IN RE TRANSOCEAN TENDER OFFER SECURITIES LIT.

• Decision Date: 07 August 1978
• Docket Number: MDL No. 223.
• Citation: 455 F. Supp. 999
• Parties: In re TRANSOCEAN TENDER OFFER SECURITIES LITIGATION.
• Court: U.S. District Court — Northern District of Illinois

455 F. Supp. 999

In re TRANSOCEAN TENDER OFFER SECURITIES LITIGATION.^*

MDL No. 223.

United States District Court, N. D. Illinois, E. D.

August 7, 1978.

COPYRIGHT MATERIAL OMITTED

Sheldon Oliensis, Allan M. Pepper, Steven J. Glassman, Edward A. Friedman, Kaye, Scholer, Fierman, Hays & Handler, New York City, for plaintiffs in New York Action.

Louis R. Koerner, Jr., Koerner & Lambert, New Orleans, La., for plaintiffs in Louisiana Action.

Alex Elson, Willard J. Lassers, Aaron S. Wolff, Elson, Lassers & Wolff, Arthur T. Susman, Arnold M. Flamm, Richard H. Prins, Flamm & Susman, Ltd., Chicago, Ill., for plaintiffs in Chicago Action.

Susan Getzendanner, Lead Counsel for defendants, Mayer, Brown & Platt, Chicago, Ill., for defendants Esmark, Vickers Energy Corporation and certain individual defendants.

Alan Schulman, Vinson & Elkins, Houston, Tex., for defendant TransOcean and certain individual defendants.

William K. Wilde, Bracewell & Patterson, Houston, Tex., for certain individual defendants.

John F. Cusack, Cusack & Cusack, Chicago, Ill., of counsel for certain individual defendants.

MEMORANDUM AND ORDER

ROBSON, Senior District Judge.

This cause is before the court on plaintiffs' motions for summary judgment on the issue of liability. For the reasons hereinafter stated, the motions will be granted in part and stricken in part.

BACKGROUND

The motions before the court concern the preclusive effect to be given to a decision of the Delaware Supreme Court under principles of collateral estoppel on the issue of liability. Before addressing the motions, however, a review of the procedural history of this litigation is in order.

This litigation arises out of a tender offer made by Vickers Energy Corporation hereinafter Vickers, a wholly-owned subsidiary of Esmark, Inc. hereinafter Esmark, for the minority shares of TransOcean Oil, Inc. hereinafter TransOcean. At the time of the tender offer, Vickers was the majority shareholder of TransOcean. While the tender offer was in progress, various minority shareholders of TransOcean commenced three actions, each in a different federal district: 74 C 2985, McNally, et al. v. Esmark, Inc., et al., in the Northern District of Illinois hereinafter the Illinois action or Illinois plaintiffs, 76 C 2208, College Retirement Equities Fund, et al. v. Esmark, Inc., et al., in the Southern District of New York hereinafter the New York action or New York plaintiffs, and 76 C 2254, Norman, et al. v. Vickers Energy Corp., et al., in the Eastern District of Louisiana hereinafter the Louisiana action or Louisiana plaintiffs.

The principal defendants in these actions are TransOcean, Vickers, and Esmark, along with certain directors and officers of each of these corporations, named both individually and in their corporate capacities. Each action alleges that the defendants violated various federal securities laws¹ because of false and misleading representations and omissions of material fact in the tender offer circular. Each action further alleges that defendants breached common law fiduciary duties owed to the minority shareholders in connection with the tender offer. One of the counts in the Illinois action is brought derivatively on behalf of TransOcean and charges that certain transactions, unrelated to the tender offer, between TransOcean and affiliates of Esmark were unfair to TransOcean.² The jurisdiction of this court is undisputed.

Both the Illinois and Louisiana actions are proceeding as class actions on behalf of TransOcean minority shareholders, including those who tendered TransOcean stock to Vickers pursuant to the tender offer. The New York plaintiffs have opted out of both classes.

In May of 1976, the Judicial Panel on Multidistrict Litigation ordered the Louisiana and New York cases transferred to the Northern District of Illinois for coordinated or consolidated pretrial proceedings pursuant to 28 U.S.C. § 1407. In re TransOcean Tender Offer Securities Litigation, 415 F.Supp. 382 (Jud.Pan.Mult.Lit.1976).

In addition to the three federal actions, a fourth action arising out of the Vickers' tender offer was commenced in Delaware state court against Vickers, Esmark, and the members of TransOcean's board of directors. This action was likewise established as a class action on behalf of minority shareholders of TransOcean. Plaintiffs in New York, as well as some 187 out of approximately 7,200 class members in the Illinois action and a handful in the Louisiana action, opted out of the class. The Delaware complaint included claims under common law principles relating to fiduciary duties allegedly owed by defendants to TransOcean's minority shareholders and fraud based on alleged misrepresentations and omissions of material facts in the tender offer circular.

On January 22, 1976, the Delaware Court of Chancery rendered an opinion in defendants' favor. Lynch v. Vickers Energy Corp., 351 A.2d 570 (Del.Ch.1976). Judgment was entered on February 26, 1976.

On March 4, 1976, defendants moved for summary judgment in the Illinois action against the Illinois plaintiffs. Defendants contended that under principles of res judicata and collateral estoppel the judgment in Lynch v. Vickers Energy Corp., supra, precluded relitigation of the Illinois plaintiffs' state and federal claims.

On January 24, 1977, this court granted in part, denied in part, and struck in part defendants' motion for summary judgment. In re TransOcean Tender Offer Securities Litigation, 427 F.Supp. 1211 (N.D.Ill.1977) hereinafter TransOcean. Among other things, the court determined that all plaintiffs in the Illinois action who were members of the Delaware class were precluded under principles of res judicata and collateral estoppel from pursuing their state law claims and their federal securities law claims under Section 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(e).

On October 18, 1977, the Delaware Supreme Court unanimously reversed the decision of the Delaware Chancery Court. Lynch v. Vickers Energy Corp., 383 A.2d 278 (Del.Sup., 1977) hereinafter Lynch. The Delaware Supreme Court held as a matter of law on the undisputed facts that defendants had violated their fiduciary duty of candor to the TransOcean minority shareholders. The cause was remanded to the trial court for a determination of damages.

The Illinois, Louisiana, and New York plaintiffs, on October 20, 1977, February 27, 1978, and May 23, 1978,³ respectively moved for summary judgment on liability only, based on the Delaware Supreme Court's decision in Lynch and principles of res judicata and collateral estoppel.

On November 7, 1977, defendants filed motions for reargument before the Delaware Supreme Court. On February 3, 1978, the Delaware Supreme Court denied such motions. It also slightly revised its opinion of October 18, 1977.

At a hearing held by this court on February 27, 1978, this court vacated its order of January 24, 1977, which had granted a substantial portion of defendants' motion for summary judgment. On defendants' concession, the court entered partial summary judgment as to liability on the state-based claims against Esmark and Vickers in favor of those plaintiffs in the Illinois and Louisiana actions who are members of the Delaware class. The court also set a briefing schedule with respect to the unresolved issues raised by the plaintiffs' motions for summary judgment.⁴ The Louisiana plaintiffs have adopted the briefs filed by the Illinois and New York plaintiffs. The motions having been extensively briefed by the parties, they are now ripe for decision.

THE MOTIONS

As indicated, the parties have already agreed that, under principles of res judicata, the Delaware Supreme Court's decision in Lynch precludes relitigation of the state law claims against Vickers and Esmark asserted by those plaintiffs who are members of the Delaware class. Pursuant to the agreement of Vickers and Esmark, partial summary judgment was entered in plaintiffs' favor on such claims. The parties, however, disagree as to the preclusive effect of Lynch on the remaining claims and parties. This disagreement raises the following four issues, each of which will be discussed separately:

I. Under principles of collateral estoppel, may the plaintiffs who opted out of the Delaware class claim the benefit of the judgment won by that class?

II. Are all plaintiffs entitled to summary judgment on their federal claims?

III. Are plaintiffs entitled to summary judgment against any of the individual defendants or TransOcean?

IV. Are Illinois plaintiffs entitled to summary judgment on the derivative claim in count III?

I. Under Principles of Collateral Estoppel, May the Plaintiffs Who Opted Out of the Delaware Class Claim the Benefit of the Judgment Won by that Class?

Defendants submit that the plaintiffs who opted out of the Delaware class cannot claim the benefit of the judgment won by that class in order to avoid the necessity of litigating their state or federal law claims. Defendants state that whether the opt outs can claim the benefit of the judgment "turns on whether the rule requiring mutuality of estoppel applies in the particular circumstances of this case." (Memorandum of Defendants in Opposition to Plaintiffs' Motions for Summary Judgment at 3). Defendants discuss the mutuality rule⁵ and concede that it has "generally been discarded in the case of a `defensive' use of a prior judgment." (Id.) They submit, however, that "courts have been less willing to permit `offensive' use of the prior judgment to estop a defendant from litigating an issue on which he had lost in a prior action with a different plaintiff." (Id. at 4).

Plaintiffs contend that the distinction between "offensive" and "defensive" use of collateral estoppel has been obliterated. They state that courts in this circuit and others have upheld the offensive use of collateral estoppel. Plaintiffs maintain that the focus of the cases today is on one salient...