United States District Court, Northern District of Illinois, E.D
November 9, 1984
UNITED NATIONAL RECORDS, INC., ET AL., PLAINTIFFS,
MCA, INC., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Bua, District Judge.
Before the Court are certain defendants' motions for partial
summary judgment and defendant United Artists Corporation's
motion for summary judgment. For the reasons stated below,
certain defendants' motions for partial summary judgment are
denied, and United Artists' motion for summary judgment is
entered and continued pursuant to Fed.R.Civ.P. 56(f) pending
completion of discovery.
I. Certain Defendants' Motions for Partial Summary
All defendants except United Artists Corporation move for
partial summary judgment on plaintiffs' claims arising before
December 13, 1978. Defendants argue that the applicable
four-year statute of limitations, 15 U.S.C. § 15b, bars any
pre-December 13, 1978 claims. Plaintiffs argue that the
limitations period should be tolled due to defendants'
fraudulent concealment of the cause of action and plaintiffs'
failure to discover defendants' alleged wrongdoing despite the
exercise of due diligence.
In this circuit, at least two types of fraudulent behavior
toll a statutory limitations period. First, the "equitable
tolling doctrine" will toll the limitations period if the
defendant's wrongdoing is undiscovered and the plaintiff has
diligently inquired into its circumstances. Tomera v. Galt,
511 F.2d 504, 510 (7th Cir. 1975). Although the plaintiff need not
allege specific acts of concealment on the part of the
defendant, the plaintiff must establish due diligence in order
to toll the limitations period under the equitable tolling
doctrine. The second type of fraudulent behavior which tolls
the limitations period is generally referred to as the
"fraudulent concealment doctrine." See generally The Seventh
Circuit's Reformation of the Equitable Tolling Doctrine, 1982
U.Ill.L.Rev. 565, 568 (1982). Under this doctrine, the
plaintiff must allege that the defendant has taken "positive
steps after commission of the fraud to keep it concealed." Id.
the plaintiff need not establish due diligence, the plaintiff
must specifically allege fraudulent action "subsequent to the
initial wrong." Gieringer v. Silverman, 731 F.2d 1272, 1278
(7th Cir. 1984). In this case, plaintiffs have raised triable
issues of fact under either doctrine.
A. The Fraudulent Concealment Allegations
Plaintiffs allege that defendants, beginning at least as
early as January 1, 1971, conspired and agreed to fix prices
and impose industrywide conditions upon members of the class in
violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.
Plaintiffs further allege that defendants affirmatively and
fraudulently concealed their wrongdoing and that class members
were without knowledge of the cause of action despite the
exercise of due diligence.
Under the fraudulent concealment doctrine, the statute of
limitations is tolled until actual discovery of the underlying
wrong when the concealment is accomplished by affirmative acts
designed to prevent discovery of the facts comprising the cause
of action. Tomera v. Galt, 511 F.2d 504, 510 (7th Cir. 1975).
The affirmative acts of concealment must occur after the
original wrongdoing. Id. Generally, the mere denial of any
wrongdoing on the part of a defendant is insufficient to
constitute affirmative acts of concealment under this doctrine.
E.g., Rutledge v. Boston Woven Hose & Rubber Co., 576 F.2d 248,
250 (9th Cir. 1978). "Hiding" the wrongdoing, "throwing up a
smokescreen" or "misrepresentation" concerning the facts
constituting the wrong, on the other hand, are sufficient
allegations to toll the limitations period. Trecker v. Scag,
679 F.2d 703, 708 (7th Cir. 1982).
Plaintiffs point to several press releases and other
statements issued by defendants to the media as affirmative
acts of concealment during the 1970s. Plaintiffs argue that
these statements were designed to conceal the original wrong,
defendants' conspiracy to fix prices and imposed industrywide
conditions. While many of defendants' statements are merely
denial of price fixing allegations, several statements go
beyond the mere denial of wrongdoing. In fact, several
statements offer alternative explanations for the apparent
parallel prices of records and tapes during the 1970s. For
example, in 1977 an official of defendant Warner Brothers
allegedly denied allegations of price fixing and further
explained that recent parallel price increases were "merely a
case of other companies following the lead of their
competitors." Defendants' Exhibit B-97. Also in 1977, an
official of defendant Capital allegedly explained that the
recent price increases were due to the "pressures of inflation
and shrinking margins." Defendants' Exhibit B-108. CBS
allegedly explained that its price increases were due to
"increased costs in many areas, including recording, raw
materials, manufacturing, promotion, sales and distribution."
Defendants' Exhibit B-19. Defendants RCA and Columbia allegedly
offered similar explanations for their price increases.
Defendants' Exhibits B-28, B-79. In 1978, defendant Capital
allegedly stated that its pricing structure "is always
determined in the context of competitive considerations."
Defendants' Exhibit B-172. All of these statements, allegedly
attributable to defendants, go beyond mere denial of
wrongdoing. Each statement offers an alternative reason for the
apparent parallel price increases throughout the 1970s. These
statements, among others contained in Defendants' Exhibit B,
create triable issues of fact as to whether defendants
affirmatively concealed their alleged agreement to fix prices
and impose industrywide conditions during the 1970s.
In addition to the various statements allegedly attributable
to defendants in Defendants' Exhibit B, plaintiffs point to
allegedly secret meetings between defendants and confidential
memoranda issued by defendants urging secrecy as further
evidence of defendants' fraudulent concealment. For example,
plaintiffs allege that representatives of CBS and Warner
(Atlantic) met secretly on March 25, 1974, for the
purpose of concealing an alleged pricing agreement. See Exhibit
C to plaintiffs' Surreply. In addition, plaintiffs point to two
"confidential" memoranda and one "confidential" letter
allegedly discussing defendants' future pricing plans. See
Exhibits D, E and F to plaintiffs' Surreply. Such conduct
generally is sufficient to create a question of fact regarding
a fraudulent concealment claim. See generally R. Marcus,
Fraudulent Concealment in Federal Court: Toward a More
Disparate Standard, 71 Geo.L.Rev. 829, 859 (1983), and cases
B. The Due Diligence Allegations
Under the equitable tolling doctrine, when the wrongdoing
"has been concealed or is of such a nature as to conceal
itself, the statute of limitations is tolled until the
plaintiff has obtained knowledge of the fraud or in the
exercise of due care should have obtained knowledge of the
fraud." Sperry v. Barggren, 523 F.2d 708, 710 (7th Cir. 1975)
(citations omitted) (emphasis supplied). Although the plaintiff
need not allege affirmative acts of concealment under this
doctrine, the plaintiff must establish due diligence in
inquiring into the circumstances surrounding the alleged
wrongdoing. Tomera v. Galt, 511 F.2d 504, 510 (7th Cir. 1975).
Conspiracies to violate the antitrust laws are generally
self-concealing. See, e.g., Greenshaw v. Lubbock County
Beverage Assoc., 721 F.2d 1019, 1030 (5th Cir. 1983).
Defendants argue that plaintiffs knew, or should have known,
of their antitrust claims no later than 1978. Defendants point
to several articles printed in trade publications which
reported defendants' announced price changes. See Defendants'
Exhibit B. Defendants, however, misconstrue the nature of the
alleged wrongdoing. Defendants' price increases, and even their
apparent parallel price increases, do not constitute violations
of the antitrust laws. See, e.g., Theatre Enterprises, Inc. v.
Paramount Film Distributing Corp., 346 U.S. 537, 74 S.Ct. 257,
98 L.Ed. 273 (1954); Quality Auto Body, Inc. v. Allstate Ins.
Co., 660 F.2d 1195 (7th Cir. 1981). Mere knowledge that
defendants were raising prices throughout the 1970s does not
mean the plaintiffs knew or should have known that defendants
were allegedly agreeing to fix prices. King & King Enterprises
v. Champlin Petroleum Co., 657 F.2d 1147, 1156 (10th Cir.
Defendants also argue that the existence of prior antitrust
litigation against defendants should have put all plaintiffs on
notice of the existence of a horizontal price fixing
conspiracy. Defendants point specifically to a suit brought in
1976 by Dean Stamatopoulos, owner of plaintiff GHII, Inc.
Although the Stamatopoulos litigation included allegations of
price fixing, Stamatopoulos' knowledge, in 1976, of the facts
giving rise to his suit appear to be nothing more than
assumptions based upon his observation of the parallel price
structure of the industry. Stamatopoulos testified regarding
the facts he knew in support of his 1976 lawsuit as follows:
After 21 years in the record business, I assumed
something was going on fishy when everything was
escalating at the same time. There was a definite
pattern. Price raises, introduction of new midline
products; it was too coincidental.
Stamatopoulos Dep. p. 201, reprinted at Defendants' Exhibit
Class members cannot be charged with knowledge of a potential
claim "unless they are aware of some evidence tending to
support it." In re Beef Industry Antitrust Litigation,
600 F.2d 1148, 1171 (5th Cir. 1979) (emphasis supplied). The mere filing
of a lawsuit "is not as a matter of law tantamount to actual or
constructive known of their claim." Id. (emphasis in original).
Defendants have failed to establish that class members should
be charged with knowledge of the alleged price fixing
conspiracy merely because Stamatopoulos filed a similar lawsuit
Defendants next argue that a federal grand jury investigation
regarding possible antitrust violations within the record
industry during the 1970s should have put plaintiffs on notice
of their claims. Defendants
point to several newspaper and trade publication articles
reporting on the grand jury investigation. See Defendants'
Exhibit D. Several plaintiffs admit that they were aware of the
grand jury investigation as early as 1977.
Defendants rely primarily on Dayco Corp. v. Goodyear Tire &
Rubber Co., 523 F.2d 389 (6th Cir. 1975) in support of their
argument that the grand jury investigation should have put
plaintiffs on notice of their antitrust claims in 1976. In
Dayco Corp., the court held that widespread publicity regarding
the defendants' alleged illegal conduct should have put the
plaintiffs on notice of their claims. Furthermore, the court
held that the defendants' denials of wrongdoing could not be
considered affirmative acts of concealment. Accordingly, the
court affirmed the district court's grant of defendants' motion
for summary judgment on the statute of limitations.
Dayco Corp., however, is distinguishable from this case. In
Dayco Corp., a public Congressional investigation was conducted
regarding the defendants' alleged wrongdoing. In addition, the
Federal Trade Commission brought suit further exposing the
defendants' conduct. In this case, a federal grand jury
conducted a secret investigation into defendants' practices for
about two years. Unlike Dayco Corp., the information presented
to the grand jury was not available to plaintiffs. See
Fed.R.Crim.P. 6(e). In addition, Dayco Corp. is not persuasive
in light of the Sixth Circuit's articulation of the elements of
the fraudulent concealment doctrine. Unlike the Seventh
Circuit, the Sixth Circuit apparently does not recognize the
fraudulent concealment and equitable tolling doctrines as
alternative means for a plaintiff to toll the limitations
period. Instead, the Sixth Circuit requires a plaintiff to
establish both affirmative concealment and due diligence before
prevailing on a fraudulent concealment claim. See Dayco Corp.
v. Goodyear Tire & Rubber Co., 523 F.2d 389, 394 (6th Cir.
1975). The Seventh Circuit requires that a plaintiff establish
affirmative concealment or due diligence. Tomera v. Galt,
511 F.2d 504, 510 (7th Cir. 1975).
In this case, even assuming plaintiffs could be charged with
knowledge of the grand jury's investigation, defendants'
emphatic denials of wrongdoing and alternative explanations for
the apparent parallel price increases (See Defendants' Exhibit
B) may have caused plaintiffs to abstain from further
investigation of their claims at that time. Although
defendants' "mere denials" do not constitute affirmative acts
of concealment under the fraudulent concealment doctrine (see
discussion supra at 36-37), defendants' "mere denials" and
alternative explanations may have reasonably caused plaintiffs
to end their investigation into the true cause of the apparent
parallel price structure of the record industry. See Mt. Hood
Stages, Inc. v. Greyhound Corp., 555 F.2d 687, 698 (9th Cir.
1977). In any event, in light of defendants' denials and
alternative explanations, plaintiffs have raised a question of
fact as to whether they should have disregarded defendants'
statements and inquired further into possible antitrust
violations. See Sperry v. Barggren, 523 F.2d 708, 711 (7th Cir.
1975) (admissions of plaintiffs' knowledge concerning
defendants' conduct prior to limitations period admissible
against plaintiffs at trial but not conclusive on motion for
The remaining argument advanced by defendants in support of
their motion is without merit. Defendants argue that
plaintiffs' allegations of fraudulent concealment should be
stricken from the complaint for failure to allege the
particularity required by Fed.R.Civ.P. 9(b). At a minimum,
defendants request that the fraudulent concealment allegations
be stricken without prejudice.
The specificity requirements of Fed.R.Civ.P. 9(b) have been
imposed to ensure that a defendant is apprised of the fraud
claimed in a manner sufficient to permit the framing of an
adequate responsive pleading. Baselski v. Paine, Webber,
Jackson & Curtis, Inc., 514 F. Supp. 535, 540 (N.D.Ill. 1981). A
party who fails to raise a Rule 9(b) objection normally waives
the requirement. 2A J. Moore, Moore's Federal Practice ¶ 9.03
(2d ed. 1984), at 9-35, and cases cited therein. The time
limits applicable to Rule 12(b) motions may be applied by
analogy to objections to the sufficiency of a pleading under
Rule 9(b). Stonehill v. Security National Bank, 68 F.R.D. 24,
44 n. 38 (S.D.N.Y. 1975).
The most analogous time limitation under Rule 12(b) is Rule
12(h)(1) regarding defenses under Rule 12(b)(1) through (5).
Rule 12(h)(1) defenses are waived if not made as a motion under
Rule 12. Furthermore, since defendants' request that the
fraudulent allegations be stricken from plaintiffs' complaint,
defendants' request is also analogous to a Rule 12(f) motion to
strike. A Rule 12(f) motion must be made within 20 days after
service of the complaint. Defendants, however, chose to answer
plaintiffs' complaint and, therefore, cannot now complain that
the complaint fails to plead fraud with sufficient
particularity. The factual record before the Court contains
specific evidence of defendants' alleged fraudulent
concealment. Defendants have had a sufficient opportunity to
respond to plaintiffs' charges as contemplated by Rule 9(b).
Accordingly, defendants' contentions regarding plaintiffs'
failure to comply with Rule 9(b) have been waived.*fn1
II. Defendant United Artists Corporation's Motion for
Defendant United Artists Corporation ("United Artists") moves
for summary judgment on the grounds that it has been improperly
named as a defendant in this case. United Artists claims that
it has never been a producer of records or tapes. Although
United Artists admits that before May 5, 1978, it owned the
outstanding shares of stock in a subsidiary record company,
United Artists argues that: (1) it is not liable for the
conduct of its former record company subsidiary; and (2) if any
liability is found, plaintiffs' claims are barred by the
four-year limitations period. Plaintiffs argue that: (1)
questions of fact exist as to whether United Artists is liable
for the conduct of its subsidiary record company; and (2)
questions of fact exist as to whether the limitations period
should be tolled due to defendants' fraudulent concealment of
the cause of action. Alternatively, plaintiffs argue that
defendants' motion is premature pending the completion of
discovery. Accordingly, plaintiffs have filed an affidavit
under Fed.R.Civ.P. 56(f) requesting the Court to enter and
continue defendant's motion.
United Artists is principally engaged in the business of
distributing motion pictures and is not engaged in the
phonograph record industry. Before May 5, 1978, United Artists
owned the outstanding stock of United Artists Music and Records
Group, Inc. ("UAM"), a California corporation engaged in the
record business. On May 5, 1978, United Artists sold its UAM
stock to the M & R Music Corporation.
In order for United Artists to be held liable for conduct
attributable to its subsidiary, UAM, three elements must be
(1) control by United Artists to such a degree
that UAM has become its mere instrumentality;
(2) fraud or wrong by United Artists through its
subsidiary, UAM; and
(3) unjust loss or injury to the claimant, such as
insolvency of UAM.
Steven v. Roscoe Turner Aeronautical Corporation, 324 F.2d 157,
160 (7th Cir. 1963). As to the first element, control, courts
have considered a number of factors, including whether:
(a) the parent corporation owns all or most of the
capital stock of the subsidiary;
(b) the parent and subsidiary corporations have
common directors or officers;
(c) the parent corporation finances the
(d) the parent corporation subscribed to all the
capital stock of the subsidiary or otherwise
causes its incorporation;
(e) the subsidiary has a grossly inadequate
(f) the parent corporation pays the salaries and
other expenses or losses of the subsidiary;
(g) the subsidiary has no assets except those
conveyed to it by the parent corporation;
(h) the parent corporation uses the property of
the subsidiary as its own;
(i) the directors or executives of the subsidiary
do not act independently in the interest of the
subsidiary but take their orders from the parent
corporation in the latter's interest; and
(j) the formal legal requirements of the
subsidiary are not observed.
Steven, supra, 324 F.2d at 161. See also Allegheny Airlines,
Inc. v. United States, 504 F.2d 104
, 112-113 (7th Cir. 1974).
While stock control and common directors and officers are
generally prerequisites for finding an instrumentality, they
are not sufficient by themselves to bring the rule into
operation. Steven, supra, 324 F.2d at 161.
Plaintiffs' exhibits indicate that two officers of UAM, L.G.
Bos and Michael Stewart, also served as officers of United
Artists between 1975 and 1977. Plaintiffs' exhibits further
indicate that United Artists guaranteed several million dollars
in loans made by various banks to UAM. United Artists admits
that prior to May 5, 1978, it owned the outstanding stock of
UAM. Plaintiffs, therefore, at best, have created questions of
fact on only three factors listed in Steven. (Factors (a), (b)
and (c)). Even assuming the truth of these allegations,
however, there would be insufficient evidence to create a
triable issue on whether UAM is a mere instrumentality of
The Court, however, will enter and continue United Artists'
motion for summary judgment pursuant to Fed.R.Civ.P. 56(f).
Plaintiffs should be given an opportunity to continue discovery
on the issue of whether UAM was a mere instrumentality of
United Artists as outlined in Steven. Accordingly, plaintiffs
are ordered to file additional materials opposing United
Artists' motion no later than one week after the discovery
cutoff date, February 11, 1985. United Artists may respond by
February 18, 1985. If plaintiffs fail to file additional
supporting materials, United Artists' motion for summary
judgment will be granted.*fn2
Certain defendants' motions for partial summary judgment are
denied. Defendant United Artists Corporation's motion for
summary judgment is entered and continued pursuant to
Fed.R.Civ.P. 56(f) pending completion of discovery. Plaintiffs
are to file additional materials in opposition to defendant
United Artists' motion no later than February 11, 1985, one
week after the discovery cutoff date. Defendant United Artists
to reply by February 18, 1985.
IT IS SO ORDERED.