The opinion of the court was delivered by: MILTON POLLACK
POLLACK, Senior District Judge:
Plaintiff, trustee for Pennsylvania Engineering Corporation ("PEC"), a now-bankrupt corporation formerly controlled by defendant Victor Posner ("Posner"), moves for summary judgment of liability of Posner by reason of collateral estoppel arising from the judgment rendered by this Court in S.E.C. v. Drexel Burnham Lambert, 837 F. Supp. 587 (S.D.N.Y. 1993) (hereinafter Drexel), aff'd 1994 WL 55043 (2d Cir. Feb. 24, 1994).
The claims herein are grounded on (1) violation of Section 10(b) of the Securities Exchange Act of 1934 and the Rules promulgated thereunder; (2) aiding and abetting violation of said statute and rules; (3) violation of RICO (Racketeer Influenced and Corrupt Organizations Act); and (4) breach of fiduciary duties as an officer and director of PEC. To simplify the motion, the Counts pertaining to the alleged aiding and abetting and RICO will be severed from this motion and treated separately at a later date.
This case derives from the egregious securities frauds committed by defendant Victor Posner in the 1980s, in conspiracy with defendants Michael Milken ("Milken"), Ivan Boesky ("Boesky") and Drexel Burnham Lambert Inc. ("DBL"), in connection with the takeover of Fischbach Corporation. Litigation involving one aspect or another of said frauds has been before this Court for the past six years, during the course of which this Court has become quite familiar with the fraudulent transactions at issue here.
This particular action was commenced on July 14, 1987 in the United States District Court for the District of Delaware, as a derivative action by PEC shareholders against former PEC chairman and director Posner and against various other defendants including Milken, Boesky and DBL (all of whom have now settled).
Plaintiff now asserts claims against the sole remaining defendant Posner for violating the federal securities laws, RICO, and the common law. The factual background underlying plaintiff's allegations is complex and is recounted at length in this Court's decision in Drexel, 837 F. Supp. at 588-606, and in the decision of the District Court for the District of Delaware, Rubin v. Posner, 701 F. Supp. 1041 (D. Del. 1988), denying defendant's motion to dismiss the instant case. In short, plaintiff alleges that by means of his fraudulent conduct, defendant caused PEC to enter into securities transactions involving Fischbach stock in which it would inevitably, and did in fact, sustain losses.
The SEC reached settlements with all defendants except Posner. Consent judgments were entered against the settling defendants, enjoining them from future violations of federal securities laws, and specifically requiring defendants Drexel and Milken to disgorge the sums of $ 350 and $ 400 million respectively. The SEC's suit against Posner proceeded to trial in June 1993. On December 1, 1993, this Court issued a decision, with detailed findings of fact establishing inter alia: that Posner had entered into a secret agreement with Milken, Boesky and Drexel; that Boesky agreed secretly to acquire and hold stock for Posner in a publicly traded corporation (Fischbach) which Posner was seeking to take over; that Posner and Milken agreed to make good any losses incurred by Boesky; that PEC, at Posner's behest, purchased the bloc of Fischbach stock from Boesky at a considerable premium to make up substantial losses incurred by Boesky in purchasing and parking the stock; and that all these many subterfuges and failures to comply with public reporting requirements to conceal the transactions were undertaken in wilful violation of the federal securities laws. The Court held that Posner had violated Sections 10(b) and 13(d) of the Securities Exchange Act, 15 U.S.C. §§ 78j(b), 78m(d), and had aided and abetted violations of the record-keeping requirements of Section 17(a)(1), 15 U.S.C. § 78q(a)(1), and the margin and credit requirements of Section 7 of the Exchange Act, 15 U.S.C. § 78g. The Court enjoined Posner from future violations of the securities laws, ordered that he disgorge all compensation paid to him for his "services" as officer and director of Fischbach, and barred Posner from ever again serving as an officer or a director of a public company. This decision was affirmed in full by the Second Circuit Court of Appeals by opinion dated February 24, 1994.
To grant the summary judgment sought by the moving party plaintiff, he is required to demonstrate that no genuine issue of material fact exists as to any element of liability on his claim that Posner violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and on his claim of breach of fiduciary duty as a corporate officer and director of PEC. See Fed. R. Civ. P. 56; Hurwitz v. Sher, 982 F.2d 778, 780 (2d Cir. 1992), cert. denied, 124 L. Ed. 2d 255, 113 S. Ct. 2345 (1993). Upon satisfaction of that burden, the defendant is bound to "go beyond the pleadings and by [his] own affidavits or by the 'depositions, answers to interrogatories, and admissions on file,' designate 'specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Plaintiff contends that the facts established in Drexel amply establish Posner's liability herein, that the doctrine of collateral estoppel precludes Posner from relitigating the issues decided in Drexel, and that Posner has failed to show that there remains any genuine issue of material fact on the question of his liability on the claims asserted. The doctrine of collateral estoppel applies to the instant action and all the findings required to establish liability on plaintiffs two claims were established in Drexel.
A. The Doctrine of Offensive Collateral Estoppel Applies to this Action
The doctrine of collateral estoppel prevents previously litigated issues from being relitigated. Beck v. Levering, 947 F.2d 639, 642 (2d Cir. 1991) (per curiam), cert. denied, 112 S. Ct. 1937 (1992). The Supreme Court has explained that the doctrine has a dual purpose: (i) to protect litigants from the burden of relitigating an identical issue with the same party or his privy; and (ii) to promote judicial economy by preventing needless litigation. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326, 58 L. Ed. 2d 552, 99 S. Ct. 645 (1979).
Until relatively recently, the use of collateral estoppel was limited by the requirement of "mutuality," whereby neither party could use a prior judgment as an estoppel against the other unless both parties were bound by the prior judgment. See Parklane Hosiery, 439 U.S. at 326 (describing end of mutuality limitation); 10 Louis Loss & Joel Seligman, Securities Regulation 4757 (3d ed. 1993) (recounting how "the mutuality dam burst"). Moreover, even after the mutuality requirement was abolished, a distinction was made between defensive and offensive use of collateral estoppel. Defensive use of collateral estoppel precludes a plaintiff, who has lost in a prior action, from relitigating issues by merely naming a new adversary. Offensive use of collateral estoppel permits a plaintiff, who was not party to the prior action, to estop a defendant from relitigating issues which the defendant litigated and lost in the prior action. Defensive use of collateral estoppel was generally perceived to promote judicial economy by encouraging plaintiffs to join in the prior action; by contrast, offensive use of collateral estoppel was faulted for furnishing the opposite incentive to potential plaintiffs--to wait and see how the prior litigation turns out, and then ...