Norris v. Wirtz
| Decision Date | 13 September 1982 |
| Docket Number | No. 80 C 6836.,80 C 6836. |
| Citation | 551 F. Supp. 46 |
| Parties | Susan Mary NORRIS, Plaintiff, v. William W. WIRTZ, individually and as trustee, Arthur M. Wirtz, individually and as trustee, St. Louis Arena Corporation, a corporation, Arena Bowl, Inc., a corporation, and Wirtz Corporation, a corporation, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Mayer Brown & Platt, Roger W. Barrett, Alan N. Salpeter, Chicago, Ill., for plaintiff.
Kenneth E. Scranton, Richard L. Manning, Crowley, Fuller & Manning, Lawrence Jay Weiner, Lawrence Jay Weiner & Associates, Chicago, Ill., for defendants.
This action is brought pursuant to Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5 of the Securities and Exchange Commission promulgated thereunder. This court has subject matter jurisdiction over plaintiff's claims pursuant to Section 27 of the Securities Exchange Act of 1934 (1934 Act), 15 U.S.C. § 78aa, and Title 28 of the United States Judicial Code, Section 1331, 28 U.S.C. § 1331. Plaintiff Susan Norris seeks monetary relief against defendants William W. Wirtz, Arthur M. Wirtz, St. Louis Arena Corporation, Arena Bowl, Inc., and Wirtz Corporation. Before the court is defendants' motion to dismiss the complaint. Defendants seek a dismissal of the action on three grounds: first, that plaintiff lacks standing under the 1934 Act to maintain this action; second, that plaintiff's complaint fails to state a cause of action under Section 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder; and third, defendants are not proper party defendants.1 For the following reasons the court finds that Susan Norris has standing to maintain this action but grants defendants' motion to dismiss on the ground that plaintiff has failed to state a cause of action under Section 10(b) and Rule 10b-5. Therefore, the court need not reach the merits of defendants' third argument.
For purposes of this motion to dismiss the court accepts as true the following allegations of the complaint. James Norris was the father of plaintiff Susan Norris. Prior to his death on February 25, 1966 James Norris and defendant Arthur Wirtz owned a number of closely-held corporations. In most of these corporations defendant Arthur Wirtz and his family owned 51% of the stock and James Norris owned 49%. Defendant Arthur Wirtz served as president of most of these corporations and James Norris served as chairman of the board; after James Norris' death defendant William Wirtz served as president and defendant Arthur Wirtz served as chairman of the board.
Two executors were appointed to administer James Norris' estate: his wife, Mary Norris, and defendant William Wirtz. His will gave certain personal property to his wife and then divided the residuary estate between a trust for Mary Norris and one for plaintiff Susan Norris. The will appointed defendant William Wirtz as trustee and defendant Arthur Wirtz as successor-trustee for both trusts. Since Mary Norris' death on January 3, 1976, William Wirtz has acted as sole executor of the James Norris estate.
On September 21, 1967 a verified petition was filed in the Circuit Court of Cook County, Illinois, County Department, Probate Division (state court) by the co-executors of the James Norris estate, Mary Norris and William Wirtz, seeking leave on behalf of the estate to sell 4,993 shares of $100 par value common stock of St. Louis Arena Corporation, a Norris-Wirtz corporation. The proposed sale was to take the form of a repurchase and redemption of said stock by the corporation. The petition stated that it was in the best interests of the estate and its beneficiaries that the stock be repurchased by the corporation and that the redemption price had been substantiated by the corporation's last available balance sheet dated June 30, 1967. Apart from the balance sheet no other evidence of the stock's value was submitted by William Wirtz to co-executor Mary Norris, Susan Norris, or the state court. The balance sheet listed all investments of the St. Louis Arena Corporation at their cost, not at their fair market value.
On September 21, 1967 the co-executors filed another petition in state court seeking leave on behalf of the estate to sell 1,500 shares of $50 par value common stock of Arena Bowl, Inc., another Norris-Wirtz corporation. The proposed sale was to take the form of a repurchase and redemption of the 1,500 shares of stock by the corporation. The petition stated that it was "for the best interests of the estate and the said beneficiaries thereunder" that the stock be repurchased by the corporation and that Arena Bowl, Inc. had offered to redeem the stock "at a price representative of the valuation of the assets of the company as disclosed in the Balance Sheet submitted to the State Court." No other evidence of the stock's value was submitted by William Wirtz to Mary Norris, Susan Norris, or the state court. Susan Norris alleges that the balance sheet listed all Arena Bowl, Inc. investments at their cost, not at their fair market value.
William Wirtz knew, or would have known had he not acted recklessly, that the fair market value of the stock owned by the James Norris estate to be redeemed by the corporations was substantially greater than the price to be paid by them for said stock, that the price paid by the corporations was grossly inadequate, and that she did not know or have reason to know the fair market value of the stock. William Wirtz knowingly concealed the true value of the stock from plaintiff, Mary Norris, and the state court, and that use of the balance sheets of the corporations had the effect of materially understating the stock's value. William Wirtz knowingly concealed these facts so that the state court would approve the stock redemptions. By these acts William Wirtz was engaged in a scheme to defraud, and did defraud Susan Norris, in violation of Section 10(b) of the 1934 Act and Rule 10b-5. His fraudulent actions were also taken on behalf and for the benefit of the defendant corporations.
As a result of William Wirtz' failure to disclose the true value of the corporations' assets and thus the true value of their stock to the state court, and his representations that the sale of said stock was in the best interests of the estate, the state court approved the redemptions of stock by the St. Louis Arena Corporation and Arena Bowl, Inc. If Mary Norris or the state court had been made aware of the true value of the corporations' assets and stock, they would not have approved the sale, and if Susan Norris had known she would have requested the state court to disapprove the sales. Subsequent to the state court's approval the stock of St. Louis Arena Corporation and Arena Bowl, Inc. was redeemed for $2,600,000 and $86,265 respectively, which were unfair prices.
Arthur Wirtz agreed with William Wirtz that the stock should be redeemed, agreed on the steps that were taken to carry out the redemptions, and substantially assisted William Wirtz and the corporations in carrying out the redemption and scheme to defraud Susan Norris. Arthur Wirtz and William Wirtz controlled the actions of the corporations in connection with the redemptions and are therefore liable under Section 20(a) of the 1934 Act, 15 U.S.C. § 78t.
On September 27, 1968 Mary Norris and William Wirtz filed a third petition in state court seeking leave on behalf of the estate to sell 8,625 shares of stock in Judge & Dolph, Ltd., a wholesale liquor company. The petition stated that the Wirtz Corporation owned more than 75% of the outstanding stock of the corporation and that it was to be "liquidated and dissolved in due course." The petition further stated that the Wirtz Corporation had made offers to all the other shareholders of Judge & Dolph, Ltd. to purchase their stock for $20 a share. Thus, the price to be paid by the Wirtz Corporation for the stock owned by the James Norris estate would be $172,500. William Wirtz told the state court that this price was "a fair and just price" and was in the "best interests" of the James Norris estate. No documentation, affidavits or other factual materials were submitted to the state court to justify this statement.
Despite William Wirtz' representation to her, Mary Norris, and the state court, that Judge & Dolph, Ltd. was "to be liquidated and dissolved in due course," it is still owned and operated by the Wirtz family and is one of the largest wholesale liquor companies in the Chicago metropolitan area. The amount paid for the stock, $172,500, was grossly inadequate — the same shares of stock were valued at $282,000 as of the date of James Norris' death in a settlement arrived at with the Internal Revenue Service. William Wirtz knew or would have known had he not acted recklessly, that the price to be paid by the Wirtz Corporation for the stock was grossly inadequate, that there was no factual basis for concluding that the price was "fair and just," and that Judge & Dolph, Ltd. was not going to be "liquidated and dissolved in due course." William Wirtz knowingly concealed these facts so that the state court would approve, as it subsequently did, the sale of said stock to the Wirtz Corporation.
By knowingly undervaluing the true worth of the stock and by concealing this worth from plaintiff, Mary Norris, and the state court, William Wirtz engaged in a scheme to defraud and did defraud Susan Norris, in violation of Section 10(b) of the 1934 Act and Rule 10b-5. His fraudulent actions in connection with the sale of said stock were also taken on behalf and for the benefit of the Wirtz Corporation. As with the previous transactions, Susan Norris alleges that the sale would not have been approved by the state court if the true facts had been made known to it, and that Arthur Wirtz substantially assisted William Wirtz in this scheme to defraud her.
As a result of the above-described...
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Norris v. Wirtz
...15 U.S.C. Sec. 78j(b) (1976), and Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. Sec. 240.10b-5 (1982). Norris v. Wirtz, 551 F.Supp. 46 (N.D.Ill.1982). Our jurisdiction is based on 28 U.S.C. Sec. 1291 (1976). Because we believe the district court erred in concluding that pl......
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