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December 13, 1995

ANDREW W. McGHEE, Plaintiff,
RICHARD L. JOUTRAS, individually and as trustee for the Richard L. Joutras Trust; RICHARD L. JOUTRAS TRUST; 1 GARY R. DORN, individually and as trustee for the Gary R. Dorn Trust; and the GARY R. DORN TRUST, Defendants.

The opinion of the court was delivered by: SHADUR

 Andrew McGhee ("McGhee") has sued Gary Dorn individually and as trustee of the Gary R. Dorn Trust (for convenience both of those defendants will be referred to as "Dorn," treated as a singular noun), alleging that Dorn violated the Securities Exchange Act of 1934 ("1934 Act") *fn2" § 10(b) *fn3" and the SEC's implementation of that section through its Rule 10b-5, 17 C.F.R. § 240.10b-5, when he purchased 35,000 shares of FNW Bancorp, Inc. ("FNW") stock from McGhee. Dorn now moves for summary judgment under Fed. R. Civ. P. ("Rule") 56, both sides have complied with this District Court's General Rule ("GR") 12(m) and 12(n) and the motion is fully briefed and ready for decision. For the reasons stated in this memorandum opinion and order, Dorn's motion is denied.

 Summary Judgment Standards

 Familiar Rule 56 principles impose on movant Dorn the burden of establishing the lack of a genuine issue of material fact ( Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986)). For that purpose this Court is "not required to draw every conceivable inference from the record--only those inferences that are reasonable"--in the light most favorable to nonmovant McGhee ( Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir. 1991) and cases cited there). In those terms summary judgment is appropriate if the record reveals that no reasonable jury could conclude that Dorn violated 1934 Act § 10(b) and Rule 10b-5.

 Mention should be made at this stage, however, of a mischaracterization of the parties' roles that has been advanced by McGhee's counsel. McGhee Mem. 24 improperly seeks to place the burden of proof as to Dorn's summary judgment motion on Dorn, asserting that Dorn must establish each of several propositions as a matter of law. Two points should be made in that respect:

1. As to Dorn's claimed possession of any material nonpublic information about FNW's merger discussions at the time when McGhee sold his stock to Dorn, that level of scienter on Dorn's part is of course an essential element of McGhee's cause of action. Hence the burden of proof on that issue rests on McGhee, rather than the burden of disproof being on Dorn (although in the summary judgment context, of course, McGhee's burden is the somewhat lesser one of demonstrating that a rational factfinder could conclude that McGhee had met that burden). But as to McGhee's further contention that Dorn "should have known" of the existence of such nonpublic information, see n.5 and the later discussion in this opinion to which it refers.
2. As to the issue of McGhee's damages, McGhee Mem. 37 n.22 seeks to exclude certain admissible evidence tendered by Dorn that seeks to undercut McGhee's case by showing that McGhee has already recovered all of his potential damages. This too will be discussed at greater length later.

 As with every summary judgment motion, this Court accepts nonmovant McGhee's version of any disputed facts. *fn4" What follows, then, is a version of the facts culled from the parties' submissions, with any differences between them resolved in McGhee's favor.


 FNW Bancorp. Inc.

 As early as 1988 President James Lancaster ("Lancaster") of NBD Illinois ("NBD-I"), a subsidiary of NBD Bancorp, Inc. ("NBD"), communicated with FNW--a Chicago area holding company that owned several banks--to express the interest of NBD (a much larger institution) in acquiring FNW (M. 12(n) Supp. P1; Lancaster Aff. PP1-3). Although Lancaster and Wilber Smith ("Smith"), FNW's Chief Executive Officer at the time, met briefly on two occasions, nothing really came of those discussions because Smith expressed FNW's satisfaction with its existing course--seeking to grow both by expanding its internal operations and by acquiring smaller banks (M. 12(n) Supp. PP1-2; Lancaster Aff. PP2, 3).

 Then in July 1989 Lancaster and NBD-I Chairman James Costakis ("Costakis") met with Smith and FNW board member/Chief Operating Officer Harold Pehlke ("Pehlke") to discuss the possibility of a merger between NBD and FNW (M. 12(n) Supp. P6; Lancaster Aff. P4; D. App. 127, 241). And during the August 1989 FNW board meeting Smith and Pehlke informed the board that NBD was interested in making an offer for FNW (M. Ex. H at 3-4). In the same meeting board member Joutras told the board that First Illinois Corp. ("First Illinois") was also expressing interest in a "merger of equals" with FNW (id. at 4). FNW's board responded by agreeing that FNW should pursue the alternative avenues by engaging in "discreet talks" with both NBD and First Illinois (id.).

 Smith, Pehlke, Lancaster and Costakis met on August 31 and October 20, 1989 to discuss the possibility of a merger between FNW and NBD. Those meetings "went well enough and were serious enough" that FNW invited NBD to make a presentation to FNW's board at the November 15, 1989 FNW board meeting (Lancaster Aff. P5-6; D. App. 127). Instead of that meeting being held at FNW's usual meeting site, it was moved to an alternate location *fn6" to preserve the confidentiality of the session (M. 12(n) Supp. P11; Pehlke Dep. 129-30). NBD was represented at the meeting by Costakis, Lancaster and two high-ranking NBD officers--Vice Chairman Verne Istock ("Istock") and Chief Financial Officer Dean Kaylor (M. 12(n) Supp. P11; D. App. 127). General discussions were held about "how the organizations would fit together" and "how NBD would organize subsequent to the merger." But when asked to give a specific price at which NED would be interested in acquiring FNW, NBD's people responded that they were not prepared to do so (Lancaster Aff. PP7-8; M. 12(n) Supp. P12; D. App. 127). Following the NBD presentation, the FNW board voted to "proceed to the next step in discussions with NBD Bancorp for the purpose of determining NED Bancorp's monetary intentions," and a committee of the FNW board was empowered to continue discussions with NBD (D. App. 178; M. 12(n) Supp. P12).

 FNW's committee met with NED's Istock and Kaylor on November 30, 1989 to review "data pertinent to a potential merger" (M. Ex. I at 3; M. 12(n) Supp. P13). Although NED again did not provide FNW with a specific price, its people gave FNW a "matrix of values" from which it would be possible to compute a rough estimate of the price at which NBD was willing to purchase FNW (Pehlke Dep. 137-38; M. 12(n) Supp. PP13-15).

 FNW's full board met on December 20, 1989, discussed the potential NBD merger and concluded that FNW was "not interested in a merger under these conditions" but was "willing to keep lines of communication open" (D. App. 184-85). One of the principal opponents of the merger on the FNW board was FNW director and Chief Financial Officer Charles Bruning III ("Bruning") (Schaps Dep. 25-26). *fn7" Without Bruning's support a merger would have been very difficult to complete, because the Bruning family owned roughly 25% of FNW's stock (M. 12(n) Supp. P19). One problem that Bruning had with the merger was that his family was in the process of settling his grandfather's estate and was establishing a value for the estate's 2,219,316 shares of FNW stock. Because FNW was a closely held corporation in a thinly traded market, the estate's FNW stock was potentially eligible for a "blockage discount" for estate tax purposes. But if a merger were in the works, such a discount would be more difficult to get because the value of the stock would be much easier to ascertain (M. 12(n) Supp. PP18-20).

 It was NBD's impression that the Bruning estate situation "appeared to be getting in the way of a merger" and was one reason why the merger discussions had come to a standstill (Lancaster Aff. P9). So NBD let several months pass without pursuing the matter. It took no action until March 28, 1990, when NBD's Lancaster and Istock met with Bruning "to determine if we were right about whether the estate settlement was a cause for the delay and to find out how much time needed to pass before that was no longer a problem" (Lancaster Aff. P9; M. 12(n) Supp. P21). That meeting confirmed for NED "that time was going to have to pass before any merger could be done" (Lancaster Aff. P9; M. 12(n) Supp. P21).

 In April 1990 Istock and Lancaster invited Bruning to visit NBD's headquarters in Detroit and, with the encouragement of FNW's board, Bruning accepted the invitation (D. App. 193). On May 2, 1990 Bruning went to Detroit, met with NBD's Chairman and President Charles T. Fisher III and toured NBD's facilities (D. App. 196-97). Although Bruning was "very impressed with everything" at NBD, he told NBD that he would "just as soon wait until my grandfather's estate is a little bit more settled until we proceed with anything more concrete than what we are doing right now" (Bruning Dep. 42; M. 12(n) Supp. P37). Bruning stressed to both the FNW board and NED that his meeting with NBD was done in his capacity "as a shareholder, not as an officer or director of FNW" (D. App. 197; Bruning Dep. 42).

 On July 14, 1990 Joutras--who had become FNW's Chairman *fn8" -- met with First Illinois' largest shareholder Daniel Terra to discuss the possibility of a merger of equals between FNW and First Illinois (M. 12(n) Supp. P38). That discussion led to an August 10, 1990 meeting between Joutras and First Illinois' president (id.).

 In August 1990 Chicago Corp., an investment banking corporation, suggested to the FNW board that FNW actively pursue an acquisition or merger (M. Ex. K at 3). And in September 1990 FNW's board voted to engage Chicago Corp. to assist it with any acquisitions or mergers (id.).

 Additional meetings about the possibility of an FNW/First Illinois merger took place in October 1990, with further talks scheduled for November 1990 (M. 12(n) Supp. P46). At the same time FNW was involved in discussions with another banking company, Northern Illinois Financial Corp. ("Northern Illinois"), about a possible merger (M. 12(n) Supp. P47).

 All was quiet on the NBD/FNW front until October 21, 1990, when Joutras had a chance encounter with Lancaster at the American Bankers' Association ("ABA") convention in Orlando, Florida (Lancaster Aff. P10; D. App. 128). Joutras told Lancaster that "things are different" at FNW and that he would like to resume talks between NBD and FNW (Lancaster Aff. P10). Two days later Lancaster and Joutras met again in Orlando at an ABA reception and discussed how they "could move a merger of FNW and NBD along" (id.). Although no specifics such as price were discussed, Lancaster felt more optimistic about a possible deal (id. PP12-13):

My conversation with Mr. Joutras confirmed my belief that the settlement of affairs following the senior Bruning's death had held up merger discussions. As a result of our conversation, I understood that sufficient time had passed and that FNW could now talk about a merger. After my talk with Mr. Joutras, I felt good about the prospects of a merger with FNW. I felt that Mr. Joutras and I had breathed life back into the process. I felt that the door was open again.
I made it clear to Mr. Joutras in Orlando that NBD was still interested in a deal....Mr. Joutras told me that he thought he had enough influence that if we could structure the merger properly that he could sell the ...

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