Castle, Senior Circuit Judge, and Kerner and Pell, Circuit Judges.
This is an appeal from a minority shareholder's derivative action brought on behalf of the shareholder's corporation, Defiance Industries, Inc. (Defiance), against Victor Muscat,*fn1 former president, director and principal shareholder. Subsequent to the commencement of the action the nominal defendant, Defiance, was merged into El-Tronics, Inc. (El-Tronics). Both El-Tronics and plaintiff-shareholder appeal the district judge's decision, sitting without a jury, that "plaintiff has failed to establish by a preponderance * * of the evidence any of the necessary allegations in order to recover."
Plaintiff-shareholder based her complaint on alleged breaches of fiduciary duties by defendant Muscat in acquiring shares of Guaranty Bank and Trust Company (Guaranty) stock for Defiance. Primary reliance for evidence of these breaches is placed on the action of Muscat and others in forming a corporate shell, Management Corporation (Management), for the purpose of acquiring a block of 5,600 shares of Guaranty stock in 1962.*fn2 This stock was the sole asset of Management and was thereafter transferred to Defiance in August of 1963. Plaintiff claimed the stock was grossly over-valued so that the subsequent transfer to Defiance was "a bail out" by the defendant.
As mentioned, Defiance was merged into El-Tronics, Inc. subsequent to the commencement of this action. Approximately three months after this merger, El-Tronics was indicted for, and pled guilty to, violations of the Illinois Bank Holding Company Act of 1957, Ill.Rev.Stat. Ch. 16 1/2 §§ 71-76. The Illinois Act makes it unlawful for any action to be taken which results in an entity owning 15% or more of the voting shares of each of two or more banks.*fn3 Ill.Rev.Stat. Ch. 16 1/2 § 73. In pleading guilty, El-Tronics paid assessed fines of $60,000 and expended $6,000 in attorneys' fees.
Although the above events occurred subsequent to service of the complaint in this case, plaintiff adopted the position in the district court "that she could recover for Defiance all of the losses and damages sustained by reason of Muscat's breaches of fiduciary obligations to Defiance."*fn4 The district court apparently agreed the indictment and guilty plea were cognizable under the complaint; since the defendant does not contend otherwise, we regard this question as settled.
Plaintiff contends the sale of Guaranty stock to Defiance by Management and other acquisitions of Guaranty stock constitute breaches of fiduciary duty by defendant Muscat. Since plaintiff claims to be derivatively damaged as a result of these breaches, a resulting corporate injury must be shown. For proof of damages, plaintiff relies on an annual report form prescribed by the Securities Exchange Act of 1934. The report, known as a Form 10-K, was filed by Defiance and contained valuations of Guaranty stock held by Defiance. These valuations were considerably below the purchase price of the shares paid by Defiance; however, the submitted statements also contained the following language: "Determined by reference to the average bid and asked prices. It is not practicable to estimate the amounts which could be realized if blocks of shares of the size indicated were offered for sale."
Plaintiff does not contend that the above quoted language is inaccurate or untrue, yet, this is the only evidence which is relevant to fair market value. Since there is no evidence of actual or market value, the district court was correct in concluding that plaintiff failed to prove that the Guaranty stock transactions damaged Defiance.
ILLINOIS BANK HOLDING COMPANY ACT VIOLATION
It is undisputed that El-Tronics pled guilty to violations of the Illinois Bank Holding Company Act and that this criminal liability resulted from acts taken by Defiance while under the aegis of defendant Muscat. Both plaintiff and El-Tronics have maintained throughout this law suit that the criminal liability was a result of a breach of fiduciary duty on the part of Muscat. Apparently, plaintiff's theory is that if the purchases of Guaranty stock were breaches of fiduciary duty, then the resulting criminal liability was a direct consequence of those breaches. However, since plaintiff has failed to prove that Muscat breached any duty in purchasing the Guaranty stock, this theory of recovery is no longer apposite.
The only other rationale advanced by plaintiff in this court, or in the district court, is that the defendant breached his fiduciary duties to Defiance by placing that corporation in violation of the Illinois criminal statutes. However, neither the plaintiff nor the corporation has shown that the defendant was confronted with a conflict of interest, or the appearance thereof, in taking these acts. Plaintiff, nevertheless, urges that defendant had a duty to fairly and reasonably represent the best interests of the corporation.*fn5 We agree with this statement; yet, plaintiff cites no authority which imposes strict liability for errors of business judgment in the absence of a conflict of interest or applicable statute of the state of incorporation. The common law approach to alleged breaches in comparable situations is to determine the liability of a defendant by reference to traditional notions of negligence.*fn6 While the fact that criminal liability was imposed is evidence of the erroneous nature of defendant's judgment, neither the plaintiff nor the corporation has argued or introduced evidence under a negligence theory. Litigants must bear the burden of advancing their cause, and these claimants failed to present this theory to this court and to the district court. Moreover, claimants were apprised of the deficiencies in their theory of relief by the district court but did not choose to modify that theory. The closing argument so indicates:
Attorney for corporation: Your Honor, after listening carefully to [counsel's] remarks on behalf of Victor Muscat, I find it most significant that nowhere did he treat the matter of the violation of the Illinois Bankholding Act. There has been no evidence introduced either by way of exploration, mitigation, or any other attempt to try and explain this most flagrant breach of an Illinois Act, especially with respect to the fact that the corporate defendant in this matter has been required to obligate itself to the amount of $60,000 of a fine plus $6,000 for attorney's fees in this matter.
As I mentioned in my opening statement, Mr. Muscat was an officer and a director at the time the matters complained of in the plaintiff's complaint were perpetrated. I don't have to instruct your Honor that the man is a fiduciary. He is to be held in the highest trust ...