Full opinion text
HERLANDS, District Judge. Defendants Keith, Moerman, Sharp, Ludwig and the American-Hawaiian Steamship Company (hereinafter sometimes referred to as the Company), a New Jersey corporation, have moved, pursuant to Rules 56 and 43(e) of the Federal Rules of Civil Procedure, for summary judgment. This is an action brought by stockholders of the Company both derivatively, in the right of the Company, and representatively, in behalf of themselves and other stockholders similarly situated. The voluminous Final Amended Supplemental Complaint (hereinafter referred to as the Complaint) was originally challenged by defendants in a motion to dismiss, under Rule 12(b) (1), (6) of the Federal Rules of Civil Procedure, for lack of jurisdiction over the subject matter and for failure to state a claim upon which relief can be granted. In ruling on that motion, this court, in an unreported oral decision rendered on November 23, 1962 (hereinafter referred to as the Prior Decision), dismissed a number of claims contained in the Complaint, but upheld certain claims as pleaded in the first four causes of action based upon alleged violations of sections 14(a) and 18(a) of the Securities Exchange Act of 1934, 48 Stat. 895, 897 (1934), 15 U.S.C. §§ 78n(a), 78r(a) (1958) (hereinafter the 1934 Act), and sections 7(a) (2), 7(a) (4), 20(a), 34(b), and 36 of the Investment Company Act of 1940, 54 Stat. 802, 822, 840, 841 (1940), 15 U.S. C. §§ 80a-7(a) (2), 80a-7(a) (4), 80a-20(a), 80a-33(b), 80a-35 (1958) (hereinafter the 1940 Act). The relief sought in the first four causes of action is dissolution of the Company, partial liquidation of the Company, an accounting to the Company for assets utilized solely for the benefit of defendants, and an accounting to the Company for the losses sustained by the Company as a result of its failure to register with the Securities and Exchange Commission (SEC) as an investment company, as a result of its failure to liquidate in 1955, and as a result of defendants’ waste of the Company’s assets. The present motion for summary judgment is addressed to all of the claims enumerated above except those based on section 36 of the 1940 Act. Defendants make this motion on affidavits pursuant to Rule 56(e) of the Federal Rules of Civil Procedure on the ground that there is no genuine issue as to any material fact and that they are entitled to judgment as a matter of law. It is plaintiffs’ contention that, as to certain claims, there are genuine issues of fact which would prevent the court from granting defendants’ motion. This contention will be considered, where relevant, in the discussion of each of plaintiffs’ claims as to which defendants have moved for summary judgment. Federal jurisdiction is based on 28 U.S.C. § 1331, as well as section 27 of the 1934 Act, 48 Stat. 902, (1934), 15 U.S.C. § 78aa (1958), and section 44 of the 1940 Act, 54 Stat. 844 (1940), 15 U.S.C. § 80a-43. I. CLAIMS BASED ON ALLEGED VIOLATIONS OF SECTION 18(a) OF THE 1934 ACT. The Prior Decision held that the following allegations stated a claim under section 18 (a) of the 1934 Act sufficient to withstand defendants’ motion to dismiss under Rule 12(b) (1), (6) : 1. March 25, 1955 — Defendants caused the Company to issue an annual report to stockholders which omitted material facts relating to changes in the Company’s board of directors and which contained misleading financial statements. Complaint, par. 42; Prior Decision, 18 (page citations to the Prior Decision are to the official reporter's transcript) . 2. 1955-1958 — Defendants caused the Company to fail to report to stockholders or to the Securities and Exchange Commission a contingent asset worth about $1,900,000. Complaint, par. 7(d); Prior Decision, 18. 3. 1954-1959 — Defendants caused the Company to give false financial statements to its stockholders and the Government. Complaint, par. 8; Prior Decision, 18. 4. In or before 1955 — Certain purchases of the Company’s shares made by defendant Ludwig were not correctly reported to the Securities and Exchange Commission or the New York Stock Exchange in violation of section 16(a) of the 1934 Act and Rule 16a-l issued thereunder. Complaint, par. 46(a); Prior Decision, 20-22. The gravamen of the claims based on the alleged violations of section 18(a) are: (1) defendants schemed to gain control of the Company; that is, that by means of false and misleading statements, stockholders other than plaintiffs were induced to sell their stock to the Company, thereby giving defendant Ludwig and his nominee directors, defendants herein, control of the Company; and (2) defendants then committed acts of waste. The alleged waste constitutes the actual damage claimed to have resulted from the alleged violations. For purposes of this motion for summary judgment, defendants concede arguendo the truth of the above-alleged facts.. Thus, as to claims based on section 18(a) of the 1934 Act there are no issues of fact remaining, and the motion must be considered on the merits. Section 18(a) of the 1934 Act provides as follows: “(a) Any person who shall make or cause to be made any statement in any application, report, or document filed pursuant to this chapter or any rule or regulation thereunder or any undertaking contained in a registration statement as provided in subsection (d) of section 78o of this title, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance * * Defendants contend that section 18(a) creates a liability only in favor of someone who is able to satisfy all of the following four conditions: that person must have (1) “purchased or sold a security,” (2) “in reliance upon such [false or misleading] statement,” (3) “not knowing that such statement was false or misleading,” (4) “at a price which was affected by such statement.” Further, defendants argue, a plaintiff satisfying these four conditions is explicitly limited to a suit “for damages caused by such reliance.” Applying the reasoning above to the facts of this case, defendants point out that plaintiffs — who have not alleged that they bought or sold securities of the Company at all, much less in reliance upon alleged false or misleading statements attributable to defendants — have failed to bring themselves within the restricted class of persons specified by section 18(a). Finally, defendants point to the fact that the damages claimed in this suit— assertedly the result of acts of corporate waste — are not within the explicit ambit of the statute as to recoverable damages. Defendants contend that a claim which patently cannot satisfy conditions appearing on the very face of the statute upon which it purportedly is based is either so frivolous as to deprive the court of jurisdiction over the subject matter of this suit, or, at least, fails to set forth facts sufficient to support a claim upon which relief can be granted. Under either legal theory, defendants claim, they are entitled to summary judgment. The legislative history of section 18(a) persuasively confirms defendants’ view that the coverage of that section is no broader than that indicated by the plain meaning of its language. See 78 Cong. Rec. 7700-01, 8039, 8040 (1934) (remarks of Representative Rayburn and Representative Hollister) ; 78 Cong.Rec. 8199 (1934) (remarks of Senator Kean and Senator Norris); Hearings Before the Senate Committee on Banking and Currency, 73d Cong., 2d Sess. 6564-65 (1934) (remarks of Mr. Corcoran, Mr. Redmond and Senator Costigan) (consideration of original Senate Bill S. 2693 containing provisions deleted in final section 18(a)); S.Rep.No. 792, 73d Cong., 2d Sess. 12-13 (1934). Defendants cite Fischman v. Raytheon Mfg. Co., 188 F.2d 783 (2d Cir. 1951) as supporting their interpretation of section 18(a). The salient feature of Fischman v. Raytheon emphasized by defendants is the fact that plaintiffs therein alleged in their complaint that they had purchased stock in reliance upon statements in a registration statement and prospectus which they had not known were misleading. The court of appeals held that these allegations, with certain amendments to the complaint not here relevant (but discussed below), were sufficient to state a claim under section 18(a). If this were all that could be extracted from Fischman v. Raytheon, its support of defendants’ position would be open to question. There Is more in that case, however, which, when placed in the context of other decisions, is dispositive of the issue as to whether a plaintiff relying on section 18(a) must have been either a purchaser or seller. In Fischman v. Raytheon, both preferred and common stockholders of the Raytheon Corporation sued for damages on the basis of false and misleading statements contained in a registration statement and a prospectus for the sale of preferred shares. Suit was based, so far as relevant, on section 11(a) of the Securities Act of 1933 and sections 10 (b) and 18(a) of the 1934 Act. One of the issues was whether the common stockholders, who concededly could not maintain an action under section 11(a) of the 1933 Act, could maintain an action under sections 10(b) and 18(a) of the 1934 Act. The court, in discussing the relationships of these sections, stated at 786-787, 788: “A suit under § 11 of the 1933 Act requires no proof of fraud or deceit, and such a suit may be maintained only by one who comes within a narrow class of persons i. e. those who purchase securities that are the direct subject of the prospectus and registration statement (here the purchasers of preferred stock). But proof of fraud is required in suits under § 10(b) of the 1934 Act * * *. Congress reasonably, and without inconsistency, allowed suits of that sort which (1) are free of the restrictions applicable to a suit under § 11 of the 1933 Act and (2) which are not confined to those persons who may properly sue under that section but which include all who are the victims of the fraud. We think that when, to conduct actionable under § 11 of the 1933 Act, there is added the ingredient of fraud, then that conduct becomes actionable under § 10(b) of the 1934 Act * * *, at the suit of any defrauded person, whether or not he could maintain a suit under § 11 of the 1933 Act. -x- * * # * .* “We construe Section 18(a) of the 1934 Act as applicable to a document filed with a national securities exchange. If the registration statement or prospectus or other document was thus filed, something more occurred than the conduct covered by § 11 of the 1933 Act. Nothing in that section is therefore inconsistent with a remedy under § 18(a) of the 1934 Act. Accordingly, the common stockholders may also maintain their action under that section if * * * they amend to allege a filing with a national securities exchange.” [Emphasis added.] In Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952), shareholders of the Newport Steel Corporation sued under § 10(b) of the 1934 Act and Rule X-10B-5 of the Securities and Exchange Commission issued thereunder. As a basis for their claim, the shareholders alleged that misrepresentations and other specific acts of fraud were perpetrated upon them as part of a scheme by which a controlling shareholder of Newport was enabled to sell his controlling interest in the corporation to another corporation, at a premium, in violation of his fiduciary obligation. In affirming the lower court’s dismissal of the complaint for failure to state a claim, the court, at 464, said: “When Congress intended to protect the stockholders of a corporation against a breach of fiduciary duty by corporate insiders, it left no doubt as to its meaning. Thus Section 16(b) of the Act of 1934,15 U.S.C.A. § 78p (b), expressly gave the corporate issuer or its stockholders a right of action against corporate insiders using their position to profit in the sale or exchange of corporate securities. The absence of a similar provision in Section 10(b) strengthens the conclusion that that section was directed solely at that type of misrepresentation or fraudulent practice usually associated with the sale or purchase of securities rather than at fraudulent mismanagement of corporate affairs, and that Rule X— 10B-5 extended protection only to the defrauded purchaser or seller. Since the complaint failed to allege that any of the plaintiffs fell within either class, the judgment of the district court was correct and is ac- cordingly affirmed.” [Emphasis added.] Accord, e. g., Hooper v. Mountain States Sec. Corp., 282 F.2d 195, 201 (5th Cir. 1960), cert. denied, 365 U.S. 814, 81 S. Ct. 695, 5 L.Ed.2d 693 (1961); O’Neill v. Maytag, 230 F.Supp. 235, 239 (S.D. N.Y.), aff’d, 339 F.2d 764 (2d Cir. 1964); Cooper v. North Jersey Trust Co., 226 F.Supp. 972, 978 (S.D.N.Y.1964); New Park Mining Co. v. Cranmer, 225 F. Supp. 261, 266 (S.D.N.Y.1963); cf. Keers & Co. v. American Steel & Pump Corp., 234 F.Supp. 201, 203 (S.D.N.Y. 1964). The foregoing decisions illustrate (1) that the words “any person acquiring such security” in section 11(a) of the 1933 Act have been held to restrict suit under that section to actual purchasers of the securities, Fischman v. Raytheon Mfg. Co., supra; and (2) that the words “in connection with the purchase or sale” in section 10(b) of the 1934 Act have been held to restrict suit under .that section to purchasers or sellers. Birnbaum v. Newport Steel Corp., supra. The above interpretations do not, of course, logically compel a similarly restrictive interpretation of the language in section 18(a) of the 1934 Act (“shall have purchased or sold”). But, the overall unitary scheme of regulation and the above-noted interrelationship of the three sections, — § 11(a) of the 1933 Act and §§ 10(b) and 18(a) of the 1934 Act — persuade this court to hold that a prerequisite of a claim under section 18 (a) of the 1934 Act is the fact that the plaintiff shall have purchased or sold securities and the injury for which damages are sought shall have been the direct result of such purchase or sale. See 3 Loss, Securities Regulation, 1751-54 (2d ed. 1961); 59 Yale L.J. 1120, 1128 (1950). Plaintiffs attempt to satisfy this requirement by the following sequence of propositions,: that this is a derivative action on behalf of the Company; that false statements which the defendants caused the Company to make induced stockholders other than plaintiffs to sell their stock back to the Company; that this eventually caused the injuries for which plaintiffs seek recovery; that the misleading statements brought about the Company’s purchasing securities, whereby it was injured; and, therefore, that the Complaint states a derivative cause of action on behalf of the Company under section 18(a). Plaintiffs’ argument is unsound for reasons now to be detailed. First, the reliance requirement in the statute itself has made explicit the type of causal relationship necessary to maintain an action under section 18(a). In the present case, the misleading statements did not cause a purchase by stockholders ; they caused a sale by stockholders. The statements did not cause the stockholders to make an offer, but to accept one. Cf. List v. Fashion Park, Inc., 340 F.2d 457, 462-463 (2d Cir. 1965). Thus, the only injury for which recovery might have been sought under this section would be that suffered by those stockholders who sold their stock in reliance upon the misleading statements. The legislative history already cited leaves no doubt as to this conclusion. For that reason, the recent case of Ruckle v. Roto American Corp., 339 F.2d 24 (2d Cir. 1964) is inapposite to this claim brought under section 18(a). The Ruckle case was a derivative action brought on behalf of the defendant Roto American Corporation by a shareholder who alleged that he represented more than 50 percent of the stock entitled to vote at the 1964 annual meeting of Roto American shareholders. In addition to Roto American, the defendants were six of its directors, who were also its president, four vice-presidents and treasurer. The gist of the complaint was that the defendant directors sought to perpetuate their control of Roto American, first, by postponing the annual stockholders’ meeting; and, second, by having the board of directors approve the issuance of additional Roto American treasury shares which were to be purchased or controlled by defendant Walton, Roto American’s president. The complaint alleged that approval for the issuance of the treasury shares was effected by means of the defendants’ having fraudulently withheld from the board the latest financial statements, arbitrarily ascribing a value of $3.00 per share to Roto American stock, and approving several transactions involving the stock without disclosing the pertinent facts of these transactions to the entire board. The prayer was for injunctive relief. The sole basis for the federal jurisdiction to grant injunctive relief to prevent the consummation of these transactions and the issuance of the treasury shares was alleged to be section 10(b) of the 1934 Act and Rule 10B-5 issued thereunder. See notes 2 and 3 supra. The district court dismissed the claim for lack of subject matter jurisdiction, substantially relying on Birnbaum v. Newport Steel Corp., supra. The Court of Appeals for the Second Circuit reversed on the grounds that a cause of action under section 10(b) had been stated and that, therefore, there was federal jurisdiction. The court of appeals first ruled that “the issuance by a corporation of its own shares is a ‘sale’ to which the anti-fraud policy expressed in the federal securities laws extends,” and then distinguished Birnbaum, supra, and Howard v. Furst, 238 F.2d 790 (2d Cir. 1956), cert. denied, 353 U.S. 937, 77 S.Ct. 814, 1 L.Ed.2d 759 (1957) on their facts. In referring to Birnbaum, the court said (339 F.2d at 28): “Birnbaum was a derivative suit on behalf of one corporation against a person who controlled that corporation until he sold his shares to another corporation which had not been deceived. The court limited the broad language of Rule 10B-5 to situations in which either the purchaser or the seller of the stock is defrauded, situations not presented by the facts of Birnbaum.” Later, in discussing both Birnbaum and Howard, the court stated (at 28): “But neither Birnbaum nor Howard presented a situation in which suit was instituted on behalf of a defrauded corporation. It is perfectly obvious that in both cases the fraudulent statements and omissions were directed at shareholders and not at the corporations. In the circumstances of those cases, it therefore seems appropriate to hold that, absent statutory language to the contrary, a corporation that has not been the victim of fraud cannot sue. “There is, however, no support in either of those opinions for the proposition that when a corporation is actually defrauded into issuing securities * * * it still cannot sue under Section 10(b) or Rule 10B-5.” [Emphasis added.] Next, the court considered the issue of whether it is possible, within the meaning of section 10(b) and Rule 10B-5 for a corporation to be defrauded by a majority of its directors, and concluded as follows (at 29): “If, in this case, the board defrauded the corporation into issuing shares either to its members or others, we can think of no reason to say that redress under Rule 10B-5 is precluded, though it would have •been available had anyone else committed the fraud.” Although it is not explicitly stated in the Ruckle case, the plain implication is that the $3.00 value arbitrarily ascribed to the Roto American stock by the defendant directors was less than it otherwise would have been had there been full disclosure of all pertinent facts. Fleischer, “Federal Corporation Law”: An Assessment, 78 Harv-L.Rev. 1146, 1163 (1965). If the misrepresentations in the Ruckle case had appeared in documents meeting the filing requirements of section 18(a) of the 1934 Act and had the newly issued stock been sold at the fraudulently depressed price, this court has no doubt that the combined effect of Ruckle and Fischman v. Raytheon, supra, would give the injured corporation a cause of action for damages under section 18(a) as well as under section 10(b). In such a case, the corporation would have sold at the low price in reliance upon the misrepresentations, thus meeting the statutory requirement of section 18(a). The crucial distinction, for purposes of section 18(a), between the case hypothesized above, predicated on the facts of the Ruckle case, and the present case is that, in the present case, the corporation purchased at the depressed (lowered) price; it did not sell at the depressed price. Thus, the corporation is not one “who, in reliance upon [false or misleading] * * * statements] * * * purchased or sold a security” (emphasis added), even though the price at which the corporation purchased “was affected by such statements] * * *.” The specific statutory language of section 18(a) not having been satisfied, the Complaint fails to state a claim under that section upon which -federal relief can be granted. The second reason.why the Complaint herein fails to state a derivative action on behalf of the Company under section 18(a) is that — assuming that somehow the alleged misrepresentations caused rather than enabled the Company to purchase_ its stock — the" injury complained óflnust be the direct result of the purchase or sale. In this case, damages are sought for injuries said to result from acts of waste. The acts of waste, plaintiffs claim, were made possible only because defendants were able to gain control of the Company by violating section 18(a). This chain of causation between violation of the statute and eventual injury to the Company is too remote to satisfy the demands of the statute. The fact that the damages under section 18 (a) are limited to those “caused by * * * reliance” upon the misleading statements completely negates plaintiffs’ argument that more remote damages resulting from corporate waste will support a claim under section 18(a) of the 1934 Act. See 3 Loss, op. cit. supra, at 1752. The court holds, therefore, that plaintiffs have failed to state a claim under section 18(a) upon which relief can be granted. Thus, defendants are entitled to summary judgment as to all claims based on that section. There is another question, however, as to whether the claims based on section 18(a), which cannot even satisfy the requirements appearing on the very face of the statute, are so frivolous, within the meaning of Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939,13 A.L.R. 2d 383 (1946), as to deprive this court of jurisdiction over the subject matter of the suit. Jurisdiction over the claims based on section 18(a) rests on § 27 of the 1934 Act and on 28 U.S.C.A. § 1331. Without intending to minimize the significance of the jurisdictional issue in relation to the claims under section 18(a), the court will, at this point simply state its conclusion, deferring discussion of the issue until consideration of the claims based on sections 7(a) (2) and 7(a) (4) of the 1940 Act. That conclusion is that this court does have jurisdiction over the claims based on section 18(a) and this court dismisses those claims, on the merits, for failure to state a claim upon which relief can be granted. The result thus reached makes it unnecessary to determine definitively defendants’ claim that the statute of limitations contained in section 18(c) of the 1934 Act, applicable to claims under section 18(a), has run on all claims based on that section. Some discussion of the statute of limitations is warranted, however, for it tends to confirm the correctness of the court’s conclusion that damages resulting from corporate waste do not come within the coverage of section 18(a). The decisive question under the statute of limitations is: when did the cause of action under section 18(a) accrue? The statute would have begun to run from that time. A cause of action does not accrue until some injury has been inflicted, and there can be no injury until there is damage. E. g., Steiner v. 20th Century-Fox Film Corp., 232 F.2d 190, 195 (9th Cir. 1956); Rutkin v. Reinfeld, 229 F.2d 248, 252 (2d Cir.), cert. denied, 352 U.S. 844, 77 S.Ct. 50, 1 L.Ed.2d 60 (1956); Foster & Kleiser Co. v. Special Site Sign Co., 85 F.2d 742, 750-751 (9th Cir. 1936), cert. denied, 299 U.S. 613, 57 S.Ct. 315, 81 L.Ed. 452 (1937); Bluefields S. S. Co. v. United Fruit Co., 243 Fed. 1, 20 (3d Cir. 1917), appeal dismissed, 248 U. S. 595, 39 S.Ct. 136, 63 L.Ed. 438 (1919); Park-In Theatres v. Paramount-Richards Theatres, 90 F.Supp. 727, 729 (D.Del.), aff’d, 185 F.2d 407 (3d Cir., 1950), cert. denied, 341 U.S. 950, 71 S.Ct. 1017, 95 L.Ed.2d 1373 (1951). Consequently, were the court to uphold the claim under section 18(a), the cause of action would not accrue until the damage occurred from the acts of corporate waste. Such damage bears no relationship to the “facts constituting the cause of action” within the meaning of section 18(c) of the 1934 Act; and, furthermore, to allow the damage resulting from waste to determine the beginning of the running of the statute of limitations would defeat the policy underlying the inclusion of a short statute of limitations in section 18. The conclusion to grant summary judgment as to claims based on section 18(a) was intimated in this court’s Prior Decision when it was said (at 21): “It is an issue whether the allegation of a violation of Section 18(a) is frivolous, since it is extremely doubtful that the plaintiffs, who are not alleged to have sold any stock, can ultimately recover under Section 18(a) of the Securities Exchange Act.” See also id. at 19. Although, at that time, the court denied defendants’ motion to dismiss under Rule 12(b) (1), (6), the court did point out “that the plaintiffs should have their day in court is one of the factors persuasive of the denial of defendants’ motions. * * * The debatable questions of law posed by the pleaded facts will lend themselves to a less doctrinaire solution in the light of such facts as may or may not be established upon a plenary hearing.” Prior Decision, at 39-40. Dressier v. MV Sandpiper, 331 F.2d 130 (2d Cir. 1964) requires this court to give closer scrutiny to plaintiffs’ case on a motion for summary judgment on affidavits under Rule 56(e) than it might otherwise be called upon to do on a motion on the pleadings under Rule 12. What appeared to be rather questionable in terms of legal sufficiency when only the allegations of the Complaint were before the court are now clearly untenable on the basis of the record presented on this motion for summary judgment. II. SECTION 10(b) OF THE 1934 ACT. The more difficult issue presented by the Ruckle case, supra, is whether the Complaint in the present case states a claim under section 10(b) of the 1934 Act and Rule 10B-5 issued thereunder See notes 3 and 4, supra. For the same reasons that required dismissal of the claim brought under section 18(a), the court grants summary judgment dismissing any derivative claim under section 10(b) predicated solely upon the Company’s alleged purchase of stock from shareholders other than plaintiffs. As stated in the Fischman case, supra, an action under section 10(b) requires an allegation of fraud. Accord, O’Neill v. Maytag, 339 F.2d 764 (2d Cir. 1964), affirming 230 F.Supp. 235 (S.D. N.Y.). For purposes of this motion, it will be assumed that the price at which the Company purchased its stock was artificially depressed below actual value as the result of misleading statements knowingly made pursuant to a scheme on the part of the defendants to place control of the Company in the hands of defendant Ludwig. Such would satisfy the fraud requirement of section 10(b). Because, however, the Company purchased, rather than sold, at the fraudulently depressed price, the sellers and not the Company were the “victims” of the alleged fraud. List v. Fashion Park, Inc., 340 F.2d at 462-463. Indeed, the immediate effect of the Company’s purchasing at a price below value was to benefit, rather than injure, the Company. Consequently, the Company has no cause of action under section 10(b) predicated solely upon its purchase of its stock at a fraudulently lowered price. It follows that a derivative action under section 10(b) premised on this theory cannot stand. There remain, however, the following two issues suggested by the Ruckle case: 1. Is acquisition of corporate control, effected by means of purchases made possible by misleading statements knowingly .made, an injury to the Company for which a derivative action will lie under section 10(b) ? 2. If so, are damages resulting from acts of waste, committed by those in control as a result of the fraud, damages for which recovery may be sought under section 10(b)? A restatement of the first issue is whether the Ruckle case would have been decided the same way if, pursuant to the scheme to perpetuate the corporate control of Roto American by defendants in that case, Roto American — instead of selling its treasury stock to defendants at a fraudulently depressed price — had, at that same price, purchased some of its outstanding stock from shareholders other than defendants, thereby increasing the defendants’ proportionate ownership and control. The case just hypothesized is, of course, the present case, except as to the relief sought. Only in its concluding paragraph does the opinion in Ruckle possibly shed some light on this problem: “In this case, it may be that the stock was not intended ultimately to find its way into the hands of the defendant directors or their associates. It may be that there was no concealment of material facts at the board of directors meeting at which the transactions were approved. But, these are matters which, of course, go to the merits of the case and not to the jurisdiction of the court.” It may arguably be inferred from the statement just quoted that evidence concerning the ultimate destination of the sold treasury stock may possibly be relevant in view of the proposition that fraudulent acquisition of control constituted an injury to the corporation under section 10(b). It may also arguably be inferred from the above-quoted statement, however, that evidence concerning the ultimate destination of the stock would be relevant to prove or disprove the existence of fraud in connection with the issuance of the treasury stock at a price below value. Evidence concerning motive would be significantly probative on the fraud question. O’Neill v. Maytag, 230 F.Supp. 235 (S.D.N.Y.), aff’d, 339 F.2d 764 (2d Cir. 1964) may also shed some light on the issue under discussion. The facts of O’Neill, so far as now pertinent, involved defendants who had caused the corporation to purchase its own stock at a price higher than the market value, as part of a scheme to entrench and perpetuate defendants’ control of the corporation. A derivative action under section 10 (b) was dismissed by the district court for lack of jurisdiction on the ground that the complaint did not allege facts constituting fraud. The implication, however, was that had-fraud been adequately pleaded, a cause of action under section 10(b) would have been stated. The scheme to perpetuate control of the corporation by defendants was discussed at length by the court with reference to Section 409(b) of the Federal Aviation Act, 49 U.S.C. § 1379(b) (1958), 72 Stat. 769 (1958). Yet that scheme was at no time mentioned as inflicting an injury to the corporation under section 10(b) of the 1934 Act. In discussing possible injury to the corporation under the latter section, the court said at 239 of 230 F.Supp.: “In substance, the cjaim is that defendants caused * * * [the corporation] to pay too much for the stock.” A possible inference to be drawn from the failure of the court in O’Neill to mention, with reference to section 10(b), the scheme to perpetuate corporate control is that fraudulent acquisition of control would not constitute an injury to the corporation under that section. There is no allegation in the Complaint in the case at bar that there was a conspiracy to loot the Company or to waste its assets. See 3 Loss, op. cit. supra at 1469. The only element of injury claimed to have been caused the corporation by the fraud was the acquisition of corporate control by defendant Ludwig. Without relying on possible inferences drawn from Ruckle and O’Neill (in which cases injury to the respective corporations under section 10(b) or the threat thereof was present independent of the fraudulent acquisition of control), this court concludes that control acquired as part of a fraudulent scheme, of itself, is not an injury to the corporation within the meaning of section 10(b) of the 1934 Act upon which a derivative action can be based. The injury, if any, from such a scheme would be to the remaining minority shareholders whose power has been diluted through the Company’s purchases, — an injury for which these shareholders, under the rule of Birnbaum, supra, and other cases, have no remedy because they are neither purchasers nor sellers. That no derivative action should lie in this case is also strongly suggested by the logical consideration that an anomalous situation would be created, were the court to allow it. For example: should defendants in this case have caused the Company to do exactly as it did do in regard to false and misleading statements, thus depressing the price of the stock; and should the defendant Ludwig rather than the Company itself have purchased the stock at this lowered price and thereby have gained corporate control, — no derivative action would lie under Birnbaum, supra, regardless of whether the corporation had been injured. Yet, for the very same injury (should injury to the corporation be found), according to plaintiffs’ contentions herein a derivative action would lie by force of the variant fact that defendants utilized the Company as an instrument of their alleged scheme to put Ludwig in corporate control. The court recognizes that, after the decision in Birnbaum, only if a derivative action would lie could a federal remedy be available as a sanction against acquisition of corporate control effectuated by fraudulently tainted purchases of stock. If, however, a federal remedy is deemed desirable as a matter of policy, but see O’Neill v. Maytag, 389 F.2d 764, 768 (2d Cir. 1964), affirming 230 F.Supp. 235 (S.D.N.Y.), it should not be created through the device of a fiction — the “finding” of a corporate injury when none exists. If a remedy in a federal court should exist, it should exist for those actually injured — the minority shareholders. Such relief will not be judicially available until the words “in connection with the purchase or sale” of section 10 (b) are interpreted less restrictively than in Birnbaum and in the many cases' following Birnbaum. Equally manifest is the fact that, even were this district court to view Birnbaum as too narrow, it must follow it. Moreover, even if fraudulent acquisition of corporate control were found to constitute an injury to the Company under section 10(b), damages resulting from acts of corporate waste committed by those who acquired corporate control by means of the fraud would not constitute damages for which federal relief may be sought under section 10(b). There is nothing inherent in the mere acquisition of corporate control that would make acts of waste a necessary or probable result thereof. While it is logically true that “but for” corporate control the alleged acts of corporate waste could not have been committed, the “but for”" test of causation has been fully discredited as a. basis for imposing liability, particularly when, as here, such a test would also be the sole justification for federal intervention in a cause of action otherwise squarely posited on violations of state law. In sum, fraudulent acquisition of corporate control is not the proximate cause of acts of corporate waste. J. I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964) is entirely consistent with the result here reached. In J. I. Case the issue before the Court was, at 428, 84 S.Ct. at 1558, “If paragraph 48(b) is not so indefinite as to be frivolous [because it does not specify in what respect the proxy statement was false and misleading], it should be taken as asserting a violation of Section 14 of the Securities Exchange Act.” “whether § 27 of the [1934] Act authorizes a federal cause of action for rescission or damages to a corporate stockholder with respect to a consummated merger which was authorized pursuant to the use of a proxy statement alleged to contain false- and misleading statements violative of § 14(a) of the [1934] Act.” The Court held in the affirmative. In the course of the opinion, the allegations of plaintiffs were set out, at 429-430, 84 S.Ct. at 1558-1559, as follows: “that petitioners * * * solicited * * * proxies of Case stockholders for use at a special stockholders’ meeting at which the proposed merger with ATC was to be voted upon; that the proxy solicitation material so circulated was false and misleading in violation of § 14(a) of the Act and Rule 14a-9 which the Commission had promulgated thereunder; that the merger was approved at the meeting by a small margin of votes and was thereafter consummated; that the merger would not have been approved but for the false and misleading statements in the proxy solicitation material; and that Case stockholders were damaged thereby.” In J. I. Case, the merger was not only the reasonably foreseeable result of the proxy solicitation; it was the very objective of the proxy solicitation. In that case, the causal relationship between the statutory violation and the merger was intimate and direct. III. CLAIMS BASED ON ALLEGED VIOLATION OF SECTION 14(a) OF THE 1934 ACT. Paragraph 48(b) of the Complaint alleges that the Company’s proxy statement of April 15, 1955 contained false and misleading statements. This was held sufficient in this court’s Prior Decision, at 22-24, to allege a violation of section 14(a) of the 1934 Act and Rule 14a-•9 promulgated by the Commission thereunder. It is not clear from the Complaint what damages are claimed to have resulted from the alleged violation of section 14(a). Having given this matter comprehensive consideration, the court agrees with defendants that “the gravamen of plaintiffs’ claim under section 14 (a) is that allegedly false and misleading statements in American-Hawaiian’s 1955 proxy statement caused stockholders of .American-Hawaiian to sell their stock to defendant Ludwig or to American-Hawaiian, thus, giving defendants control of American-Hawaiian, and enabling ■defendants to commit acts of waste.” :See Complaint, paragraphs 48(b), 49(a), 49(b). Thus stated, the Complaint fails to ¡state a cause of action under section 14 (a) upon which relief can be granted. There is no claim in this case (as there was in J. I. Case, supra) that any corporate action was taken pursuant to the proxies thus solicited. The only claimed injury is said to have resulted from the «circumstance that statements in the proxies caused stockholders other than plaintiffs to sell stock. The fact that the piece of paper upon which the allegedly misleading statements appeared was a proxy statement is irrelevant to the damage claimed. As stated in J. I. Case, at 431, 84 S.Ct. at 1559: “The purpose of § 14(a) is to prevent management or others from obtaining authorization for corporate action by means of deceptive or inadequate disclosure in proxy solicitation. The section stemmed from the congressional belief that ‘[f]air corporate suffrage is an important right that should attach to every equity security bought on a public exchange.’ H.R.Rep.No.1383, 73d Cong., 2d Sess., 13. It was intended to ‘control the conditions under which proxies may be solicited with a view to preventing the recurrence of abuses which * * * [had] frustrated the free exercise of the voting rights of stockholders.’ Id., at 14. ‘Too often proxies are solicited without explanation to the stockholder of the real nature of the questions for which authority to cast his vote is sought.’ S.Rep.No.792, 73d Cong., 2d Sess., 12.” In the absence of some allegation of infringement upon corporate suffrage rights or some corporate action taken as a result of such infringement, no cause of action under seption 14(a) has been made out. Nor could the allegation that false statements appeared in proxy solicitation material be read as stating a cause of action under either section 18(a) or section 10(b) of the 1934 Act, for the reasons discussed above with reference to those sections. IV. CLAIM BASED ON ALLEGED VIOLATION OF SECTION 20(a) OF THE 1940 ACT. Plaintiffs allege, in paragraph 121 of the Complaint, that defendants caused a letter and proxy statement (dated May 16, 1959 and sent by the Company for the special stockholders’ meeting in June, 1959) to give false reasons in favor of an amendment to the Company’s charter. Paragraph 122 of the Complaint alleges that, as a result, the amendment to the charter — authorizing the Company to conduct business as an investment company — was illegal and void. These allegations were held, in the court’s Prior Decision, 22-23, to have stated a cause of action under section 20(a) of the 1940 Act. The rules which have been prescribed by the Commission pursuant to section 20(a) of the 1940 Act adopt by reference the rules prescribed pursuant to section 14(a) of the 1934 Act. See note 8, supra. In an affidavit by defendant Coyle filed June 2, 1964, it is alleged — without contradiction by opposing affidavits — that by the end of April, 1959, defendant Ludwig’s ownership of outstanding stock of the Company was approximately 77 percent. By stipulation (dated June 24, 1964) the parties have agreed that the meeting of the Company’s stockholders called to consider the charter amendment referred to in paragraphs 121 and 122 of the Complaint was held on May 26,1959, and that on that date the applicable New Jersey law was section 14:11-2 of the New Jersey General Corporation Law, which provided that a charter may be amended if two-thirds in interest of each class of stockholders having voting powers shall vote in favor of such amendment, In light of the foregoing, defendants advance this argument: since, at the time of the May, 1959 proxy solicitation, defendant Ludwig already held more than the requisite number of shares to effect the charter amendment, the alleged violation of section 20(a) of the 1940 Aet could not, as a matter of law, have caused the damage claimed. Although facts meeting the “but for” test will not necessarily establish proximate cause, the failure to satisfy that test necessarily negates the possibility of proximate cause. Satisfaction of the “but for” test is a minimum requirement of proximate causation. It will be recalled that the complaint in J. I. Case, supra, at 430, 84 S.Ct. at 1558 alleged “that the merger was approved at the meeting by a small margin of votes and was thereafter consummated; that the merger would not have been approved but for the false and misleading statements in the proxy solicitation material * * [Emphasis added.] Since the charter amendment herein could have been accomplished by defendants regardless of the May, 1959 proxy solicitation, plaintiffs have failed to satisfy the minimum requirement of causation; and their cause of action under section 20(a) of the 1940 Act cannot stand. Accord, Barnett v. Anaconda Co., 238 F.Supp. 766 (S.D.N.Y.1965). Nor is the result here reached, dismissing the claim under § 20(a) of the 1940 Act, inconsistent with Ruckle, supra. It will be recalled that in Ruckle a majority of the board of directors withheld information from the remainder of the board and that thereafter the board approved certain transactions, among which was the issuance of additional treasury stock at an allegedly arbitrarily low price. Although under applicable state law a majority of the board of directors in Ruckle may have had the power to approve the transactions under attack, regardless of disclosure-or non-disclosure, the court in Ruckle did not discuss the issue of causation between the alleged statutory violation and the damage claimed to have resulted therefrom. The result reached in Ruckle, however, can be explained on the grounds that had disclosure been made and it was revealed that the value of the stock was higher than the price arbitrarily ascribed to it, the imminence of relief based upon obvious transgressions of state law would have effectively prevented the board of directors from carrying out their alleged scheme. See Fleischer, supra, 78 Harv. L.Rev. at 1164. In the case at bar, however, there is nothing at all illegal about amending a corporate charter, in and of itself. Thus, regardless of the alleged false reasons given in favor of the proposed amendment, Ludwig, owning 77 percent of the outstanding stock, could have effected the amendment; that is, even had the true reasons been disclosed, nothing would have prevented Ludwig from doing just as he did. V. CLAIM BASED ON ALLEGED VIOLATION OF SECTION 34(b) OF THE 1940 ACT. Paragraph 117 of the Complaint alleges that the registration statement filed by the Company on May 21, 1959 contained false and misleading statements. This allegation was held in the court’s Prior Decision at 27-28, to have stated a violation of section 34(b) of the 1940 Act. This court (in the Prior Decision, at 28) found the damage alleged to have resulted from the violation of section 34(b) of the 1940 Act to be stated in paragraph 51 of the Complaint, as follows: “51. By reason of the wrongful acts of the defendant directors * * * of the Company and defendant * * * Ludwig, the minority shareholders, subsequent to February 9, 1955, were frozen out and in effect disfranchised. They have been unable to exercise any voice in the conduct of the affairs of the Company, elect any director or defeat the proposed amendment to the Company’s charter to authorize it to operate and register as an investment Company [instead of a shipping company].” By stipulation dated June 24,1964, the parties agreed to the following: “3. None of the plaintiffs herein sold American-Hawaiian stock by reason of statements contained in American-Hawaiian’s registration statement dated May 21,1959. None of the plaintiffs herein lost his right to vote his American-Hawaiian stock, or ceased to receive notices of American-Hawaiian stockholders’ meetings by reason of statements contained in American-Hawaiian’s registration statement dated May 21, 1959.” Thus, interpreting the Complaint as favorably as possible, the most that plaintiffs could claim is that sales made by shareholders other than plaintiffs, in reliance upon misleading statements in the May 21, 1959 registration statement, caused damage to plaintiffs in that the effect of these sales was to place Ludwig in control of the Company and thus deprive the now minority shareholders of whatever power they formerly held. There can be no doubt that the claim, as pleaded in paragraph 51 of the Complaint, is one in favor of the minority shareholders and not the corporation. Thus, there is no question here, as there was in relation to section 10(b) of the 1934 Act, as to whether a derivative action would lie under section 34(b) of the 1940 Act for an injury such as the one claimed. Since the claim now under discussion is a representative action, the issue posed is whether such an action can be brought under section 34(b) of the 1940 Act by persons who neither purchased nor sold nor otherwise acted in reliance upon the misleading statements which constitute the section 34(b) violation. However, this issue need not be reached for the following specific reason: assuming arguendo that plaintiffs may sue under section 34(b), it is apparent that by May 21, 1959 the misleading statements could not have caused the damage alleged. As of that date, defendant Ludwig already owned approximately 77 percent of the Company’s shares then outstanding. Consequently, the misleading statements in the May 21, 1959 registration statement could not have had the effect claimed — that is, to place Ludwig in control of the Company. For this specific reason, the cause of action brought under section 34(b) of the 1940 Act must be dismissed. VI. CLAIMS BASED ON ALLEGED VIOLATIONS OF SECTIONS 7(a) (2) AND 7(a) (4) OF THE 1940 ACT. Plaintiffs’ claims under sections 7(a) (2) and 7(a) (4) of the 1940 Act are premised on the fact that the Company— allegedly an investment company within the meaning of section 3(a) of the 1940 Act, 54 Stat. 797 (1940), 15 U.S.C. § 80a-3 (1958) — did not register with the Securities and Exchange Commission as an investment company pursuant to section 8 of the 1940 Act, 54 Stat. 803 (1940), 15 U.S.C. § 80a-8 (1958), until February, 1959. Plaintiffs claim that, during the period in which the Company was not registered as an investment company, it violated sections 7(a) (2) and 7(a) (4) of the 1940 Act by purchasing its own stock from shareholders other than plaintiffs and by engaging in various acts of interstate commerce. Section 7 of the 1940 Act, 54 Stat. 802 (1940), 15 U.S.C. § 80a-7 (1958) relevantly provides as follows: “(a) No investment company organized or otherwise created under the laws of the United States or of a State and having a board of directors, unless registered under section 80a-8 of this title, shall directly or indirectly— * * * * * •» “(2) purchase, redeem, retire, or otherwise acquire or attempt to acquire, by use of the mails or any means or instrumentality of interstate commerce, any security or any interest in a security, whether the issuer of such security is such investment company or another person; * * * * * * “(4) engage in any business in interstate commerce * * *. The damages alleged to have resulted from the claimed violations of sections 7(a) (2) and 7(a) (4) are as follows: 1. As to section 7(a) (2): the Company’s purchases of its stock in 1955, 1957 and 1958 were for no bona fide business purpose; were a diversion of corporate funds and, therefore, constituted acts of waste; the amounts paid for such purchases were more than the market price and, therefore, wasteful; and the purchases placed the defendants in control of the Company whereby defendants were enabled to and did commit various acts of waste. 2. As to section 7(a) (4): various transactions in interstate commerce from 1955 to 1959 resulted in waste of corporate assets. For purposes of this motion, defendants are willing to concede arguendo the truth of all plaintiffs’ allegations, above, but claim that section 3(c) (9) of the 1940 Act exempts the Company from the provisions of the 1940 Act. Since the 1940 Act is inapplicable to the Company, defendants assert, no claims can be based on any alleged violations thereof. The consistency of this latter conclusion, as a matter of formal logic, cannot be denied. The critical issue, therefore, is whether, under section 3(c) (9) the Company has been exempted from the operation of the 1940 Act. Section 3(c) (9) of the 1940 Act, 54 Stat. 799 (1940), 15 U.S.C. § 80a-3 (1958), provides as follows: “(c) Notwithstanding subsections (a) and (b) of this section, none of the following persons is an investment company within the meaning of this subchapter: *• * * *- *• * “(9) Any company subject to regulation under the Interstate Commerce Act, or any company whose entire outstanding capital stock is owned or controlled by such a company: Provided, That the assets of the controlled company consist substantially of securities issued by companies which are subject to regulation under the Interstate Commerce Act.” The relevant undisputed facts are as follows: 1. The American-Hawaiian Steamship Company was incorporated in 1899 under the laws of New Jersey. As indicated by its certificate of incorporation, its principal purpose was the conduct of steamship business. 2. From the time of its incorporation, until 1953, with the exception of wartime interruptions, American-Hawaiian has been actively engaged in the intercoastal steamship trade. In 1953, intercoastal shipping activities were “temporarily” suspended. 3. Since 1953, with the exception of a single intercoastal voyage in June-July, 1955, American-Hawaiian has ceased all intercoastal shipping operations. 4. In June-July, 1955, American-Hawaiian transported a shipment of lumber on its vessel, the SS American, from Newport, Oregon to New York, New York. 5. Beginning in 1955 American-Hawaiian actively investigated the advisability of resuming large-scale intercoastal shipments. The possibility of resumption was dropped in 1957 as unfeasible. 6. On September 18, 1940 Part III of the Interstate Commerce Act was added, 54 Stat. 929, 49 U.S.C. §§ 901-923 (1958), bringing intercoastal water carriers, for the first time, under the regulation of the Interstate Commerce Commission (ICC). 7. On March 17,1942, pursuant to the “grandfather” clause of 49 U.S.C. § 909 (a), the ICC issued to American-Hawaiian a certificate of public convenience and necessity, Docket No. W-475, to operate as a common carrier by water between certain designated Atlantic and Pacific ports. This certificate is still held by American-Hawaiian. 8. In 1956-1957, American-Hawaiian opposed, before the ICC, Pan-Atlantic S.S. Corporation’s application for the issuance of a water carrier certificate authorizing the operation of a competing intercoastal shipping business. Pan-Atlantic S.S. Corp. — Extension—Inter-coastal, 303 I.C.C. 163 (1957). 9. On February 24, 1959, American-Hawaiian filed its notification of registration with the SEC and has, ever since, operated as a registered investment company. In addition to the above facts, it is undisputed that the Company, during the period in question — 1955 to 1959— filed certain reports with, and complied with certain regulations of, the ICC. The ultimate significance of such compliance, in the context of this case, however, is sharply disputed. The basic contentions of the defendants are as follows: 1. The mere fact that the Company held a certificate of public convenience and necessity as a common carrier by water, during all times relevant herein, rendered the Company subject to regulation under the Interstate Commerce Act, and thus exempt under section 3(c) (9) of the 1940 Act. 2. At all relevant times, the Company was actually regulated by the ICC and, thus, exempt under section 3(c) (9) of the 1940 Act. 3. At least as concerns the Company’s purchases of its stock in June, 1955, the Company was exempt under section 3(c) (9) of the 1940 Act because such purchases were coincidental with the June-July intercoastal voyage, pursuant to its certificate of public convenience and necessity, when the Company was actively engaged as a common carrier by water. The basic contentions of the plaintiffs are as follows: 1. Mere possession of the certificate, without more, did not render the Company “subject to regulation under the Interstate Commerce Act” within the meaning of section 3(c) (9) of the 1940 Act; that in order to be subject to regulation by the ICC and hence exempt under section 3(c) (9) of the 1940 Act, the Company must be a common carrier by water within the meaning of 49 U.S.C. § 902(d); that is, the Company must “hold itself out to the general public” to engage in transportation by water. 2. One isolated intercoastal shipment does not satisfy the “holding out” requirement and, thus, at no relevant time was the Company exempt under section 3(c) (9) of the 1940 Act. 3. Any compliance with ICC regulations on the part of the Company was entirely gratuitous. Compliance was offered but not specifically sought. Penalties would not have been invoked for failure to comply. Thus, the Company was not “subject to regulation under the Interstate Commerce Act.” [Emphasis added.] Plaintiffs contend that there is a genuine issue of fact remaining as to whether, from 1955 to 1959, the relevant period, the Company “held itself out” to the general public as a carrier by water within the meaning of 49 U.S.C. § 902(d). Defendants dispute the relevancy of “holding out” but contend that, if relevant, the Company, as a matter of law, did “hold itself out” to the public as a carrier by water. Further, however, if the court should determine that “holding out” does present a genuine issue of fact, defendants are willing to concede for purposes of this motion that the Company did not hold itself out to the public as a carrier during the relevant period. 49 U.S.C. § 902(d) provides as follows : “The term ‘common carrier by water’ means any person which holds itself out to the general public to engage in the transportation by water in interstate or foreign commerce of passengers or property or any class or classes thereof for compensation * * Once the underlying facts are not disputed, as they are not in this case, what constitutes “holding out” within the meaning of the above statute (should such an issue prove relevant) is a question of law: the legal effect to be given an undisputed set of facts. See Willheim v. Murchison, 231 F.Supp. 142, 144 (S.D.N.Y.1964), aff’d, 342 F.2d 33 (2d Cir. 1965). In view of the foregoing, there are no genuine issues of fact. The court is, therefore, free to consider the remainder of defendants’ motion for summary judgment on the merits. The court will first assume that, the June-July, 1955 shipment notwithstanding, the Company, from. 1953 to date, was a dormant carrier; that is, was not a “common carrier by water” within the definition of 49 U.S.C. § 902(d). The first issue then is whether a dormant water carrier, merely because it holds a certificate of public convenience and necessity, is exempt from the provisions of the 1940 Act under section 3(c) (9) thereof. Only if the court concludes that a dormant water carrier is not exempt would it be necessary to decide the effect to be given the June-July, 1955 lumber shipment: whether the combined effect of that shipment and the fact that during 1955-1957 the Company looked into the feasibility of resuming intercoastal shipping and that in 1956-1957 the Company opposed the application of Pan-Atlantic before the ICC was such that the Company had the status of an active water carrier during all relevant times, or at least at the time of the 1955 stock purchases, sufficient to exempt the Company, under section 3(c) (9), from the 1940 Act. Defendants’ first argument premised on decisional law, is that a company holding a certificate of public convenience and necessity issued by the ICC is subject to ICC regulation and, therefore, exempt from the 1940 Act under section 3(c) (9). The principal cases relied on are Trailerships, Inc. — Certificate Transfer, ICC Finance Docket No. 19624 (Sept. 12, 1957); General Transp. Co. v. United States, 65 F.Supp. 981 (D.Mass.), aff’d per curiam, 329 U.S. 668, 67 S.Ct. 75, 91 L.Ed. 590 (1946); Quaker City Bus Co. — Purchase—Blackhawk Line, Inc., 38 M.C.C. 603 (1942) (report of the Commission on reconsideration). In Trailerships, supra, Masters, a motor carrier, applied for a certificate as a coordinated motor-water service, relying on American, a water carrier with a certificate as the other part of the coordination. American, however, went bankrupt and ceased operations. In this same proceeding in which Masters sought its cer