The opinion of the court was delivered by: DAWSON
This is a motion for a preliminary injunction brought by the plaintiffs, in which they seek to enjoin the performance of the investment advisory and underwriting distribution contracts heretofore entered into between the defendants Investors Diversified Services, Inc. and Investors Mutual, Inc.
The action is one brought by the plaintiffs derivatively as stockholders of Investors Mutual, Inc., a registered investment company.
It appears without dispute that 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. The plaintiffs contend that those contracts have been terminated as of May 1, 1961, as a result of acts by the defendant John D. Murchison and his associates culminating in a successful proxy contest for control of Alleghany Corporation in the spring of 1961. As of May 1, 1961, the date of Alleghany Corporation's annual meeting, Alleghany Corporation held approximately 47.6% Of the voting stock of IDS. Judgment is sought declaring that the contracts are null and void and that they have been performed since May 1, 1961 in violation of the contract terms and of the Investment Company Act, 15 U.S.C.A. § 80a-1 et seq. The contention of the plaintiffs is that by virtue of the change in control of Alleghany Corporation the contracts have been 'assigned' within the meaning of the Investment Company Act and are therefore terminated.
The Investment Company Act provides in part, in 15 U.S.C.A. 80a-15(b):
'After one year from the effective date of this subchapter * * * it shall be unlawful for any principal underwriter for a registered open-end company to offer for sale, sell, or deliver after sale any security of which such company is the issuer, except pursuant to a written contract with such company, which contract * * *
'(2) provides, in substance, for its automatic termination in the event of its assignment by such underwriter.'
In subdivision (d) of the same subsection it is provided that
'It shall be unlawful for any person --
'(1) to serve or act as investment adviser of a registered investment company, pursuant to a written contract * * * after March 15, 1945, or the date of termination provided for in such contract, whichever is the prior date, or after assignment thereof subsequent to March 15, 1940, by the person acting as investment adviser thereunder.'
In accordance with the statute, the underwriting and investment advisory contracts here in question provided for their termination upon any 'assignment' by IDS.
The principal issue on this motion is whether the underwriting and investment advisory contracts have been assigned within the meaning of the contracts and the Investment Company Act. It was admitted by the representatives of the plaintiffs at the argument of the motion that there had been no formal assignment of those contracts by IDS. It was contended however that the contracts had been 'assigned' by operation of law by reason of the definition of 'assignment' found in 15 U.S.C.A. 80a-2(a)(4). 'Assignment' is there defined as meaning 'any direct or indirect transfer or hypothecation of a contract or chose in action by the assignor, or of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor * * *.'
The plaintiff's moving papers do not establish that any controlling block of IDS's outstanding voting securities was transferred after April 6, 1960, the date when the contracts were entered into. The plaintiffs admit that at all times after that date control of IDS was, and still is, held by Alleghany Corporation. Plaintiffs seem to contend however that subsequent to that date control of Alleghany Corporation was transferred from the interests which previously had control of it to what they denominate as the 'Murchison group' and that this transfer of control of Alleghany Corporation constituted a transfer of a controlling block of IDS's voting securities.
It was not contended by the plaintiffs that there had been a transfer of 25 per cent of the outstanding voting securities of IDS since April 6, 1960. It was contended that there had been a transfer of more than 25 per cent of the voting securities of the Alleghany Corporation subsequent to that date and that since Alleghany Corporation admittedly owned a controlling interest in IDS such transfer of control of Alleghany Corporation was equivalent to the transfer of a controlling block of IDS's outstanding voting securities. The difficulty with this argument is that Congress did not define 'assignment' as encompassing any change of control of a corporation. It defined 'assignment' in very specific language. It defined it as a transfer of a controlling block of the 'assignor's outstanding voting securities by a security holder of the assignor.'
Plaintiffs have not shown that any security holder of IDS transferred a controlling block of IDS's outstanding voting securities. Plaintiffs, therefore, do not come within the precise language of the statute. It may be that Congress should have broadened the statute by defining 'assignment' as including a change of 'control' rather than limiting it to the transfer of a controlling block of the outstanding voting securities by a security holder of the assignor. However, it is not for the Court to rewrite a statute which was passed by Congress and which apparently is a carefully drawn statute to accomplish the objectives which Congress had in mind.
Plaintiffs urge a rather strained construction of the statute by arguing that a change in the controlling interest of the stock of a company which controlled the assignor was the equivalent of a transfer of a controlling block of the voting securities of IDS. If Congress had so intended it would have been easy to write the Act in this manner. It did not so write it ...