The opinion of the court was delivered by: WYATT
This is a motion for various forms of relief (to be separately considered) by defendants The Equitable Life Assurance Society of the United States (Life), Murray, Waugh, Thomas, Keehn, and Knortz; by defendants Macioce, Tyson and Whitehead; and by defendant The Equitable Life Mortgage & Realty Investors (the Trust). Affidavits have been submitted by defendants Waugh and Whitehead. Defendant Tyson, a movant, died after service of notice of the motion and on consent of plaintiff the action has been dismissed as to him.
It is undisputed that the Trust was organized as a Massachusetts business trust (Mass.Ann.Laws C. 182, § 1 and following (1969)) under a Declaration of Trust executed September 15, 1970. For a brief description of such a trust, see Dewing, The Financial Policy of Corporations (5th ed.) 70-73. Interestingly, such a trust was employed originally because under the mortmain statutes, corporations could not hold real estate for investment.
Life is a large, old, and well known mutual insurance company. Life sponsored the organization of the Trust and has acted as its investment adviser under an Advisory Contract (the Contract). Life is registered as an investment adviser under Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. § 80b-1 and following; "the Act"). Averments to the contrary in the complaint were admitted at oral argument to be in error.
Plaintiff sues as a shareholder of the Trust. The complaint states eight separate claims, each called (presumably from state court practice) a "cause of action". The action was commenced on April 17, 1973.
The first four claims are brought derivatively for the benefit of the Trust. The last four claims are brought for a class, the shareholders of the Trust, but at oral argument counsel for plaintiff agreed that these four claims should be dismissed.
The first claim avers that Life controls the trustees of the Trust, that the Contract is illegal because Life is not registered under the Act (as noted above, this is conceded to be an error), that the Contract is unfair and provides for excessive compensation, and that defendants have violated the Act in that they have engaged in fraud.
The second claim is that the Trust bought its initial portfolio from Life, that there was self dealing, that the price was unfair to the Trust, and that the profits to Life were unlawful because they were more than the compensation called for under the Contract.
The third claim is that Life caused the Trust to make loans to Allied Stores, that these loans were unfair and fraudulent, and that they were made because a trustee was president of Allied Stores.
The fourth claim is that Life has not given good advice to the Trust, has kept the best investments for itself, and has thus violated the Contract.
The complaint is not well drawn and violates Fed. R. Civ. P. 8(a) in that there is no "short and plain statement of the claim." Jurisdiction seems to be based on the Act and also on pendent jurisdiction but which claims are thought to arise under the Act and which are pendent state law claims is never explained. The best guess has to be that the pleader attempts to invoke both jurisdictional grounds for each claim.
It is noted that the Trust, for whose benefit the first four claims are purportedly brought, is itself a movant for dismissal. Inquiry as to this position was made at oral argument. The response is remembered as having been that the best interests of the Trust would not be served by setting aside the Advisory Contract, as plaintiff demands, because this would mean -- among other things -- loss of the advice of and connection with Life and loss of the right of the Trust to use the word "Equitable" in its name.
I. Want of Subject Matter Jurisdiction
Movants assert that the Act does not confer jurisdiction over actions by private persons for damages or for an accounting. While movants make arguments of substance for this position and District Courts in Florida and California have sustained it, Judge Metzner has recently held that a private action for damages may be brought under the Act. Bolger v. Laventhol, and others, 381 F. Supp. 260 (S.D.N.Y.1974). See Note, Securities-Investment Advisers Act of 1940 -- Private Right of Action for Damages Allowed Against an Investment Adviser and His Accountant, 18 Fordham Law Rev. 493 (1974). On the basis of Judge Metzner's opinion, the motion in this aspect is denied.
II. Failure to Make Demand on Trustees or ...