In re Four Seasons Securities Laws Litigation
Citation | 370 F. Supp. 219 |
Decision Date | 18 January 1974 |
Docket Number | No. 55,55 |
Parties | In re FOUR SEASONS SECURITIES LAWS LITIGATION State of Ohio v. Crofters, Inc., Clark, et al. |
Court | U.S. District Court — Western District of Oklahoma |
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William J. Brown, Atty. Gen., Ohio, Ronald B. Brown, Asst. Atty. Gen., Ohio, Richard F. Stevens, Sp. Counsel to the Atty. Gen., Wayne C. Dabb, Jr., Cleveland, Ohio (Eugene F. McShane, Asst. Atty. Gen., Ohio, John R. Ferguson, Baker, Hostetler & Patterson, Cleveland, Ohio, on the brief), for the State of Ohio.
Arthur F. Mathews, Robert B. McCaw, John H. Korns, Washington, D. C. (Michael R. Klein, Wilmer, Cutler & Pickering, Washington, D. C., Bradley Hummel, Gingher & Christensen, Columbus, Ohio, on the brief), for Jack L. Clark.
MOTION OF JACK L. CLARK FOR SUMMARY JUDGMENT
This opinion deals with a motion filed by Jack L. Clark for summary judgment in his favor on the various claims asserted against him in the complaint in this civil action filed by the State of Ohio against Crofters, Inc., Clark and twelve other defendants.1
Ohio's claims are based on alleged violations of the Securities Act of 1933, the Securities Exchange Act of 1934 and several Ohio statutory provisions, and on common law fraud.2
Clark contends that the claims against him are barred by res judicata and collateral estoppel as a result of rulings adverse to Ohio in the Chapter X reorganization proceedings in this court involving Four Seasons Nursing Centers of America, Inc. (Four Seasons) and related corporations.3
The history of Four Seasons and related corporations is set out in Opinion No. 2, Four Seasons Securities Laws Litigation, 58 F.R.D. 19, 21-26 (W.D. Okl. 1972).4 That opinion also contains a capsule history of the Chapter X proceedings filed by Four Seasons and by the related corporations, all of which were consolidated, and a history of the M.D.L. 55 proceedings, involving class actions and other actions filed by stockholders of one or more of the Four Seasons companies against various defendants, including Clark, 58 F.R.D. at 26-28 and 28-36, respectively.
The claims which Ohio is asserting against Clark and others arise out of loans which were made by Ohio to Four Seasons some three months before that corporation filed its Chapter X petition on June 26, 1970. The facts with respect to those loans are set out in the opinion of the Tenth Circuit on Ohio's appeal from the denial of its reclamation petition filed in the Chapter X proceedings. State of Ohio v. Four Seasons Nursing Centers of America, Inc., 465 F.2d 25 (Aug. 3, 1972). The Tenth Circuit stated those facts as follows:
Ohio sought reclamation of the money loaned as against the Trustee in the Chapter X reorganization proceedings. Ohio argued that Four Seasons had intentionally made material and fraudulent misrepresentations concerning its financial condition to the National Credit Office to obtain a rating of prime, and that in reliance on this rating the loans of $4,000,000 had been made to Four Seasons by the State. Ohio also contended that the $4,000,000 loans were in violation of an Ohio statute and therefore void; consequently, the funds should have been returned to the State Treasurer. 465 F.2d at 27.
The reclamation petition was denied by Chief Judge Bohanon, with an opinion which included findings of fact and one conclusion of law. 329 F.Supp. 647 (July 14, 1971). His last two findings of fact were as follows:
In support of his conclusion — "that the Petition for Reclamation must be denied" — Judge Bohanon quoted passages from 37 Am.Jur.2d (Fraud and Deceit, §§ 438, 445), pp. 598, 609, and the following statement in Manly v. Ohio Shoe Co., 25 F.2d 384 (4 Cir. 1928):
"Bankrupt's fraud, to justify rescission of contract and reclamation of goods by seller, must be established to the satisfaction of the court by clear, unequivocal, and convincing evidence."
Ohio's arguments on appeal from Judge Bohanon's decision were summarized in the opinion of the Tenth Circuit, 465 F.2d at 27. The opinion then stated: "* * * We view the narrow issue presented in this appeal to be whether the State of Ohio may properly argue the application of a constructive trust to the funds in question."
The Tenth Circuit held that "appellant's right to the property in question will be decided by Oklahoma, not Ohio, law". 465 F.2d at 28. The opinion continued:
The Tenth Circuit also concluded that "there was no illegality surrounding the procurement of these funds". It disagreed with the trial court that "the Ohio statute in question is inapplicable". After quoting the pertinent parts of that statute,5 the Court said: "The evidence presented by appellant in the trial court does not satisfactorily prove noncompliance with this statute." 465 F.2d at 28. The opinion then set out the reasons for that statement, and concluded: "Application of a constructive trust to these funds in toto or partially, via traditional tracing rules, would be grossly inequitable where no fraud was perpetrated by Four Seasons and no Ohio statutes violated by extension of these loans." 465 F.2d at 28, 29.
At the time the Chapter X proceedings were instituted and at the time Ohio's petition for reclamation was filed and heard in the District Court, Clark was a stockholder of Four Seasons, the debtor against which that petition was filed. Ohio's petition for reclamation was served on and opposed by the Trustee for the debtor, through his court-appointed attorney. It was not served on Clark. However, as permitted by 11 U. S.C. § 606,6 Clark, through his attorney, had theretofore entered his appearance in the Chapter X proceedings; he participated in various hearings therein, including the hearings on Ohio's reclamation petition. Clark was listed...
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