wills and trust, and nominee registrations has sufficient merit to warrant further discovery by defendants. Since the addition of 54 shareholders to the Company's 253 stockholders of record would leave defendants 193 shareholders short of 500, the exclusion of the Tribune-News Employees Trust beneficiaries as record holders would be fatal to defendants' attempt to show a genuine issue of fact.


A. SEC Approach to "Held of Record"

In 1965, the SEC promulgated a rule which attempted to define the phrase "held of record" appearing in section 12(g) of the Securities and Exchange Act. Under that regulation, generally, securities identified as held of record by a trust are to be counted as one holder and securities identified as held of record by one or more persons as trustees shall be included as held of record by one person. However, there exist certain limited exceptions to this rule. Most importantly, for purposes of this case, "[s]ecurities held, to the knowledge of the issuer, subject to a voting trust, deposit agreement or similar arrangement shall be included as held of record by the record holders of the voting trust certificates, certificates of deposit, . . . or similar evidences of interest in such securities." SEC Rule 12g5-1.*fn4

B. The M-P and Tribune-News Employees Trusts

Prior to this litigation, apparently, no court had been required to decide whether the M-P or the Tribune-News Employees Trust ("Employees Trust") constituted a voting trust. However, in both proxy material and internal memoranda, the Tribune Company, the Trustees, and their counsel have counted the beneficiaries under these trusts as Company shareholders of record, a position supportable only if the securities were deemed to be held subject to "a voting trust, deposit agreement or similar arrangement." For example, in the proxy material sent to the stockholders concerning the April, 1973, annual meeting, the Board of Directors stated that the Company had 478 shareholders. This figure was computed as follows:

Tribune Company stockholders of record                       124
Beneficiaries of M-P Trust                                   129
Beneficiaries of Tribune-News Employees Trust                225

The inclusion of these beneficiaries by the Trustees and their associates has not estopped the plaintiffs from arguing that such action was not required by law. Counsel responsible for computing the number of Company shareholders has submitted an affidavit explaining that the trusts' beneficiaries were counted as a precautionary measure. There existed uncertainty as to the interpretation to be accorded SEC Rule 12g5-1, and the Company did not want to be compromised by a ruling which would have required the beneficiaries to be counted, thus placing the Company very close to the 500 shareholder mark. In any event, plaintiffs' categorization of the beneficiaries is not binding upon this court, as the matter is one of law to be decided by the court, not by the parties.

Plaintiffs' caution with respect to the M-P Trust has proven to be justified. In light of this court's February 5, 1974, opinion holding that the M-P Trust was a voting trust, the beneficiaries thereunder must be taken into account under SEC Rule 12g5-1.

Plaintiffs now contend that, under the criteria set forth in that opinion, the Employees Trust cannot be deemed to be a voting trust, and, therefore, that its beneficiaries are not includable in the Company's shareholders of record.

The Employees Trust was created in March, 1937, by 38 executives, department heads, and assistant department heads, who had been with the Company for at least five years.*fn5 As described in the trust instrument, the employees had joined together and purchased from Robert R. McCormick certain beneficial interests in the M-P Trust. The beneficial interests so purchased by the employees comprised 47/1070ths of the entire beneficial interests of that Trust. The trust instrument provided that the Employee Beneficiaries desired the trustees thereunder (hereinafter referred to as Agents)*fn6 to regard the aggregate of the beneficial interests as a "single undivided beneficial interest." The apparent purpose of the trust was to assure that the respective shares of the initial employee-participants would be ...

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