author: Mr. Justice Powell MR. Justice Brennan, Mr. Justice Rehnquist, Mr. Justice Marshall,

text:
    LEE v. UNITED STATES
    No. 76-5187.
    Argued April 25, 1977
    Decided June 13, 1977

      Powell, J., delivered the opinion of the Court, in which Burger, C. J., and Brennan, Stewart, White, Blackmun, Rehnquist, and Stevens, JJ., joined. Brennan, J., post, p. 34, and Rehnquist, J., post, p. 36, filed concurring opinions. Marshall, J., filed a dissenting opinion, post, p. 37.

      Joseph P. Bauer, by appointment of the Court, 430 U. S. 928, argued the cause for petitioner. With him on the briefs was Conrad Kellenberg. [Reporter’s Note: Messrs. Bauer and Kellenberg represented petitioner before this Court only. Cf. post, at 34, 37, and 38.]

      Deputy Solicitor General Frey argued the cause for the United States. With him on the brief were Solicitor General McCree, Assistant Attorney General Civiletti, and Jerome M. Feit.

   Mr. Justice Powell

delivered the opinion of the Court.

At the first trial in this case the District Court, having heard the evidence, granted petitioner’s motion to dismiss the information for failure to provide adequate notice of the crime charged. Petitioner was retried and convicted. The question is whether the second trial violated the Double Jeopardy Clause.

I

On December 21, 1973, petitioner Phillip Jerome Lee stole two billfolds from the blind operator of a newsstand and candy concession in the lobby of the United States Post Office in Fort Wayne, Ind. A security guard saw Lee take the billfolds and apprehended him as he tried to escape. In an information filed on February 6, 1974, in the United States District Court for the Northern District of Indiana, the Government charged Lee with the crime of theft, in violation of the Assimilative Crimes Act, 18 U. S. C. § 13, and the applicable Indiana statute, Ind. Code Ann. § 10-3030 (1971 ). Although the defect did not come to light before trial, the allegations of the information were incomplete. The Indiana statute requires proof that the theft be committed knowingly and with intent to deprive the victim of his property. The information made no mention of knowledge or intent and charged only that Lee “did take and steal” the billfolds in violation of the statute. App. 4.

Some two months before trial, Lee’s lawyer withdrew and another was appointed to represent him. Lee waived his right to a jury trial and on July 16, 1974, a bench trial began as scheduled. After the prosecutor’s opening statement, Lee’s new lawyer moved to dismiss the information. The court remarked that the timing of the motion would make full consideration difficult:

“Well, I will consider it, but you certainly were in the case before this morning. It is difficult to deal with a motion to dismiss if you raise any technical questions, and you don’t give me the opportunity in advance of trial to research them. So I will hear you, but you have that problem.” Id., at 8.

Counsel then called the court’s attention to the lack of any allegation of knowledge or intent in the information. Referring the court to the Indiana case of Miller v. State, 250 Ind. 338, 236 N. E. 2d 173 (1968), he argued that if an information failed to charge the specific intent required by § 10-3030, “then the Information must be dismissed.” App. 9. The court tentatively denied the motion:

“Well, since I have had no opportunity to study this at all, I will deny the motion at this time, but at my first opportunity I will check your citation and give consideration as appears to be warranted.
“Is there anything further by way of opening statement?” Ibid.

Defense counsel proceeded to outline Lee’s defense. He offered no objection to going forward with the trial subject to the court’s further study of his motion to dismiss.

The trial lasted less than two hours. After the Government had presented its case, consisting of the testimony of the security guard and the victim, the court recessed for 15 minutes. After the recess Lee moved for a judgment of acquittal on the ground that the prosecution had failed to establish the required intent to deprive the victim of his property. Taking care to distinguish this motion from the earlier motion to dismiss on which it had “reserved the right to do some research,” the court found sufficient evidence of intent to withstand any motion “directed to the Government’s proof.” Id., at 12-13.

The defense then rested without presenting any evidence, and the court returned to the defense motions, again distinguishing between them. Speaking to defense counsel, the court said:

“Your motion addressed to the Government’s proof borders on being frivolous. Your client has been proven [sic] beyond any reasonable doubt in the world, there is no question about his guilt; none whatsoever.” Id., at 13.

The court nonetheless found it necessary to grant the motion to dismiss because of the failure of the information to charge either knowledge or intent:

“The Federal law cases are legion that the sufficiency of the charges is dependent upon its containing the allegations of all of the elements, and all of the elements here are established by the state statute.
“As much as I dislike doing so, I have no alternative but to grant your original motion of dismissal and the charge is dismissed.” Id., at 14.

On September 25, 1974, Lee again was charged with the theft, this time in an indictment alleging all of the elements of the assimilated Indiana crime. On substantially the same evidence as had been presented at the first trial, he was convicted. On appeal, the Court of Appeals for the Seventh Circuit affirmed, rejecting Lee’s claim that the second trial was barred by the Double Jeopardy Clause. 539 F. 2d 612 (1976). We granted certiorari to consider the double jeopardy issue. 429 U. S. 1037 (1977).

II

In urging that his second trial was barred by the Double Jeopardy Clause, petitioner directs his principal arguments to the conduct of the first proceeding. He contends (i) that he should never have had to undergo the first trial because the court was made aware of the defective information before jeopardy had attached; and (ii) that once the court had' determined to hear evidence despite the defective charge, he was entitled to have the trial proceed to a formal finding of guilt or innocence. The Government responds that petitioner had only himself to blame in both respects. By the last-minute timing of his motion to dismiss, he virtually assured the attachment of jeopardy; and by failing to withdraw the motion after jeopardy had attached, he virtually invited the court to interrupt the proceedings before formalizing a finding on the merits. We think that the Government has the better of the argument on both points under the principles explained in our decision in United States v. Dinitz, 424 U. S. 600 (1976).

A

The arguments of both sides proceed from the premise that the result in this case would be no different had the District Court characterized its termination of the first trial as a declaration of mistrial rather than a dismissal of the information. We too begin with this premise, although we think it requires qualification in light of United States v. Jenkins, 420 U. S. 358 (1975).

In Jenkins the District Court, having heard the evidence in a bench trial, dismissed an indictment charging refusal to submit to induction into the Armed Services. Under the law of the Second Circuit as it stood at the time of the offense, the induction order was improper and the defendant could not be convicted, although a subsequent decision of this Court had held otherwise. Reasoning that retroactive application of the intervening decision would be unfair, the District Court held that it could not “permit the criminal prosecution of the defendant . . . without seriously eroding fundamental and basic equitable principles of law.” 349 F. Supp. 1068, 1073 (EDNY 1972), quoted at 420 U. S., at 362. On this basis, and without entering any general finding of guilt or innocence, the District Court dismissed the indictment and discharged the defendant.

The issue before this Court was whether a Government appeal from the District Court’s order would violate the Double Jeopardy Clause. Because of the absence of any general finding of guilt, it was clear that if the Government prevailed on the merits of its appeal, further trial proceedings would be needed to resolve “factual issues going to the elements of the offense charged.” Id., at 370. We held that such proceedings would violate the double jeopardy guarantee: “The trial, which could have resulted in a judgment of conviction, has long since terminated in respondent’s favor.” Ibid. In resting our decision on this ground, we recognized that it was “of critical importance” that the proceedings in the trial court had terminated “in the defendant’s favor” rather than in a mistrial. Id., at 365 n. 7.

The distinction drawn by Jenkins does not turn on whether the District Court labels its action a “dismissal” or a “declaration of mistrial.” The critical question is whether the order contemplates an end to all prosecution of the defendant for the offense charged. A mistrial ruling invariably rests on grounds consistent with reprosecution, see United States v. Jorn, 400 U. S. 470, 476 (1971) (plurality opinion), while a dismissal may or may not do so. Where a midtrial dismissal is granted on the ground, correct or not, that the defendant simply cannot be convicted of the offense charged, Jenkins establishes that further prosecution is barred by the Double Jeopardy Clause.

In the present case, the proceedings against Lee cannot be said to have terminated in his favor. The dismissal clearly was not predicated on any judgment that Lee could never be prosecuted for or convicted of the theft of the two wallets. To the contrary, the District Court stressed that the only obstacle to a conviction was the fact that the information had been drawn improperly. The error, like any prosecutorial or judicial error that necessitates a mistrial, was one that could be avoided — absent any double jeopardy bar — by beginning anew the prosecution of the defendant. And there can be little doubt that the court granted the motion to dismiss in this case in contemplation of just such a second prosecution. In short, the order entered by the District Court was functionally indistinguishable from a declaration of mistrial.

We conclude that the distinction between dismissals and mistrials has no significance in the circumstances here presented and that established double jeopardy principles governing the permissibility of retrial after a declaration of mistrial are fully applicable.

B

When the District Court terminated the first trial in this case it did not act sua sponte but in response to a motion by defense counsel. In United States v. Dinitz, we examined the permissibility of retrial in an analogous situation where the trial court had granted a defense motion for mistrial.

In that case, after jeopardy had attached but well before verdict, the trial judge had excluded one of the defendant’s lawyers from the courtroom for repeatedly disregarding his instructions. The defendant’s remaining lawyer moved for a mistrial and the court granted the motion. The defendant was indicted again on the same charge, his double jeopardy claims were rejected, and he was convicted. When the double jeopardy issue reached this Court, we held that the defendant’s second trial on the same charge did not violate the Fifth Amendment.

Writing for the Court, Mr. Justice Stewart reiterated the rule that “ 'where circumstances develop not attributable to prosecutorial or judicial overreaching, a motion by the defendant for mistrial is ordinarily assumed to remove any barrier to reprosecution, even if the defendant’s motion is necessitated by prosecutorial or judicial error.’ ” 424 U. S., at 607, quoting United States v. Jorn, supra, at 485 (plurality opinion). Recognizing that a prejudicial error committed by court or prosecutor generally presents the defendant with a “Hobson’s choice,” Mr. Justice Stewart nevertheless stressed the importance of preserving the defendant’s “primary control over the course to be followed in the event of such error.” 424 U. S., at 609.

“Even when judicial or prosecutorial error prejudices a defendant’s prospects of securing an acquittal, he may nonetheless desire 'to go to the first jury and, perhaps, end the dispute then and there with an acquittal.’ United States v. Jorn, supra, at 484. Our prior decisions recognize the defendant’s right to pursue this course in the absence of circumstances of manifest necessity requiring a sua sponte judicial declaration of mistrial. But it is evident that when judicial or prosecutorial error seriously prejudices a defendant, he may have little interest in completing the trial and obtaining a verdict from the first jury. The defendant may reasonably conclude that a continuation of the tainted proceeding would result in a conviction followed by a lengthy appeal and, if a reversal is secured, by a second prosecution. In such circumstances, a defendant’s mistrial request has objectives not unlike the interests served by the Double Jeopardy Clause — the avoidance of the anxiety, expense, and delay occasioned by multiple prosecutions.” Id., at 608.

Where the defendant, by requesting a mistrial, exercised his choice in favor of terminating the trial, the Double Jeopardy Clause generally would not stand in the way of reprosecution. Only if the underlying error was “motivated by bad faith or undertaken to harass or prejudice/’ id., at 611, would there be any barrier to retrial:

“The Double Jeopardy Clause does protect a defendant against governmental actions intended to provoke mistrial requests and thereby to subject defendants to the substantial burdens imposed by multiple prosecutions. It bars retrials where ‘bad-faith conduct by judge or prosecutor/ United States v. Jorn, supra, at 485, threatens the ‘[h]arassment of an accused by successive prosecutions or declaration of a mistrial so as to afford the prosecution a more favorable opportunity to convict’ the defendant. Downum v. United States, 372 U. S. [734, 736 (1963)]....” Ibid.

It remains only to apply these principles to the present case.

C

In this case, as in Dinitz, the proceedings were terminated at the defendant’s request and with his consent. Although petitioner’s motion to dismiss the information was initially denied in the course of opening arguments just before the attachment of jeopardy, the court’s remarks left little doubt that the denial was subject to further consideration at an available opportunity in the proceedings — a fact of which the court reminded counsel after the close of the prosecution’s evidence. Counsel for petitioner made no effort to withdraw the motion, either after the initial denial or after the court’s reminder that the motion was still under consideration. And counsel offered no objection when the court, having expressed its views on petitioner’s guilt, decided to terminate the proceedings without having entered any formal finding on the general issue.

It follows under Dinitz that there was no double jeopardy barrier to petitioner’s retrial unless the judicial or prosecu-torial error that prompted petitioner’s motion was “intended to provoke” the motion or was otherwise “motivated by bad faith or undertaken to harass or prejudice” petitioner. Supra, at 33. Here, two underlying errors are alleged: the prosecutor’s failure to draft the information properly and the court’s denial of the motion to dismiss prior to the attachment of jeopardy. Neither error — even assuming the court’s action could be so characterized — was the product of the kind of overreaching outlined in Dinitz. The drafting error was at most an act of negligence, as prejudicial to the Government as to the defendant. And the court’s failure to postpone the taking of evidence until it could give full consideration to the defendant’s motion, far from evidencing bad faith, was entirely reasonable in light of the last-minute timing of the motion and the failure of counsel to request a continuance or otherwise impress upon the court the importance to petitioner of not being placed in jeopardy on a defective charge.

We hold that petitioner’s retrial after dismissal of the defective information at his request did not violate the Double Jeopardy Clause.

Affirmed.

MR. Justice Brennan,

concurring.

I join the Court’s opinion. In so doing, I want to make plain that I read the opinion as signaling no retreat from a cardinal principle of double jeopardy law: A criminal defendant possesses a “valued right to have his trial completed by a particular tribunal,” Wade v. Hunter, 336 U. S. 684, 689 (1949), and the trial judge is obligated to take reasonable action in protection of this right, United States v. Jorn, 400 U. S. 470, 485-486 (1971) (plurality opinion). In the present case I agree with the Court that the conduct of the prosecutor did not constitute unfair overreaching, and the conduct of the District Court was “entirely reasonable” in proceeding with the trial and ruling on petitioner’s motion after further study. Although jeopardy had not officially attached, the defendant’s motion to dismiss the information appeared so late in the day — during the opening statements — as virtually to guarantee that the trial judge would act as he did. This is especially true in the case of a challenge to an information charging an assimilated crime, for prudence might well counsel a federal judge’s delaying any ruling pending further study. Certainly in this case the District Court cannot be faulted for failing to foresee that defendant’s legal contention would be so easily resolved. While a continuance of the trial would have been a possibility if sought by petitioner or even on the court’s own motion, I agree that the trial judge performed reasonably in not sua sponte stopping a trial in the middle of the opening statements and before any evidence was taken.

I emphasize, however, that an entirely different case would be presented if the petitioner had afforded the trial judge ample opportunity to rule on his motion prior to trial, and the court, in failing to take advantage of this opportunity, permitted the attachment of jeopardy before ordering the dismissal of the information. In such a circumstance, the court’s action or inaction would effectively deprive petitioner of his “valued right” to receive a factual determination from the first empaneled factfinder and would subject a defendant to the “embarrassment, expense and ordeal” of a needless trial, Green v. United States, 355 U. S. 184, 187 (1957). Even if the defendant renews his motion at trial, it would not be accurate in such a situation to argue that the defense has made the choice to forgo the right of presenting its case to the first factfinder in order to attain a beneficial legal ruling. United States v. Dinitz, 424 U. S. 600 (1976); United States v. Jorn, supra, at 485. On the contrary, the defendant placed in this predicament by the trial judge would have done everything in his power to receive a fair adjudication of his legal claims without compromising his right to proceed with the first factfinder. Honoring his double jeopardy claim thus not only is in keeping with the policies and interests served by the Clause, but also would further the cause of efficient judicial administration by encouraging defendants to present, and judges to rule, on legal claims prior to the clamor and heat of trial.

Mr. Justice Rehnquist,

concurring.

When two Terms ago the Court decided Jenkins v. United States, 420 U. S. 358 (1975), and United States v. Wilson, 420 U. S. 332 (1975), I had thought that a precedential foundation had been laid for double jeopardy analysis which, though perhaps somewhat oversimplified, would at least afford all of the many courts in the country which inust decide such questions explicit guidance as to what we deemed the Constitution to require. I thought that dismissals (as opposed to mistrials) if they occurred at a stage of the proceeding after which jeopardy had attached, but prior to the factfinder’s conclusion as to guilt or innocence, were final so far as the accused defendant was concerned and could not be appealed by the Government because retrial was barred by double jeopardy. This made the issue of double jeopardy turn very largely on temporal considerations — if the Court granted an order of dismissal during the factfinding stage of the proceedings, the defendant could not be reprosecuted, but if the dismissal came later, he could. I had thought that United States v. Perez, 9 Wheat. 579 (1824), and Illinois v. Somerville, 410 U. S. 458 (1973), offered a different basis for the treatment of mistrials, which by definition contemplate a second prosecution.

This “bright line” analysis was circumvented, however, by the Court’s decision in United States v. Martin Linen Supply Co., 430 U. S. 564 (1977), in which I did not take part. There the Court held that even though the judgment of acquittal by the court (which I would not treat differently from a judgment of dismissal) occurred after the factfinding portion of the proceedings had aborted in a mistrial, but before the attachment of any jeopardy in a second trial, the second trial was nonetheless barred by double jeopardy.

In view of this development, I feel free to re-examine the assumptions I made when writing Jenkins and voting in Wilson. I think that the Court’s opinion in the present case, though not completely in accord with those assumptions, is a well-articulated and historically defensible exposition of the Double Jeopardy Clause of the Bill of Rights. Since my assumptions did not at any rate survive United States v. Martin Linen Supply Co., supra, I join the Court’s opinion.

Mr. Justice Marshall,

dissenting.

It is apparent to me that this Court has today deliberately passed up an opportunity to exercise its supervisory power to prohibit rather than to condone fundamental errors in criminal procedure. At the close of its opinion, ante, at 34, the Court states the problem and its solution:

“Here, two underlying errors are alleged: the prosecutor’s failure to draft the information properly and the court’s denial of the motion to dismiss prior to the attachment of jeopardy. Neither error — even assuming the court’s action could be so characterized — was the product of the kind of overreaching outlined in Dinitz. The drafting error was at most an act of negligence, as prejudicial to the Government as to the defendant. And the Court’s failure to postpone the taking of evidence until it could give full consideration to the defendant’s motion, far from evidencing bad faith, was entirely reasonable in light of the last-minute timing of the motion and the failure of counsel to request a continuance or otherwise impress upon the court the importance to petitioner of not being placed in jeopardy on a defective charge.”

Throughout today’s opinion, my Brother Powell puts all of the blame on petitioner’s lawyer, none on the United States Attorney and, indeed, does not even mention him. Sole responsibility for the faulty information was in the office of the United States Attorney. Even when drafting errors are committed, they can be corrected before judgment, Fed. Rule Crim. Proc. 7 (e). In this case the United States Attorney never made any effort to defend the information and did not offer to amend and correct the error. Certainly most of the responsibility for the erroneous first trial rests with the Government. “[T]hough the attorney for the sovereign must prosecute with earnestness and vigor, he must always be faithful to his client’s overriding interest that 'justice shall be done.’ ” United States v. Agurs, 427 U. S. 97, 110-111 (1976).

When the motion to dismiss the information was made, the court ruled: "Well, since I have had no opportunity to study this at all, I will deny the motion at this time, but at my first opportunity I will check your citation and give consideration as appears to be warranted.” App. 9. Less than two hours thereafter the court recessed for 15 minutes, and dismissed the information with the following comment:

“As much as I dislike doing so, I have no alternative but to grant your original motion of dismissal and the charge is dismissed.
"... I don’t know who drafted it, but I can tell you if a law clerk of mine out of law school drafted something like that, I would send him back for a refresher course. You may carry that complete message back to your department.” Id., at 14.

Can there be any doubt that if the 15-minute recess had been taken at the beginning of the trial the motion would have been granted before jeopardy attached?

Since petitioner was needlessly placed in jeopardy twice for the same offense over his objection, I would reverse his conviction.

       The statute provides in pertinent part that a person commits theft when he “knowingly . . . obtains or exerts unauthorized control over property of the owner . . . and . . . intends to deprive the owner of the use or benefit of the property This provision has been repealed effective July 1, 1977.

       Federal Rule Crim. Proe. 7 (e) provides that a district court “may permit an information to be amended at any time béfore verdict or finding if no additional or different offense is charged and if substantial rights of the defendant are not prejudiced.”
      At no time in the course of the first trial did either the' defense or the prosecution raise the possibility that the information might be amended under this provision.

       As this was a bench trial, jeopardy did not attach until the court began to hear evidence. Serfass v. United States, 420 U. S. 377, 388 (1975).

       Both sides assume that the District Court’s statements, made to justify denial of Lee’s motion for judgment of acquittal, that he had been “proven [sic] beyond any reasonable doubt in the world” and that there was “no question about his guilt; none whatsoever,” supra, at 26, do not amount to a general finding of guilt. We agree that the court’s comments, in the context in which they were made, cannot be viewed fairly as a general finding of guilt analogous to a jury verdict. See n. 7, infra.

       In a single footnote to his main brief, petitioner appears to rely on a distinction “between an action terminated by mistrial and one terminated by dismissal.” Brief for Petitioner 18 n. 25. But in the text of that brief petitioner consistently assumes that the permissibility of retrial is controlled by the same considerations in either case. Id., at 14r-25. And at oral argument, counsel conceded that “whether [the termination of the first trial] is characterized as a mis-trial or characterized as a dismissal, the result in this case must be the same.” Tr. of Oral Arg. 17.

       The findings and conclusions accompanying the District Court’s order left it unclear whether the court had ruled only that the intervening decision was not retroactive or had found, in addition, that the defendant’s reliance on prior law had deprived him of the required criminal intent. See 420 U. S., at 362 n. 3, and 367-368.

       In United States v. Wilson, 420 U. S. 332 (1975), we held that the Double Jeopardy Clause would permit a Government appeal from a post-verdict ruling because the only result of reversal would be reinstatement of the verdict. But in Jenkins the District Court had not reached a general finding of guilt that could be reinstated if the Government prevailed on the merits of its appeal. We noted that “[e]ven if the District Court were to receive no additional evidence, it would still be necessary for it to make supplemental findings.” 420 U. S., at 370.

       The Court of Appeals had held that the order dismissing the indictment was an acquittal since the District Court had relied on facts developed at trial and had concluded that the statute should not be applied to Jenkins “as a matter of fact.” 490 P. 2d 868, 878 (CA2 1973), quoted at 420 U. S., at 364. Our disposition made it unnecessary to address the validity of this reasoning. We recently made it clear that a trial court's ruling in favor of the defendant is an acquittal only if it "actually represents a resolution, correct or not, of some or all of the factual elements of the offense charged.” United States v. Martin Linen Supply Co., 430 U. S. 564, 571 (1977). In this case, petitioner concedes, as he must, that the District Court's termination of the first trial was not an acquittal.

       In Illinois v. Somerville, 410 U. S. 458 (1973), a state prosecutor made precisely the same mistake as was made in this case in drafting an indictment for theft. Discovery of the defect in the course of trial led the trial court to declare a mistrial over the defendant’s objection. We held that termination of the trial was dictated by “manifest necessity” under the standard first articulated in United States v. Perez, 9 Wheat. 579, 580 (1824). There is no reason to believe that Somerville would have been analyzed differently if the trial judge, like the District Court here, had labeled his action a “dismissal” rather than a mistrial. In Jenkins we referred specifically to Somerville in distinguishing proceedings that end in mistrials from those that end “in the defendant’s favor.” 420 U. S., at 365 n. 7.

       What has been said is sufficient to dispose of petitioner’s further claim that his retrial violated the Due Process Clause of the Fifth Amendment. Cf. Palko v. Connecticut, 302 U. S. 319, 328 (1937).

       "A defendant has no duty to bring himself to trial; the State has that duty as well as the duty of insuring that the trial is consistent with due process.” Barker v. Wingo, 407 U. S. 514, 527 (1972) (footnotes omitted).

       Since this was a bench trial without a jury there was not even a need to call a “recess”; the Judge could have postponed the taking of testimony for 15 minutes.


source: Caselaw Access Project

license: Public Domain

text:
    UNITED STATES v. CALIFORNIA
    No. 5,
    Orig.
    Decided June 23, 1947, and May 17, 1965 — Order and decree entered October 27, 1947 — Supplemental decree entered January 31, 1966
    Second supplemental decree entered June 13, 1977
   SECOND SUPPLEMENTAL DECREE

For the purpose of identifying with greater particularity parts of the boundary line, as defined by the Supplemental Decree of January 31, 1966, 382 U. S. 448, between the submerged lands of the United States and the submerged lands of the State of California, it is ORDERED, ADJUDGED AND DECREED that this Court's Supplemental Decree of January 31, 1966, be, and the same is hereby, further supplemented as follows:

1.Closing Lines Across Entrances to Bodies of Inland Waters

a. The inland waters of the following bodies of water are enclosed by straight lines between the mean lower low-water lines at the seaward ends of the jetties located at their mouths:

1. Humboldt Bay
2. Port Hueneme
3. Santa Ana River
4. Agua Hedionda Lagoon

b. The inland waters of San Francisco Bay are those enclosed by a series of straight lines from the southwestern head of Point Bonita (37°48'56"N, 122°31' 44"W); thence to the western edge of an unnamed island immediately to the south (37°48/55"N, 122°31/44.2//W); thence southward to the western edge of a second unnamed island (37°48/53"N,- 122°31'44"W); thence southward to the western edge of a third unnamed island (37°46'57"N, 122°30'52"W); thence to a western head of Point Lobos (37°46'53"N, 122°30'49"W). The length of this closing line is 2.18 nautical miles.

c. The inland waters of Bodega-Tomales Bay are those enclosed by a straight line drawn from Bodega Head (38° 17'53.8"N, 123°03/25.3"W); thence to the western edge of an unnamed island northwest of Tómales Point (38° 14'28.4"N, 122°59'41.5"W); thence southward to Tómales Point (38°14/26.5"N, 122°59'39"W).

d. The closing lines delineated in the foregoing paragraph are part of the coastline of California; The foregoing is without prejudice to the right of either party to assert or deny that other closing lines are part of the coastline of California for purposes of establishing the Federal-State boundary line under the Submerged Lands Act, 67 Stat. 29, as amended.

2. Artificial Extensions of the Coastline

The mean lower low-water line along each of the following structures is part of the coastline of California for purposes of establishing the Federal-State boundary line under the Submerged Lands Act:

a. The Morro Bay breakwater
b. The Port San Luis breakwater
c. The Santa Barbara breakwater
d. The Ventura Marina breakwater
e. The Channel Islands Harbor breakwater
f. Three rubble groins at Point Mugu
g. The Santa Monica breakwater
h. The Venice Beach groin
i. The Marina del Rey breakwater
j. Three rubble groins along Dockweiler Beach
k. The Redondo Beach breakwater
l. Two harbor jetties at Newport Bay
m. The Dana Point breakwater
n. The Oceanside breakwater
o. Two harbor jetties at entrance to Mission Bay
p. The Zuniga jetty at San Diego (including the southern seaward end of this entire structure)

The foregoing is without prejudice to the right of either party to assert or deny that other artificial structures are part of the coastline of California for purposes of establishing the Federal-State boundary line under the Submerged Lands Act.

3. The Court retains jurisdiction to entertain such further proceedings, enter such orders, and issue such writs as may from time to time be deemed necessary or advisable to give proper force and effect to this decree or to effectuate the rights of the parties in the premises.


author: Per Curiam. Mr.. Justice Rehnquist, with whom The Chief Justice and Mr. Justice Stewart join,

text:
    NATIONAL SOCIALIST PARTY OF AMERICA et al. v. VILLAGE OF SKOKIE
    No. 76-1786.
    Decided June 14, 1977
   Per Curiam.

On April 29, 1977, the Circuit Court of Cook County entered an injunction against petitioners. The injunction prohibited them from performing any of the following actions within the village of Skokie, Ill.: “[m]arching, walking or parading in the uniform of the National Socialist Party of America; [m]arching, walking or parading or otherwise displaying the swastika on or off their person; [distributing pamphlets or displaying any materials which incite or promote hatred against persons of Jewish faith or ancestry or hatred against persons of any faith or ancestry, race or religion.” The Illinois Appellate Court denied an application for stay pending appeal. Applicants then filed a petition for a stay in the Illinois Supreme Court, together with a request for a direct expedited appeal to that court. The Illinois Supreme Court denied both the stay and leave for an expedited appeal. Applicants then filed an application for a stay with Mr. Justice Stevens, as Circuit Justice, who referred the matter to the Court.

Treating the application as a petition for certiorari from the order of the Illinois Supreme Court, we grant certiorari and reverse the Illinois Supreme Court’s denial of a stay. That order is a final judgment for purposes of our jurisdiction, since it involved a right “separable from, and collateral to” the merits, Cohen v. Beneficial Loan Corp., 337 U. S. 541, 546 (1949). See Abney v. United States, 431 U. S. 651 (1977); cf. Cox Broadcasting Corp. v. Cohn, 420 U. S. 469, 476-487 (1975). It finally determined the merits of petitioners’ claim that the outstanding injunction will deprive them of rights protected by the First Amendment during the period of appellate review which, in the normal course, may take a year or more to complete. If a State seeks to impose a restraint of this kind, it must provide strict procedural safeguards, Freedman v. Maryland, 380 U. S. 51 (1965), including immediate appellate review, see Nebraska Press Assn. v. Stuart, 423 U. S. 1319, 1327 (1975) (Blackmun, J., in chambers). Absent such review, the State must instead allow a stay. The order of the Illinois Supreme Court constituted a denial of that right.

Reversed and remanded for further proceedings not inconsistent with this opinion.

So ordered.

Mr. Justice White would deny the stay.

Mr.. Justice Rehnquist, with whom The Chief Justice and Mr. Justice Stewart join,

dissenting.

The Court treats an application filed here to stay a judgment of the Circuit Court of Cook County as a petition for certiorari to review the refusal of the Supreme Court of Illinois to stay the injunction. It summarily reverses this refusal of a stay. I simply do not see how the refusal of the Supreme Court of Illinois to stay an injunction granted by an inferior court within the state system can be described as a “[fj-inal judgmen[t] or decre[e] rendered by the highest court of a State in which a decision could be had/’ which is the limitation that Congress has imposed on our jurisdiction to review state-court judgments under 28 U. S. C. § 1257. Cox Broadcasting Corp. v. Cohn, 420 U. S. 469, 476-487 (1975), relied upon by the Court, which surely took as liberal a view of this jurisdictional grant as can reasonably be taken, does not support the result reached by the Court here. In Cox there had been a final decision on the federal claim by the Supreme Court of Georgia, which was the highest court of that State in which such a decision could be had. Here all the Supreme Court of Illinois has done is, in the exercise of the discretion possessed by every appellate court, to deny a stay of a lower court ruling pending appeal. No Illinois appellate court has heard or decided the merits of applicants’ federal claim.

I do not disagree with the Court that the provisions of the injunction issued by the Circuit Court of Cook County are extremely broad, and I would expect that if the Illinois appellate courts follow cases such as Freedman v. Maryland, 380 U. S. 51 (1965), and Nebraska Press Assn. v. Stuart, 423 U. S. 1319 (1975), relied upon by the Court, the injunction will be at least substantially modified by them. But I do not believe that in the long run respect for the Constitution or for the law is encouraged by actions of this Court which disregard the limitations placed on us by Congress in order to assure that an erroneous injunction issued by a state trial court does not wrongly interfere with the constitutional rights of those enjoined.


author: Mr. Chief Justice Burger Mr. Justice Brennan,

text:
    E. I. du PONT de NEMOURS & CO. et al. v. COLLINS et al.
    No. 75-1870.
    Argued March 2, 1977
    Decided June 16, 1977

    Burger, C. J., delivered the opinion of the Court, in which Stewart, White, Marshall, Blackmun, Powell, and Stevens, JJ., joined. Brennan, J., filed a dissenting opinion, post, p. 57. Rehnquist, J., took no part in the consideration or decision of the cases.

      Daniel M. Gribbon argued the cause for petitioners in No. 75-1870. With him on the briefs were Matthew J. Broderick and Richard S. Seltzer. David Ferber argued the cause for petitioner in No. 75-1872. With him on the briefs were former Solicitor General Bork, Acting Solicitor General Friedman, Jacob H. Stillman, and James R. Miller.

      Richard J. Collins, Jr., respondent, argued the cause pro se and filed a brief in both cases. Lewis C. Murtaugh, respondent, argued the cause pro se in both cases. With him on the brief was Timothy J. Murtaugh III.

      Together with No. 75-1872, Securities and Exchange Commission v. Collins et al., also on certiorari to the same court.

   Mr. Chief Justice Burger

delivered the opinion of the Court.

We granted certiorari in these cases to determine whether the Securities and Exchange Commission, in approving the merger of a closed-end investment company into an affiliate company, reasonably exercised its discretion under the Investment Company Act of 1940, 54 Stat. 789, as amended, 15 U. S. C. § 80a-l et seq. The Commission valued the investment company essentially on the basis of the market value of the securities which constituted substantially all of its assets rather than on the lower basis of its own outstanding stock..

The statutory scheme here is relatively straightforward. Section 17 of the Investment Company Act of 1940,15 U. S. C. § 80a-17, forbids an “affiliated person,” as defined in the Act, to purchase any securities or other property from a registered investment company unless the Commission finds, inter alia, that the “evidence establishes that . . . the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned .

A

(1) The merger in this litigation involves Christiana Securities Co., a closed-end, nondiversified management investment company, and E. I. du Pont de Nemours & Co., a large industrial operating company engaged principally in the manufacture of chemical products. Christiana was formed in 1915 in order to preserve family control of Du Pont & Co. At the time the present merger negotiations were announced in April 1972, 98% of Christiana's assets consisted of Du Pont common stock. This block of Du Pont stock in turn comprised approximately 28.3% of the outstanding common stock of Du Pont. For purposes of this litigation, Christiana has been presumed to have at least the potential to control Du Pont, although it submits that “this potential lies dormant and unexercised and that there is no actual control relationship.” SEC Investment Company Act Release No. 8615 (1974), 5 S. E. C. Docket 745, 747 (1974).

Christiana itself has 11,710,103 shares of common stock outstanding and has about 8,000 shareholders. Unlike Du Pont stock, which is traded actively on the New York and other national stock exchanges, Christiana shares are traded in the over-the-counter market. Since virtually all of its assets are Du Pont common stock, the market price of Christiana shares reflects the market price of Du Pont stock. However, as is often the case with closed-end investment companies, Christiana’s own stock has historically sold at a discount from the market value of its Du Pont holdings. Apparently, this discount is primarily tax related since Christiana pays a federal intercorporate tax on dividends. Its stockholders are also subject to potential capital-gains tax on the unrealized appreciation of Christiana’s Du Pont stock which has a very low tax base. Additionally, the relatively limited market for Christiana stock likely influences the discount.

In 1972, Christiana’s management concluded that, because of the tax disadvantages and the discount at which its shares sold, Christiana should be liquidated and its stockholders become direct owners of Du Pont stock. Christiana’s board of directors proposed liquidation of Christiana by means of a tax-free merger into Du Pont. Du Pont would purchase Christiana’s assets by issuing to Christiana shareholders new certificates of Du Pont stock. In more concrete terms, Du Pont would acquire Christiana’s $2.2 billion assets and assume its liabilities of approximately $300,000. In so doing, Du Pont would acquire from Christiana 13,417,120 shares of its own common stock. Du Pont would then issue 13,228,620 of its shares directly to Christiana holders. This would be 188,500 shares less than Du Pont would receive from Christi-ana. As a result of the merger, each share of Christiana common stock would be converted into 1.123 shares of Du Pont common stock. That ratio was ascertained by taking the market price of Christiana’s Du Pont stock and its other assets, subtracting Christiana’s relatively nominal liabilities, and making certain other minor adjustments. Direct ownership of Du Pont shares would increase the market value of the Christiana shareholders’ holdings and Du Pont would have acquired Christiana’s assets at a 2.5% discount from their net value. The Internal Revenue Service ruled the merger would be tax free.

(2) Du Pont and Christiana filed a joint application with the Commission for exemption under § 17 of the Investment Company Act. Administrative proceedings followed. The Commission’s Division of Investment Management Regulation supported the application. A relatively small number of Du Pont shareholders, including the respondents in this case, opposed the transaction. Their basic argument was that, since Christiana was valued on the basis of its assets, Du Pont stock, rather than the much lower market price of its own outstanding stock, the proposed merger would be unfair to the shareholders of Du Pont since it provides relatively greater benefits to Christiana shareholders than to shareholders of Du Pont. The objecting stockholders argued that Du Pont & Co. should receive a substantial share of the benefit realized by Christiana shareholders from the elimination of the 23% discount from net asset value at which Christiana stock was selling. They also argued that the merger would depress the market price of Du Pont stock because it would place more than 13 million marketable Du Pont shares directly in the hands of Christiana shareholders.

After the hearing, the parties waived the initial administrative recommendations and the record was submitted directly to the Commission. The Commission unanimously granted the application. Basically, it viewed the proposed transaction as an exchange of equivalents — Christiana’s Du Pont stock to be acquired by Du Pont in exchange for Du Pont stock issued directly to Christiana shareholders. It held that, for purposes of § 17 (b), the proper guide for evaluating Christiana was the market price of Christiana’s holdings of Du Pont stock:

“Here justice requires no ventures into the unknown and unknowable. An investment company, whose assets consist entirely or almost entirely of securities the prices of which are determined in active and continuous markets, can normally be presumed to be worth its net asset value. . . . The simple, readily usable tool of net asset value does the job much better than an accurate gauge of market impact (were there one) could.” 5 S. E. C. Docket, at 751.

The fact that Du Pont might have obtained more favorable terms because of its strategic bargaining position or by use of alternative methods of liquidating Christiana was considered not relevant by the Commission. In its view, the purpose of § 17 was to prevent persons in a strategic position from getting more than fair value. The Commission found no detriment in the transaction to Du Pont or to the value of its outstanding shares. Any depressing effects on the price of Du Pont would be brief in duration and the intrinsic value of an investment in Du Pont would not be altered by the merger. Moreover, in the Commission’s view, any valuation involving a significant departure from net asset value would “run afoul of Section 17 (b) (1) of the Act”; it would strip long-term investors in companies like Christiana of the intrinsic worth of the securities which underlie their holdings.

A panel of the United States Court of Appeals for the Eighth Circuit divided in setting aside the Commission’s determination. Collins v. SEC, 532 F. 2d 584 (1976). The majority held that the Securities and Exchange Commission had erred, as a matter of law, in determining that Christiana should be presumptively valued on the basis of the market value of its principal asset, common stock of Du Pont. “[I]n judging transactions between dominant and subservient parties, the test is 'whether or not under all the circumstances the transaction carries the earmarks of an arm’s length bargain.’ Pepper v. Litton, 308 U. S. 295, 306-307 . . . (1939).” Id., at 592. Employing this standard, the Court of Appeals majority concluded that the record did not support the Commission’s finding that the terms of the merger were “reasonable and fair” since the “economic benefits to Christiana shareholders from the merger are immediate and substantial,” id., at 601, while “benefits to present Du Pont shareholders are minimal.” Id., at 602. The court concluded that, from Du Pont’s viewpoint, “the degree of [control] dispersion attained . . . does not justify the substantial premium paid for the Christiana stock.” Id., at 603. The panel also held that the Commission had erred in failing to give weight to the “occasional detriment to Du Pont shareholders,” id., at 605, caused by the increase of available Du Pont stock in the market.

B

In determining whether the Court of Appeals correctly set aside the order of the Commission, we begin by examining the nature of the regulatory process leading to the decision that court was required to review. In United States v. National Assn. of Securities Dealers, 422 U. S. 694 (1975), we noted that the Investment Company Act of 1940, 15 U. S. C. § 80a-1 et seq., “vests in the SEC broad regulatory authority over the business practices of the investment companies.” 422 U. S., at 704-705. The Act was the product of congressional concern that existing legislation in the securities field did not afford adequate protection to the purchasers of investment company securities. Prior to the enactment of the legislation, Congress mandated an intensive study of the investment company industry. One of the problems specifically identified was the numerous transactions between investment companies and persons affiliated with them which resulted in a distinct advantage to the “insiders” over the public investors. Section 17 was the specific congressional response to this problem. Congress therefore charged the Commission, in scrutinizing a merger such as this, to take into account the peculiar characteristics of such a. transaction in the investment company industry. Recognizing that an “arm’s length bargain,” cf. Pepper v. Litton, 308 U. S. 295, 307 (1939), is rarely a realistic possibility in transactions between an affiliate and an investment company, Congress substituted, in effect, the informed judgment of the Commission to determine, inter alia, whether the transaction was “reasonable and fair and [did] not involve overreaching on the part of any person concerned.”

Given the wide variety of possible transactions between an investment company and its affiliates, Congress, quite understandably, made no attempt to define this standard with any greater precision. Instead, it followed the practice frequently employed in other administrative schemes. The language of the statute was cast in broad terms and designed to encompass all situations falling within the scope of the statute; an agency with great experience in the industry was given the task of applying those criteria to particular business situations in a manner consistent with the legislative intent.

C

In this case, a judgment as to whether the terms of the merger were “reasonable and fair” turned upon the value assigned to Christiana. In making such an evaluation, the Commission concluded that “[t]he single, readily usable tool of net asset value does the job much better than an accurate gauge of market impact. ...” 5 S. E. C. Docket, at 751. Investment companies, it reasoned, are essentially a portfolio of securities whose individual prices are determined by the forces of the securities marketplace. In determining value in merger situations, “asset value” is thus much more applicable to investment companies than to other corporate entities. The value of the securities surrendered is, basically, the real value received by the transferee.

In reviewing a decision of the Commission, a court must consider both the facts found and the application of the relevant statute by the agency. Congress has mandated that, in review of § 17 proceedings, “[t]he findings of the Commission as to the facts, if supported by substantial evidence, shall be conclusive.” 15 U. S. C. § 80a-42. A reviewing court is also to be guided by the “venerable principle that the construction of a statute by those charged with its execution should be followed unless there are compelling indications that it is wrong . . . .” Red Lion Broadcasting Co. v. FCC, 395 U. S. 367, 381 (1969). “[Contemporaneous construction is entitled to great weight. . . even though it was applied in cases settled by consent rather than in litigation.” FTC v. Mandel Bros., 359 U. S. 385, 391 (1959). Here, however, the Court of Appeals held, as a matter of law, that the Commission erred in the method applied in passing on the merger, thus all but ignoring the congressional limitations on judicial review of agency action.

The Commission has long recognized that the key factor in the valuation of the assets of a closed-end investment company should be the market price of the underlying securities. This method of setting the value of investment companies is, as Congress contemplated, the product of the agency’s long and intimate familiarity with the investment company industry. For instance, in issuing an advisory report to the United States District Court pursuant to § 173 of Chapter X of the Bankruptcy Act, the Commission advised that “it is natural that net asset value based upon market prices should be the fundamental valuation criterion used by and large in the investment company field.” Central States Electric Corp., 30 S. E. C. 680, 700 (1949), approved sub nom. Central States Electric Corp. v. Austrian, 183 F. 2d 879, 884 (CA4 1950), cert. denied, 340 U. S. 917 (1951). Similarly, in mergers like the one presented in this litigation, the Commission has used “net asset value” as a touchstone in its analysis. See, e. g., Delaware Realty & Investment Co., 40 S. E. C. 469, 473 (1961); Harbor Plywood Corp., 40 S. E. C. 1002 (1962); Eastern States Corp., SEC Investment Company Act Releases Nos. 5693 and 5711 (1969).

Moreover, despite the characterization of the Court of Appeals to the contrary, the Commission did not employ a mechanical application of a rule or “presumption.” It considered carefully the contentions of the respondents that a departure from the use of net asset value was warranted in this case. Upon analysis, it concluded that the central and controlling aspect of the merger remained the fact that it consisted of an exchange of Du Pont common stock for Du Pont common stock; it was not Christiana stock but Du Pont stock which Du Pont was receiving in the merger. As to the claim that Du Pont stock would be adversely affected over an extended period of time by volume selling, the Commission concluded there was no indication of a long-term adverse market impact. It noted that Christiana stock was held principally by long-term investors. There' was no evidence that Christiana stockholders, who for years had been indirect investors in Du Pont, would now change the essential nature of their investment.

The Commission’s reliance on “net asset value” in this particular case and its consequent determination that the proposed merger met the statutory standards thus rested “squarely in that area where administrative judgments are entitled to the greatest amount of weight by appellate courts. It is the product of administrative experience, appreciation of the complexities of the problem, realization of the statutory policies, and responsible treatment of the uncontested facts." SEC v. Chenery Corp., 332 U. S. 194, 209 (1947). In rejecting the conclusion of the Commission, the Court of Appeals substituted its own judgment for that of the agency charged by Congress with that responsibility.

We note that after receiving briefs and hearing oral argument, the Court of Appeals — over the objection of the Commission, Christiana, and Du Pont — undertook the unique appellate procedure of employing a university professor to assist the court in understanding the record and to prepare reports and memoranda for the court. Thus, the reports relied upon by that court included a variety of data and economic observations which had not been examined and tested by the traditional methods of the adversary process. We are not cited to any statute, rule, or decision authorizing the procedure employed by the Court of Appeals. Cf. Fed. Rule App. Proc. 16.

In our view, the Court of Appeals clearly departed from its statutory appellate function and applied an erroneous standard in its review of the decision of the Commission. The record made by the parties before the Commission was in accord with traditional procedures and that record clearly reveals substantial evidence to support the findings of the Commission. Moreover, the agency conclusions of law were based on a construction of the statute consistent with the legislative intent. Accordingly, the judgment of the Court of Appeals is ^

D , Reversed.

Mr. Justice Rehnquist took no part in the consideration or decision of these cases.

Mr. Justice Brennan,

dissenting.

Section 17 of the Investment Company Act of 1940, 15 U. S. C. § 80a-17, prohibits transactions between registered investment companies and “affiliated persons,” except as the Securities and Exchange Commission approves such transactions on application, if, inter alia, “the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned.” § 80ar-17 (b). The SEC approved the application of Christiana Securities Co. (Christiana) to merge into E. I. du Pont de Nemours & Co. (Du Pont), finding that the proposed transaction met the statutory standard.

Christiana was created in 1915 to concentrate the Du Pont family’s holdings of Du Pont stock. Its assets consist almost entirely of Du Pont common stock, of which it holds 28.3% of the total outstanding. It is thus an investment company within the meaning of the Act, and an affiliate of Du Pont subject to the prohibitions of § 17. Although ownership of Christiana stock is essentially indirect ownership of Du Pont stock, Christiana stock is traded over-the-counter at a considerable discount from the market price of the corresponding shares of Du Pont.

For reasons unnecessary to elaborate- here, Christiana, is no longer regarded by its owners as a desirable control mechanism. Moreover, the tax laws make it expensive to maintain, since dividends from Du Pont are taxed when paid to Christiana, and again when passed on to the shareholders as dividends from Christiana. Elimination of Christiana is therefore desirable to its shareholders, and an agreement was reached to effectuate this goal by merging Christiana into Du Pont. The terms of this agreement are set forth in the Court’s opinion, ante, at 49-50, but in effect, Du Pont acquired its own shares from Christiana at about a 2.5% discount from their market price, while Christiana’s shareholders eliminated their costly holding company, without incurring any tax liability.

It is conceded that while the primary concern of Congress in enacting the Act was the protection of investment company shareholders, § 17 (b) does not permit the SEC to authorize a transaction that is unfair to the affiliated person, any more than one that is unfair to the investment company. Fifth Avenue Coach Lines, Inc., 43 S. E. C. 635 (1967). See the opinion of the Court, ante, at 53 n. 11. The SEC found here that the transaction was fair to Du Pont’s shareholders, essentially because they paid slightly less than the net asset value of Christiana. In this sense, it is true that Du Pont paid for Christiana no more than it is intrinsically “worth,” and so the price could be considered “fair.” However, in a market economy, the value of any commodity is no more nor less than the price arm’s-length bargainers agree on. Chris-tiana and Du Pont were not arm’s-length bargainers, and it is obvious that if they had been, Du Pont would have insisted on, and would have had the bargaining power to obtain, a more favorable price. Instead, the directors of Du Pont accommodated the desires of Christiana, owner of a control block of Du Pont stock, without requiring the quid pro quo they would undoubtedly have demanded from any other seller.

I do not mean to suggest that the SEC should not, as a general rule, look to the net asset value of an investment company in evaluating the fairness of transactions such as this. At least where the result of the transaction is the elimination of the investment company, the party that acquires it gets the full value of its holdings, and not just a block of stock in the investment company; the asset value thus seems in the usual case a better measure of the investment company's value than the market price of its stock. On the other hand, in a situation such as this, the depressed market price of Christiana stock may well reflect its undesirability to its present holders. Even if the stock is for some reason still desirable to the purchaser, this undesirability can be translated into a benefit to him because it gives him bargaining leverage to obtain a better price.

However accurate asset valuation may be in most contexts, each determination of what is fair and reasonable and free of overreaching must by the nature of the inquiry turn on the facts of the particular transaction involved. I would hold that the SEC applied an erroneous standard in this case by presuming that in the absence of actual detriment to the purchaser, a transaction that recognizes the net asset value of an investment company is fair and reasonable. In my view the correct standard required the SEC to compare the terms of the transaction with those that would have been reached by arm’s-length bargainers. Here, Du Pont’s directors, who were in the conflict-of-interest situation with which the Act is concerned because of Christiana’s position as a controlling shareholder of Du Pont, entered a transaction that handsomely benefited Christiana, without extracting the price for Du Pont that an arm’s-length negotiator would have demanded and received. I therefore disagree with the SEC’s holding that this behavior was fair and reasonable to Du Pont, or free from overreaching on the part of Du Pont’s controlling shareholder, Christiana. Accordingly, I would affirm the judgment of the Court of Appeals.

       429 U. S. 815 (1976).

       Title 16 U. S. C. § 80a-2 (a) (3) defines an “affiliated person” as follows:
      “(3) ‘Affiliated person’ of another person means (A) any person directly or indirectly owning, controlling, or holding with power to vote, 5 per centum or more of the outstanding voting securities of such other person; (B) any person 5 per centum or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other person; (C) any person directly or indirectly controlling, controlled by, or under common control with, such other person; (D) any officer, director, partner, copartner, or employee of such other person; (E) if such other person is an investment company, any investment adviser thereof or any member of an advisory board thereof; and (F) if such other person is an unincorporated investment company not having a board of directors, the depositor thereof.”

       Section 17 (b) also requires that the proposed transaction be (1) consistent with the policy of each registered investment company concerned, and (2) consistent with “the general purposes of this title.” 54 Stat. 815, 15 U. S. C. §§ 80a-17 (b)(2), (3). These criteria are not contested here.

       Christiana owns 13,417,120 shares of Du Pont. It also holds a relatively small amount of Du Pont preferred stock. Its other assets consist of two daily newspapers in Wilmington, Del., and 3.5% of the stock of the Wilmington Trust Co., which, in turn, holds more than one-half of Christiana’s common stock as trustee. SEC Investment Company Act Release No. 8615 (1974).

       According to the applicants’ Notice of Filing of Application, SEC Investment Company Act Release No. 7402 (1972), Du Pont has 47,566,694 shares of common stock outstanding held by approximately 224,964 shareholders.

       Ninety-five and one-fialf percent of these shares are held by 338 people. SEC Investment Company Act Release No. 8615, supra.

       In the two years preceding the date of the announcement of the merger negotiations, this discount was generally in the range of 20 %- 25%. Ibid.

       A petition for rehearing en bane was denied by an equally divided court.

       Section 30 of the Public Utility Holding Company Act, 49 Stat. 837, 15 U. S. C. § 79z-4, mandated that the SEC undertake such a study. See United States v. National Assn. of Securities Dealers, 422 U. S. 694, 704 (1975).

       See generally Report on Investment Trust and Investment Companies, H. R. Doc. No. 279, 76th Cong., 1st Sess., 1017-1561 (1940).

       While the House and Senate Reports indicate that the Congress’ chief concern was protection of the public investors of the investment company, S. Rep. No. 1775, 76th Cong., 3d Sess., 11-12 (1940); H. R. Rep. No. 2639, 76th Cong., 3d Sess., 9 (1940), the statute has been construed to afford protection to the stockholders of the affiliate as well. See Fifth Avenue Coach Lines, Inc., 43 S. E. C. 635, 639 (1967).

       15 U. S. C. §80a-17 (b)(1).

       This situation is quite different from that which confronted the Court earlier this Term in Piper v. Chris-Craft Industries, Inc., 430 U. S. 1 (1977). There, the Court held that “the narrow legal issue” of implying a private right of action under the securities laws was “one peculiarly reserved for judicial resolution” and that the experience of the Commission on such a question was of “limited value.” Id., at 41 n. 27. By contrast, this case involves an assessment as to whether a given business arrangement is compatible with the regulatory scheme which the agency is charged by Congress to administer.

       This method of valuation of closed-end investment companies was similarly employed in ELT, Inc., SEC Investment Company Act Releases Nos. 8675 and 8714 (1975); Chemical Fund, Inc., SEC Investment Company Act Releases Nos. 8773 and 8795 (1975); Citizens &. Southern Capital Corp., SEC Investment Company Act Releases Nos. 7755 and 7802 (1973) ; Detroit & Cleveland Nav. Co., SEC Investment Company Act Releases Nos. 3082 and 3099 (1960); Cheapside Dollar Fund, Ltd., SEC Investment Company Act Releases Nos. 9038 and 9085 (1975). The Commission has, of course, required that such valuations be adjusted to reflect such factors as expenses of the merger and tax considerations. Talley Industries, Inc., SEC Investment Company Act Release No: 5953 (1970) ; and Electric Bond & Share Co., SEC Investment Company Act Release No. 5215 (1967), cited by the Court of Appeals, did not rely on net asset value since the companies held substantial assets other than securities. While Christiana also had some assets other than Du Pont stock, they amounted to only 2% of its assets.

       Liquidation of Christiana would also have accomplished the desired result, without involving Du Pont or the prohibitions of § 17, but was apparently ruled out by Christiana because of disadvantageous tax consequences for its shareholders.

       In contrast to the disadvantageous tax consequences of alternative means of disposing of Christiana, see n. 1, supra, the Internal Revenue Service had ruled that the proposed merger with Du Pont would be tax free. Ante, at 50.

       In order to be approved, the transaction must “not involve overreaching on the part of any person concerned.” 15 U. S. C. §80a-17(b) (emphasis supplied).

       Christiana owned a potentially controlling share of Du Pont. As the Court concedes, ante, at 53, an arm's-length bargain “is rarely a realistic possibility” in such a situation. While “Du Pont did take some steps to simulate arm’s-length bargaining,” 532 F. 2d 584, 598 (1976), the Court of Appeals made short shrift of their significance, id., at 598-601, and the Court places no reliance on them.

       In addition to the tax on intercorporate dividends, as the Court recognizes, ante, at 49, other disadvantages to the continued maintenance of Christiana might have been reflected in the low market price of its stock, such as the potential for high capital-gains taxation and the relative illiquidity of Christiana stock, for which there is a more limited market than for Du Pont.

       The SEC’s argument that § 17 was intended “to prevent persons in a strategic position from getting more than fair value,” ante, at 51, is a mere play on words. As the legislative history, examined at length by the Court of Appeals, 532 F. 2d, at 591-592, makes plain, § 17 was intended to protect minority interests from exploitation by insiders of their “strategic position,” and to restore a situation in which “the directors of the several corporations involved in negotiations for a merger . . . are acting at arm’s length in an endeavor to secure the best possible bargain for their respective stockholders.” SEC, Report on Investment Trusts and Investment Companies, H. R. Doc. No. 279, 76th Cong., 1st Sess., 1414 (1940). Far from being intended to negate factors that would give one party a “strategic bargaining position” in arm’s-length bargaining in the free market, the Act was specifically intended to give those factors free play, uncorrupted by insiders’ desires to benefit themselves rather than the stockholders as a whole.

       Since this is so, one might well wonder what “special and important reasons” exist for this Court to decide “whether the Securities and Exchange Commission . . . reasonably exercised its discretion” in a particular case. Ante, at 47. See this Court’s Rule 19.

       Although the SEC did recognize the possibility that there might be cases in which an exception to the “net asset value” rule would be appropriate, its inquiry in this litigation turned entirely on the possible detriment of this transaction to Du Pont’s shareholders. No attempt was made to determine what the results of arm’s-length bargaining might have been. The Court of Appeals, correctly in my view, held that such an inquiry should have been made. Accordingly, the Court of Appeals held that the agency had applied an erroneous legal standard, and no question of invasion of the area of SEC expertise is presented.

       It may appear harsh to insist that, in the absence of actual detriment to its other shareholders, Du Pont press its advantage, rather than accommodate Christiana. But in accommodating Christiana, Du Pont’s directors were not merely being “nice guys” in a disinterested fashion, at no cost to anyone. They were giving special consideration to an investment company that holds a controlling share of Du Pont. This is precisely the evil at which § 17 was directed.