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
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
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
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
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 ...