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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,
v.
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.

The Factual Background.

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 ...


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