1. A bill of complaint filed in the District Court by purchasers
of securities under a financial plan which involved a trust,
alleged in substance that the vendor sold the securities by means
which rendered it liable to the purchasers under the Securities Act
of 1933; that the vendor was insolvent, was threatened with many
lawsuits, and its assets were in danger of dissipation or
depletion, and that the trustee was in possession of assets
consisting in part of payments made by the purchasers. The bill
prayed the appointment of a receiver for the vendor, with power to
liquidate assets and to pay claims of the complainants; an
injunction restraining the trustee from transferring or disposing
of assets of the trust, and general relief.
Held:
(1) An appeal to the Circuit Court of Appeals from an
interlocutory order granting an injunction was authorized by § 129
of the Judicial Code and was not premature. P.
311 U. S.
286.
(2) Upon such appeal, the Circuit Court of Appeals could
properly determine the correctness of the District Court's denial
of motions
Page 311 U. S. 283
to dismiss the bill, although normally such denial would be
appealable only after a final decree. P.
311 U. S.
287.
(3) Motions to dismiss the bill because it failed to state a
cause of action, and because the District Court lacked
jurisdiction, were properly denied. P.
311 U. S.
287.
(4) The District Court had jurisdiction of the suit under §
22(a) of the Securities Act, irrespective of the amount in
controversy or the citizenship of the parties. P.
311 U. S.
289.
(5) The grant of a temporary injunction by the District Court --
restraining the transfer of funds held by the trustee for the
account of the vendor, upon security being given to protect the
defendants -- was proper to preserve the
status quo
pending final determination of the questions raised by the bill. P.
311 U. S.
290.
The grant of a temporary injunction is within the discretion of
the trial court, and will not be disturbed on appeal unless it be
contrary to equity or an abuse of discretion.
(6) The allegations of the bill sufficiently showed that the
legal remedy against the vendor, without recourse to the fund in
possession of the trustee, would be inadequate. P.
311 U. S.
290.
(7) Orders of the District Court allowing the bringing in of two
additional plaintiffs, and referring the issue of insolvency to a
master, were interlocutory, and not reviewable except upon appeal
from a final decree. P.
311 U. S.
290.
2. The relief of purchasers who have been sold securities by
means which render the seller liable under the Securities Act of
1933 is not restricted to a money judgment. P.
311 U. S.
287.
3. The jurisdiction conferred on the District Court by § 22(a)
of the Securities Act of suits "to enforce any liability or duty"
created by the Act implies the power to make effective the right of
recovery afforded by the Act, and the power to make the right of
recovery effective implies the power to utilize any of the
procedures or actions normally available to a litigant in the
exigencies of the particular case. P.
311 U. S.
288.
4. A suit to rescind a contract induced by fraud, and to recover
the consideration paid, is cognizable in equity, at least where the
legal remedy is inadequate. P.
311 U. S.
289.
108 F.2d 51 reversed.
Certiorari 309 U.S. 648, to review the reversal of interlocutory
orders of the District Court,
27 F.
Supp. 763, including the denial of motions to dismiss and
the
Page 311 U. S. 284
grant of a temporary injunction, in a suit based upon the
Securities Act of 1933.
MR. JUSTICE MURPHY delivered the opinion of the Court.
Two important questions are presented by these petitions. The
first is whether the Securities Act of 1933, 48 Stat. 74,
authorizes purchasers of securities to maintain a suit in equity to
rescind a fraudulent sale and secure restitution of the
consideration paid, and to enforce the right to restitution against
a third party where the vendor is insolvent and the third party has
assets in its possession belonging to the vendor. The second
question is whether such purchasers must show that the amount in
controversy exceeds $3,000 exclusive of interest and costs as
required by Section 24 of the Judicial Code, as amended, 28 U.S.C.
§ 41.
Petitioners, with one exception residents of Pennsylvania, are
owners and holders of Capital Savings Plan Contract Certificates
purchased from Capital Savings Plan, Inc., since merged with and
now Independence Shares Corporation, a Pennsylvania corporation.
These certificates required the holders to make certain installment
payments to The Pennsylvania Company for Insurances on Lives and
Granting Annuities, also a Pennsylvania corporation. [
Footnote 1] Pennsylvania, after deducting
Page 311 U. S. 285
certain fixed charges, used the balance of these installment
payments to purchase Independence Trust Shares for the benefit of
the certificate holders. Independence Trust Shares, issued by
Pennsylvania, represented interests in a trust of common stocks of
42 American corporations deposited by Independence with
Pennsylvania. Pursuant to trust agreement and indenture between
Pennsylvania and Independence, Pennsylvania collected dividends and
profits from the stocks and administered the trust.
Petitioners brought this suit in the District Court for the
Eastern District of Pennsylvania against Pennsylvania,
Independence, two affiliated companies, and certain officers and
directors of Independence whose residence does not appear. The
action against the affiliated companies has been dismissed.
The bill alleges that Independence and its predecessor Capital
were guilty of fraudulent misrepresentations and concealments in
their sale and advertisement of contract certificates to
petitioners and others similarly situated in violation of the
Securities Act of 1933. It alleges that Independence is insolvent
and threatened with many lawsuits, that its business is virtually
at a standstill because of unfavorable publicity, that preferences
to creditors are probable, and that its assets are in danger of
dissipation and depletion. Petitioners therefore pray the
appointment of a receiver for Independence with power to collect
and take possession of the assets of Independence and the trust
assets held by Pennsylvania, liquidate the assets, determine the
claims of petitioners and other certificate holders and pay them,
and wind up and dissolve the corporations. They also seek relief
incidental to the above and an injunction restraining Pennsylvania
from transferring or disposing of any of the assets of the
corporations or of the trust. There is the usual prayer for general
relief.
Page 311 U. S. 286
None of the original petitioners' claims exceeds $3,000 and
respondents contend that the aggregate of all of them will not
exceed $3,000. It is conceded that the assets sought to be reached
are greatly in excess of $3,000.
Respondents answered the bill, and thereafter moved to dismiss
it. The motions were heard with petitioners' motions for a
temporary injunction and the addition of two plaintiffs. The trial
judge denied the motions to dismiss, approved the addition of two
plaintiffs, but reserved decision on the application for a
receiver. He directed the appointment of a master to take testimony
and file a report on the question of the insolvency of
Independence, and enjoined Pennsylvania from transferring or
otherwise disposing of the sum of $38,258.85 representing certain
charges, income, and proceeds received in administration of the
trust.
27 F. Supp.
763.
Pennsylvania, Independence, and the individual defendants
appealed from these orders. The Circuit Court of Appeals did not
expressly consider whether the appeals were premature. It thought
that the Securities Act did not authorize a bill seeking equitable
relief against a third party which has assets belonging to the
vendor, and therefore that Pennsylvania was not a proper party to
the suit, since no cause of action under the Securities Act was
stated against it. It reversed all of the orders appealed from and
remanded the cause with directions to allow petitioners to amend
their complaint to state a claim for a money judgment at law
against Independence only. 108 F.2d 51. We granted certiorari
because of the importance of the questions presented. 309 U.S.
648.
We believe that the appeals from the order granting the
temporary injunction were not premature. It is true that Section
128 of the Judicial Code, 28 U.S.C. § 225, authorizes circuit
courts of appeals to review only final decisions. But Section 129
of the Judicial Code
Page 311 U. S. 287
expressly excepts from the general rule certain interlocutory
orders and decrees. It provides in part:
"Where, upon a hearing in a district court . . . an injunction
is granted . . . by an interlocutory order or decree . . . , an
appeal may be taken from such interlocutory order or decree to the
circuit court of appeals. . . ."
Thus, by the plain words of Section 129, the Circuit Court of
Appeals was authorized to consider the appeals from the temporary
injunction.
Compare Enelow v. New York Life Insurance Co.,
293 U. S. 379;
Shanferoke Coal & Supply Corp. v. Westchester Service
Corp., 293 U. S. 449.
However, this power is not limited to mere consideration of, and
action upon, the order appealed from. "If insuperable objection to
maintaining the bill clearly appears, it may be dismissed and the
litigation terminated."
Meccano, Ltd. v. Wanamaker,
253 U. S. 136,
253 U. S. 141.
See also Eagle Glass & Mfg. Co. v. Rowe, 245 U.
S. 275;
Metropolitan Water Co. v. Kaw Valley
Drainage District, 223 U. S. 519;
Mast, Foos & Co. v. Stover Mfg. Co., 177 U.
S. 485;
Smith v. Vulcan Iron Works,
165 U. S. 518.
Accordingly, the Circuit Court of Appeals properly examined the
interlocutory order denying the motions to dismiss, although
generally it could consider such an order only on appeal from a
final decision.
Reed v. Lehman, 91 F.2d 919;
Miller v.
Pyrites Co., Inc., 71 F.2d 804.
Compare Gillespie v.
Schram, 108 F.2d 39;
Rodriguez v. Arosemena, 91 F.2d
219;
Kneberg v. H.L. Green Co., Inc., 89 F.2d 100;
Satterlee v. Harris, 60 F.2d 490.
Respondents' motions sought to dismiss the bill because it
failed to state any cause of action and because the District Court
lacked jurisdiction. We hold that these motions were correctly
denied.
We think the Securities Act does not restrict purchasers seeking
relief under its provisions to a money judgment. On the contrary,
the Act as a whole indicates an intention to establish a statutory
right which the litigant may enforce
Page 311 U. S. 288
in designated courts by such legal or equitable actions or
procedures as would normally be available to him. Undoubtedly any
suit to establish the civil liability imposed by the Act must
ultimately seek recovery of the consideration paid less income
received or damages if the claimant no longer owns the security.
Section 12(2), 15 U.S.C. § 77(1)(2). But Section 12(2) states the
legal consequences of conduct proscribed by the Act; it does not
purport to state the form of action or procedure the claimant is to
employ.
Moreover, in Section 22(a), specified courts are given
jurisdiction "of all suits in equity and actions at law brought
to enforce any liability or duty created by this
subchapter." [
Footnote 2] The
power
to enforce implies the power to make effective the
right of recovery afforded by the Act. And the power to make the
right of recovery effective implies the power to utilize any of the
procedures or actions normally available to the litigant according
to the exigencies of the particular case. If petitioners' bill
states a cause of action when tested by the customary rules
governing suits of such character, the Securities Act authorizes
maintenance of the suit, providing the bill contains the
allegations the Act requires. That it does not authorize the bill
in so many words is no more significant than the fact that it does
not in terms authorize execution to issue on a judgment recovered
under Section 12(2).
We are of opinion that the bill states a cause for equitable
relief. There are allegations that Independence is insolvent, that
its business is practically halted, that it is threatened with many
lawsuits, that its assets are endangered, and that preferences to
creditors are probable. There are prayers for an accounting,
appointment of a receiver, an injunction
pendente lite,
and for return of petitioners' payments. Other allegations show
that,
Page 311 U. S. 289
although petitioners dealt with Independence, their installments
were paid to Pennsylvania, and that the complicated arrangement
between Pennsylvania and Independence might make it extremely
difficult to obtain satisfaction of any claim established against
Independence.
The principal objects of the suit are rescission of the Savings
Plan contracts and restitution of the consideration paid, including
recovery of the balance, held by Pennsylvania for account of
Independence, which consisted in part of the payments alleged to
have been procured by the fraud of Independence. That a suit to
rescind a contract induced by fraud and to recover the
consideration paid may be maintained in equity, at least where
there are circumstances making the legal remedy inadequate, is well
established.
Tyler v. Savage, 143 U. S.
79;
Montgomery v. Bucyrus Machine Works,
92 U. S. 257;
Boyce v.
Grundy, 3 Pet. 210.
See Black, Rescission
and Cancellation, 2d Ed., § 643
et seq.; Williston,
Contracts, 3d Ed., § 1525
et seq.; Pomeroy, Equity
Jurisprudence, 4th Ed., §§ 881, 1092. [
Footnote 3]
It is enough at this time to determine that the bill contains
allegations which, if proved, entitle petitioners to some equitable
relief. Whether or not they sufficiently allege or prove their
right to all of the relief prayed in the bill we do not decide,
because the question is not before us. Hence, if the District Court
had jurisdiction, it was proper to consider whether injunctive
relief should be given in aid of the recovery sought by the
bill.
We agree with the courts below that the Securities Act confers
jurisdiction of the suit upon the District Court irrespective of
the amount in controversy or the citizenship of the parties.
Section 22(a) provides in part:
Page 311 U. S. 290
"The district courts of the United States . . . shall have
jurisdiction . . . of all suits in equity and actions at law
brought to enforce any liability or duty created by this
subchapter."
This is plainly a suit to enforce a liability or duty created by
the Act. That the District Court therefore has jurisdiction is
evident from the provision quoted. Accordingly, the only remaining
question is whether the injunction was proper.
We hold that the injunction was a reasonable measure to preserve
the
status quo pending final determination of the
questions raised by the bill
"It is well settled that the granting of a temporary injunction,
pending final hearing, is within the sound discretion of the trial
court, and that, upon appeal, an order granting such an injunction
will not be disturbed unless contrary to some rule of equity, or
the result of improvident exercise of judicial discretion."
Prendergast v. New York Telephone Co., 262 U. S.
43,
262 U. S. 50-51;
Meccano, Ltd. v. Wanamaker, 253 U.
S. 136,
253 U. S. 141.
As already stated, there were allegations that Independence was
insolvent and its assets in danger of dissipation or depletion.
This being so, the legal remedy against Independence, without
recourse to the fund in the hands of Pennsylvania, would be
inadequate. The injunction was framed narrowly to restrain only the
transfer of $38,258.85, and the trial judge required petitioners to
furnish security for any losses respondents might suffer. In view
of this we cannot say that the trial judge abused his discretion in
granting the temporary injunction.
We conclude that the orders granting the temporary injunction
and denying the motions to dismiss were correct and should have
been sustained. The orders allowing the addition of two plaintiffs
and referring the issue of insolvency to a master were
interlocutory and
Page 311 U. S. 291
not appealable (28 U.S.C. § 225), [
Footnote 4] and should have been reversed only if
petitioners were not entitled to any equitable relief.
See
Meccano, Ltd. v. Wanamaker, 253 U. S. 136;
Smith v. Vulcan Iron Works, 165 U.
S. 518. The Circuit Court of Appeals properly did not
consider them on the merits, and if ultimately there is an appeal
from a final decree the correctness of these orders may be
examined.
The decision of the Circuit Court of Appeals is reversed, and
the cause is remanded for further proceedings in conformity with
this opinion.
Reversed.
MR. JUSTICE DOUGLAS did not participate in the consideration or
decision of this case.
* Together with No. 18,
Deckert et al. v. Pennsylvania
Company for Insurances on Lives and Granting Annuities, also
on writ of certiorari, 309 U.S. 648, to the Circuit Court of
Appeals for the Third circuit.
[
Footnote 1]
For convenience the three corporations just named will be
referred to as Capital, Independence, and Pennsylvania.
[
Footnote 2]
Emphasis added.
[
Footnote 3]
In
Falk v. Hoffman, 233 N.Y. 199, 202, 135 N.E. 243,
244, Judge Cardozo said:
"Equity will not be over-nice in balancing the efficacy of one
remedy against the efficacy of another when action will baffle, and
inaction may confirm, the purpose of the wrongdoer."
[
Footnote 4]
An order allowing the addition of plaintiffs is interlocutory
and not appealable:
Central California Canneries Co. v. Dunkley
Co., 282 F. 406, 410.
See Oneida Navigation Corp. v. W.
& S. Job & Co., Inc., 252 U.
S. 521; Cyclopedia of Federal Procedure, Vol. 5, §
2608.
An order of reference to a master is generally interlocutory and
not appealable, at least if not for a mere ministerial purpose:
George v. Victor Talking Machine Co., 293 U.
S. 377.
See Latta v. Kilbourn, 150 U.
S. 524;
McGourkey v. Toledo & Ohio & Central
Ry. Co., 146 U. S. 536;
Hill v. Chicago & Evanston R. Co., 140 U. S.
52;
Beebe v.
Russell, 19 How, 283;
Craighead
v. Wilson, 18 How. 199;
Forgay v.
Conrad, 6 How. 201; Cyclopedia of Federal
Procedure, Vol. 5, § 2618.