The opinion of the court was delivered by: Aspen, District Judge:
MEMORANDUM OPINION AND ORDER
Plaintiff Harris Trust and Savings Bank ("Harris") brings
this action as executor of the estate of Mary Ellis against
defendants James Ellis, Moline Consumers Company ("Moline
Consumers"), the First National Bank of Moline ("the Bank"),
and Duff and Phelps, Inc. ("Duff and Phelps") alleging
violations of the Securities Exchange Act of 1934, 15 U.S.C. § 78a
et seq.; the Racketeer Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. § 1961-68; the Investment Advisers Act,
15 U.S.C. § 80b-1 et seq.; and various state laws.*fn1 Presently
before the Court are motions to dismiss or for summary judgment filed
by each of the defendants, as well as a memorandum by defendants questioning
the compliance of Harris' counsel with General Rule 39 of the
United States District Court for the Northern District of
Illinois. For the reasons set forth below, defendants' motions
to dismiss and for summary judgment are granted.
This case begins with the death in 1968 of Mary Ellis'
husband Oscar. Until he died, Oscar played a substantial role
in the management of Moline Consumers, which he had founded
with Charles Loptien. Oscar's estate included real estate,
6,350 shares of Moline Consumers common stock, and other
personal property. Under his will, Oscar's estate was divided
into a marital trust for the benefit of his wife Mary and a
residuary trust for the benefit of Oscar's children, James and
Bette. The will named the Bank as the executor of the estate
and trustee of the two trusts.
The marital and residuary trusts were funded in June of 1981.
Of the 6,350 shares of Moline Consumers stock, 3,263 were
distributed to the marital trust and 3,087 were distributed to
the residuary trust.*fn2 On June 18, 1981, the Bank (as
trustee of the marital trust) agreed to sell
the 3,263 shares to Moline Consumers for $884,273.00, or
$271.00 each, conditioned upon approval by the Circuit Court
for Rock Island County. The Circuit Court gave its approval on
September 15, 1981, and the sale was consummated. This 1981
transaction is the primary focus of this case.
Briefly summarized, the amended complaint alleges that the
1981 sale resulted from a complex plan by defendant James Ellis
to concentrate control of Moline Consumers in his hands. Harris
claims that during the administration of Oscar's estate, James
was a Moline Consumers shareholder, was the president of Moline
Consumers, was a director of the Bank, controlled substantial
deposits at the Bank, and held a beneficial interest in the
Moline Consumers stock allocated to the residuary trust. James
allegedly used his influence in these positions improperly to
exclude other shareholders from control of Moline Consumers. As
a result of his and the other defendants' machinations, Harris
asserts that James was able to arrange the sale of Moline
Consumers stock from the marital trust to the company for
$271.00 per share when the fair market value of the shares
actually exceeded $1,400.00 each.
Defendants argue that Harris is precluded by the doctrines of
res judicata and collateral estoppel from relitigating the
material factual allegations of the amended complaint, because
they have been resolved already by a long series of final
orders of Illinois courts. Defendants also raise specific
objections applicable to each of the amended complaint's
counts. We turn now to a discussion of the objections relating
to the different federal law counts.*fn3
SECURITIES EXCHANGE ACT OF 1934
In Counts I, II and XII, Harris alleges that the defendants
violated, or aided and abetted the violation of, Section 10(b)
of the Securities Exchange Act of 1934, 15 U.S.C. § 78(j), and
Rule 10b-5 of the Securities Exchange Commission,
17 C.F.R. § 240.10b-5.*fn4 Defendants argue that these counts must fail as
a matter of law because Mary Ellis was not sufficiently
involved in any investment decisions for there to be fraud "in
connection with" the sale of the Moline Consumers stock
allocated to the marital trust. We agree.
In Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct.
1292, 51 L.Ed.2d 480 (1977), the Supreme Court made it clear
that not all breaches of fiduciary duty involving a securities
transaction constitute a violation of the federal securities
laws. Rather, the Court stated that a claim of fraud and
fiduciary breach would state a cause of action under Rule 10b-5
only if the conduct alleged could be fairly viewed as
"manipulative or deceptive" within the meaning of section
10(b). Id. at 472-74, 97 S.Ct. at 1300-1301.
The Seventh Circuit applied the holding of Santa Fe to the
situation presented by this case, where a trustee allegedly
breached its fiduciary duty in connection with a sale of
securities owned by the trust, in O'Brien v. Continental
Illinois National Bank and Trust Company of Chicago,
593 F.2d 54 (7th Cir. 1979). The trustee in O'Brien was vested with sole
discretionary power to purchase and sell securities; the
plaintiff-beneficiaries, on the other hand, "were not entitled
to receive notice of a contemplated purchase or sale, to
participate in the investment decision, or to veto that
decision when they learned of it." Id. at 58. Their sole
recourse against an unsatisfactory securities transaction was
to terminate the trust agreement or sue for breach of fiduciary
duty.
When the trustee or agent alone makes the
investment decision to purchase or sell, his
failure to disclose information about the purchase
or sale to the beneficiary or agent [sic] does not
satisfy the "in connection with" requirement of
ยง 10(b). The enforcement of fiduciary and
contractual duties owed by a trustee or agent to
the ...