Johns Hopkins University v. Hutton

• Citation: 343 F. Supp. 245
• Decision Date: 29 March 1972
• Docket Number: Civ. No. 15098.
• Parties: The JOHNS HOPKINS UNIVERSITY v. James M. HUTTON, Jr., et al.
• Court: U.S. District Court — District of Maryland

343 F. Supp. 245

The JOHNS HOPKINS UNIVERSITY v. James M. HUTTON, Jr., et al.

Civ. No. 15098.

United States District Court, D. Maryland.

March 29, 1972.

COPYRIGHT MATERIAL OMITTED

John Henry Lewin, Edmund P. Dandridge, Jr., and Venable, Baetjer & Howard, Baltimore, Md., for plaintiff.

John A. Wilson, Michael J. DeSantis, and Sherman & Sterling, New York City, and John F. King, Baltimore, Md., for defendants.

FRANK A. KAUFMAN, District Judge.

Hopkins, following the earlier opinions of the United States Court of Appeals for the Fourth Circuit¹ and of this Court,² seeks, under three counts^2A of its seven-count complaint, summary judgment, in the form of rescission. In its last opinion, this Court, noting (at 326 F.Supp. 250, 252) that at that time, Hopkins sought summary judgment under those three counts, as to liability only, granted (at 326 F.Supp. 250, 261) summary judgment under those three counts as to liability only, and required (at 326 F.Supp. 250, 265) Hopkins to inform this Court and Hutton "(a) whether Hopkins is primarily seeking rescission under one or more of Counts I, II, III and V and/or any other count, and, secondarily, damages under one or more of Counts II-VII, inclusive, only if Hopkins is held not entitled to rescission under any count; or (b) whether Hopkins desires to opt for damages and forego its quest for rescission; or (c) whether Hopkins asks that the pending discovery and evidentiary questions, all of which apparently pertain entirely to damages, be determined by this Court before Hopkins makes the election posed by (a) and (b)." (Footnote omitted.) Hopkins responded³ by stating that it was "primarily seeking rescission under Counts II, III and V of the Complaint; secondarily, rescission under Count I; and damages under Counts II, III and V only if Hopkins is not entitled to rescission under Counts I, II, III or V."

Hopkins also filed a motion for summary judgment, as to rescission, under Counts II, III and V, and requested this Court to reconsider two of the determinations stated in its opinion filed in 326 F.Supp. 250, namely —

I. So long as Hopkins has not waived its right to seek damages in the event it is held not entitled to rescission under Counts II, III and V, or under Count I, Hutton is entitled to a jury trial of any triable fact issue under (a) Count I with regard to whether Hopkins has met its burden under Section 13 of the 1933 Act and/or (b) Counts II, III and V with regard to whether Hopkins is entitled to rescind rather than being limited to relief in the form of damages.

II. "Hopkins is * * * not entitled to the summary grant of relief in the form of rescission under Counts II, III or V. To gain that result, Hopkins must succeed at trial in establishing by the preponderance of the evidence that it demanded rescission `within a reasonable time after discovery of the ground for rescission,'" Baumel v. Rosen, 412 F.2d 571, 574 (4th Cir. 1969), cert. denied, 396 U.S. 1037, 90 S.Ct. 681, 24 L.Ed.2d 681 (1970).^3a

I.

This Court reaffirms its earlier stated conclusion that Hutton, having timely demanded a jury trial, is entitled to a jury trial in connection with any and all triable fact issues with regard to whether Hopkins is entitled to rescission (a) under Counts II, III and V in which Hopkins seeks relief pursuant to Section 10(b) of the Securities and Exchange Act of 1934 and Rules 10b-3 and 10b-5 promulgated thereunder, and also pursuant to Section 17 (a) of the Securities Act of 1933, and/or (b) under Count I in which Hopkins seeks relief under Section 12(2) of the Securities Act of 1933, so long as Hopkins continues to hold in reserve, in the event Hopkins is held not entitled to rescission, its claim for damages under one or more of Counts II-VII, inclusive, of Hopkins' complaint.

The factual context in which this issue is posed has been set forth by this Court in its last opinion and discussed therein (particularly commencing at 326 F.Supp. 250, 261 and 262, under the respective headings "Nature of Relief" and "Jury"), and need not be repeated herein. In essence, Hopkins contends that—

(1) all facts relative to its entitlement to rescission under Counts II, III and V are confined to the period between November 1, 1962 and November 1, 1963,⁴ because a subjective as opposed to an objective test should be applied in measuring whether Hopkins moved with sufficient speed to permit rescission, and because this Court has already determined (at 297 F.Supp. 1165, 1224; see Judge Butzner's comment at 422 F. 2d 1124, 1130) that Hopkins did not have actual knowledge of Hutton's fraud before November 1, 1962; and

(2) all facts relative to whether Hopkins has met its Section 13⁵ burden under Count I are confined to the period subsequent to March 1, 1961 and preceding November 1, 1962, the latter date being one year prior to the date Hopkins filed this suit; and

(3) all facts relative to the amount of damages Hopkins is entitled to under Counts II, III and V, or any other counts,⁶ are confined to the period preceding March 2, 1961, the day after Hopkins purchased the Trice production payment. Hopkins has waived any right it may have to damages in connection with any expenditures Hopkins may have made after March 1, 1961 in an effort to reduce its damages. Also, Hutton and Hopkins are in agreement that damages should be determined as of March 1, 1961. But Hutton contends that certain post-March 1, 1961 developments relating to the production payment Hopkins purchased on that date are relevant and material to the determination of Hopkins' out-of-pocket damages on that date.⁷ And Hutton also contends that, insofar as the Section 13 issue is concerned, Hutton is entitled to have the factfinder consider occurrences antedating March 1, 1961 as well as those which took place between March 1, 1961 and November 1, 1962 and that insofar as entitlement to rescissionary relief under the 10b-3, 10b-5 and Section 17 counts is concerned, Hutton is entitled to have the factfinder consider not only facts occurring after November 1, 1962 but also those occurring not only prior thereto but also prior to March 1, 1961. Indeed, in all three factual contexts—those relating to damages under any count, those relating to Section 13 issues under Count I, and those relating to rescission under Counts II, III and V, Hutton contends that all relevant events, whenever they occurred, should be considered.

In granting summary judgment under the 12(2) count, this Court made 126 separate findings of fact, 297 F.Supp. 1165, 1178-1197. Those summary findings were apparently approved by the Fourth Circuit. 422 F.2d 1124, 1126. Thus, those factual findings, made in the partial summary judgment setting of Federal Civil Rule 56, provide the factual underpinning for any trial which is hereafter held in this case on any issue. But they do not preclude Hutton—or Hopkins—during any such trial, from introducing evidence with regard to any relevant fact, whenever it occurred, not determined prior to such trial either by this Court under Rule 56, or by stipulation between the parties, or by admission or other appropriate discovery procedure. Accordingly, if this Court should accede to Hopkins' request and should try, without a jury, any issues pertaining to Hopkins' entitlement to rescission under the 10b-3, 10b-5 and Section 17 counts or under the Section 12(2) count, this Court, as it has earlier stated at 326 F.Supp. 250, 262 and ff., might well be placed in a position in which, pursuant to the requirements of Federal Civil Rule 52(a), it would be required to make one or more findings of fact (relating to the periods prior to March 1, 1961, between March 1, 1961 and November 1, 1962, and between November 1, 1962 and November 1, 1963) which might, in the event of a subsequent jury trial on the issue of damages, be relevant and material therein. That possibility, as this Court understands the spirit, if not the letter, of Dairy Queen v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962), and its progeny, precludes this Court from first trying, non-jury, any factual issues relating to rescission under (a) Counts II, III and V, or (b) the Section 13 limitations issue under Count I. While the ultimate factual issues with regard to those rescission questions on the one hand, and the damage questions on the other hand, can perhaps be tightly compartmentalized into different periods, the underlying subsidiary factual determinations cannot be so neatly sliced and severed—at least not with any predictable certainty. They, like murder, will or, in any event, may "out"—in their case, from the isolated time periods into which Hopkins seeks to seal them in advance of trial. In that light, this Court reads Dairy Queen and the post-Dairy Queen opinions cited in 326 F. Supp. 250, 263, as teaching that Hutton is entitled to a jury trial of the rescission issues under Counts I, II, III and V so long as Hopkins holds in reserve its claim for damages under any count, since Hutton, in connection with any damage claim by Hopkins is concededly entitled to a jury trial. And this is true even if the issues which are open in this case with regard to rescission under any count, relate not to rights, but only to a specific type of equitable remedy, i. e., rescission. In that connection, this Court is cognizant of the implication of Mr. Justice White's quotation from Parsons v. Bedford, 3 Pet. 433, 447, 7 L.Ed. 732 (1830), in Ross v. Bernhard, 396 U.S. 531, 533, 90 S.Ct. 733, 735, 24 L.Ed. 2d 729 (1970),⁸ that a jury trial is available "not merely in suits, which the common law recognized * * * but also in suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered . . . ." (Emphasis supplied by Mr. Justice White in Ross v. Bernhard, supra.) In this case, if this Court is correct in its grant of summary...