The opinion of the court was delivered by: MANSFIELD
MANSFIELD, District Judge.
A threshold question is whether plaintiffs are entitled to a jury trial of their claims against all defendants except The Chase Manhattan Bank pursuant to plaintiffs' demand made on December 20, 1965.
The defendants (other than Chase) have moved to strike the demand on the grounds (1) that the action is exclusively equitable, and (2) that any right to a jury has been waived.
The action represents the consolidation of four suits brought by stockholders of the George A. Fuller Company
("Fuller" herein) both derivatively on its behalf, individually on their own behalves, and as a class or representative action on behalf of all similarly-situated stockholders, against its officers, directors and certain third parties (BCLM, Inc., George A. Fuller Company (New Jersey) and Chase) attacking its June 30, 1965 sale of its assets to BCLM on the ground that stockholder approval of the sale had been obtained fraudulently in violation of Secs. 10(b) and 14(a) of the Securities Exchange Act (15 U.S.C. §§ 78j and 78n(a)) and S.E.C. Rules 10b-5, 14a-3 and 14a-9. Jurisdiction is claimed under Sec. 27 of the Securities Exchange Act, which has been construed to authorize persons damaged as a result of violation thereof to sue thereunder. See J.I. Case Co. v. Borak, 377 U.S. 426, 84 Sup. Ct. 1555, 12 L. Ed. 2d 423 (1964).
The essential allegations of the consolidated complaint are as follows:
At the time of the transfer of its assets, Fuller was an established leader in the general contracting and construction industry, having built many outstanding buildings, hospitals and plants of all sorts, and having many other projects in progress, with gross billings running into many millions annually. It is alleged that sometime prior to April 1, 1965, the defendants Crandall, Lawson and Box (principal officers and directors of Fuller) conspired to secure Fuller's business, assets, name and good will for themselves and their associates, and to deprive plaintiffs and other Fuller stockholders of the opportunity to continue participation in its business and profits. Toward this objective, it is claimed, Lawson and Box, together with certain third parties, formed BCLM, a corporation controlled by them, in which Crandall was to be chairman of the board.
On April 6, 1965, Fuller's management agreed to sell its assets and business as a going concern to BCLM for $15,885,728, plus certain possible tax adjustments. The net consideration amounted to $37 per share.
It is alleged that the agreement was on the same date approved by Fuller's board, and that on June 7, 1965, the proposed sale was approved by Fuller's stockholders at a special meeting at which proxies obtained by its management pursuant to a statement dated May 17, 1965 were voted in favor of the proposal.
Plaintiffs claim that the proxy statement and solicitation materials used by Fuller's management to secure approval of the sale were false, misleading, deceptive and inadequate in various respects in violation of Secs. 10 and 14(a) of the Securities Exchange Act.
Plaintiffs further claim that demand upon Fuller's board and upon its stockholders to take action would be futile.
The consolidated complaint alleges that Fuller "has been and will be irreparably damaged and that plaintiffs have no adequate remedy at law." By way of relief the complaint asks a judgment declaring that the agreement was the result of fraudulent and oppressive conduct for which the defendants are accountable; that the stockholders' vote, having been obtained by fraud, was void; that the sale be rescinded and set aside; that the defendants BCLM and Chase be divested of all assets of Fuller acquired pursuant to the sale and pursuant to a loan agreement between Fuller and Chase; and that the defendants be enjoined from taking any further action to carry out the terms of the sale or to liquidate Fuller. Paragraph E then demands
"That all of the defendants be held to account and directed to pay over all damages sustained by Fuller and all profits made by any of said defendants, by reason of the acts complained of."
The first question to be resolved is whether plaintiffs (assuming no waiver) are entitled as a matter of right to a jury trial of any of the issues presented. The answer depends, in the absence of statutory authority for a jury trial here, upon whether the suit is, in whole or part, a "Suit at common law" as that term is used in the Seventh Amendment.
The answer to the latter question, in turn, must be determined by examination of the complaint and the relief sought. Canister Co. v. Leahy, 182 F.2d 510 (3d Cir. 1950), cert. denied, 342 U.S. 893, 72 Sup. Ct. 201, 96 L. Ed. 669 (1951).
The moving defendants label the suit as one in equity for breach of fiduciary duty. They characterize Par. E, supra, as seeking merely an accounting in furtherance of the major equitable relief requested (i.e., rescission of the transfer under attack) and state that such relief would normally fall within the "clean up" powers of a court of equity. Gulbenkian v. Gulbenkian, 147 F.2d 173 (2d Cir. 1945); 1 Pomeroy, Equity Jurisprudence § 241 (5th ed. 1941).
Plaintiffs, on the other hand, while conceding that the complaint states a claim for equitable relief (rescission), assert that Par. E states an independent claim for damages arising out of the same alleged facts. They point to the fact that rescission may have been rendered impracticable as a result of the consummation of the June 1965 sale of Fuller's assets, Fuller's subsequent distribution of the proceeds (more than $15 million) to its numerous stockholders throughout the United States, and its liquidation, all of which (plaintiffs contend) would make it impossible for Fuller to recover the distributed funds from its stockholders in order to execute the rescission demanded, so that the only appropriate relief would be an award of money damages to Fuller's stockholders, on whose behalf plaintiffs sue as class representatives. See General Investment Co. v. Ackerman, 37 F.R.D. 38 (S.D.N.Y. 1964); Rule 54(d) F.R.C.P. Plaintiffs further assert that even if rescission were granted, Par. E asserts a claim for damages that occurred after the transfer under attack and before the filing of the consolidated complaint in December 1965, such as loss of earnings on the assets transferred to BCLM and compensation for such of the assets involved as may be unavailable for return to Fuller pursuant to any such rescission because they have since been disposed of by BCLM.
Certainly the language of Par. E does not in terms call for the exercise of the "clean-up powers" of a court of equity. It asks that the defendants be held to account " and directed to pay over all damages sustained by Fuller". In view of the fact that this prayer lends itself to plaintiffs' characterization of their demand, the teachings of the Supreme Court in its recent decisions in Dairy Queen, Inc. v. Wood, 369 U.S. 469, 82 Sup. Ct. 894, 8 L. Ed. 2d 44 (1962), and Beacon Theatres v. Westover, 359 U.S. 500, 79 Sup. Ct. 948, 3 L. Ed. 2d 988 (1959), entitle plaintiffs to a jury trial of the damage claim, however incidental or subsidiary, if that claim could have been asserted by plaintiffs in a "Suit at common law".
In Dairy Queen the complaint sought injunctive relief against copyright infringement and continued breach of contract, together with an accounting for damages and loss of profits. Plaintiffs there also alleged (as here) that they were "threatened with irreparable injury for which they had no adequate remedy at law". There the contention was made, as it is made by defendants here, that the suit was essentially equitable in character and that an "accounting" was being sought as "incidental" to the equitable issues presented. Rejecting this characterization as a basis for denying a jury trial of the damage issue, the court stated:
"The respondents' contention that this money claim is 'purely equitable' is based primarily upon the fact that their complaint is cast in terms of an 'accounting,' rather than in terms of an action for 'debt' or 'damages.' But the constitutional right to trial by jury ...