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CLAYTON v. JAMES B. CLOW & SONS
July 12, 1957
JOANNA GWIN CLOW CLAYTON AND JOANNA GWIN CLOW, A MINOR, BY HUGH A. CLAYTON, HER NEXT FRIEND, PLAINTIFFS,
JAMES B. CLOW & SONS, A CORPORATION, AND HATTIE B. CLOW PRYOR, AS TRUSTEE UNDER THE WILL OF CHARLES R. CLOW, SR., DECEASED, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Julius J. Hoffman, District Judge.
The defendants in this civil action have presented motions
seeking dismissal, judgment on the pleadings and summary
judgment. Affidavits, extensive depositions, and voluminous
exhibits have been offered both to support and to oppose the
motions, and the questions presented have been ably and
exhaustively briefed on both sides.
The controversy involves conflicting claims to certain shares
of stock in a closely held corporation, James B. Clow & Sons. The
transactions which gave rise to the dispute are complex, and will
be recounted here, in the interests of brevity, only to the
extent necessary to a disposition of the defendants' motions. For
convenience, these motions will be divided into three branches
and considered separately. First taken up will be the motions for
judgment on the pleadings, for summary judgment, and for
dismissal of the complaint for failure to state a claim upon
which relief can be granted, in so far as they are based upon the
asserted legal and factual insufficiency of the plaintiffs'
claims viewed on their merits. Second to be considered will be
the defendants' motion for judgment upon the ground that the
claims are barred by the statute of limitations or by laches. The
third section of the memorandum will deal with the motion to
dismiss the action for failure to join indispensable parties.
Summary Judgment on the Merits
All the defendants, represented in two groups in the action,
have moved for judgment on the pleadings in their favor or, in
the alternative, for summary judgment. In support of the motion,
it is asserted that the complaint fails to state a claim upon
which relief can be granted and that the facts not genuinely
disputed establish the insufficiency of the plaintiffs' claim. In
addition, matters which are said to raise an estoppel or to
constitute a release of any claims are submitted by way of
avoidance. Since the parties on both sides have relied upon
matters outside the pleadings to support their respective
positions, the motion will be treated, under Rules 12(b) and
12(c) of the Federal Rules of Civil Procedure, 28 U.S.C.A., as a
motion for summary judgment under Rule 56.
So regarded, the motion cannot be decided upon the basis of the
pleadings alone. The purpose of summary procedures is the
avoidance of what may turn out to be shadow-boxing with formal
pleading allegations having no foundation in admissible evidence.
The object is to identify those cases which would be subject to
summary disposition, by directed verdict or its equivalent, at
the trial, and to eliminate the unnecessary delays and expense of
commencing such a useless trial. "Summary judgment procedure
enables district judges to nip in the bud litigation which would
wilt, if the case went forward to a trial on the merits, because
there was no genuine issue as to any material fact." Homan Mfg.
Co. v. Long, 7 Cir., 1957, 242 F.2d 645, 653. The fact that a
triable issue is presented by the pleadings does not answer the
question presented by a motion duly made and supported. The
parties must be prepared to show that their claims and defenses
are backed up by admissible evidence which would suffice, at a
trial on the merits, to create a genuine question of fact
appropriate for determination by
the jury or, where no jury is employed, by the judge sitting as
the trier of fact. Sartor v. Arkansas Natural Gas Corp., 1944,
321 U.S. 620, 624, 64 S.Ct. 724, 88 L.Ed. 967. The motion
therefore cuts through the bare pleading allegations, and
penetrates to the factual core of the controversy. Albert
Dickinson Co. v. Mellos Peanut Co., 7 Cir., 1950, 179 F.2d 265;
Repsold v. New York Life Ins. Co., 7 Cir., 1954, 216 F.2d 479.
Summary judgment procedures, however, do not replace the trial.
Genuine and disputed questions are not to be decided on the paper
record of affidavits and depositions in place of the live
testimony of witnesses offered in open court, in the presence of
the trier of fact and subject to full cross examination. "A
summary judgment proceeding is not a substitute for a trial, but
rather a judicial search for determining whether genuine issues
exist as to material facts. (Citations omitted.) The lower court
cannot try out factual issues on a motion for summary judgment
because once such an issue is found the court's function on that
aspect of the case ends." Homan Mfg. Co. v. Long, 7 Cir., 1957,
242 F.2d 645, 656. If it appears from the materials submitted on
the motion that relevant and material facts are in dispute,
either because evidence as to primary fact is conflicting or
because inferences from admitted fact could reasonably be drawn
in different ways, the questions of credibility and of inference
must be deferred to a full trial. See Fox v. Johnson & Wimsatt,
Inc., 1942, 75 U.S.App.D.C. 211, 127 F.2d 729, 737; Note, 51
Northwestern L. Rev. 370 (1956).
The motion for summary judgment is designed to save time,
expense and effort. In furtherance of this purpose the rule
should not be construed to require in all cases a full paper
rehearsal of the trial. It follows that the defendant should not
be permitted, simply by filing an unsupported motion, to cast
upon the plaintiff the burden of showing by affidavit or
deposition all the evidence he plans to offer on every element of
the case he would be obliged to prove in order to avoid a motion
for a directed verdict. The time and expense required to defend
against the motion must be kept within limits reasonably
commensurate with the purpose of saving time and expense.
Accordingly, the moving party bears the burden of an affirmative
showing that full trial is unnecessary. 6 Moore, Federal Practice
2070-2071 (2d Ed. 1953).
The party who would carry the burden of proof at the trial is
obliged, in resisting the motion, to demonstrate only that his
claim is backed by admissible evidence in those particulars
specifically singled out by the moving party. When a defendant
supports his motion for summary judgment with proper affidavits
or depositions tending to show that certain allegations of the
complaint are untrue, the plaintiff cannot rely upon his pleading
alone, but must come forward with affidavits or other proof that
he will be able to produce evidence at the trial to support his
contention. But he need go no further. The burden of the motion
rests upon the moving party.
Before the particular questions raised by the defendants are
reached, the transactions in issue will be described briefly. In
considerable part the basic facts are undisputed. Where a genuine
disagreement is presented, the acceptance of the plaintiffs'
contention is required by the nature of the motion, and the facts
are stated accordingly.
At the time of his death in 1910, Charles R. Clow, Sr., was the
owner of 437 1/2 common shares of the corporation known as James
B. Clow & Sons, Inc., hereafter called the Company. The Company's
stock was held primarily by the decedent and his brothers,
William E. Clow, Sr. (hereafter William, Sr.), Harry B. Clow,
Sr., and James C. Clow. By the terms of his will, Charles R.
Clow, Sr., requeathed this stock to his widow, Hattie B. Clow,
later Hattie B. Clow Pryor and referred to hereafter as Mrs.
Pryor, as trustee. Under the trust so
established, Mrs. Pryor was to receive all dividends during her
lifetime, and was authorized to sell any or all of the stock with
the consent of the three surviving brothers of the testator or
their heirs, devisees, executors and administrators, and to
invest and re-invest the proceeds of sale with the consent of the
three brothers "or any two of them." At the death of Mrs. Pryor
the stock was to be given, under the terms of the trust, to the
testator's son, Charles R. Clow, Jr., hereafter Charles, Jr., "if
living at the time of her death."
The plaintiffs are the widow and daughter of Charles, Jr.,
claiming respectively as residuary legatee under his will and as
a child born after the execution of the will under the laws of
Mississippi, where they were domiciled at the time of death.
Their asserted rights arose out of four sales of stock made from
the trust by Mrs. Pryor in 1935 and 1938. The defendants are the
Company, Earle F. Johnson, an officer of the Company who
allegedly participated in the sales, ten named defendants who are
claimed to be transferees of the disputed shares so sold, and the
Northern Trust Company as trustee under some seven trusts which
contain such shares. The plaintiffs seek an adjudication of their
rights in the stock and a transfer of the shares to the trust
originally established under the will of Charles R. Clow, Sr.
The sales in controversy involved 2,850 shares of a total 5,250
held in the trust as the result of stock dividends increasing the
number from the original 437 1/2. They were disposed of by Mrs.
Pryor in four separate transactions. In all four instances,
Charles, Jr., submitted his consent to or ratification of the
sale. In none of the four instances were the consents of the
surviving brothers and all the heirs, devisees, executors and
administrators of deceased brothers obtained, as required by the
will of Charles R. Clow, Sr., as the plaintiffs construe it. In
the second sale, none of the consents was obtained. In all four
transactions the immediate transferee of the stock sold was the
Company, but all of the sales were negotiated largely through
William, Sr., as president and later chairman of the board of the
Company, and the stock acquired in the last three sales was
resold by the Company at the same price to William Sr., in
accordance with a previous understanding.
The details of these four transactions are tabulated below:
Date of Number of Price per
Sale Shares Share
1. Jan. 15, 1935 1,250 $25
2. Dec. 24, 1935 500 30
3. April 28, 1938 600 50
4. July 1, 1938 500 50
After the first sale, and in November 1935, Charles, Jr.,
through whom these plaintiffs claim, executed an agreement with
his mother, Mrs. Pryor, purporting to transfer to her all his
interest in the stock in which he held a remainder, under the
trust, after the death of Mrs. Pryor. The recited consideration
for this assignment was a sum representing previous advancements
and loans made to Charles, Jr., by Mrs. Pryor, and her promise to
pay $25,000 in monthly instalments of $75. The Company was
notified of the agreement and requested to transfer the stock in
accordance. On the strength of this assignment, Mrs. Pryor was
able to negotiate several personal loans, secured by pledges of
the stock, from other sources.
Between the execution of this purported assignment and July
1940, Mrs. Pryor sold an additional 1,600 shares of the trust
stock through the Company to William, Sr., in the last three of
the transactions previously described. Despite the purported
relinquishment of his interest, Charles, Jr., was requested to
give, and did give, his consent to each of the three sales. In
July 1940, Mrs. Pryor and Charles, Jr., entered into another
agreement, purporting to rescind the assignment of November 1935,
for failure of consideration. Pursuant to this second agreement,
the Company was requested to retransfer the remaining
shares held in Mrs. Pryor's name, and numbering 2,000, so that ...