of Illinois, and the stock of which is not dealt with on any
exchange. Matheson v. Armbrust, 9 Cir., 284 F.2d 670; Northern
Trust Co. v. Essaness Theatres Corp., D.C., 103 F. Supp. 954;
Hooper v. Mountain States Securities Corp., 5 Cir.,
282 F.2d 195; Fratt v. Robinson, 9 Cir., 203 F.2d 627; Robinson v.
Difford, D.C., 92 F. Supp. 145; Kardon v. National Gypsum Co.,
D.C., 73 F. Supp. 798; Ellis v. Carter, 9 Cir., 291 F.2d 270.
But defendants raise a problem which goes beyond the clear
applicability of the statute. It is contended that if the
statute is construed to apply to the facts of this case, it is
unconstitutional in that Congress to that extent would have
exceeded its legislative jurisdiction under Article I, Section
8, of the United States Constitution. The problem is
especially difficult of solution by virtue of the fact that
both the transmission and reception of the three phone calls
which allegedly culminated in the fraudulent negotiations all
took place entirely within the State of Illinois. It is
exceedingly difficult to imagine how interstate commerce was
prejudiced, or obstructed, or burdened, or discriminated
against by these intrastate telephone calls. And even if these
calls had been made across state lines, it would, I think, be
just as difficult, to make the very same determination, since
the same facilities would have been used in practically the
very same manner.
Had the Courts over the years adhered to the principle that
the commerce power could be used only as a device for
accomplishing economic goals, I would be compelled to dismiss
Count I of the complaint forthwith. But a series of cases
between 1903 and World War I clearly established the principle
that the commerce power could be used as a device for
accomplishing purely social goals. See: Champion v. Ames,
188 U.S. 321, 23 S.Ct. 321, 47 L.Ed. 492; Hipolite Egg Co. v.
United States, 220 U.S. 45, 31 S.Ct. 364, 55 L.Ed. 364; Hoke v.
United States, 227 U.S. 308, 33 S.Ct. 281, 57 L.Ed. 523.
Although after 1918 the pattern is somewhat confused, the broad
application of the commerce clause nevertheless continued.
Stafford v. Wallace, 258 U.S. 495, 42 S.Ct. 397, 66 L.Ed. 735;
Brooks v. United States, 267 U.S. 432, 45 S.Ct. 345, 69 L.Ed.
Thus Congress may regulate interstate commerce to the extent
of forbidding the use of such commerce or an instrumentality
thereof as an agent to promote immorality or dishonesty. While
the authority of the Federal Government over interstate
commerce may not be pushed to such an extreme as to destroy
the distinction which the commerce clause itself establishes
between commerce among the several states and the internal
concerns of the state, nevertheless, in the exercise of its
plenary authority to protect interstate commerce and the
facilities thereof, Congress may prohibit any act which makes
it a vehicle for fraud or deception.
Thus, even though Congress may not be able to forbid the
fraud or deception standing alone, it can forbid the use of an
instrumentality of interstate commerce in furtherance of a
scheme that it regards as contrary to public policy. Bogy v.
United States, 6 Cir., 96 F.2d 734.
And, as plaintiff notes, the Courts have on many occasions
held that where activities may be intrastate in character when
separately considered, if they have such a close relation to
interstate commerce that their control is essential or
appropriate to protect that commerce from uses inimical to the
welfare and public policy of the country as a whole, Congress
cannot be denied the power to exercise that control. In
addition to the cases previously cited, see: N.L.R.B. v. Jones
& Laughlin Steel Corp., 301 U.S. 1, 57 S.Ct. 615, 81 L.Ed. 893;
Houston E. & W. Texas Railway Co. v. United States,
234 U.S. 342, 34 S.Ct. 833, 58 L.Ed. 1341; Rochester Telephone Corp. v.
United States, D.C., 23 F. Supp. 634; Benanti v. United States,
355 U.S. 96, 78 S.Ct. 155, 2 L.Ed.2d 126; Bethlehem Steel Co.
v. New York State Labor Relations Board, 330 U.S. 767, 67 S.Ct.
1026, 91 L.Ed. 1234; North American
Co. v. S.E.C., 327 U.S. 686, 66 S.Ct. 785, 90 L.Ed. 945;
Mulford v. Smith, 307 U.S. 38, 59 S.Ct. 648, 83 L.Ed. 1092;
United States v. Darby, 312 U.S. 100, 61 S.Ct. 451, 85 L.Ed.
609; Wickard v. Filbrun, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed.
122. Since Congress has the authority to regulate
instrumentalities of interstate commerce, it would seem to
follow that Congress can regulate the operation and use of
that instrumentality, even where the use involves acts solely
intrastate in character. And so it would appear that Congress
has the constitutional authority to prevent the use of an
instrumentality of interstate commerce as an agency to promote
dishonesty or fraud. United States v. Handler, 2 Cir.,
142 F.2d 351.
Admittedly, the construction I have placed upon Section 78j,
under the facts of this case, goes beyond what any other case
has held, but it is the Court's opinion that this is the
construction that will ultimately prevail, wisely or
otherwise. During the progress of this litigation, it may very
well develop that the transaction complained of is entirely
local and that the telephone calls are merely incidental to
the entire transaction and do not constitute an integral part
of the alleged scheme to defraud. But this is something that
cannot be decided upon a mere reading of the pleadings. And
while the allegations of the complaint could be more specific
in these matters, I find it sufficient with respect hereto.
Defendants also allege that since plaintiff was a director
and the vice-president of the corporation in question, his
knowledge of the status and affairs of the corporation must
have been at least equal to the knowledge of the defendants.
This, of course, poses an issue of fact which must await the
trial of this cause. Defendants' argument is indeed
thought-provoking and it certainly indicates an area where
plaintiff may meet many obstacles to the proof of his charges.
But the allegations of the complaint are sufficient to raise
the question of whether or not the defendant Walter F. Cunny
actively engaged in a scheme to conceal the affairs of the
corporation. And having raised this question, it matters
little that the plaintiff was a director and officer of the
corporation though, as I have indicated, because of this the
burden may be more difficult for plaintiff to bear. Cf.,
Broffe v. Horton, 2 Cir., 172 F.2d 489.
Defendants also raise numerous additional objections which
go to the form and substance of Counts I and II. I shall not
burden the record by listing each of these objections, but I
shall make the following observations. Deficiencies in the
complaint are more properly rectified through the filing of an
amended complaint and not through the use of affidavits.
Otherwise, defendants could not answer the allegations except
by way of counter-affidavits. Secondly, different causes of
action based on different legal theories, even though based on
essentially identical facts, should be alleged in separate
counts. Thirdly, Rule 9 of the Federal Rules of Civil
Procedure contemplates specificity when alleging fraud. While
I find that the complaint, taken as a whole, at least in
substance sufficiently alleges common law fraud, and a
violation of Section 78j, if the affidavits are considered,
nevertheless, a motion for a more definite statement would
certainly lie. It therefore is suggested that most of
defendants' objections could be obviated if plaintiff would
simply file an amended complaint, taking into account
As to the defendant Margaret O. Cunny, however, I fail to
find any claim stated upon which relief can be granted. Nor do
I find any basis for keeping her in this suit as a necessary
or proper party defendant. All that is alleged is that she
received the stock purchased by her husband. Rules 19 and 20
do not contemplate her joinder for this reason alone.
Accordingly, the motion of Margaret O. Cunny to dismiss the
complaint as to her is allowed.
The motion of Walter F. Cunny to dismiss will be entered and
continued to June 26, 1963, during which time plaintiff may
file an amended complaint, if he so desires.
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