The following motion and supporting memorandum were filed on Thursday, April 4, 2002.
Civil Action No. 00-CV-12485-RCL
___________________________________________ ) Reginald H. Howe, ) Plaintiff, ) ) v. ) ) Bank for International Settlements, et al.,) Defendants. ) ___________________________________________)
Pursuant to Rule 59(e), Fed. R. Civ. P., the plaintiff, Reginald H. Howe, moves that the Order on Defendants’ Motions to Dismiss dated March 26, 2002, and the Judgment of Dismissal entered on the same date be amended as follows:
(1) Count 3. The order dismissing count 3 be amended to allow the plaintiff reasonable opportunity to amend his complaint to state claims for breach of fiduciary duty against all directors of the Bank for International Settlements (the “BIS”) together with claims for breach of contract against the BIS itself; and the judgment of dismissal on count 3 be stayed to allow the plaintiff this opportunity.
(2) Count 4. The Court make a declaration under count 4 with respect to whether the Secretary of the Treasury, through the Exchange Stabilization Fund or otherwise, or officials of the Federal Reserve System have legal or constitutional authority to manipulate gold prices.
By the plaintiff, /s/ Reginald H. Howe ________________________ Reginald H. Howe, Pro Se e-mail: row@ix.netcom.com
April 4, 2002
The plaintiff requests oral argument on this motion and believes that one-half hour should be sufficient for all parties to be heard.
I, Reginald H. Howe, hereby certify that I have conferred with appropriate counsel in an effort to resolve or otherwise narrow the issues raised by this motion, and have been unable to obtain their assent thereto.
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Reginald H. Howe
I, Reginald H. Howe, hereby certify that on April 4, 2002, a true copy of the foregoing motion, together with a true copy of the supporting memorandum, was served by mail, postage prepaid, on counsel of record for each party.
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Reginald H. Howe
Civil Action No. 00-CV-12485-RCL
___________________________________________ ) Reginald H. Howe, ) Plaintiff, ) ) v. ) ) Bank for International Settlements, et al.,) Defendants. ) ___________________________________________)
HIS MOTION TO AMEND JUDGMENT
Pursuant to a Memorandum and Order on Defendants’ Motions to Dismiss (hereinafter the “Order”) dated March 26, 2002, a Judgment of Dismissal was entered on the same date. The plaintiff has filed a timely motion under Rule Rule 59(e), Fed. R. Civ. P., to alter or amend the order and judgment so as: (1) to allow the plaintiff reasonable opportunity to amend his complaint to state claims for breach of fiduciary duty against all directors of the Bank for International Settlements (the “BIS”) together with claims for breach of contract against the BIS itself; and (2) to make a declaration with respect to whether the Secretary of the Treasury, operating through the Exchange Stabilization Fund or otherwise, or officials of the Federal Reserve System have legal or constitutional authority to manipulate gold prices.
This motion and memorandum are principally directed at requesting relief within the basic framework of the Order, not at urging reconsideration of major rulings contained therein. Nothing herein is intended to waive, or should be taken as a waiver of, any issues or arguments available to the plaintiff on appeal.
BE SHOWN ON THE SECURITIES FRAUD AND BREACH OF
FIDUCIARY CLAIMS DUE TO THE UNANIMOUS VOTE OF THE
THE DIRECTORS AUTHORIZING A “MANDATORY” FREEZE-OUT,
THE PLAINTIFF DESERVES AN OPPORTUNITY TO AMEND HIS
COMPLAINT TO ADD BREACH OF FIDUCIARY DUTY CLAIMS
AGAINST ALL DIRECTORS OF THE BIS TOGETHER WITH
BREACH OF CONTRACT CLAIMS AGAINST THE BIS ITSELF.
A. Whether the Share Redemption Was “Mandatory” Is a Disputed Question of Fact.
As the Court noted (Order at 24-25), the plaintiff asserts that “‘the freeze-out transaction involved four principal artifices to defraud the BIS’s private shareholders’ . . . The third was to carry out the mandatory share redemption at all, a procedure that Howe alleges was ‘not authorized under the Convention or the Constituent Charter’ and was used ‘to disguise what amounted to an effective liquidation of the original BIS and its reorganization to a new purpose.'”
The factual basis for this argument was supported by paragraph 12 of the Plaintiff’s Affidavit:
12. A copy of the Statutes of the Bank for International Settlements as amended through November 8, 1999, and in effect until January 8, 2001, is Baer Exhibit D. Nowhere in these Statutes, or in any prior versions of the Statutes that I have seen, is there any reference to the privately owned shares being subject to redemption or any other form of compulsory withdrawal. Nor do these Statutes contain any procedures for implementing a compulsory withdrawal of privately held shares comparable to the minority freeze-out procedures contained, for example, in corporation statutes of certain states in the United States and provinces of Canada. At no time prior to September 11, 2000, did any literature or other material by or about the BIS from any source come to my attention to suggest that a compulsory withdrawal of the privately held shares was within its authority or contemplation.
The BIS as a corporation may be held liable in contract for violating any of the express or implied terms and conditions governing its shares and set forth in the instruments relating thereto. In stating (Order at 27) that “the mandatory share redemption could be – and was – carried out without the approval or participation of the private shareholders of the BIS,” the Court improperly decided a hotly disputed issue of fact.
The complaint in this action was filed on December 7, 2000, thirty days prior to the vote of the directors of the BIS to implement the freeze-out, for the express purpose of giving timely and advance notice of the plaintiff’s objections thereto. At that time, the plaintiff did not have a breach of contract claim since the BIS had not acted on the freeze-out. All the Bank had then done was to claim authority, and state an intent, to engage in what it called a “mandatory” share redemption. Even assuming that existence of such authority would defeat claims for misrepresentation or fraud under Rule 10b-5, the plaintiff is still entitled to litigate whether in fact the BIS had authority to carry out a mandatory share redemption under the terms and conditions of the instruments that governed his shares.
Since the filing of the complaint, the plaintiff has not once requested any extension of time to do anything required under the Rules or by the Court. That over fifteen months have passed from the filing of the complaint to a decision on the defendants’ motions to dismiss is in no way attributable to any delays caused by the plaintiff. Furthermore, notwithstanding the scheduling requirements of Rule 16(b), Fed. R. Civ. P., and Local Rule 16.1(a), no pretrial or case management conference has been held. Accordingly, the plaintiff has not been afforded the opportunity expressly contemplated in Rule 16(c)(2) to discuss amending his complaint to include subsequent claims or events arising out of the same transaction or subject matter.
Under these circumstances, it would be grossly unfair to require the plaintiff to file and serve a new action for breach of contract rather than to allow him to amend his current complaint to add a claim that did not mature until after its filing. This unfairness is further exacerbated by the high cost of serving an initial complaint on the BIS under Article 5 of the Hague Convention, which mandates service of a translation of the complaint into the language of the jurisdiction in which it is served. The German translation of the complaint served on the BIS in this action cost the plaintiff $4695.84.
What is more, the most obvious defense to any contract claim — that it must be submitted to arbitration — has already been fully briefed and argued. Indeed, the existence of an enforceable arbitration provision, like the existence of a mandatory share redemption provision, is a disputed question of fact on which the plaintiff is entitled to jury trial. Consolidated Opp’n at 54-57.
B. The Unanimous Vote of the Directors Does Not Insulate Messrs. Greenspan and McDonough from Liability for Breach of Fiduciary Duty.
The plaintiff’s claims against Messrs. Greenspan and McDonough for breach of fiduciary duty should not be insulated from scrutiny by reason of the fact that they were two of seventeen directors, all of whom voted for the freeze-out after the complaint was filed. All directors of the BIS, who themselves collectively represented the majority central bank shareholders, owed a fiduciary duty to the minority private shareholders. If required under Rule 19, Fed. R. Civ. P., the other fifteen directors can all be named as defendants and served.
Assuming that a claim for breach of fiduciary does not lie against the BIS as a corporation, its directors are all representatives of its principal central bank shareholders, and the BIS itself may be expected as a practical matter to represent the interests of all its member central banks. Accordingly, not only is it doubtful that the other fifteen directors are necessary parties under Rule 19, but also this case is distinguishable from Merola v. Exergen Corp., 423 Mass. 461, 463 n. 3 (1996), cited by the Court.
There the Supreme Judicial Court noted with approval the ruling below by the Massachusetts Appeals Court, which had sua sponte corrected a judgment holding both the corporation and a director jointly and severally liable for the director’s breach of fiduciary duty, stating: “There are outside stockholders in the corporation whose interests are not represented in these proceedings, and they should be unaffected by the outcome of this controversy.” Merola v. Exergen Corp., 38 Mass.App.Ct. 462, 472 (1995). As a result of the freeze-out, there are no shareholders in the BIS other than central banks. All of them have benefitted from the unfairly low freeze-out price in direct proportion to the number of shares they hold.
Typically breach of fiduciary claims against directors in closely held corporations name the corporation as party even though it may not liable on the judgment. This was the procedure in Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578 (1975), where the corporation, three current directors, and a former director and the controlling shareholder, Harry Rodd, were named as defendants, but other members of the Rodd family held shares and participated in the affairs of the corporation. The SJC held (id. at 601): “In testing the stock purchase from Harry Rodd against the applicable strict fiduciary standard, we treat the Rodd family as a single controlling group.” And it added (id. at 602-603): “[N]o express agreement is necessary to demonstrate the identity of interest which disciplines a controlling group acting in unison.”
C. The Federal Reserve Has Derived Special Benefits from the Breaches of Fiduciary Duty by Messrs. Greenspan and McDonough.
Messrs. Greenspan and McDonough were named as individual defendants because they held the two board seats allocated to the shares of the American issue which the plaintiff owned. Accordingly, they had unique fiduciary responsibilities toward that issue because the capital invested by its holders was the sole basis for their board seats since the Federal Reserve bought no shares.
Until the freeze-out, every central bank member of the BIS was required to have capital invested in the Bank by one of two methods or a combination thereof: directly for its own account by purchasing shares in the Bank or indirectly through shares publicly subscribed in its home country. The Fed was the only central bank that relied exclusively on the second method. Absent this capital requirement, there would have been no need to subscribe the American issue in the United States. The shares could have been sold anywhere or to other central banks and the votes assigned to the Fed.
If holders of the American issue were paid full and fair value for their shares in the freeze-out, there is no current capital investment in the Bank on account of these shares, notwithstanding that they are held as treasury shares instead of being canceled. Without a capital investment, there is no basis under the Convention, the Constituent Charter, or the BIS’s practices since its inception for Messrs. Greenspan and McDonough to occupy board positions.
On the other hand, if the private holders did not receive the full and fair value for their shares, as the plaintiff contends, then there remains a residual amount of American capital investment in the Bank that theoretically is available to support the Fed’s continued membership and voting privileges. However, in that event, the voting and membership rights pertaining to this residual capital investment have effectively been transferred to the Fed with no payment therefor to those who put up that capital and their successors in interest, including the plaintiff. This transfer of unpaid for value to the Fed, an institution also represented by Messrs. Greenspan and McDonough, constitutes a breach of fiduciary by them separate and apart from that by all the directors of the BIS in authorizing the freeze-out of the private shareholders at an unfair price.
The Court has not suggested that Messrs. Greenspan and McDonough have any qualified immunity for breaches of fiduciary duty toward holders of the American issue. Nor is there any basis for such immunity. Indeed, there is no basis in fact or law for the ruling (Order at 27, 36-37) that in connection with the freeze-out, they have qualified immunity from the claims of unconstitutional interference with the plaintiff’s property rights under the Fifth Amendment.
As the Court noted (Order at 26-27), when Messrs. Greenspan and McDonough took the American seats on the BIS board in 1994, they did so pursuant to permission from the Secretary of State and the Secretary of Treasury to take the seats allocated to the American issue, then held by private shareholders in accordance with the Bank’s original and unique structure combining characteristics of both public and private institutions. This permission did not, and it could not under the Constitution (Consolidated Opp’n at 31-33), authorize them six years later to commit the United States to membership in the “new” BIS, now restructured as a public international organization like the International Monetary Fund or the World Bank.
GOES TO THE EXISTENCE OF AUTHORITY RATHER THAN
THE EXERCISE OF DISCRETION, AND INVOLVES CONDUCT
THAT POSES A CONTINUING THREAT TO THE PLAINTIFF’S
RIGHTS AND INTERESTS, THE COURT SHOULD ENTER
A DECLARATION WITH RESPECT TO WHETHER THE
EXCHANGE STABILIZATION FUND OR FEDERAL RESERVE
OFFICIALS HAVE AUTHORITY TO MANIPULATE GOLD PRICES.
The fundamental legal and constitutional question in this case is whether the Secretary of the Treasury, acting through the Exchange Stabilization Fund (“ESF”) or otherwise, or officials of the Federal Reserve System have legal or constitutional authority to intervene in the gold market for the purpose and with the intent of affecting gold prices.
As the Court recognized (Order at 12), the plaintiff’s “Freeport-McMoran preferred stock pays dividends in, and will be redeemed for, the cash equivalent of a given quantity of gold,” and further (Order at 14) that the plaintiff alleges injury from the manipulation of gold prices that is not “derivative of an injury to the corporation” but direct to him. By their terms, these gold-denominated preferred shares are not redeemable until February 2006. Complaint, paragraph 14. Thus any illegal or unconstitutional manipulation of gold prices will directly affect the plaintiff until that date.
In brief, the plaintiff asserts (Consolidated Opp’n at 25-29): (1) the Constitution vests in Congress exclusive power to determine the gold weight or value of the dollar (U.S. Const., art. 1, s. 8, cl. 5, and art. 1, s. 10, cl. 1); (2) since 1971, Congress has by various acts mandated that the gold value of the dollar be determined solely by free market forces; and (3) because of these actions by Congress, neither the President and the Secretary of Treasury, operating through the ESF or otherwise, nor any Federal Reserve officials, have authority to intervene in today’s “free” gold market for the purpose of manipulating, suppressing or otherwise affecting dollar gold prices. What is more, none of the defendant public officials has argued in clear language that they have this authority.
As the Court notes (Order at 21) and the plaintiff concedes (Consolidated Opp’n at 27-28), 12 U.S.C. s. 354 authorizes Federal Reserve banks “to deal in gold coin and bullion,” and 31 U.S.C. s. 5302(b) provides that the Secretary of the Treasury, normally through the ESF but perhaps independently as well, “may deal in gold, foreign exchange, and other instruments of credit and securities.” The Court ruled (Order at 21-22, 37) that these provisions are sufficiently elastic to give all these officials reasonable grounds for believing that they have authority to manipulate gold prices even if as a matter of law they do not.
Accordingly, but without any inquiry into their actual states of mind or their reasons for denying that they ever engaged in manipulating gold prices, the Court held that they had established a qualified immunity from the plaintiff’s claims both for specific relief under Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 687-688 (1949), and for damages under Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388, 397 (1971). However, nowhere did the Court address whether the statutory grants of power to “deal in gold” confer authority to manipulate gold prices, and if so, whether they impermissibly delegate or infringe upon the monetary provisions of the Constitution granting Congress exclusive power to set the gold value of the dollar.
Under these circumstances — alleged violations of federal law or the Constitution causing current and future direct and concrete injury to the plaintiff — the Court should make a declaration with respect to whether the conduct complained of — the manipulation of gold prices by federal officials — is permissible. This situation is precisely that for which the Declaratory Judgment Act (28 U.S.C. s. 2201) and the Administrative Procedure Act (5 U.S.C. s. 701 et seq.) were intended. Powell v. McCormack, 395 U.S. 486, 517-518 (1969). Abbott Laboratories v. Gardiner, 387 U.S. 136, 140-141 (1967).
The provision in 31 U.S.C. s. 5302(a)(2) that decisions of the Secretary operating through the ESF “are final and may not be reviewed by another officer or employee of the Government” does not preclude review under s. 701(a)(1) of the APA, which does not apply in cases where “statutes preclude judicial review.” If a district court judge is an “officer” of the United States within the meaning of s. 5302(a)(2), so is a Justice of the Supreme Court, and the provision would preclude review even by that Court of decisions of the Secretary operating through the ESF, including claims of constitutional violations such as the plaintiff makes in this case.
In Califano v. Sanders, 430 U.S. 99, 109 (1977), the Court recognized “the well-established principle that when constitutional questions are in issue, the availability of judicial review is presumed, and we will not read a statutory scheme to take the ‘extraordinary’ step of foreclosing jurisdiction unless Congress’ intent to do so is manifested by ‘clear and convincing’ evidence.” Indeed, where a statute must be read to foreclose judicial consideration of constitutional questions, the constitutionality of the statute itself is brought into question. Johnson v. Robison, 415 U.S. 361, 366-367 (1974). Accord, Webster v. Doe, 486 U.S. 592, 603 (1988), and cases cited. Accordingly, the word “reviewed” in 31 U.S.C. s. 5302(a)(2) should not be construed to include judicial review, but only review by other officers of the executive branch, such as inspector generals, auditors, and the like.
Nor is there any practical need to construe s. 5302(a)(2) to bar all judicial review. Section 701(a)(2) of the APA also makes it inapplicable when “agency action is committed to agency discretion by law.” Thus discretionary and foreign policy judgments pursuant to which the ESF conducts interventions in the foreign exchange markets are inappropriate subjects for judicial review under the APA.
These, however, are activities for which the ESF possesses well-recognized authority. The foreign exchange market is not the gold market, and here the issue is not the exercise of discretion but the existence of authority. What is more, under 31 U.S.C. s. 5302(b), the Secretary is required to operate in a manner “[c]onsistent with the obligations of the Government in the International Monetary Fund on orderly exchange arrangements and a stable system of exchange rates.” Under the IMF’s Articles of Agreement (Art. IV, s. 12(a), as amended), members are committed to “the objective of avoiding the management of the price, or the establishment of a fixed price, in the gold market.” See Consolidated Opp’n at 26.
For the foregoing reasons, the plaintiff should be given reasonable opportunity to amend his complaint as requested, and the Court should make a declaration as requested.
Respectfully submitted, /s/ Reginald H. Howe ________________________ Reginald H. Howe, Pro Se e-mail: row@ix.netcom.com
April 4, 2002
I, Reginald H. Howe, hereby certify that on April 4, 2002, a true copy of the foregoing document was served by mail, postage prepaid, on counsel of record for each party.
______________
Reginald H. Howe