FRIENDLY, Circuit Judge:
Martin Frank, an attorney, appeals, 28 U.S.C. § 1292(a) (1), from a temporary injunction issued by Judge Tyler in the District Court for the Southern District of New York, in an action by the SEC with respect to alleged violations of the fraud provisions of the securities laws, § 17(a) of the Securities Act of 1933 and § 10(b) of the Securities Exchange Act of 1934. The order enjoined Frank pendente lite from "drafting or causing to be drafted any offering circular, prospectus or other document or writing containing any untrue statements of material facts, or omissions to state material facts necessary in order to make the statements made in the light of the circumstances under which they were made, not misleading, concerning Nylo-Thane Plastics Corp.'s principal product, a chemical additive ingredient purportedly designed to reduce the time required in curing rubber * * *."
Nylo-Thane, a defendant in this action, had acquired from Maurice Minuto, whose wife owned two-thirds of its stock, a chemical additive designed to accelerate the curing of rubber. During 1966 it sold 100,000 shares at $3 per share in what purported to be an intra-state offering, in connection with which Minuto had retained Frank to represent it. An offering circular dated October 31, 1966, and an amended offering circular dated March 9, 1967, contained, under the heading "Business of the Company," references to the additive which are reproduced in the margin.
On learning what it considered to be serious misrepresentations in the offering circular with respect to the additive, the SEC, on April 27, 1967, suspended trading in the stock. The company retained a new securities law specialist, who worked out with the Commission a letter correcting the misrepresentations. On May 26 the Commission instituted this action against the company, three officers or stockholders, a financial consultant, and Frank, to enjoin further misrepresentations. All the defendants save Frank, while neither admitting nor denying the allegations of the complaint, consented to entry of a permanent injunction. The Commission thereupon announced that it would not continue the suspension beyond May 27, when the current 10-day suspension order expired, advising investors to "consider carefully information made available by the company concerning its product and information made available in connection with the Commission's injunctive action before effecting transactions in this stock." Securities Exchange Act of 1934 Release No. 8089.
Frank having declined to join the other defendants in consenting to an injunction, the Commission on June 20 moved for a temporary injunction against him. The motion was supported by numerous affidavits and extracts from testimony by Frank and others at an administrative hearing which were alleged to show that he had been aware of the falsity of representations concerning the additive. Frank countered with a notice to take the depositions of various employees of the Commission, as to which the Commission obtained a stay, and with answering affidavits of himself and others. His position, broadly stated, was that the portion of the offering circular alleged to misrepresent the additive had been prepared by the officers of Nylo-Thane and that his function had been that of a scrivener helping them to place their ideas in proper form. Further affidavits were filed by both sides and the SEC's application was argued on July 19. Judge Tyler endorsed on the motion papers a memorandum opinion granting the injunction
Although Frank makes much of this being the first instance in which the Commission has obtained an injunction against an attorney for participation in the preparation of an allegedly misleading offering circular or prospectus, we find this unimpressive. As this court said in United States v. Benjamin, 328 F.2d 854,
Although the moving affidavits of the SEC investigator and others gave ample basis for belief that the circular conveyed what executives of Nylo-Thane must have known to be a misleading impression of the extent to which the additive had proved valuable in practice or even in theoretical testing, the only specific statements as to what Frank knew were that he had seen letters from Genruco Processing Co. and the Army, dated December 6, 1965, and August 4, 1966, respectively, and that Braunston, president of Nylo-Thane, had told him that the Army tests indicated use of the additive resulted in "sulphur bloom" and that "the Company cannot always guarantee that the additive will work."
While the letter from Genruco was not in the SEC's papers, the investigator quoted a statement "that there had not been enough time to have all the physical * * * (properties) * * * checked out." The Army report recited favorable effect with one rubber compound, lack of effect with another, but "prominent blooming" in the former. An answering affidavit of Braunston gave the text of the letter from Genruco a portion of which, not quoted by the SEC investigator, was highly enthusiastic about the additive but which did clearly indicate that factory trials were yet to be made. Braunston added a letter from Vulcanized Rubber and Plastics Co., dated November 30, 1966, given to Frank, which was also optimistic, and denied making the statements the investigator had attributed to him. An answering affidavit by Minuto included a report from Armstrong Rubber Co. dated June 10, 1965, of a rather technical nature, allegedly shown to Frank and claimed to differ materially — to the advantage of the additive — from one described in an affidavit of an Armstrong chemical engineer which the SEC had submitted. Minuto also denied that he or Braunston had ever mentioned "sulphur bloom" to Frank, and asserted that the phenomenon was due to the Army's using a compound with excessive sulphur content and could easily be corrected. A reply affidavit
Frank contends that the order granting a preliminary injunction is procedurally defective in two respects. First, no evidentiary hearing was conducted though the affidavits revealed a dispute about the critical facts. Second, the judge's memorandum did not set forth adequately the necessary findings of fact as required by Rule 52(a).
Decisions on the extent to which F.R. Civ.P. 65 requires a district court to take evidence rather than rely on affidavits before granting or refusing a temporary injunction reflect a tension between the need for speedy action and the desire for certainty and complete fairness. In recognition of the former, Rule 65(b) authorizes a temporary restraining order which may be issued without a hearing. But see Arvida Corp. v. Sugarman, 259 F.2d 428, 429 (2 Cir. 1958) (concurring opinion of Judge Lumbard). During the twenty-day period for which such an order may run, the judge must conduct a "hearing" on a temporary injunction "at the earliest possible time," and at the end of this period he must make a decision conforming with the procedural requirements of the Rules. One standard with respect to the taking of evidence derivable from this framework is that where interlocutory relief is truly needed, Rule 65 demands such but only such thoroughness as a burdened federal judiciary can reasonably be expected to attain within twenty days. Where there is less urgency, as the SEC's failure to seek a temporary restraining order and other circumstances show to have been the case here, the standard may well be higher. Indeed, in such instances the district judge should carefully consider the possible desirability of invoking the power expressly conferred by F.R.Civ.P. 65(a) (2) as amended to "order the trial of the action on the merits to be advanced and consolidated with the hearing of the application" for interlocutory relief.
While it may be impossible to reconcile all the apparently conflicting statements as to the need for taking evidence before issuing a temporary injunction, see 7 Moore, Federal Practice ¶ 65.04 ; Sims v. Greene, 161 F.2d 87, 88-89 (3 Cir. 1947); Ross-Whitney Corp. v. Smith, Kline & French Laboratories, 207 F.2d 190, 198 (9 Cir. 1953); cf. Behre v. Anchor Insurance Co., 297 F. 986, 991 (2 Cir. 1924), analysis of the differing problems presented in such cases may dissipate at least some of the confusion. In many instances there is no serious dispute about the facts; the issues, perhaps very troublesome ones, concern the meaning and applicability of a statute or common law rule. The taking of evidence would serve little purpose in such cases; argument is what the judge requires. In another group there is little dispute as to the raw facts but much as to the inferences to be drawn from them, as well, perhaps, as to the meaning and applicability of the governing statute or common law rule. Although an evidentiary hearing would be of more value in such cases and should be held whenever practicable, it will sometimes be apparent that the magnitude of the inquiry would preclude any meaningful "trial-type" hearing within twenty days. Judge Frank's much cited opinion in Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738 (2 Cir. 1953), affords an example. Although, in fact, the plaintiff called two
The Commission says that, however all this may be in private litigation, a less strict standard as to the need for taking evidence prevails when suit has been brought by an agency representing the public interest. Congress is, of course, free, within the broad limits of due process, to dispense with the requirement of an evidentiary hearing when a federal agency seeks an interlocutory injunction. But the courts have required Congress to speak clearly if it desires to modify basic principles governing equitable relief. See Hecht Co. v. Bowles, 321 U.S. 321, 329-330, 64 S.Ct. 587, 88 L. Ed. 754 (1943); Note, The Statutory Injunction as an Enforcement Weapon of Federal Agencies, 57 Yale L.J. 1023, 1026-34 (1948). And Congress has done so in some instances, see, e. g., Labor Management Relations Act § 10(e), 29 U.S.C. § 160(e); Douds v. Int'l Longshoremen's Ass'n, 242 F.2d 808 (2 Cir. 1957). The language here,
It is true that cases where a government agency seeks interlocutory relief may often be of one or the other of the first two types discussed above; an evidentiary hearing is not required when the dispute concerns only "legislative facts," see 1 Davis, Administrative Law Treatise, § 7.06, or it is evident that the breadth of the issue having to be explored would prevent a meaningful
The per curiam opinion in SEC v. Boren, 283 F.2d 312 (2 Cir. 1960), upon which the Commission strongly relies, is not to the contrary. The court there reiterated the settled principle that "a cessation of the alleged objectionable activities by the defendant in contemplation of an SEC suit will not defeat the district court's power to grant an injunction restraining continued activity." Id. at 313. Once that was recognized, issuance of the injunction without an evidentiary hearing was clearly proper since Boren did not dispute his participation in the objectionable activities for over a year. Neither does F. T. C. v. Rhodes Pharmacal Co., 191 F.2d 744 (7 Cir. 1951), reversing a trial court's denial of a temporary injunction because opposing affidavits revealed a serious factual dispute, sustain the weight the Commission puts on it. This court, in F. T. C. v. Sterling Drug Inc., 317 F.2d 669, 678 (1963), expressly refused to decide whether its teaching should be followed. In any event, the case is distinguishable. The majority regarded the language of § 13 (a) of the Federal Trade Commission Act, which authorizes the F. T. C. to seek a preliminary injunction whenever "it has reason to believe" it would be "to the interest of the public" to enjoin dissemination of a false advertisement or drug pending a full administrative hearing, as showing a Congressional intention to modify normal equitable standards; the combination of an administrative determination before the bringing of suit and the committing of the ultimate decision to the agency subject to normal judicial review afforded a much stronger basis than anything in the securities laws for holding that a court, on an application for a temporary injunction, was not to make the very decision confided to the agency. Finally, we do not regard Bowles v. Montgomery Ward & Co., 143 F.2d 38 (7 Cir. 1944), where the same court had upheld a temporary injunction under § 205(a) of the Emergency Price Control Act of 1942, 56 Stat. 23 (1942), which this court cited, along with Benrus, in SEC v. Boren, supra, as inconsistent with our present decision. In that case the Price Administrator called witnesses in addition to submitting affidavits, the trial judge announced his satisfaction with the appearance, demeanor, training and experience of the witnesses and the defendant adduced no contrary evidence. In any event, decisions enforcing the wartime Emergency Price Control Act afford a rather tenuous basis for reasoning in other areas, see 143 F.2d at 43.
We hold, on similar grounds, that the judge's conclusion, see fn. 2, that "the affidavits of the Commission" — apparently considered without regard to Frank's — "establish a likelihood of success in establishing knowing violations of Section 17a of the Securities Act of
While "findings `are not a jurisdictional requirement of appeal' but only `aid appellate courts in reviewing the decision below,'" Rossiter v. Vogel, 148 F.2d 292, 293 (2 Cir. 1945), quoting from Hurwitz v. Hurwitz, 78 U.S.App.D.C. 66, 136 F.2d 796, 799 (1943), such aid is precisely what we lack here. The propriety of an injunction against Frank turns in no small measure on what he actually knew and did, and the conflicting affidavits, together with the absence of findings, leave us in the gravest doubt just what the district judge thought the facts to be. For this reason we cannot say the failure to make findings was harmless as in Leighton v. One William Street Fund, Inc., 343 F.2d 565, 567 (2 Cir. 1965). Compare Huber Baking Corp. v. Stroehmann Brothers Co., 208 F.2d 464, 467 (2 Cir. 1953); Mallory v. Citizens Utility Co., 342 F.2d 796, 798 (2 Cir. 1965). Here again if there is to be some tempering of the wind in actions involving the public interest, this must depend upon an appropriate weighing of all relevant factors and not on the simple fact that a government agency is the plaintiff. If the judge's failure to make findings rested on the view that the pertinent securities statutes withdrew the case from F.R. Civ.P. 52(a), we think he was mistaken, for reasons previously discussed.
The judgment is reversed for further proceedings consistent with this opinion.
"According to available statistics from the United States Department of Commerce, upwards of five billion pounds of natural and synthetic rubber are processed annually in the United States. Practically all of such processing necessitates curing, so that the potential market for the additive, in view of its proven value in speeding and increasing production, appears to be of considerable proportions, even if only a small percentage of the rubber fabricators adopt its use in their formulations. It is, of course, highly speculative and quite impossible to estimate how much, if any, of this potential market will actually become users of the additive and customers of the Company. However, again assuming that even a small percentage of the manufacturers comprising this market will adopt the use of the additive on the basis of its proven productive value, the Company envisions potential sales of its product in quantities of millions of pounds, which, if realized, would result in a large volume of sales and a considerable potential profit. Management has tentatively fixed the sales price of its additive product to provide a reasonable return to the Company and at the same time should constitute an appealing cost to the prospective buyer, in view of the additive's ability to raise productive capacity in a degree substantially exceeding the expense of its usage in production."
"The Company's additive was subjected to various tests by the United States Army laboratory at Natick, Massachusetts as well as by a number of leading rubber companies. While the Company was extremely satisfied with the results, there is no assurance that the results of the test will bring the Company any orders for the additive."
"After hearing today, I am convinced that the affidavits of the Commission establish a likelihood of success in establishing knowing violations of Section 17a, of the Securities Act of 1933 and a need pending this litigation to prevent any further possible misstatements in offering circulars and writings relating to Nylo-Thane Plastics Corp. securities. A narrowly drawn injunction order as described by the Court during argument should be settled on notice."