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NICHOLS v. ALKER

December 14, 1954

Ennis M. NICHOLS, individually and on behalf of other stockholders of Long Island Lighting Company, similarly situated, and as Acting Chairman and member of the Committee of the Common Stockholders Committee of Long Island Lighting Company, and Common Stockholders Committee of Long Island Lighting Company, Plaintiffs,
v.
Harry A. ALKER, Edward F. Barrett, Dougall C. Fraser, John Vannek, et al., Defendants



The opinion of the court was delivered by: GALSTON

In this action the plaintiff, on behalf of himself and other stockholders of the Long Island Lighting Company similarly situated, alleges in effect that the defendants conspired for the purpose of destroying the rights of the plaintiff and other stockholders similarly situated by causing the Securities and Exchange Commission to institute proceedings in the federal courts to enjoin enforcement of a so-called 1944 Recapitalization, approved by the Public Service Commission of the State of New York; that as part of the alleged fraud, the defendants induced the Long Island Lighting Company to file a plan of reorganization with the Securities and Exchange Commission to the damage of the interest of the plaintiff and those whom he alleges he represents. The plaintiff and those similarly situated, so the plaintiff alleges, sustained damages in the amount of $ 50,000,000, with interest from October 24, 1950.

The filing of this complaint led to the present motions which are now before me for decision. One is by the defendant Percival E. Jackson for an order pursuant to Rule 11 of the Federal Rules of Civil Procedure, 28 U.S.C.A. to strike the complaint from the files of this court as sham and false, and to subject counsel for plaintiff to appropriate disciplinary action. A second motion, similar in kind, pursuant to Rules 11 and 12, is made by the defendant David K. Kadane.

 It will be helpful to consider a prior litigation involving the Long Island Lighting Company. In 1944 that company promulgated a plan of corporate reorganization which was approved by its stockholders and by the New York Public Service Commission with certain modifications. Thereafter an appropriate certificate of reduction of capital stock was filed with the Secretary of State of New York, but the plan was not consummated because of injunction proceedings instituted by the Securities and Exchange Commission. See Securities and Exchange Commission v. Long Island Lighting Company, D.C., 59 F.Supp. 610, affirmed 2 Cir., 148 F.2d 252. During the pendency of the injunction proceedings, and after public hearings, the Securities and Exchange Commission revoked the Company's exemption as a holding company under the Public Utility Holding Act of 1935, 15 U.S.C.A. § 79 et seq. Thereafter a plan of consolidation of the Company and its operating subsidiaries was approved by the Securities and Exchange Commission and by this court. See In re Long Island Lighting Company, D.C., 89 F.Supp. 513. In this proceeding Judge Kennedy, in his opinion, made a thorough review of the historic background of the corporations involved, of the administrative proceedings and of the issues involved. Judge Kennedy's decision was affirmed, Common Stockholders Committee v. Securities and Exchange Comm., 2 Cir., 183 F.2d 45, and certiorari denied, 340 U.S. 834, 71 S. Ct. 64, 95 L. Ed. 612. Motions were made before the United States Court of Appeals for this circuit on June 5, 1952 for reargument of the order affirmed by that court in 183 F.2d 45. In the per curiam opinion it was stated:

 
'The alleged ground for the relief prayed for was that each of said orders was entered 'under circumstances tantamount to fraud effected and committed by said Long Island Lighting Company upon the Securities and Exchange Commission, the Court below and this Court." In re Long Island Lighting Co., 2 Cir., 197 F.2d 709.

 These motions, therefore, were denied after a consideration of the merits.

 Not satisfied with the situation as it then resulted, common stockholders, in November 1952, brought an action in this court, Nichols v. Long Island Lighting Company, Judge Inch dismissed the action, and the plaintiff appealed. See Nichols v. Long Island Lighting Co., 2 Cir., 207 F.2d 931. The Court of Appeals, with Judge Augustus Hand writing the opinion, held that the Securities and Exchange Commission's order of consolidation and reorganization was final, and that the plaintiff's action for fraud was a prohibited, collateral attack upon the decree enforcing that order. See also Nichols v. Long Island Lighting Company, 2 Cir., 211 F.2d 392, certiorari denied October 14, 1954, 348 U.S. 827, 75 S. Ct. 45, and petition for rehearing denied by the Supreme Court on November 15, 1954, 348 U.S. 884, 75 S. Ct. 123.

 It is fairly clear, on the basis of documents drafted by plaintiff's attorneys in Nichols v. Long Island Lighting Company, 2 Cir., 207 F.2d 931, that the matter sought to be litigated in the present action is identical with that litigated by plaintiff in that case, and In re Long Island Lighting Company, 2 Cir., 197 F.2d 709.

 The following passage, referring to the present action, appears in a petition for rehearing on a petition for a writ of certiorari to the United States Court of Appeals for the Second Circuit, filed in the former case:

 
'Since the denial of the petition for certiorari herein, action has begun by these plaintiffs in the United States District Court for the Eastern District, through other counsel against numerous individuals and the estate of the former general counsel for the Long Island Lighting Company, who are or were directors and officers of the Long Island Lighting Company at the time of the perpetration of the fraud and conspiracy alleged in the complaint here and re-stated and amplified in the complaint in said action.' (Italics mine.)

 Regardless of what plaintiff now contends, it is clear that by his own admission the cause of action in the instant case and the former cases are identical in substance, if not in language, though now the damage asserted, instead of being $ 27,500,000, is alleged to be $ 50,000,000.

 The only question left in determining whether the matter here is res judicata is that of parties. During the course of the hearing, and in the oral argument on the Jackson motion, the plaintiff conceded that the critical allegations of the complaint related to issues that were res judicata. His contention was that the doctrine of res judicata was not applicable in these circumstances because the defendants named were not the defendants in the prior litigations, and that there was no privity between the defendants in this litigation and the Long Island Lighting Company, the sole defendant in the prior litigation. The plaintiff is undoubtedly the same, and we are faced only with the problem of the defendants.

 The defendants in the present action can be broken down into several groups:

 (1) persons alleged to have been officers of the Long Island ...


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