Publicis Communication v. True North Communications Inc.
| Decision Date | 15 December 1997 |
| Docket Number | No. 97-4096,97-4096 |
| Citation | 132 F.3d 363 |
| Parties | PUBLICIS COMMUNICATION, Plaintiff-Appellant, v. TRUE NORTH COMMUNICATIONS INC., et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Edward W. Feldman (submitted on briefs), Stephen J. Bisgeier, Miller, Shakman, Hamilton, Kurtzon & Schlifke, Philip K. Howard, C. William Phillips, Howard, Darby & Levin, New York City, for Plaintiffs-Appellants.
Constantine L. Trela, Walter C. Carlson, Howard J. Trienens, Richard B. Kapnick, Jo L. Haley, Sidley & Austin, Chicago, IL, for Defendants-Appellees.
Before BAUER, FLAUM, and EASTERBROOK, Circuit Judges.
Last February Publicis Communication and True North Communications (parent of the Foote, Cone & Belding agency) dissolved their joint venture in the advertising industry. One of eight agreements ancillary to this dissolution requires Publicis to participate in pooling of financial statements should True North acquire a third corporation and deem a pooled statement of accounts advantageous. Section 1.1 of this contract, applicable as long as Publicis owns at least 10% of True North's stock, requires Publicis to
(a) furnish True North ... with a "pooling letter" [in a prescribed form] under generally accepted accounting principles applied in the United States, and, (b) if reasonably requested, take such other action in support of the transaction (other than a commitment to vote for such transaction) as would be customary with respect to an acquisition or other similar business transaction in which True North may participate[.]
In August 1997 True North announced that it had agreed to merge with Bozell, Jacobs, Kenyon & Eckhardt, Inc., and asked Publicis to provide a pooling letter. Publicis, which owns some 19% of True North's stock, is obliged to comply. But it thinks the acquisition a mistake and announced its intention to vote its shares against the transaction at the stockholders' meeting (now scheduled for December 30), as the parenthetical expression in the contract allows. Publicis also has solicited proxies from other investors in an effort to defeat the transactions and, backing up words with deeds, has commenced a tender offer for True North's stock, offering $28 per share. The market price of True North's stock rose from $23 to $26 when the bid was announced. True North opposes the offer, and litigation predictably ensued.
True North sued Publicis in the Chancery Court of Delaware, contending that Publicis has failed to provide information needed to facilitate registration of the stock that will be issued as part of the merger. Delaware is the parties' chosen forum for disputes about the pooling agreement. One clause of this contract reads: "Any claim arising out of a request under Section 1.1 of this Agreement shall be brought only in a court of the State of Delaware or in a United States District Court located within the State of Delaware." Publicis, by contrast, does not make any claim based on True North's request under the pooling agreement and therefore has more choice of forum. Publicis filed suit in the federal district court in Chicago under 28 U.S.C. s1332(a)(2) (it is a French corporation), arguing that by proposing a merger with Bozell and opposing the tender offer, True North's board violated its duties to investors. True North quickly filed counterclaims, arguing among other things that the proxy solicitation and tender offer should be enjoined because they violate Publicis' duty under s1.1(b) of the pooling agreement to take "action in support of the transaction" on True North's request. The district court on December 10 issued an injunction requiring Publicis to desist from its tender offer and proxy solicitation. Publicis complied (depressing the market price of True North shares) but has asked us for a stay pending appeal. This case has been as fully briefed on the stay motion as most cases ever are, and it is clear that the district judge should not have entertained the counterclaim. True North promised to litigate such matters in Delaware, and to Delaware it must go if it desires relief based on the pooling agreement. We summarily vacate the injunction, mooting the motion for a stay.
The claim on which the district court issued the injunction arises out of a request under s1.1 of the pooling agreement and therefore "shall be brought only in a court of the State of Delaware or in a United States District Court located within the State of Delaware." The district judge put this requirement to one side, however, after concluding that True North's arguments form a compulsory counterclaim within the scope of Fed.R.Civ.P. 13(a). We shall assume that True North's claim fits Rule 13(a) because it "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim", and that the suit already on file in Delaware presents a different "claim" under the pooling agreement and therefore is not subject to the second sentence of Rule 13(a): "the pleader need not state the claim if (1) at the time the action was commenced the claim was the subject of another pending action". Neither of these assumptions supports the district court's conclusion that the forum-selection clause may be ignored.
Despite the impression one might get from the name of the doctrine, no one is "compelled" to present a compulsory counterclaim. Only a litigant that wants to avoid a later defense of preclusion need do so. The definition of a compulsory counterclaim--a claim that "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim"--mirrors the condition that triggers a defense of claim preclusion (res judicata) if a claim was left out of a prior suit. The aspect of preclusion known as "merger and bar", see Migra v. Warren City School District Board of Education, 465 U.S. 75, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984); Cromwell v. County of Sac, 94 U.S. 351, 24 L.Ed. 195 (1877), prevents the plaintiff in the first suit from later making any claim that arose out of the same transaction but was omitted from the initial suit. See Herrmann v. Cencom Cable Associates, Inc., 999 F.2d 223 (7th Cir.1993); Supporters to Oppose Pollution, Inc. v. Heritage Group, 973 F.2d 1320 (7th Cir.1992). Rule 13(a) establishes that a defendant's omission has...
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