United States District Court, Northern District of Illinois, E.D
February 5, 1974
RUTH ELIZABETH MCCORMICK TANKERSLEY ET AL., PLAINTIFFS,
JOSEPH M.P. ALBRIGHT ET AL., DEFENDANTS.
The opinion of the court was delivered by: Decker, District Judge.
This action was instituted by the Trustees of the
McCormick-Patterson Trust ("Trust") for a declaratory judgment to
affirm their rights, as Trustees, to vote the shares of stock of
the Tribune Company ("Company"), held by the Trust, in favor of
certain proposed amendments to the Company's certificate of
incorporation and by-laws. The defendants are two beneficiaries
Trust who have challenged plaintiffs' right to vote for the
proposals.*fn1 In a prior opinion, this court denied the
beneficiaries' motion to dismiss the complaint for lack of
personal jurisdiction, 374 F. Supp. 530. Defendants have now
answered and submitted numerous counterclaims. Presently before
the court are plaintiffs' motions for summary judgment on their
complaint, and for dismissal of the counterclaims on the ground
that they fail to state a claim upon which relief can be granted.
I. FACTUAL BACKGROUND
A. The McCormick-Patterson Trust
The Trust was established in Illinois in 1932, and will
terminate on April 1, 1975. The Trust corpus consists of
approximately 53% of the outstanding stock of the Tribune
Company, a Delaware corporation.*fn2 This stock was originally
owned by Joseph Medill, the Company President and publisher of
the Chicago Tribune from 1874 to 1899. At his death in 1899, the
stock was placed in a trust managed by three trustees — two
Medill family members*fn3 and the Company's legal counsel. By
the late 1920's control of that trust had devolved to Medill's
two grandsons, Robert R. McCormick and Joseph Medill Patterson.
Both McCormick and Patterson had been directors of the Company
since 1911, and co-publishers of the Tribune since 1914.
On May 5, 1932, prior to the expiration of the Medill trust,
McCormick and Patterson entered into the trust agreement which is
the subject of this litigation. The following day, all the
beneficiaries of the Medill trust agreed to place their Company
stock in the McCormick-Patterson Trust. Upon the expiration of
the former trust instrument in 1933, approximately 53% of the
Company's stock, originally owned by Joseph Medill, passed into
the McCormick-Patterson Trust.
Under the express terms of the agreement, McCormick and
Patterson were the first Trustees and their successors, as
Trustees, were to be drawn from Company personnel.*fn4
Accordingly, virtually all of the Trustees have been directors or
executives of the Tribune Company or its subsidiaries, or both.
At present, the Company has fourteen directors and a five-member
Executive Committee. Seven of the eight Trustees are directors of
the Company and hold executive positions with the Company or its
wholly-owned subsidiaries;*fn5 three of
the Trustees are members of the Executive Committee.*fn6
B. The Events Culminating in This Litigation
Plaintiffs allege that, as Trustees of the McCormick-Patterson
Trust and as directors of the Tribune Company, they had long
considered amending the Company's certificate of incorporation
and by-laws. During this period, plaintiffs consulted with
various experts in relevant fields with respect to appropriate
changes. In late 1972, the Board of Directors unanimously
recommended that the stockholders adopt the amendments now under
challenge. Then, in March, 1973, a Notice of Annual Meeting of
Stockholders, with a proxy statement and proxy was sent to each
stockholder of the Company. These documents recited the proposed
amendments, and explained their purpose and the effect their
adoption would have upon control of the Company. On the same
date, although not required under the Trust to do so, plaintiffs
sent a letter to all beneficiaries of the Trust advising them of
the proposed action and their intent to vote the Trust stock in
favor of the amendments, and enclosed a copy of the amendments
and proxy statement.*fn7 However, on March 30, 1973, defendants
wrote the Trustees objecting to the amendments and requesting
that the Trustees refrain from voting in favor of their adoption.
In this correspondence, the beneficiaries claimed that the
proposals would insure continuity of management, increase the
Company's Delaware franchise tax, and jeopardize New York Stock
Exchange listing, thus decreasing the value of the Company's
stock and casting doubt upon the Trustees' conclusion that the
proposals were in the best interests of the stockholders.
Finally, defendants alleged that the Trustees were in a conflict
of interest position and claimed that the appropriate course
would be to withdraw the amendments and allow the "usual process
of stockholder votes" to determine the advisability of corporate
changes after the Trust's expiration.
The Trustees thereupon instituted this action and sent a letter
to all Trust beneficiaries apprising them of the suit, enclosing
a copy of defendants' letter, and requesting the beneficiaries'
views on the amendments. This poll has revealed that
beneficiaries owning 92.6% of the Trust corpus are in favor of
the proposals and beneficial holders of only 3.4% of the stock
II. THE AMENDMENTS UNDER CHALLENGE
The proposals would amend the Company's certificate of
incorporation and by-laws as follows:
(1) The Board of Directors would be divided into three classes,
to serve staggered three-year terms, with the term of one class
expiring each year.*fn9 At the 1974 annual stockholders meeting,
one class (four directors) would be elected for a one-year term,
another (five directors) for two years, and the third (five
directors} for three years; thereafter, one class would be
elected each year for a three-year term.
(2) The Company would be prohibited from entering into any
business combination with any party which directly or indirectly
owned more than 10% of any class of stock of the Company unless
received the approval of 80% of the voting securities holders.
(3) The number of authorized shares of common stock would be
increased from 8,000 to 20,000,000 and classified as Series A
Common Stock with full voting rights, and the Board of Directors
would be empowered to determine the dividend rights of any new
III. THE DECLARATORY JUDGMENT ACTION
Plaintiffs have moved for summary judgment as to their
entitlement to vote all shares of the Tribune Company stock held
in the Trust in favor of the proposed amendments. In opposing the
motion, defendants repeat the charges made in their letter and
characterize this as a case of conflict of interest and of
self-dealing "by fiduciaries, who serve as trustees and as
corporate directors and officers;" they allege that the adoption
of the amendments would benefit the plaintiffs individually and
would operate to the detriment of the beneficiaries and other
Summary judgment under Rule 56 of the Federal Rules of Civil
Procedure may be granted only where the record demonstrates that
there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law. See,
e.g., Kirk v. Home Indem. Co., 431 F.2d 554, 559 (7th Cir. 1970);
Progress Dev. Corp. v. Mitchell, 286 F.2d 222, 234 (7th Cir.
1961). Caution must be exercised in granting summary judgment;
the underlying facts are to be viewed in the light most favorable
to the party opposing the motion. Adickes v. Kress & Co.,
398 U.S. 144, 158-159, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970);
Technograph Printed Circuits, Ltd. v. Methode Electronics, Inc.,
356 F.2d 442, 446-447 (7th Cir.), cert. denied, 384 U.S. 950, 86
S.Ct. 1570, 16 L.Ed.2d 547 (1966); American Securit Co. v.
Hamilton Glass Co., Inc., 254 F.2d 889, 892-893 (7th Cir. 1958).
"[w]ith the ever increasing burden upon the
judiciary, persuasive reasons exist for the
utilization of summary judgment procedure wherever
appropriate. Therefore, while . . . courts should not
look the other way to ignore the existence of genuine
issues of material fact, . . . we do not deem it
necessary in the best interest of judicial
administration to strain to find the existence of
such genuine issues where none exist. To do so would
perforce have a dampening effect on the proper use of
a salutary procedural device. . . ." Kirk v. Home
Indemn. Co., supra 431 F.2d at 560.
A. Legality of the Proposed Amendments
There can be no doubt as to the validity of the proposed
amendments under Delaware law as such provisions are expressly
authorized by the corporation laws of that state, see 8 Del.C. §
151(a) and § 242(a)(3) (increase of authorized stock,
reclassification, and authorization of directors to issue
additional series of stock), id. § 216 (80% shareholder voting
requirement for certain business combinations), id. § 141(d)
(classification and staggered election of directors), and have
been adopted by a number of large corporations. See, e.g., Elgin
Nat'l Industries, Inc. v. Chemetron Corp., 299 F. Supp. 367
(D.Del. 1969); McDonough v. Copeland Refrig. Corp., 277 F. Supp. 6
(E.D.Mich. 1967); Stockholders Comm. for Better Mgmt. v. Erie
Tech. Prods., 248 F. Supp. 380 (W.D.Pa. 1965); Mullaney, Guarding
Against Takeovers — Defensive Charter Provisions, 25 Bus.Law.
1441 (1970). Indeed, defendants do not question the proposals on
B. The Duty Owed to the Beneficiaries
The primary issue is whether plaintiffs have breached the trust
imposed upon them as voting trustees. The standards to which a
fiduciary is held have been so frequently articulated as to
hardly bear repeating here. Unquestionably, trustees are
"obligated to act with the highest degree of fidelity and with
utmost good faith toward the beneficiaries." Wallace v. Malooly,
4 Ill.2d 86, 94, 122 N.E.2d 275, 279 (1954). See White v.
MacQueen, 360 Ill. 236, 248, 195 N.E. 832 (1935); Morris v. The
Broadview, Inc., 328 Ill. App. 267, 274, 65 N.E.2d 605 (1st Dist.
1946); In re Estate of Sanders, 304 Ill. App. 57, 68-69,
25 N.E.2d 923 (2d Dist. 1940).
Defendants' conflict of interest allegation arises from the
plaintiffs' dual roles as Trustees under the Trust and as
executives responsible for the direction and management of the
Company. Since the nature of the fiduciary relation requires the
trustee to act only for the benefit of the cestuis que trustent,
see, e.g., In re Flagg's Estate, 365 Pa. 82, 73 A.2d 411 (1950),
conflicts of interest generally are prohibited. See, e.g., Humpa
v. Hedstrom, 341 Ill. App. 605, 614, 94 N.E.2d 614 (1st Dist.
1950); Olson v. Rossetter, 330 Ill. App. 304, 316, 71 N.E.2d 556
(1st Dist. 1947). However, this proscription is subject to
modification by the settlor; the mere existence of a conflict
does not ipso facto require a prohibition of the trustees'
planned action where the trust instrument creates the conflict.
The McCormick-Patterson Trust clearly evidences the settlors'
intent that there be identity between Trustees and Company
personnel, and the history of the Trust discloses that this
objective has been realized. It is well-settled that courts will
carry out the settlor's intent unless to do so would breach a
"rule of law, or good morals, or the [declared] public policy of
the State." United States Trust Co. v. Jones, 414 Ill. 265, 270,
111 N.E.2d 144, 147 (1953). The comment of the court in Conant v.
Lansden, 341 Ill. App. 488, 94 N.E.2d 594 (4th Dist. 1950), aff'd
in part, reversed in part on other grounds, 409 Ill. 149,
98 N.E.2d 773 (1951), indicates Illinois policy in this context:
"It is a common situation, for a testator who owns
what he deems a good business, to include it in a
trust and to appoint as one of the trustees, an
officer or employee who is familiar with the
business. His reasons are too patent to require
comment. [The testator] chose among his trustees, two
men who had been officers of the company since it was
originally incorporated. It would be a strange rule
of law to hold that the trustees were guilty of bad
faith, self-dealing, or other improper conduct if
they failed to resign their corporate positions, and
thus discontinue the very reason for their
selection." 341 Ill.App. at 502, 94 N.E.2d at 601.
Nor will "[c]ourts of equity . . . interfere with the exercise
of discretionary powers of a trustee in the absence of proof of
fraud, bad faith, or abuse of discretion. . . ." Continental
Nat'l Bk. v. Sever, 393 Ill. 81, 93, 65 N.E.2d 385, 391 (1946).
See Nelson v. Folegstrom, 5 Ill. App.3d 804, 806, 284 N.E.2d 339
(3d Dist. 1972); In re Moir Hotel Co., 186 F.2d 377, 381 (7th
Cir. 1950); In re Flagg's Estate, supra 73 A.2d at 415;
Altschuler v. Chicago City Bk. & Trust Co., 380 Ill. 137, 142,
43 N.E.2d 673 (1942); Morris v. The Broadview, Inc., supra 328
Ill.App. at 272-273, 65 N.E.2d 605.
Thus, the Trustees' proposed action should be upheld unless it
constitutes fraud, bad faith, dishonesty, or an abuse of
discretion. In re Flagg's Estate, supra 73 A.2d at 415; In re
Kellogg's Trust, 35 Misc.2d 541, 230 N.Y.S.2d 836 (Sup.Ct. 1962);
In re Dow's Will, 156 N.Y.S.2d 804 (Sur. 1955), modified on other
grounds, 3 A.D.2d 968, 162 N.Y.S.2d 196 (1957), aff'd, 5 N.Y.2d 739,
177 N.Y.S.2d 718, 152 N.E.2d 673 (1958); In re Farrell's
Will, 91 N.Y.S.2d 89 (Sur. 1949); In re Pincus' Estate, 378 Pa. 102,
105 A.2d 82 (1954); Bogert,
Trusts & Trustees § 543(U), at 583-585 (2d ed. 1960).*fn11
A vote in favor of the proposed amendments is clearly within
the Trustees' discretion under the Trust. That instrument
expressly confers on the Trustees "full power and authority" to
vote the stock of the Company held by the Trust, and, with the
exception of certain transactions not involved here, the Trustees
need not obtain the consent of the beneficiaries to their
Further, beyond the authorized conflict of interest, the record
is void of any indication of fraud, bad faith, dishonesty, or
abuse of discretion on the part of the Trustees. Indeed,
defendants nowhere specifically charge plaintiffs with such
misconduct,*fn13 but appear to claim that the Trustees have not
met the burden of showing the propriety of their proposed vote.
Such a contention is without merit.
Prior to adopting the proposed amendments, the Board of
Directors received advice from two prominent investment banking
firms — Goldman, Sachs & Company and Salmon Brothers — with
respect to the steps to be taken by the Company prior to public
trading of Tribune Company stock. Both of these consultants
specifically advised that the interests of the Company, and of
the holders of beneficial and legal interests in its stock, would
be best served by adoption of the amendments.*fn14
The proxy material sent to the beneficiaries and other
shareholders was entirely candid in describing the amendments,
the motivation which prompted their adoption by the Board, and
their likely effects on management control. According to the
Proxy Statement, the purposes of the amendments are "[t]o
strengthen provisions for continuity of management" and "to give
the company greater means and more flexibility to respond to
financial needs and to capitalize on opportunities for profitable
investment in the future."*fn15 Of particular
note are the statements concerning the high vote requirement for
certain business combinations and the provision establishing
staggered terms for directors. The former was readily
acknowledged as a provision to discourage attempts "to take over
the Company after the expiration of the McCormick-Patterson
Trust," while the directors admitted that institution of the
"would have the effect of requiring at least two
shareholder meetings . . . instead of one, at
present, to effect a change in majority control of
the Board. The Board believes that the proposed
amendment will insure continuity of management
experience which is desirable and in the best
interests of the Company and its stockholders
Thus, although plaintiffs advocated approval of the amendments,
they did make full disclosure. See Russ v. Blair, 330 Ill. App. 571,
577, 71 N.E.2d 838 (1st Dist. 1947). In spite of these
disclosures and the beneficiaries' receipt of the defendants'
objections, the proposals have gained overwhelming approval of
Company shareholders. Moreover, as previously mentioned, the
provisions are completely lawful under applicable statutes, and
have been adopted by a number of corporations.
Defendants assert that the proposed amendments would benefit
plaintiffs individually by "perpetuating" their control over the
Company. Admittedly, but in complete conformity with the Trust,
plaintiffs would control the 1974 annual election of directors.
Assuming that the plaintiffs would seek to secure maximum tenure
as directors at that election under the amendments,*fn16 five
Trustees would obtain three-year terms and three would secure
two-year terms. But, in April, 1975, after the Trust's
expiration, and in 1976, the stockholders will elect four and
five directors, respectively. Thus, within approximately one year
after the termination of the Trust, the shareholders will have
had the opportunity to elect a majority of the directors.*fn17
Defendants' more substantial argument is that adoption of the
amendments, particularly the staggered term provision, would
enable plaintiffs to remain in control of the Company long after
the expiration of the Trust, in violation of the purported
Illinois rule prohibiting the extension of trustees' control over
trust property beyond the period specified in the trust
instrument. However, the cases cited by defendants are so
significantly distinguishable that they cannot be deemed to
control this case. Primary reliance is placed upon Friedberg v.
Schultz, 312 Ill. App. 171, 38 N.E.2d 182 (1st Dist. 1941), a case
arising out of a federal bankruptcy proceeding. The voting trust
agreement there provided for termination on November 18, 1941,
unless extended by unanimous vote of the trustees 30 days prior
thereto, and specified the dates on which annual meetings were to
be held. At a regularly scheduled meeting in 1939, the trustees
amended the corporate by-laws so that future annual meetings
would be held each October, beginning in 1940. The voting
trustees, who had also been elected directors and officers, did
not agree to extend the life of the trust. Accordingly,
beneficiaries sued to enjoin the trustees from electing anyone,
including themselves, as directors or officers of the corporation
for any period beyond November 18, 1941.*fn18 In
the course of its opinion granting relief, the court reasoned:
"The voting trust agreement expressly provides it
shall terminate on the 18th of November, 1941, and
that the trustees shall within thirty days after that
date turn over the property to the persons entitled
thereto. The three trustees who are officers and
directors of the hotel are expressly required by the
terms of the voting trust agreement to turn over the
property to the persons entitled thereto. This would
not be accomplished within the meaning of the trust
agreement were the directors and officers of the
hotel authorized to control the property for a period
of about eleven months after it was delivered to the
true owners." Id. at 175, 38 N.E.2d at 183.
Even assuming that control of the Company constitutes control of
the Trust property, the voting trust in Friedberg was created as
part of a bankruptcy reorganization plan, and the trustees in
that case defended their action solely on the basis of a
statutory provision not involved in this litigation. In addition,
an inference easily can be drawn that the trustees were
manipulating the meeting dates to prolong their control in the
event an agreement to extend the trust was not reached.
The court has studied the other authorities upon which
defendants rely, Brown v. McLanahan, 148 F.2d 703 (4th Cir.
1945); Olson v. Rossetter, supra; Morris v. The Broadview, Inc.,
supra, and has concluded that they also do not require denial of
the relief requested by the Trustees.
In summary, the record establishes that the proposed amendments
are valid under Delaware law, are by no means new or unusual
corporate provisions, and have been overwhelmingly approved by
Company shareholders, who had been fully apprised of their nature
and effect. Further, adoption of these amendments will not
perpetuate the Trustees as controlling directors, and, to the
extent that a conflict of interest is present, it does not
preclude the Trustees from voting for the amendments, as the
settlors purposely created this conflict and the plaintiffs have
acted in good faith in recommending the corporate changes.
It is clear that if only the foregoing facts and allegations
were present, plaintiffs would be entitled to summary judgment.
However, in light of the issues raised in counterclaims Four,
Five and Six, as to the number of shareholders of record of
Company stock, entry of such an order at this time would be
inappropriate. See Section IV C., infra.
IV. DEFENDANTS' COUNTERCLAIMS
A. Counterclaims One and Two: Mismanagement and Breach of
The First and Second Counterclaims essentially recite the same
"conflict of interest" and "self-dealing" charges already
disposed of in Section III, and need not be discussed further.
The counterclaims also allege violations of the Securities and
Exchange Act of 1934, 15 U.S.C. § 78a et seq., identical to those
contained in Counterclaims Four, Five and Six, to be discussed
Counterclaimants also have charged plaintiffs with causing the
Company to sell units of beneficial interest in the Trust to
themselves at prices below fair market value and with operating
unprofitable businesses while receiving compensation therefrom.
These vague and conclusory allegations are insufficient to
require an answer. Although the Federal Rules of Civil Procedure
were intended to liberalize pleading requirements, charges of
mismanagement and breach of fiduciary duty should be supported
with more particular factual statements.*fn19 See F.R.Civ.P.
Accordingly, these counterclaims will be dismissed.
B. Counterclaim Three: Voting Trust
This counterclaim alleges that the McCormick-Patterson
agreement constitutes a "voting trust," and is invalid for
violations of the Illinois and Delaware voting trust statutes.
See Ill. Rev. Stat. ch. 32, § 157.30a; 8 Dela. § 218. The courts
generally recognize three criteria for a voting trust: (1) The
voting rights of the stock must be separate from other attributes
of ownership; (2) the voting rights must be intended to be
irrevocable for a definite period of time; and (3) the principal
purpose of the grant of voting rights must be to acquire voting
control of the corporation. See Lehrman v. Cohen, 43 Del. Ch. 222,
222 A.2d 800 (Sup.Ct. 1966); Abercrombie v. Davies, 36 Del. Ch. 371,
130 A.2d 338 (Sup.Ct. 1957); Gumbiner v. Alden Inn, Inc.,
389 Ill. 273, 59 N.E.2d 648 (1945); Boyle v. John M. Smyth Co.,
248 Ill. App. 57 (1st Dist. 1928); 5 Fletcher, Cyclopedia of the
Law of Private Corporations § 2075, at 367-68 (Perm.ed. 1967);
Bogert, Trusts & Trustees § 251 (2d ed. 1964). As described by
the Delaware court, a voting trust is
"a device whereby two or more persons owning stock
with voting powers, divorce the voting rights thereof
from the ownership, retaining to all intents and
purposes the latter in themselves and transferring
the former to trustess in whom the voting rights of
all the depositors in the trust are pooled.
". . . whether a particular agreement constitutes a
voting trust, and, therefore, what its real purpose
and intent is must ordinarily be ascertained from the
provisions of that instrument, when read as a whole,
and the rights and powers given thereby." Aldridge v.
Franco Wyoming Oil Co., 24 Del. Ch. 126, 7 A.2d 753,
Careful examination of the Trust provisions has persuaded the
court that the McCormick-Patterson agreement is a voting trust.
As to the first element, the trust instrument recites that the
beneficiaries would convey to the Trustees the entire title to
the trust property and would retain "no title or interest, legal
or equitable, in or to the property as such but only their
respective interests in the income, proceeds and avails of the
trust property." However, succeeding provisions negate that broad
statement. The beneficiaries reserved the right to dispose of
their respective interests or any part thereof in any manner, by
any means, and for any purpose, with the caveat that the transfer
would not be deemed binding upon the Trustees until an
appropriate copy of the transfer instrument had been accepted by
the Trustees. In contrast, substantial restrictions have been
placed upon the Trustees' freedom of action in dealing with the
Trust corpus. For example, the Trustees may not in any way
dispose of the Trust property without approval of the
beneficiaries. Nor may they take any action with regard to a
reorganization, consolidation, or merger without the consent of
the holders of 51% of the beneficial interests of the Trust.
The duties imposed upon the Trustees, on the other hand,
closely resemble the ordinary management obligations generally
placed upon trustees. Thus, the Trustees are required (1) to pay
the beneficiaries, at least quarterly, the net income to which
they are entitled, (2) to keep books and records pertaining to
Trust administration and to allow the beneficiaries to inspect
such records, (3) to apportion expenses between income and
principal, and (4) to pay taxes, assessments, costs of Trust
and all other fees and expenses necessary to preserve and
maintain the Trust property. In addition to their authority to
vote the stock and to transfer the shares of stock necessary to
qualify as directors those persons whom they desire to elect as
directors, the Trustees are empowered to advance money to the
Trust for Trust purposes and to repay themselves out of income,
to acquire Company common stock, to become beneficiaries, and to
hire agents. Thus, it is clear that the Trustees' authority over
Trust principal is limited to voting the stock.
None of the authorities previously cited in this section
indicate that the broad grant of powers beyond that merely to
vote the stock disqualifies the arrangement as a voting trust.
See Fletcher, Cyclopedia of the Law of Private Corporations,
supra; Bogert, Trusts & Trustees, supra. Once the essential
division of voting and other stock rights has been achieved, the
imposition of additional, consistent obligations should not
negate the voting trust characteristics of the agreement. The
duties of a voting trustee depend upon the terms of the trust
instrument, and, with exceptions not relevant here, the parties
are free to adopt any provisions they choose. Chandler v.
Bellanca Aircraft Corp., 19 Del. Ch. 57, 162 A. 63 (1932); Winitz
v. Kline, 288 A.2d 456 (Del.Ch. 1971); Morris v. The Broadview,
Inc., supra; Gumbiner v. Alden Inn, Inc., supra; Kann v. Rosett,
307 Ill. App. 153, 30 N.E.2d 204 (1st Dist. 1940). Moreover,
provisions similar to those in the McCormick-Patterson Trust have
been found in voting trusts. See Venner v. Chicago City Ry. Co.,
258 Ill. 523, 101 N.E. 949 (1913); Morris v. The Broadview, Inc.,
supra; Bogert, Trusts & Trustees § 1192 (2d ed. 1969).
The second criterion is also met. The Trust agreement provides
that, unless sooner terminated, the Trust is to end upon the
expiration of 20 years after the date of the death of the
survivor of Robert R. McCormick or Joseph Medill Patterson, or
upon the Trustees' disposal of all of their interest in the
Tribune Company, its subsidiaries, or related companies. Earlier
termination could be achieved upon written consent of
beneficiaries holding 87.75% of the total beneficial interest.
Termination clauses of this sort are recommended, see, Bogert,
Trusts & Trustees, supra, and have not disqualified agreements as
voting trusts in the past. See Morris v. The Broadview, Inc.,
Thirdly, a consideration of the circumstances surrounding the
creation of the Trust and the provisions of the agreement as a
whole compels the conclusion that the principal purpose of the
grant of voting rights was to acquire or maintain voting control.
Plaintiffs appear to have unwittingly conceded as much.*fn20
Notwithstanding the conclusion that the agreement created a
voting trust, the instrument is not invalidated by either the
Illinois or Delaware statutes. The Illinois law concerning voting
trusts was not enacted until 1947, fifteen years after the
execution of the trust agreement. Thus, in order to reach this
Trust, the statute would have to be applied retroactively.
However, "[re]troactive legislation is not favored, and as a
general rule statutes are construed to operate prospectively
unless the legislative intent that they be given retroactive
operation clearly appears from the express language of the acts,
or by necessary or unavoidable implication." People ex rel.
Baylor v. Bell Mut. Cas. Co., 54 Ill.2d 433, 440, 298 N.E.2d 167,
171 (1973), quoting United States Steel Credit Union v. Knight,
32 Ill.2d 138, 142, 204 N.E.2d 4 (1965). See People ex rel.
Mereness v. Board of Education,
349 Ill. 291, 298-299, 182 N.E. 383 (1932); Miner v. Stafford,
326 Ill. 204, 207, 157 N.E. 164 (1927); Wolf v. Roosevelt,
290 N.Y. 400, 49 N.E.2d 502 (1943); Mackin v. Nicollet Hotel,
25 F.2d 783, 786 (8th Cir.) cert. denied, 278 U.S. 618, 49 S.Ct. 22, 73
L.Ed. 541 (1928); Western Pac. R. Corp. v. Baldwin, 89 F.2d 269,
273 (8th Cir. 1937).*fn21 No such intent appears on the face of
the statute. Nor should such retroactive intent be lightly
inferred, especially where, as here, such an inference would
modify or negate existing rights and obligations. See Wolf v.
Roosevelt, supra 290 N.Y. at 402, 49 N.E.2d 502; Western Pac. R.
Corp. v. Baldwin, supra.
In a closely analogous situation, the U.S. Court of Appeals for
the Eighth Circuit declared that the Delaware statute, which
limits the life of any voting trust to ten years, did not apply
to a 10-year voting trust executed approximately one year before
the law's enactment and subsequently extended for a second
10-year period. The court's reasoning is particularly applicable
"The right granted by the voting trust agreement to
extend its time beyond December 31, 1934, came into
existence prior to the enactment of the amendatory
act. The voting trust at the time it was created was
apparently lawful. Mackin v. Nicollet Hotel
[25 F.2d 783 (8th Cir. 1928)]. No contention that it was
unlawful is made. Since the act of Delaware expressed
no intent that it should be given a retroactive
effect or deprive parties to an existing voting trust
agreement of rights acquired thereunder, and since
our attention is called to no decision of the highest
court of Delaware construing it as affecting existing
voting trusts, we think the rule of construction
referred to above should be applied." Id. 89 F.2d at
But even the defendants do not seriously argue that the
enactment of the law required the immediate dissolution of the
Trust. Rather, defendants contend that the statute limited the
Trust's life to ten years from the effective date of the law.
Under such a construction, the Trust agreement has been in
violation of Illinois law since 1957. This contention has been
properly rejected in the context of the New York voting trust
statute, Wolf v. Roosevelt, supra, and will likewise be rejected
here. In language equally applicable to this litigation, the
court in Wolf noted: "The language of the statute is at least
inept if the Legislature intended that it should retroactively
restrict the power of stockholders to enter into voting trust
agreements." Wolf v. Roosevelt, supra 290 N.Y. at 403, 49 N.E.2d
at 503. See also Weil v. Beresth, 154 Conn. 12, 220 A.2d 456
The foregoing, see Western Pac. R. Corp. v. Baldwin, supra,
also substantially disposes of defendants' argument that, upon
the Company's reincorporation in Delaware in 1968, the Trust
became subject to that state's voting trust statute and is now
invalid. In support of this conclusion, defendants cite Ringling
v. Ringling Bros.-Barnum & Bailey Combined Shows, 29 Del. Ch. 318,
49 A.2d 603 (1946), modified, 29 Del. Ch. 610, 53 A.2d 441 (1947).
The voting agreement in question there had been executed in
Illinois, involved a Delaware corporation, and was to be
performed in New York. The court followed what it considered to
be the settled rule that "in
such a situation the validity of an agreement affecting such
voting rights is tested by the law of the state of incorporation,
in this case Delaware." Id. 49 A.2d at 607.
However, under the recently developed "most significant
relationship" test of conflict of laws, see generally Restatement
(Second) Conflict of Laws (1971), the law of some other state may
be applied in preference to the law of the state of incorporation
if the former has a more significant relationship to the issues
under consideration. See id. § 305.
Clearly, Illinois has more substantial contacts with the
instant controversy than Delaware, or any other state. The Trust
was created and has been administered in Illinois; the Company
has continuously maintained its headquarters and principal place
of business in that state; all of the Trust assets are in
Illinois; and Illinois law has governed the substantive issues.
See Memorandum Opinion, 73 C 883, 374 F. Supp. 530 (N.D.Ill.,
filed July 11, 1973). Under these circumstances, Illinois law
should be preferred to that of Delaware. Thus, the 1968
reincorporation did not render the Trust subject to Delaware's
voting trust statute.*fn23
Accordingly, the Third Counterclaim will be dismissed.
C. Counterclaims Four, Five and Six: Securities Exchange Act
In these counterclaims, defendants allege that the Trustees
have violated the Securities Exchange Act of 1934, 15 U.S.C. § 78a
et seq., by failing to cause the Company to register its
common stock or to file proxy material with the Securities and
Exchange Commission, and by failing to disclose material
information. That Act applies only to companies with, inter alia,
a class of equity security held of record by 500 or more persons.
In view of the affidavits filed by the plaintiffs in support of
dismissal of these counterclaims, their motion will be considered
as a motion for summary judgment as to the securities matters.
Although the court believes that the affidavits go a long way
toward establishing that the number of holders of record has
never been 500 or more, ruling on this motion will be deferred
until February 22, 1974, at 10:00 o'clock A.M., to permit the
defendants to file counter-affidavits or other evidence to
demonstrate the existence of a genuine issue of material fact as
to the number of shareholders of record.
D. Counterclaim Seven: Accounting
In this counterclaim, defendants seek an accounting of all
plaintiffs' activities as Trustees and for all the affairs of the
Company from the date of the creation of the Trust to the date of
termination. To support this broad request, defendants merely
note that the Trust has been in existence for more than 40 years,
and allege, on "information and belief", that plaintiffs have
never accounted for any of their activities as Trustees or for
any of the affairs of the Company.
A beneficiary's right to an accounting is not absolute, but is
accorded only upon equitable principles; this relief should not
be ordered "if the circumstances are such as to make an
accounting unnecessary or improper." Nieberding v. Phoenix Mfg.
Co., 31 Ill. App.2d 350, 356, 176 N.E.2d 385, 388 (2d Dist. 1961).
See Patterson v. Northern Trust Co., 170 Ill. App. 501, 516 (1st
Dist. 1912). No breach of duty, such as mismanagement, waste,
dissipation of assets, or other misconduct on the part of the
Trustees has been alleged in this counterclaim. It does not
appear that the defendants have ever demanded an accounting or
that such a request would be futile. Indeed, the Trustees are
under an affirmative obligation to "keep adequate books and
records . . . reflecting income and disbursements and all other
transactions which may occur in the administration of the trust
estate" and to allow the beneficiaries to inspect these
documents. Further, these two beneficiaries have received their
dividend payments without protest or objection. Thus, defendants
appear to be seeking relief here solely upon the ground that they
are beneficiaries who have never received an accounting.
The court has been unable to find, and counsel have not cited,
any case in which an accounting has been ordered upon such sparse
allegations. In those situations in which an accounting has been
granted, and even in some in which such relief has been denied,
the courts have been presented with some allegations of
impropriety on the part of the trustees. See, e.g., Patterson v.
Northern Trust Co., supra; Nieberding v. Phoenix Mfg. Co., supra;
Davidson v. Blaustein, 247 F. Supp. 225 (D.Md. 1965); American
Sanitary Rag Co. v. Dry, 346 Ill. App. 459, 105 N.E.2d 133 (1st
Dist. 1952); Belcher v. Birmingham Trust Nat'l. Bk., 348 F. Supp. 61
(N.D.Ala. 1968); Byrne v. Tennes, 69 Ill. App.2d 231,
216 N.E.2d 256 (1st Dist. 1966); Regas v. Danigeles, 54 Ill. App.2d 271,
203 N.E.2d 730 (1st Dist. 1964).
Thus, I have concluded that the allegations in this
counterclaim present no grounds upon which an accounting could be
In accordance with the views above expressed, an order has been
entered on this date as follows:
(1) Ruling on plaintiffs' motions for summary judgment and to
dismiss counterclaims 4, 5 and 6 continued to Friday, February
22, 1974, at 10:00 o'clock A.M.
(2) Plaintiffs' motion to dismiss all other counterclaims
granted, and said counterclaims are hereby dismissed.