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BLACKETT v. CLINTON E. FRANK

July 19, 1974

HILL BLACKETT, JR., PLAINTIFF,
v.
CLINTON E. FRANK, INC., A DELAWARE CORPORATION, AND CLINTON E. FRANK, DEFENDANTS.



The opinion of the court was delivered by: Bauer, District Judge.

MEMORANDUM OPINION AND ORDER

This cause comes on the defendant's motion for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure.

The plaintiff in the instant action seeks to redress alleged violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.

The plaintiff, Hill Blackett, has been employed in the advertising business and since approximately September 1954 has served as an employee, officer or director of defendant, Clinton E. Frank, Inc. ("CEF"), starting in the capacity of accountant executive and ultimately being elected as Chairman of the Board of Directors of CEF, in which capacity he served until approximately February 17, 1971.

The defendant CEF is a corporation organized in 1949 pursuant to the laws of the State of Delaware and maintains its corporate offices in Chicago, Illinois. CEF allegedly has been engaged in operating an advertising agency and in 1970 was reported by a trade journal to be ranked by value of gross billings as the 26th largest such agency. As of April 30, 1971 CEF has allegedly 722,650 shares of common stock as its sole authorized, issued and outstanding stock; these shares were allegedly being held by approximately 63 stockholders.

The defendant, Clinton E. Frank ("Frank"), who serves CEF in the capacity of Chairman of the Executive Committee, Chief Executive Officer and Director of CEF, as of May 31, 1971 beneficially owned 312,000 shares of common stock of CEF representing 43.2% of the outstanding shares of CEF.

The plaintiff in the instant complaint alleges, inter alia, the following facts:

  1. The defendant Frank's stock ownership constitutes
     a working control of CEF and since 1953 by virtue
     of such stock position Frank dominated and
     controlled the business affairs of CEF. The
     plaintiff has been a director and Chairman of the
     Board of Directors of CEF continuously from 1964
     to February 17, 1971 at which time he was
     summarily and illegally removed from said office
     by Frank without cause or justification. Plaintiff
     was most recently so elected in 1970 to hold such
     position for a term as provided by the by-laws of
     CEF, i.e., until the next annual meeting of the
     stockholders of CEF or until his successor shall
     have been elected and qualified.
     a. that there was to be a public offering through
     use of the United States mails and facilities of
     interstate commerce of a large amount of the
     common shares of CEF then owned by Frank and the
     stockholders of CEF, and that there were
     negotiations for and firm agreements made in
     connection with said public offering, the selling
     price to the public being approximately double the
     price per share received by plaintiff for his CEF
     shares;
     b. that CEF was to commence for the first time the
     payment of cash dividends on its common stock and
     that such dividend would be paid on or about April
     30, 1971. That dividend was in the amount of 7 1/2
     cents per share;
     c. that a two for one stock split of CEF shares
     was to be declared and subsequently was declared
     on April 23, 1971;
     d. that plaintiff's removal as a Director and
     Chairman of the Board of Directors of CEF was
     unlawful; and
     e. that the CEF shares, prior to the sale by
     plaintiff to CEF, should have been registered
     pursuant to the provisions of the Securities Act
     of 1933 (15 U.S.C. § 77a et seq.).
  3. The omission to state the material facts alleged
     above which facts were necessary to be stated in
     connection with the sale and purchase of
     plaintiff's CEF shares above set forth,
     constitutes a violation by defendants of §
     10(b) of the Securities Exchange Act of 1934 and
     of Rule 10b-5 of the Rules and Regulations
     promulgated pursuant to said Act.
  4. On or about October 15, 1971, Frank and the other
     shareholders of CEF sold 150,000 of their CEF
     shares through a public offering at a price
     approximately twice that which CEF had paid to
     plaintiff for the purchase of his shares. The
     negotiations leading to such offering and sale to
     the public and the actual offering and sale were
     through the use of the United States mails and
     other facilities of interstate commerce.
  5. Demand upon the defendants for return of his
     shares and for other relief was made by plaintiff
     in a letter dated July 15, 1971.

6. For the above violations the plaintiff seeks:

     a. that the sale of 24,225 shares of CEF common
     stock (prior to the two for one split) to CEF
     to be ...

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