Northern Trust Co. v. Essaness Theatres Corp.

• Decision Date: 29 January 1952
• Docket Number: 50 C 1762.,No. 50 C 1750,50 C 1750
• Citation: 103 F. Supp. 954
• Parties: NORTHERN TRUST CO. et al. v. ESSANESS THEATRES CORP. et al. STERN v. ESSANESS THEATRES CORP. et al.
• Court: U.S. District Court — Northern District of Illinois

103 F. Supp. 954

NORTHERN TRUST CO. et al. v. ESSANESS THEATRES CORP. et al.

STERN v. ESSANESS THEATRES CORP. et al.

Nos. 50 C 1750, 50 C 1762.

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

January 29, 1952.

COPYRIGHT MATERIAL OMITTED

Bell, Boyd, Marshall & Lloyd, Chicago, Ill., for Northern Trust Co., et al.

Rosenberg, Stein & Rosenberg, Chicago, Ill., for Emil Stern.

Edward Blackman, Chicago, Ill., for Essaness and Silverman.

Roger S. Foster, General Counsel, Alexander Cohen, Special Counsel, and James R. Jones, all of Washington, D. C., for Securities and Exchange Commission, amicus curiae.

LA BUY, District Judge.

The above matters have been consolidated for the purposes of defendants' motions setting up grounds for dismissal and summary judgment which are applicable to both complaints.

The plaintiffs have filed separate complaints alleging an action arising under the Securities Exchange Act of 1934, Section 10(b), 15 U.S.C.A. § 78j(b). It is alleged that pursuant to an agreement of October 20, 1945 the defendant corporation through its president and director, Edwin Silverman, purchased from plaintiff executors and Emil Stern 290 and 250 shares of capital stock, respectively, of Essaness Theatres Corporation out of a total capital stock of 915 shares, for the sum of $540,000 and $583,000 respectively; that said sale was made by the plaintiffs in reliance on certain statements and representations made by defendants with respect to the assets and business of the defendant corporation; that in connection with said sale and purchase defendants "employed and made use of means and instrumentalities of interstate commerce and the United States mails" and "employed in connection with said purchase manipulative and deceptive devices and contrivances in contravention of the rules and regulations prescribed by the Securities and Exchange Commission"; that at the time of the negotiations defendants "were without plaintiffs' knowledge carrying on active negotiations with other persons for the acquisition by defendant, Essaness Theatres Corporation, or a substantial interest in a large and important theatre business in Chicago carried on under the name of the Oriental Theatre * * * for the management of said Oriental Theatre business by Essaness Theatres Corporation on terms very favorable to said corporation" and on December 17, 1945 at the time the purchase was consummated the defendant corporation had an equitable interest in the Oriental Theatre and in the corporation which was to own and operate said business; that it was the duty of the defendants to disclose the aforesaid negotiations to avoid a fraud and deceit upon the plaintiffs, said facts having a material bearing on the value of the shares purchased; that at the time of the purchase the defendants had consummated the negotiations in connection with the Oriental Theatre and acquired an interest having an estimated value of $100,000 to $250,000 and received $500,000 by way of fees, commissions and profits therefrom; that in consequence of defendants' failure to perform its duty plaintiffs are entitled to an accounting and to recover from the defendants the difference between the fair value of said shares and the price received for them, such difference being estimated at not less than $636,000 and $500,000 respectively.

In 1944, at the time of Spiegel's death, the officers, directors and stockholders of defendant corporation were as follows:

Edwin Silverman, President, director and owner of 375 shares of stock;

Emil Stern, Vice-president, director and owner of 250 shares of stock;

Sidney M. Spiegel, Jr., Secretary and treasurer, director and owner of 375 shares of stock.

Morris Glasser, the certified public accountant of the defendant corporation was elected as a director upon the death of Spiegel and is also one of the executors of his estate.

The defendants, Essaness Theatres Corporation and Edwin Silverman, have filed motions to dismiss the complaints with prejudice, or in the alternative for a judgment in favor of the defendants, or to make the complaints more certain, and support said motions by numerous affidavits and exhibits. This motion by leave of court is now being presented as a motion for summary judgment on the ground there are no genuine issues of fact to be determined.

The grounds for the motions can be classified into four main divisions: (1) that the affidavits and exhibits show a full and complete disclosure to plaintiffs of the possible management of the Oriental Theatre; (2) that as a matter of law since the value of the theatre stock was passed upon by the Probate Court of Cook County on November 15, 1945, the plaintiffs are barred from maintaining this action by this prior adjudication; (3) that the Securities Exchange Act of 1934 does not give this court jurisdiction since (a) the present transaction did not involve a security traded on a securities exchange or an "over-the-counter" market, (b) there was no use of the United States mails or means or instrumentalities of interstate commerce in connection with the purchase of said stock, (c) the Act does not provide a civil right of action, and (d) Section 9(e) of the 1934 Act and Section 29(b) thereof, 15 U.S.C.A. §§ 78i(e), 78cc(b), bar said action by expiration of time; and (4) the action is barred by the Illinois Statute of Limitations, Smith-Hurd Ann.Stats., Chapter 83, Section 16. Other grounds are urged but these are the principal contentions. Plaintiffs have objected to said motion and move to strike certain portions thereof.

As to the first ground of the defendants' motion, the court is of the opinion that it presents genuine controversial issues of fact, which if the action is proper, go to the merits of the suits. It is not the function of a court on a motion for summary judgment to resolve factual issues, but only to determine whether a controversy as to the facts exists between the parties.

The defense of res judicata has been raised with respect to the proceedings in the Probate Court in connection with the Estate of Sidney M. Spiegel, Jr.

This doctrine embodies two main rules: (1) the judgment or decree of a court of competent jurisdiction on the merits concludes the parties and privies to the litigation and constitutes a bar to a new action or suit involving the same cause of action either before the same or any other tribunal, and (2) any right, fact, or matter in issue, and directly adjudicated on, or necessarily involved in, the determination of an action before a competent court in which a judgment or decree is rendered on the merits is conclusively settled by the judgment therein and cannot again be litigated between the parties and privies whether or not the claim or demand, purpose or subject matter of the two suits is the same.

The Probate Court proceedings and the present suit, while they allegedly stem from the same sales of stock, are based upon different causes of action. The Probate Court concerned itself with the contract by the estate to sell its shares of stock and not with the question of whether the defendants were guilty of a fraud. Causes of action which are distinct and independent although growing out of the same contract, transaction or state of facts may be sued upon separately and the recovery of a judgment will not bar subsequent actions. 34 C.J. p. 847; 50 C.J.S., Judgment, § 674.

In order to apply the principle of judicial estoppel two requisites must be present, (1) identity of parties, that is, the party sought to be bound should be a party to both actions, and must have appeared in both in the same character or capacity; and (2) identity of issues, that is, a fact or question which was in issue in a former suit and was there judicially passed on and determined is conclusively settled by the judgment therein and it is immaterial that the question alleged to have been settled by such former adjudication was determined in a different kind of proceeding or a different form of action or for different purposes.

As to identity of parties the defendants assert that neither Essaness nor its president were parties to the Probate Court proceedings. The action of the Probate Court arose in the Estate of Sidney M. Spiegel, Jr. in connection with an offer of October 20, 1945, made by Essaness Theatres Corporation through its president to the executors of the Estate who were the Northern Trust Company, Kathryn Spiegel and Morris Glasser. The Court approved the sale of the estate shares for a price at which they were subsequently sold. It is not denied that the record in the Probate Court shows appearances on behalf of the executors of the Estate, Essaness Theatres Corporation, minor defendants, and Mr. Stern. So far as Emil Stern is concerned it is apparent his appearance was as a stockholder of the corporation and not as a seller of his shares of stock. The decree entered in the Probate Court would not foreclose his rights as a seller of his own shares from bringing any action for rights accruing to him thereunder. It is not clear in what status Edwin Silverman is made a party defendant in the present suit, but from the allegations of the complaint it appears his joinder is on the basis of his status as president of corporate defendant, the same position in which he executed the offer of October 20, 1945 for the corporate defendant forming the basis of the contract of sale which the Probate Court considered, and it appears that the executors and the corporate defendant acted in the same capacity in the Probate Court as purchaser and seller as they do here.

The rule is often stated in general terms that a judgment is conclusive not only upon the questions actually contested and determined but upon all matters which might have been litigated and decided in that suit. However, there is a refinement in the rule of judicial estoppel which makes such a generalization inapplicable. As was stated in Cromwell v. County of Sac, 1876, ...