PARKLANE HOSIERY CO. v. SHORE
Legal provision: Estoppel
Argument of Jack B. Levitt
Chief Justice Warren E. Burger: We'll hear arguments next in 1305, Parklane Hosiery against Shore.
Mr. Levitt, you may proceed whenever you're ready.
Mr. Jack B. Levitt: Mr. Chief Justice and if it please the Court.
The principal issue presented in this appeal is whether a litigant loses his constitutional right to a trial jury by estoppel when the issue to be decided has been adjudicated adversely to him in a prior SEC injunction action, at which, there was no right to a trial by jury and, in which, its present adversary was not a party.
The facts are these.
Parklane Hosiery affected a going private transaction in October 1974 by means of a merger in which a proxy was issued to its shareholders.
A month later, in November 1974, this class action was commenced on behalf of all the stockholders of the corporation, except those who had exercised their statutory dissenter's rights.
The class action proceeded to a class certification and to commencement of discovery.
In May 1976, a year-and-a half after the class action had began and after the merger had been accomplished, the SEC, under the authority of Section 21 of the 1934 Exchange Act authorizing injunction actions, commenced an action for an injunction and other relief alleging as its grounds certain-claimed material misrepresentations and omissions by Parklane in its proxy state-- proxy statement.
Two weeks after, the SEC started its independent action.
The respondents here, the plaintiffs in the class action, moved to amend their complaint so as to precisely track, to fall in behind, the allegations of the SEC injunction complaint.
Pursuant to rules which permit prompt trial of SEC injunction actions, the SEC injunction action came on to be tried with about one month after it was commenced, in June of 1976 and while the class action here was in an early stage of discovery.
After trial, in September 1976, the district judge who had heard the SEC injunction proceeding found that Parklane had violated the securities laws in the three precise respects that the SEC had alleged, the three material omissions or misrepresentations.
But, the district judge denied the injunction which was the route remedy that the SEC had requested on the grounds that there was no basis for an injunction.
That the merger had long since been accomplished that there was no evidence and not even a contention, as I understand it, that there was any ongoing conduct that would suggest a concern-- a public concern for continuing wrongs or violations of the securities law.
Just after the judgment in the SEC proceeding in November, I believe, 1976, the respondent here moved for partial summary judgment on the issues which had been adjudicated in the SEC non-jury injunction proceeding on the theory that, because the SEC injunction proceeding had included similar issues of fact, the petitioner here was collaterally estopped from re-litigating those issues.
Chief Justice Warren E. Burger: Do you say “similar,” are they more than similar?
Mr. Jack B. Levitt: They are precisely the same, Mr. Justice Burger, as the issues contained in the amended complaint or embraced in the amendment.
There were some other claims in the class action and, of course, there would be other issues, at least including damages, still for trial.
That's the sense in which it was a motion for partial summary judgment.
But, to answer what I believe is the purpose of one of your question, Mr. Chief Justice, yes, the request for partial summary judgment was co-extensive with the findings of violation that had been-- that had occurred in the SEC proceeding.
The District Court denied the motion for partial summary judgment.
In a short decision, motion denied and relying on the Fifth Amendment -- on the Fifth Circuit decision in Rachal against Hill, a 1970 Fifth Circuit decision.
On appeal, the Second Circuit Court of Appeals reversed the District Court, directed the entry of the summary judgment which had been requested and, in effect, determine that the application of the Doctrine of Collateral Estoppel in this instance or to extinguish the right to a trial jury that the petitioner otherwise concededly would've had.
This appeal presents to the Court for the first time, since this Court's decision in Blonder-Tongue, a question of the proper reach and application of the Doctrine of Collateral Estoppel in the absence of mutuality.
And, petitioners contend here very briefly that the test, the historical inquiry, as to the law in 1791 as a basis for determining the scope and limits of Seventh Amendment jury trial rights.
If applied in accordance with what we contend is a fairly straightforward following of the cases of this Court, Dimick against Schiedt and, very recently, Curtis against Loether and others, demonstrate that respondent couldn't have been estopped collaterally from a jury trial of his defenses in 1791 or, indeed, until the very recent relaxation of the mutuality of estoppels rule and can't now be so-estopped.
We believe also that that result is squarely consistent with this Court's decisions in Beacon Theatres, Dairy Queen, and other cases and that the Rachal decision, the Fifth Circuit decision in 1970 which, until this case, was the only case which presented an interface or a challenge to the Seventh Amendment by the new concept of non-mutual estoppel which had held to the contrary that a jury trial could not be extinguished by this mechanism, quite properly analyze the law, and this Court's decisions on the issue.
And, finally, we'll contend that this Court's refusal, for which of course we shall contend, to apply collateral estoppel in the circumstances presented in this case would be wholly consistent with the Blonder-Tongue principle that it is a -- that non-mutual estoppels, even if the formal elements may be present, should not be applied where justice and equity dictate otherwise.
Now, Your Honors, before analysis or reference to the decision in the Court below, I'll briefly summarize to you the Fifth Circuit decision in Rachal.
There, the SEC had sought and obtained an injunction against corporate behavior in an SE -- in a securities law violation context.
Thereafter, a class action had been begun and the class action plaintiffs, using the SEC judgment as its predicate, sought partial -- sought summary judgment much as is being attempted on this case.
There, the Fifth Circuit squarely held that collateral estoppel may not be applied so as to deny a Seventh Amendment jury trial right.
And, in so doing, the Court ackn -- confronted the challenge of the Seventh Amendment in the face of this new procedure -- relatively new procedural mechanism, and acknowledged also that the change in the rules of mutuality still then emerging, and I believe still now emerging, but noted that the rule should not apply where overriding issues of fairness dictate otherwise.
The Rachal Court, the Fifth Circuit Court, analyzed this Court's decision in Beacon Theatres, referred to the great respect which its language and its decision showed to the preeminence of the Seventh Amendment in the face of changing procedural mechanisms, in that case, the federal rules, and found that the Beacon decision led, inevitably, to the denial of estoppel.
Turning to the decision in the Second Circuit Court below --
Justice Potter Stewart: And Blonder-Tongue, of course, in volved the validity vel non of a patent.
Mr. Jack B. Levitt: It did.
Justice Potter Stewart: Didn't it?
And, let's assume that a patent had held to be -- was held to be invalid in the Second Circuit and then in the Third Circuit, and that had been done in a non-jury trial because nobody had asked for jury determination.
And then, in the Third Circuit, the issue of the -- that same patent's validity was raised in litigation, and the person asserting the validity of the patent said “well, I want a jury trial on this issue.”
Does that mean that the matter of estoppel just could not possibly prevail because of the Seventh Amendment right to jury trial?
Mr. Jack B. Levitt: I don't think so, Your Honor.
I believe, in all events, that in the Blonder-Tongue context there was no jury trial question raised and, moreover, that--
Justice Potter Stewart: Well, in question -- in my case, there is now.
In the hypothetical case embodied in my question there is a jury trial question raised.
The original determination of invalidity was made in a non-jury trial.
Now, the same issue is raised in a different Circuit involving the validity of the same patent, and the person asserting its validity says “I want a jury trial and there cannot possibly be collateral estoppel because there wasn't jury trial in the other case.”
Mr. Jack B. Levitt: Well, Your Honor, in -- I don't think -- well, addressing myself to the question as I understand it, the person seeking to avoid estoppel in the second case that you put would, in all events, be entitled to a trial.
The question is whether the party who had a litigated -- who had litigated the case earlier, in this case the -- in the Blonder-Tongue case, the alleged patent holder who had initiated a litigation and who, in the litigation which he had initiated, was met with the finding of invalidity of the -- of his own patent.
And, Blonder-Tongue said, “having being confronted with an -- a determination adverse to you in a case which you initiated, you can't now proceed to attempt to enforce against anybody.”
Chief Justice Warren E. Burger: Well, what difference does it make as to who initiated the case in terms of the legal principles involved?
Mr. Jack B. Levitt: Well, Your Honor --
Chief Justice Warren E. Burger: I mean, the choice of a jury waiver would be one, I suppose.
Mr. Jack B. Levitt: It would and, Your Honor, while I -- as I think we will see, in the context of this case, it is not at all essential to the disposition of this case.
I would comment upon your question to say that there has been much writing and speculation about the distinction, if any, and the weight which ought to be accorded to it between the so-called defensive use of mutual estoppel and the so-called offensive use.
I say “so-called” because many people contend perhaps with some force, that here isn't a profound or a structural distinction between the two.
I don't think it, at all, affects the line of reasoning or the ultimate decision by this Court in this case.
I would say, however, in response to your question that I find some concern in the issue of whether -- I find a somewhat different standard, a somewhat different test, probably in order, in considering whether a subsequent litigant can exploit a successful litigation by a predecessor and follow it by attempting to get summary judgment, attempted to get judgment almost by hypothesis on the basis of that earlier adjudication.
I would be concerned about many factors affecting the earlier adjudication and its implication for the party who had not been a party to it and who is now faced with confrontation of the same issue.
Your Honor, returning, if I may, to the decision below.
The Second Circuit, in reversing, held exactly to the contrary of Rachal.
It found that collateral estoppel would apply undisputedly, except for the jury trial issue.
It reasoned or at least it discovered --
Justice John Paul Stevens: Mr. Levitt, I'm sorry to go back to Justice Stewart's question.
Mr. Jack B. Levitt: Surely, Mr. Justice.
Justice John Paul Stevens: I'm really not entirely sure I understand your answer.
Is your answer that there's a difference between defensive and offensive use of mutuality of estoppel?
Mr. Jack B. Levitt: In my judgment --
Justice John Paul Stevens: I thought you said you didn't think it was.
Mr. Jack B. Levitt: In my judgment, sir, there should be.
Justice John Paul Stevens: There should be?
Mr. Jack B. Levitt: Yes.
Justice John Paul Stevens: And -- but, is it not correct that, unless we draw that distinction, Blonder-Tongue decides this case?
Mr. Jack B. Levitt: I don't think so, sir.
Justice John Paul Stevens: Then, why not?
That's what you would do.
Mr. Jack B. Levitt: I don't think so, sir, for several reasons.
First I -- Your Honor, let me address myself to your question in the following fashion.
I believe that the offense -- so-called offensive use and this case, to my knowledge, and as well as the Rachal case in the Fifth Circuit presents the first such proposition for it --
Justice John Paul Stevens: That's right.
Mr. Jack B. Levitt: Deserves a different test.
I do not think, Your Honors, that it will be crucial by almost any line of reasoning to Your Honors' decision because I think this case will more than likely be presented primarily on the issue of its Seventh Amendment implications, but what -- but I do believe that the level of examination, the concern, about who was involved in the prior adjudication and what were the implications of the circumstances of that prior adjudication for the party sought to be estopped by it, and the second action of who was innocent, that is to say, who was innocent of any participation.
Who had no participation in the earlier action, probably, should be a higher standard and should be a matter of concern.
And, to try and follow that for what use I believe it may have for the facts in this case, I think the fact that this case -- that the prior adjudication was an SEC injunction proceeding.
For example is one which ought to weigh in the balance of whether or not it ought to estopp the follow -- the subsequent party.
For example, Mr. Justice Stevens, in the relatively few cases compared to the much writing and comment on this subject, cited in respondent's brief are the application of offensive so-called use of estoppel.
I find only three in which offensive use was actually applied, and I find there that in each of those three cases the party in whose shoes, so to speak, the new litigant finds himself, was a party of exactly identical rank or interest, so to speak, in the litigation of that issue, as was the later party sought to be estopped.
For example, the three cases that I can recall are a co-passenger in a taxicab, both innocent, both victimized, a full and fair opportunity, a jury trial right in the first action, ergo, offensive estoppel.
I do not find -- apart from matters of legal analysis, my sense of justice isn't troubled by that.
A co-passenger in an airplane, a mortgagee versus a mortgager successively suing an insurance carrier arising out of the same casualty where the implication and the facts are strong that the litigant to the earlier case had the same kinds of concern, the same view of the litigation as could be presumed to be that of the party of the second litigation who was sought to be estopped.
Justice John Paul Stevens: Isn't that only relevant to the -- where there's adequate motivation to go all out and making a complete defense?
Mr. Jack B. Levitt: Yes, well --
Justice John Paul Stevens: Wouldn't the defendant -- wouldn't your client have the same motivation to defend against the Securities and Exchange Commission --
Mr. Jack B. Levitt: I don't --
Justice John Paul Stevens: Than it does in a damage situation?
Mr. Jack B. Levitt: Your Honor, I don't think it's only a matter of motivation.
I think it is a matter of many factors which, in here, in a litigant's view of what the significance and implications of a litigation are to him and, no.
To answer your question, no, I don't think his motivation would've been less to defend as it would to defend a private party action.
Justice Potter Stewart: But they -- I suppose the difference between the hypothetical case embodied in my question and those three cases that you've just mentioned to us and the conclusion implicit in Mr. Justice Stevens' question is that, here, there was no -- you couldn't have gotten a -- you couldn't have had a jury trial in the first action no matter how hard you tried.
Mr. Jack B. Levitt: Precisely, Your Honor.
The structure of the earlier adjudication was --
Justice Potter Stewart: You simply had no right to a jury trial.
Mr. Jack B. Levitt: Yes.
Number one, there was no right to a jury trial because the statute--
Justice Potter Stewart: Doesn't give it.
Mr. Jack B. Levitt: Evidencing a policy very well-expressed in the government's amicus brief here that the SEC was authorized by the government to move quickly and flexibly to enjoin ongoing wrongs and, therefore, there should be no jury, classic equity jurisdiction, and no jury trial right.
Chief Justice Warren E. Burger: Wouldn't this be equally true of any equity case in a Court as distinguished from a regulatory agency?
Mr. Jack B. Levitt: No, Your Honor, I don't think so because of the implications for most civil litigation of the federal rules, and that in fact relates us precisely to the Beacon Theatres case which is the heart of what the Second and the Fifth Circuit seemed to have been arguing about.
Chief Justice Warren E. Burger: Well, that's not tracking -- perhaps, I didn't make my question clear.
Mr. Jack B. Levitt: I'm sorry, Mr. Chief Justice.
Chief Justice Warren E. Burger: No jury in an SEC case, not even a discretionary power arising, I suspect, on the part of SEC to call a jury in?
Mr. Jack B. Levitt: Correct.
Chief Justice Warren E. Burger: An equity judge could conceivably have the power from some factual question unusual, but he could call in a jury and submit certain questions, couldn't he, possibly?
Mr. Jack B. Levitt: Possibly, yes, sir.
Chief Justice Warren E. Burger: It's been done.
It's been done.
Mr. Jack B. Levitt: Yes.
Chief Justice Warren E. Burger: It isn't the normal, but what's the basic difference if the case is tried to judgment in the Equity Court with no jury and the case is tried to a determination in the SEC with no jury? Why do you distinguish those two?
Mr. Jack B. Levitt: Let me tell you why I do because I think that distinction goes very much to the heart of the issue presented here.
Beacon Theatres, which was interpreted in precisely contrary manners by the Fifth Circuit and the Seventh Circuit, Beacon Theatres said that, in the face of the federal rules which, in terms of the merger of law and equity, presented both what used to be equitable and legal disputes in the same civil action.
The Seventh Amendment, with its command to continue to preserve jury trial rights in the sense that they had been entitled to preservation historically and in accordance with the long line of this Court's cases, compelled that any issues of fact in what would otherwise be a mixed, legal, and equitable case under the federal rules, must needs be tried by a jury and that to try such issues of fact before an Equity Court would violate the mandate of the Seventh Amendment and the constitutional right of a litigant to it advanced the traditional common law claim.
And, for that reason, Your Honor, and I hope I'm being responsive to your question, for that reason, I would say to you that in the law under Beacon Theatres, under Dairy Queen, and under Meeker against Ambassador Oil, all cited and discussed in the brief, the law is clear that where there are issues of fact which are in aid of equitable claims and of legal claims, you may not extinguish the jury right created by those legal claims by a prior adjudication in equity.
That's the fair and, I believe, the inevitable interpretation of Beacon Theatres and Dairy Queen.
And, I might say in that connection that the Second Circuit found a rather unusually narrow interpretation of Beacon Theatres.
It said in substance, and I hope I'm not exaggerating for the purpose of illuminating the Second Circuit's view, it said in substance Beacon Theatres was merely a scheduling case.
It concerned itself with how issues ought to be ordered and that's why it came up in a mandamus context so that the District Court would have the proper direction and both the rational Court in the Fifth Circuit and, I believe, the plaintiff's kind of reading of Justice Black's opinion for the majority don't at all admit of that narrow construction.
To us and to the Fifth Circuit, it was a very ringing affirmation of Seventh Amendment rights when confronted by the new structure of litigation posed by the federal rules.
Justice Potter Stewart: But isn't it true that the whole presupposition of Beacon Theatres was that if the equity case were tried first, it would be res judicata?
Mr. Jack B. Levitt: No, Your Honor.
That certainly is the interpretation --
Justice Potter Stewart: You know I dissented in that case, so I'm perhaps not -- don't understand it as well as you do.
Mr. Jack B. Levitt: With the greatest -- [Laughter]
With the greatest respect, Mr. Justice Stewart, let me tell you why I think not.
I think not because there is one sentence in Justice Black's decision for the majority which at least the Second Circuit turned to or it was the only one, at least that we could find, which could be argued to have supported the proposition that it ordered pre-litigation of jury issues as a-- one-half of a two-sided coin of permitting estoppel if the order which the Supreme Court mandated were not followed.
Justice Black made one comment in Beacon Theatres, and that was in the context of characterizing the Circuit Court below's concerns, as expressed b the Circuit Court, and Justice Black characterized it, at least in substance, by saying there is some concern expressed that if the equitable issues were tried first, why, then an estoppel might follow of the legal issues.
But, Mr. Justice Stewart, I wold sggest to you that our reading of Meeker against Ambassador Oil leads us to conclude that the intention of Beacon Theatres was rather broader than that.
In Meeker, there was no mandamus.
The District Court did not get the benefit of early warning about the order in which the Seventh Amendment preferred the issues to be tried and the District Court, without the benefit of that, went ahead where both legal and equitable relief was granted and ordered the equitable issues tried first before a Court and without a jury.
They were tried first, adversely to the jury claimant.
The District Court found that, in consequence, there was nothing to decide in the legal action because it was dependent on the premise of fact which was inherent to the equitable action.
The case came to the United States Supreme Court, I believe, in 1963, and this Court reversed memorandum, decision reversed citing Beacon Theatres and Dairy Queen, remanded the case, and our inquiry tells us, as is revealed in the brief, that the case went back and it was directed to be retrial -- retried with the jury issues tried first.
The order not which by mandamus reflects a preference of this Court but, with the greatest respect, the order which we believe Justice Black, for the majority in Beacon, directed that it be held and that the reciprocal consequence, far from being a permitted estoppel, is a retrial or an assertion of the Seventh Amendment mandate by a new trial so that the Seventh Amendment, not by happenstance of a Court's improper ordering of issues, be vitiated or be lost in the bargain.
And, to that issue also, Justice Black in Beacon Theatres, the case argued to be limited merely to a scheduling of cases, stated a jury right cannot, through prior determination of equitable claims-- a jury right, forgive me, cannot be lost through prior determination of equitable claims except under the most imperative circumstances which, in view, are flexible procedures of the federal rules, Justice Black couldn't even anticipate happening.
Now, relating these arguments and relating these fulcra interpretation of Beacon Theatres to the matter at hand, we argue, as precisely as the Fifth Circuit did found in Rachal, that what the Second Circuit here has done is a complete anomaly because in SEC injunctions, by statute, you cannot consolidate them with private cases.
Ergo, the issue cannot be presented to the Court in a precisely Beacon Theatres context, that is to say, consolidated cases presenting the question of the order of trial of legal and equitable issues, because these 1934 Exchange Act prohibits a jury trial.
And, the Fifth Circuit in Rachal said “how is it possible that if these cases were consolidate for trial there is no way that the jury trial could have had to wait for the equitable trial or would've been bund by a result in an equitable trial?"
It is anomalous, the Fifth Circuit found, that the party who was not in the original adjudication, the respondent in this case, could, in effect, get a benefit of a pre-litigation without jury that he could not have had if the case were presented in the eq -- in the Beacon Theatres' context.
Any other interpretation, I think, would be -- would do the greatest offense to the Beacon Theatres and Dairy Queen Doctrines.
Now, Your Honors, we contend also and the briefs demonstrate the line of reasoning, I think, quite simply that the traditional line of inquiry of whether a Seventh Amendment right concededly hereto for existing can be vitiated or lost, and that is the standard historical inquiry about what the state of the law as to jury rights was in 1791, can be applied in this instance that the cases which are cited in the brief demonstrate the very simple sequence that there was no such thing as an estoppel which could have extinguished a jury trial right, not only in 1791 but until 25 or 30 years ago.
That, this action is an action within the protection of the Seventh Amendment cit -- on the authority of this Court's decisions, and that the introduction of a new procedural mechanism cannot be employed to vitiate that Seventh Amendment right.
If there must be an accommodation, as Justice Black found there must be with the merger provisions of the federal rules, the new procedure must accommodate to the Seventh Amendment.
Argument of Samuel K. Rosen
Chief Justice Warren E. Burger: Thank you.
Mr. Samuel K. Rosen: Mr. Chief Justice and may it please the Court.
We respectfully submit that Beacon Theatres is precisely a scheduling question.
The issue presented in Beacon Theatres is when the Court has before it both legal and equitable claims, it must have the jury decide the legal claims first.
Otherwise, there would be a preclusive effect of the determination of the equitable claims by the Court which would make it impossible for those claims to be heard by the jury.
This is consistent with the common law in 1791 when the constitution -- when the Seventh Amendment was adopted, in that a decree in equity between two parties in 1791 was preclusive on a subsequent legal action between those two parties.
There is no anomaly in finding that the equitable action will preclude the re-litigation of the issues in a legal action.
Justice William H. Rehnquist: But you have to parlay that together with the Non-mutuality Doctrine which did not existed in 1791, don't you, in order to make your case come out alright?
Mr. Samuel K. Rosen: Precisely, Your Honor.
There are two -- it's a two-horse parlay --
Justice William H. Rehnquist: And you got to win both of them there?
Mr. Samuel K. Rosen: That's correct.
I think that --
Justice William H. Rehnquist: And you have, so far.
Mr. Samuel K. Rosen: I think the Blonder-Tongue has already been won.
Justice Potter Stewart: Your point is you won each of them and now you're just combining them.
Mr. Samuel K. Rosen: That's correct.
Justice Potter Stewart: You haven't won each of them.
They've been won by your predecessors, and now you just seek to combine the two victories.
Mr. Samuel K. Rosen: I'll take whatever benefits of their victories I can, Your Honor.
There is no deprivation of a jury trial right in this action.
The defendants are going to have a jury trial in this action on all the issues not determined in the SEC action.
They will have --
Justice Byron R. White: Here, is it -- is the claim in this case on a collateral estoppel that the prior litigation determines not only the factual issues that were raised and decided but a legal issue too?
Mr. Samuel K. Rosen: The -- in the SEC action, the District Court and the Court of Appeals, affirmed unanimously, found that there were material misstatements in the subject proxy statement.
Justice Byron R. White: And a violation of the statute.
Mr. Samuel K. Rosen: And a violation of the statute, that's correct.
Collateral estoppel being relating to factual issues, we have moved for summary judgment only on the factual issue that there is a viola -- that there were material misstatements in the proxy statement.
Justice Byron R. White: Do you think that is a -- purely a factual question?
Mr. Samuel K. Rosen: It's a mixed question of fact and law.
Justice Byron R. White: That's what I want -- so -- but, collateral estoppel reaches that far at least, you think.
Mr. Samuel K. Rosen: Yes, but it --
Justice Byron R. White: Not just historical facts, but some characterization of them in terms of the statute.
Mr. Samuel K. Rosen: Yes, I believe it does, Your Honor.
But, even if it doesn't, the -- there would be a preclusion of the re-litigation of the question of whether there are material misstatements and omissions in the proxy statement.
Justice Byron R. White: There would be preclusions to whether these particular statements had been made.
Mr. Samuel K. Rosen: Well, it's more than that, Your Honor.
It's the fact that they are misleading and they are -- that they are not correct.
Justice Byron R. White: But is it -- you mean misleading within the meaning of the statute or not?
Mr. Samuel K. Rosen: Yes, I mean misleading to the public shareholders of the company, that they thought, for example, that one of the findings of misleading statement was that there were no negotiations going on with the Federal Reserve Bank as to the negotiations to buy out a lease hold, Parklane.
Justice William H. Rehnquist: Do you think your motion for summary judgment that you've just described, in response to Justice White's question, should've been granted by a Court before Blonder-Tongue was decided and while Triplett was still the law?
Mr. Samuel K. Rosen: Your Honor, there had been -- there has been an erosion of the Doctrine of Mutuality.
In the Second Circuit, at least, in 1964 --
Justice William H. Rehnquist: Well, suppose you deal with just with the cases from this Court, since I for once, I don't pretend to be familiar with all the Court of Appeals cases.
Mr. Samuel K. Rosen: I would think that, before Blonder-Tongue, that this Court did not approve the mutuality but required mutuality.
Justice William H. Rehnquist: So, you then rely on Blonder-Tongue outside of the patent area and as a virtually an absolute rule that justifies summary judgment in this case?
Justice Byron R. White: And offensive as well as the offensive.
Justice William H. Rehnquist: Yes.
Mr. Samuel K. Rosen: Yes, I do.
The Blonder-Tongue has been followed in a number of cases in a number of Circuits since it's -- since it was decided in 1970.
It's been followed, for example, in the-- it's been followed and it's been u -- and mutuality has been permitted in an of -- non-mutuality's been permitted in an offensive manner.
In the Seventh Circuit, in the Second Circuit, and in the Sixth Circuit, all cases decided subsequent to Blonde-Tongue and, in fact, Rachal against Hill, the Fifth Circuit case, was decided before the Blonder-Tongue decision.
So, it's not clear to me how the Fifth Circuit would have decided Rachal against Hill had Blonder-Tongue been decided prior to its decision in the Rachal case.
I think that offensive use of collateral estoppel should be permitted in this case because, at all times during the pendency of the SEC action, the defendants were aware of the existence of the private action, the Parklaine and Shore action, that also differentiates this case from the Rachal case because, in Rachal, the private action was began after the SEC action was began.
Justice William H. Rehnquist: What could they have done in order to obtain a right to jury trial in the private action in this case?
Mr. Samuel K. Rosen: They could have sought to expedite the private action instead of, for example, spending seventh months after the complaint was filed to answer the complaint.
The complaint was filed in November of 1974.
The answer was, I believe, in June of 1975.
Justice William H. Rehnquist: But, ordinarily, the gov -- the SEC action will have a priority that the private action won't, won't it?
Mr. Samuel K. Rosen: Unless the private action is ready for trial at the time -- prior to the time that the SEC action is brought, that's correct.
The SEC will -- whichever case is ready first, if the SEC case is ready first, the SEC trial will be held first.
If the private action is ready first, it will have its jury trial first.
But, in this case, the defendants had the ch -- they were aware that the SEC was investigating a transaction.
At the same time, they were aware of the existence of this action.
If they wanted a jury trial in this action, they could've answered the complaint not in seven months, but in two months or whatever time they might have been able to get their answer together.
They could've --
Justice William H. Rehnquist: You can require them to answer in 20 days, can't you?
Mr. Samuel K. Rosen: As a matter of courtesy between attorneys, when I was constantly being asked for three-week adjournments, four-week adjournments on the answer, it seemed to me, if they want three weeks, they could have three weeks.
But, it's not I who's now complaining about the loss of a jury trial.
It's they who, having taken the strategic moves that they did in delaying answering and delaying depositions, it's they who are now complaining that has caused them to lose a jury trial right because the SEC case was heard before this case.
Justice Byron R. White: How far do you carry this particular role?
What if the -- in the SEC action, the finding had been in favor of the company and then you brought this suit?
Mr. Samuel K. Rosen: Well, under the Doctrine of Collateral Estoppel, we -- there would've been no right to collateral estoppel on the part of the company against the plaintiff.
Justice Byron R. White: Well, there'd been findings in its favor and on the same issue in another case.
Mr. Samuel K. Rosen: But we would not have had our day in Court.
The difference between that case and the case here presented is that the company has already had its day in Court.
There's been a full and fair adjudication of the issues.
They don't deny that there's been a full and fair adjudication of the issues.
There was a four-day trial.
There was an appeal in the SEC action, and the decision of the judge was affirmed unanimously by the Second Circuit.
Justice William H. Rehnquist: But, if that's the case, isn't this invariably going to give the private plaintiff two bites that that appellee can just hold back until after the government's case is tried?
If the government wins, he wins.
If the government loses, he gets his bite -- second bite at the output.
Mr. Samuel K. Rosen: If the government loses --
Justice William H. Rehnquist: If the government loses its case, the private plaintiff, by your answer to Justice White, isn't bound.
He has his own day in Court and, if the government wins, he simply hitches his card under the government's victory.
Mr. Samuel K. Rosen: Well, as to the second part of your question, the -- I believe one of the purposes of the Securities and Exchange Commission is to act to protect the public.
So that, to the extent that they win in an action against a private corp -- against the corporation, that the public shareholders ought to be entitled to hitch their wagon to the star of the SEC's action.
Justice William H. Rehnquist: Well, take the antitrust statute where, as I recall, there's a provision that in certain circumstances, and this is by act of Congress, judgment in favor of the government can be used as a prima facie case.
Now, there's nothing in the Securities Act like that, is there?
Mr. Samuel K. Rosen: That's correct, Your Honor, but what we have is a situation where, it seems to me that, in the antitrust context, Congress is limiting whatever collateral estoppel effect there might be to an antitrust action brought by the government in the private action.
Justice William H. Rehnquist: But, don't you think the intent of Congress when it passed that in the Securities and Exchange Act was to give private claims a benefit rather than a detriment?
Mr. Samuel K. Rosen: It may have been at the time to give them a benefit and to the extent that it was meant to give them a benefit.
If there were a question that -- of -- if there's a question of a violation of the Seventh Amendment in this action, it seems to me that there's also a question of a violation of the Seventh Amendment with respect to the antitrust Act which renders prima facie effect to --
Justice Byron R. White: No, but that just leaves it -- it still leaves it up to the jury.
Mr. Samuel K. Rosen: But if neither party present --
Justice Byron R. White: Doesn't it?
Mr. Samuel K. Rosen: But if neither party present --
Justice Byron R. White: You wouldn't preclude any -- you would want to direct a verdict on the particular facts in this issue.
Mr. Samuel K. Rosen: Mr. Justice White, if I may, by rendering prima facie effect to the decision in the antitrust action, if neither side presents any evidence at that point in a private action which is based on a government action brought against the same defendant, the plaintiff will win the private action.
Whereas, if there were no prima facie effect given to the decision in the government action, there would be -- the defendant would've won the case since the gov -- the private plaintiff would not have met his burden of proof.
Justice John Paul Stevens: But, Mr. Rosen, that's no answer because if there's a jury sitting there and the defendant wants to put in evidence, he can do so.
He's got a right to present the issue to the jury in the Antitrust context.
Mr. Samuel K. Rosen: Well, that's correct, Your Honor.
I'm just suggesting --
Justice John Paul Stevens: It seems to me that you --
Mr. Samuel K. Rosen: I'm not suggesting that he doesn't have --
Justice John Paul Stevens: It seems to me that your position, effectively, it either treats antitrust cases differently than other government litigation or else it goes further than Section 5 of the Clayton Act and says, instead of being a prima facie effect, it's conclusive effect, giving effect as he is to add to what Congress granted to plaintiffs.
Mr. Samuel K. Rosen: It -- when Congress passed the Clayton Act, the question of mutuality was still a requirement.
Justice John Paul Stevens: The law has developed since then.
I mean, if the law has developed, presumably, all we've done is made this statute obsolete.
We don't need it anymore.
The plaintiffs don't need it.
That must be your view, isn't it?
Mr. Samuel K. Rosen: That is my view, Your Honor, and I --
Justice Byron R. White: So you think in antitrust actions prior decree is remotely just prima facie but they were buying it now.
Mr. Samuel K. Rosen: I don't think so because --
Justice Byron R. White: I thought you just said that to Mr. Justice Stevens?
Mr. Samuel K. Rosen: That's correct, Your Honor.
I'm thinking it through now, if I may.
Justice John Paul Stevens: You don't want to say now that the statute is obsolete.
Mr. Samuel K. Rosen: The statute may be obsolete, but it's still the only congressional mandate that the Court has to follow in determining what effect, in a private action, the decr -- the decision in a government antitrust action should have.
And, maybe that the antitrust action should be treated differently, I don't know.
But, it --
Justice John Paul Stevens: And as long as that statute is on the books, Blonder-Tongue doesn't apply?
Justice William H. Rehnquist: No, Mr. --
Mr. Samuel K. Rosen: It would not appear to apply to any antitrust actions, that's correct.
Justice John Paul Stevens: Why shouldn't we take it as a legislative policy position with respect to what prior government decrees generally should stand for in later litigation?
Mr. Samuel K. Rosen: Because it's not part of the Securities and Exchange Act of 1934 and Congress, in passing the Securities and Exchange Act in 1934 knew that it could've put in such a provision, having done it in the Clayton Act in Section 5.
Justice John Paul Stevens: No, but that Section --
Justice Byron R. White: Well, I know, but at that point, it d -- there was no -- they would have had to be one that give plaintiffs some benefits because then there was a mutuality requirement.
Justice John Paul Stevens: You know, that section of the Clayton Act has been amended three times since the Blonder-Tongue decision, 1974 and 1976 and 19-something else.
Mr. Samuel K. Rosen: Perhaps Congress --
Justice John Paul Stevens: It's about changing the prima facie factor.
Mr. Samuel K. Rosen: Perhaps Congress intends there to be a special rule for antitrust actions.
It could be the reason.
Justice John Paul Stevens: I think each of those amendments was designed to help plaintiffs in antitrust cases too?
Justice Potter Stewart: Mr. Rosen, I didn't understand whether or not you conceded the correctness of my brother Rehnquist's assumption in his question to you, that the plaintiff gets to the effect that the plaintiff gets two bites at the apple if the government loses.
The plaintiff can still try its case if the government loses in the SEC case.
If the SEC loses, then the private plaintiff, the shareholder, can still try his case de novo without any effect of that prior determination.
Is that correct?
Mr. Samuel K. Rosen: That's correct, Your Honor, and the --
Justice Potter Stewart: Why?
Mr. Samuel K. Rosen: And then the reverse --
Justice Potter Stewart: Well, let's say in the SEC case that the Court had found as a fact that there were no material misstatements.
Mr. Samuel K. Rosen: Right.
Justice Potter Stewart: Now, wouldn't that be a benefit to the defendant in your lawsuit?
Mr. Samuel K. Rosen: You're going to have a problem whichever way the case is decided because if you decide for the defendant in this action, the defendant will have two bites at the apple.
We're dealing with a situation where there will either be two trials --
Justice Potter Stewart: Now, why, just to get back to my question, why wouldn't the defendant be able to use that determination in the prior lawsuit?
Mr. Samuel K. Rosen: Because --
Justice Potter Stewart: That there were no material misstatements by -- in this proxy material or whatever it is?
Mr. Samuel K. Rosen: Because the plaintiff would not have had his day in Court, would not have had the chance to present his witnesses who the SEC might not have called.
There may be facts which are available to the private party which the -- of which the SEC may not have been aware.
Where, if the -- if there is collateral estoppel effect given to the -- given against the defendant, he would've already put his own case on.
He would've put on all his witnesses, presented all the facts that he could present, he would've had his day in Court and presented as full a trial and as full a record to the Court as he would put on in the second case.
That's the distinction between the two cases, Your Honor.
Justice Potter Stewart: So, I am -- I was correct in my apprehension that you conceded the correctness of the proposition implicit to my brother Rehnquist question.
Mr. Samuel K. Rosen: Yes, Your Honor.
Justice Potter Stewart: It's the polysyllabic way of -- excuse me.
Mr. Samuel K. Rosen: This Court has recognized, as recently as 1966 in the Katchen against Landy case, that a decision in an equity action against one party will have preclusive effect against that party in a subsequent legal action.
There's no -- in that case, in the first action there was no right to a jury trial.
In the second action, where not for the first action, there would've been a right to a jury trial.
I submit that there is no distinction between that case and a case in which there is a third party who is seeking to get the benefits of collateral estoppel.
Since determinations at law and equity were entitled to the same respect in 1791, at the time of the enactment of the Seventh Amendment, to suggest that the modifications in the mutuality principle would be confined to instances where jury determination was present in the first action would not have been understood, I would submit, by the Courts in 1791.
The -- each of the actions, either equitable or legal, in 1791 was treated with the same degree of respect, and each precluded re-litigation in the second action, when between the same two parties, when mutuality was required.
The erosion of the Mutuality Doctrine, I submit, requires that the same effect to equitable actions be granted -- the same preclusive effect to equity determinations be granted to legal actions whether or not the same to parties are present in the action.
I submit also that there are numerous policy considerations which require that decision.
First is a question of judicial economy.
To have a second trial on the same issues by the same defendant presenting the same facts will take up, perhaps, an enormous amount of time in the Federal Courts.
Furthermore, the Securities and Exchange Commission is a government body acting for the public shareholder, and the public shareholders should be entitled to the benefits of any decision gotten by the SEC in its actions.
Justice Byron R. White: Do you know any other instances under federal statutes where federal decrees are considered in -- to any extent in private litigation, besides the antitrust laws?
Mr. Samuel K. Rosen: In the --
Justice Byron R. White: What are you reading from?
Mr. Samuel K. Rosen: From my brief, Your Honor.
I just wanted to get the cite of the case.
I believe, under the labor laws in Whitman Electric versus Local 363, International Brotherhood of Electrical Workers, 398 F.2d 1218, a 1974 Southern District Case.
I believe that preclusive effect was given in the second action to a private company.
Justice Byron R. White: Is that -- I'm wondering, what are their statutory provisions that call for some kind of preclusive effect, besides the anti trust laws?
Mr. Samuel K. Rosen: I'm not aware of any, Your Honor.
I believe that it's a -- that it's more a common law question which is to be determined by the Courts.Looking --
Justice Byron R. White: And I take it you would--
Mr. Samuel K. Rosen: Looking at whether there's a full and fair adjudication in the prior action --
Justice Byron R. White: You would make the same argument, I suppose, if there's an administrative agency determination that's been enforced in a Court of Appeals.
Mr. Samuel K. Rosen: Your Honor, not necessarily.
First, of course, that's not the case that's before this Court but, secondly, the Court would have an opportunity to examine the agency -- the administrative determination to see whether there was in fact a full and fair opportunity for the defendant to present his case.
It's -- we're not -- the Courts have the power, as this Court last year in --
Justice Byron R. White: Well, are you-- would you suggest that it would have to be in a Court of law, the prior-- the estopping judgment has to be from a Court of law, not an agency, I take it?.
Mr. Samuel K. Rosen: Not necessarily, Your Honor.
I -- for this case, this case only has to go as far as to say it must be in a Court of law.But, if there's a full and fair opportunity in the agency, then perhaps the Court should grant collateral estoppel, but the Court can look, as this Court did last year --
Justice Byron R. White: Well, would you -- I take it then you wouldn't limit it to a determination in the Court of law at the behest of an agency?
It could be a private plaintiff in the first suit?
Mr. Samuel K. Rosen: Yes, Your Honor.
When there's been a full and fair adjudication --
Justice Byron R. White: Somebody who doesn't really represent the shareholders of the public.
Mr. Samuel K. Rosen: It's like the cases in which there had been the cases which have approved the use of -- the affirmative use of collateral estoppel, the airplane crash case, the automobile case, and the mortgage case which were referred to by counsel for the petitioner.
When there has been a full and a fair opportunity in the prior action regardless of whether the prior action was to a Court or to a jury, then there would be collateral estoppel effect given.
This has always been the case with respect to actions involving two parties.
There's always been the preclusive effect of an equitable determination between two parties in a second action.
The question here is whether mutuality, the erosion of the Doctrine of Mutuality should change that rule when it comes to deciding an action involving a stranger to the first action.
And, it seems to us, that the policy considerations with favor granting preclusive effect in a two-party situation also obtained in a three-party situation.
Thank you, Your Honors.
Chief Justice Warren E. Burger: Thank you, Gentlemen.
The case is submitted.