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Lewis v. Atlas Corp.

December 10, 1946


Author: Goodrich

Before GOODRICH and MCLAUGHLIN, Circuit Judges, and RODNEY, District Judge .

GOODRICH, Circuit Judge .

This is an appeal from the action of the District Court in granting summary judgment for the defendants under Federal Rules of Civil Procedure, rule 56, 28 U.S.C.A. following section 723c. Although the plaintiff, himself, had also moved for summary judgment in the District Court, his position now is that his allegations, together with the supporting affidavits filed, presented questions of fact on which he was entitled to have the judgment of a jury. At this stage of the litigation we must take the statement of facts in the plaintiff's supporting affidavits as true. But differences of fact between what he and his witnesses say and what the defendants with their supporting affidavits say are only important if legally significant.

The action stems from a contract made between Charles True Adams, Trustee, of a concern known as Utilities Power and Light Corporation, which was in reorganization proceedings in the District Court for the Northern District of Illinois, and Frank J. Lewis. Adams agreed to sell and Lewis agreed to buy at a stipulated price, approximately one and a half million dollars, certain debentures of the Central States Power and Light Corporation which were owned by Utilities Power and Light Corporation. The transaction was never completed. The plaintiff sues for damages for breach of contract, adding claims for inducement of breach of contract against Atlas Corporation (hereafter called Atlas), one of the defendants. Present defendant, Ogden Corporation (hereafter called Ogden), is the successor of Adams, Trustee, through a transaction of April 6, 1940, and the other defendant, Atlas, is the owner of seventy-six per cent of the stock of Ogden. A full recital of the transactions between the parties which led to this lawsuit may be found in the opinion of the court In re Utilities Power and Light Corporation; Lewis v. Ogden Corporation, et al., 7 Cir., 1942, 125 F.2d 343. The claim involved here was in litigation in that proceeding. But the Seventh Circuit decision was based on lack of jurisdiction of the Reorganization Court to decide the matter. In view of the recital above referred to only such facts will be stated here as are necessary to bring out the legal points involved in this appeal.

This case involves no federal question and is in Federal Court solely on grounds of diversity. The Federal Court takes its applicable rule of law from the state courts of the District in which the Federal Court sits and this includes its conflict of laws references to laws of other states where they alre relevant*fn1 We look, therefore, to the conflict of laws rule of New Jersey in this issuance.

Although not developed by the argument of the parties it appears that the agreement sued upon was an Illinois contract. This appears from the copy contained in the exhibits. Its stated place of making is Chicago, Illinois, and the place of delivery appears to be Chicago. It was made between a buyer with a Chicago address and a Chicago seller who was trustee for a corporation which was in reorganization proceedings in the Federal Court in Illinois. The same Illinois setting is found for amendments subsequently made to the original agreement which will be mentioned hereafter. Only one possible exception to this statement appears. There is conflict in the affidavits as to whether the last amendment was executed in Chicago or upon an airplane while the parties were on their way from Chicago to Washington. We are not informed, however, where the airplane was at the time of the alleged execution of the amendment. Inasmuch as the amendment was simply changing a time provision in an agreement which in all other respects had an Illinois setting, we think the fact of its execution on a traveling airplane is without significance on this phase of the matter.

The rule of the New Jersey courts with regard to a contract entered into and to be performed in another state by parties doing business there, is to refer all questions relating to its validity, effect, performance, discharge, etc., to the law of that state*fn2 Questions concerning this contract, then, are to be referred to the law of Illinois. This is what the District Judge did.

The original agreement was dated December 18, 1939. The contract for the sale of the debentures was made subject to the approval of the Reorganization Court and the Securities and Exchange Commission*fn3 The seller agreed to proceed promptly to secure the approval of the Reorganization Court and of the Commission. The time clause in this contract was to the effect that if such approval was not obtained within ninety days from the date of the agreement the sale was subject to termination by either party on ten days written notice.

Approval of the Reorganization Court was given on December 27, 1939, subject, however, to subsequent approval of the Securities and Exchange Commission and any other regulatory body having jurisdiction. The trustee filed an application with the Securities and Exchange Commission for permission to sell the securities. In the course of the hearing before that body the question of subordination of these securities to the Deep Rock doctrine*fn4 was raised by counsel for the Commission.

In the meantime, the expiration period of the agreement was approaching. The parties on March 12, 1940, executed an amendment extending to July 12, 1940, the date after which the agreement could be terminated on ten days notice. There were further hearings before the Securities and Exchange Commission and there was a suggestion by counsel for the buyer that he would institute an action on behalf of a preferred stockholder of Central States for the purpose of securing subordination of the Central States debentures to the preferred stock of Central States which was publicly held. Again, the time fixed for the expiration of the agreement was approaching. On July 5, 1940, there was another amendment executed by the parties which substituted for the previous termination arrangement a provision for automatic termination on August 12, 1940, if, by that time, the Commission had not approved the sale or the Reorganization Court had not quieted Ogden's title to the securities. In this agreement Ogden, the successor of Adams, Trustee, appeared as the seller. There was also executed between the parties on this date a "settlement agreement." This will be discussed below.

The third extension of the agreement was entered into later. It bears date of August 9, 1940.Whether it was executed then or on the 14th or 15th of August is in dispute. We think it does not matter. This amendment provided that the contract should cease if on or before August 19, 1940, one of two things did not occur. There had to be either an approval of the agreement by the Securities and Exchange Commission, or a finding by the Reorganization Court that the title of Ogden Corporation was free of all claims of other persons than Frank J. Lewis*fn5 In the inexorable process of time, the 19th of August, 1940, duly came. Neither the Securities and Exchange Commission nor the Reorganization Court had taken action of the sort specified in the August 9 amendment. Ogden thereafter took the position that the contract had come to an end by its own terms. This position it still maintains. This was the view taken by the District Judge. If it is correct, the plaintiff necessarily loses. We pass, therefore, to the points urged by the plaintiff, buyer, against this position.

The plaintiff seeks to get rid of the August 9 amendment through the claim that it was not delivered as an instrument intending to be binding upon the parties to it. It was "executed and delivered merely as window dressing for the Securities and Exchange Commission." The plaintiff cites authority saying that the parol evidence rule does not preclude a showing that a purported agreement was in fact no agreement at all.

This argument, we conclude, does not advance the plaintiff's case. It rests factually upon an affidavit executed by Mr. Manion, then counsel for the plaintiff. The affidavit says that Mr. Blumberg, the then attorney for defendant, said of this August 9 amendment that "* * * it was to be issued only in the event that any question was raised by the Securities and Exchange Commission as to the termination date of the contract that had been sent to them under date of July 16, 1940." This August 9 amendment was formally filed with the Securities and Exchange Commission. Furthermore, at the hearing held under the Commission's auspices the trial examiner directly asked Mr. Manion: "By the way, what is the date of the expiration of that contract, Mr. Manion, existing between Ogden Corporation and Mr. Lewis?" Mr. Manion replied: "That is the 19th of August."*fn6 If the execution of this amendment was a conditional matter between the parties that condition seems surely to have been met in both the filing of the instrument with the Commission and the acceptance of its terms by plaintiff's counsel at the Commission hearing. Plaintiff can hardly be in a position of asserting the existence of an agreement before a public regulatory body and denying it before a court.

Furthermore, a rejection of the August 9 amendment throws the parties back on the terms of the second amendment. By the terms stipulated in that amendment the expiration date was August 12. So we think the plaintiff gets nowhere in ...

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