United States District Court, Northern District of Illinois, E.D
June 8, 1984
TEAMSTERS LOCAL 282 PENSION TRUST FUND, PLAINTIFF,
ANTHONY SEE G. ANGELOS, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Teamsters Local 282 Pension Trust Fund ("Fund") sues ten
defendants,*fn1 charging them with:
1. violation of Securities Act of 1933 § 17(a),
15 U.S.C. § 77q(a) ("Section 17(a)") (Count I);
2. violation of Securities Exchange Act of 1934
§ 10(b), 15 U.S.C. § 78j(b) ("Section 10(b)") and
related SEC Rule 10b-5 (Count II);
3. common law fraud (Count III); and
4. negligent misrepresentation (Count IV).
Several of the defendants now move for summary judgment under
Fed.R.Civ.P. ("Rule") 56, contending the present action is
barred by collateral estoppel.*fn2 For the reasons stated in
this memorandum opinion and order, that motion is granted and
the action is dismissed as to all defendants.
In 1981 certain Fund beneficiaries sued Fund's Trustees
("Trustees") under 29 U.S.C. § 1104(a) for breach of their
fiduciary duty, challenging Trustees' actions in connection
with a loan to Bancorporation and its wholly-owned subsidiary,
Des Plaines Bank ("Bank"). In 1982 the Secretary of Labor
commenced an action against Trustees alleging the same breach
of duty.*fn4 In both actions Fund was joined as a defendant,
and after the actions were consolidated for pretrial purposes
both Fund and Trustees brought third-party actions in each case
against Directors and their law firm, alleging the same claims
set forth in this action.*fn5
In July 1983 District Judge Jacob Mishler issued his
findings and conclusions based upon the evidence adduced
during his bench trial, Katsaros v. Cody, 568 F. Supp. 360
(E.D.N.Y. 1983). Several findings were plainly relevant for
current purposes (id. at 367):
1. Trustees violated their fiduciary duty by
failing to make an independent investigation of
Bancorporation's and Bank's financial situation.
2. Such duty to make an independent
investigation included the duty not to rely on
Directors' "representations, predictions and
3. If Trustees had made an independent
investigation, they would have discovered it was
imprudent to make the loan to Bancorporation and
Bank based upon the financial information
presented by Directors.
If those determinations adverse to Trustees are similarly
binding as to Fund here, this action must fail for obvious
reasons. All Fund's claims rest on asserted misrepresentations
on which Fund claims to have relied. If Fund had no right to
rely on those representations (indeed had the duty
not to do so), an essential linchpin to all its claims is
missing. Hence this opinion turns to a consideration of whether
collateral estoppel applies against Fund, as it clearly would
Three determinations must be made to apply collateral
estoppel as to an issue in a later proceeding:
1. Is the relevant issue in the second suit the
same as an issue in the first?
2. Was that issue actually and necessarily
litigated and determined in the first suit?
3. Did the party against whom estoppel is
asserted have a "full and fair opportunity" to
litigate the issue?
Kremer v. Chemical Construction Corp., 456 U.S. 461
102 S.Ct. 1883, 1896-97, 72 L.Ed.2d 262 (1982); Whitley v.
Seibel, 676 F.2d 245
, 248, 250 (7th Cir.), cert. denied,
459 U.S. 942
, 103 S.Ct. 254
, 74 L.Ed.2d 198 (1982).
1. Two Actions with the Same Issue
Each of the four theories asserted by Fund here shares an
essential element in common with the others — Fund must have
relied on Directors' representations justifiably:
1. As to Count I (on the perhaps questionable
assumption Fund has any cause of action under
Section 17(a), as to which see Caliber Partners,
Ltd. v. Affeld, 583 F. Supp. 1308, at 1312-13 nn.
9-12 (N.D.Ill. 1984)): Peoria Union Stock Yards Co.
v. Penn Mutual Life Ins. Co., 698 F.2d 320, 323
(7th Cir. 1983) ("Rule 10b-5 tracks section 17(a)
closely"); Walck v. American Stock Exchange, Inc.,
687 F.2d 778, 789 n. 16 (3d Cir. 1982), cert.
denied, ___ U.S. ___, 103 S.Ct. 2118, 77 L.Ed.2d
1300 (1983); Kramas v. Security Gas & Oil, Inc.,
672 F.2d 766, 769-70 (9th Cir.), cert. denied,
459 U.S. 1035, 103 S.Ct. 444, 74 L.Ed.2d 600 (1982) and
cases cited therein.
2. As to Count II: Zobrist v. Coal-X, Inc.,
708 F.2d 1511, 1516 (10th Cir. 1983); Atchley v. Qonaar
Corp., 704 F.2d 355, 359 (7th Cir. 1983).
3. As to Count III: Central States Joint Board v.
Continental Assurance Co., 117 Ill.App.3d 600, 607,
73 Ill.Dec. 107, 453 N.E.2d 932, 937 (1st Dist.
4. As to Count IV: Penrod v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 68 Ill.App.3d 75, 81,
24 Ill.Dec. 464, 469, 385 N.E.2d 376, 381 (3d Dist.
In the earlier cases Judge Mishler specifically held Trustees,
acting on Fund's behalf, had and breached a duty to investigate
the very wrongdoing of which Fund now complains. That duty
"includes the negative obligation of not relying on the
representations . . . of a borrower" (568 F. Supp. at 367). By
definition then any such reliance could not have been
justifiable. And because the collective obligation of Trustees
was the obligation of Fund,*fn6
just as the representations of
Directors were the representations of Bancorporation and Bank
as borrowers, the justifiable-reliance issue as litigated in
the New York actions is indeed the same issue that would need
to be litigated in this action.*fn7
2. "Actually and Necessarily Litigated and
It is beyond cavil that the issue of Trustees' duty to
investigate was the foundation
of Judge Mishler's holding Trustees guilty of a breach of
their fiduciary duty. Even Fund does not really contend
3. Full and Fair Opportunity To Litigate
At a May 9, 1984 status hearing this Court requested the
parties to address what Fund (not Trustees) actually did in
the New York lawsuit to litigate the issue. That inquiry was
prompted by this Court's concerns:
1. whether (as often occurs, for example, with
a corporation named in a stockholder derivative
action that charges an entire board of directors
with wrongdoing) Fund may have been merely a
passive onlooker in the earlier proceeding; or
2. whether Fund's interest as the prospective
beneficiary of any recovery against Trustees may
have led it to try to establish the non existence
of Trustees' right to rely on Directors'
representations, rather than the opposite, in the
New York litigation.
In response to this Court's question, Fund argues that even
though it was named a defendant in the New York lawsuits, it
was a nominal defendant only, joined for procedural purposes.
In that capacity, Fund urges, collateral estoppel should not
be applied against it. 1B Moore's Federal Practice ¶ 0.411,
at 439-40 n. 5.*fn8
But even if Fund may have had a right to be treated as a
nominal party in the New York lawsuits, that does not prevent
the operation of collateral estoppel if Fund in fact actually
litigated the critical issue. See United States v. Jensen,
608 F.2d 1349, 1355 (10th Cir. 1979). Defendants present conclusive
evidence that Fund, though represented by its own separate
counsel, not Trustee's counsel, vigorously argued before Judge
Mishler against a finding that Trustees had breached their
fiduciary duty. Some of Fund's activities at trial include:
1. making of an opening statement;
2. cross-examination of witnesses;
3. filing of a motion for directed verdict;
4. offering and introduction of evidence;
5. making of evidentiary objections; and
6. filing of a post-trial memorandum.
In all those activities Fund was not at all passive or
neutral, but actively entered the lists by (and on) the side
of Trustees.*fn9 Fund clearly had and exercised a full and
fair opportunity to litigate the issue critical to this
In sum, Fund deliberately sided with Trustees in the first
round of litigation, maintaining Trustees were innocent of any
wrongdoing because they relied on the borrowers'
representations. That argument was unsuccessful because Judge
Mishler held Trustees had no right to rely — indeed had a duty
not to rely. Trustees were held culpable. Fund cannot now argue
afresh Trustees' asserted justifiable reliance, a necessary
prerequisite to recovery on each of Fund's current four
theories against Directors.
There is no genuine issue of material fact, and moving
defendants are entitled to a judgment as a matter of law.
Their motion for summary judgment is granted. Because the
collateral estoppel ground supporting their motion forecloses
Fund's claims against all defendants, this action is dismissed
in its entirety.