Petition — Vendo Co. v. Lektro-Vend Corp.

Supreme Court brief1977

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IN THE

MICHAEL RODAK, JR..CLEF

Supreme Court of the Gnited eS

Ocroser Term, 1976

76-156

THE VENDO COMPANY, a Missouri corporation,

Petitioner,

No.

vs.

LEKTRO-VEND CORP., a Delaware corporation,

HARRY B. STONER and STONER INVESTMENTS, INC.,

a Delaware corporation,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Ear. E. Po.titock

Gary SENNER

Puiu A. HasBer

Louis C. Kemer

SonNENSCHEIN CaRLIN NaTH

& RoseENTHAL

8000 Sears Tower

Chicago, Illinois 60606

Attorneys for Petitioner

LAMBERT M. OcHSENSCHLAGER

Wayne F. Werer

Rep, OcHSENSCHLAGER, MurpHy & Hupp

75 S. Stolp Ave.

Aurora, Illinois 60507

Of Counsel

CHAS. P. YOUNG-CHICAGO

PAGE

i i i i ee 1

I Iii a kh sth as 1

QUESTIONS PRESENTED .............-.ceeeees 2

PD Mo ce ccuudecteseceen 2

— owe ) i» Gt gy . Dol | GRRE 3

a i a a 3

The State Court Proceeding .................... 5

The Federal Action and the Decision Below ...... 9

REASONS FOR GRANTING THE WRIT .......... 10

I. In Holding that § 16 of the Clayton Act “Ex-

pressly Authorizes” Injunctions against State

Court Proceedings for Purposes of 28 U.S.C.

§ 2283, the Decision Below is in Direct Conflict

with Decisions of Other Courts of Appeals and

Conflicts in Principle with the Decisions of This

SD ad odd cau bdbccbeudcteedheneduececeissklh 11

A. The Decision Below Is in Direct Conflict

with Decisions of Other Courts of Appeals

as to the Applicability of § 2283 ........... 13

B. The Decision Below Conflicts in Principle

with This Court’s Decisions Construing the

“Expressly Authorized” Exception to § 2283 15

II. In Holding that Principles of Comity and Feder-

alism Are Inapplicable, the Decision Below Also

Directly Conflicts with the Decisions of Another

Court of Appeals and in Principle with Decisions

Se RE OP eS Aner 19

PAGE

III. The Decision Below, in Expressly Sanctioning

the District Court’s Review of the Final Decision

of the Illinois Supreme Court, Has So Far De-

parted from the Accepted and Usual Course of

Judicial Proceedings as to Call for an Exercise

of This Court’s Supervision .................. 22

IV. The Decision Below Raises Issues of Broad Na-

tional Significance and Is Likely to Have a Seri-

ous Detrimental Impact on the Relationship be-

tween State and Federal Courts ......... resows 24

SIN o iec nice iccecneedubeueeanases aneus 25

APPENDICES:

A —Opinion of the United States Court of Ap-

peals for the Seventh Cireuit .......... App. 1

B-—Order and Judgment of the Uniied States

Court of Appeals for the Seventh Cireuit. App. 17

C —Order of the United States Court of Appeals

for the Seventh Circuit, On Rehearing .. App. 18

D —Opinion of the United States District Court

for the Northern District of Illinois .... App. 19

Ii —Preliminary Injunction Order of the United

States District Court for the Northern Dis-

ee 0 ME dice die acca gh chide uneed App. 36

CITATIONS

CASES:

Alabama Public Service Commission v. Southern Rail-

way Company, 341 U.S. 341 (1951) ............... 20

Amalgamated Clothing Workers of America v. Rich-

man Bros., 348 U.S. 511 (1955) ..............0.. 12, 16

American Manufacturers Mutual Ins. Co. v. American

Broadcasting-Paramount Theatres, Inc., 1966 Trade

See We Se CNET GD nos cckccasceeceesusueene 12

Atlantic Coast Line R. Co. v. Brotherhood of Loco-

motive Engineers, 398 U.S. 281 (1970) ..11, 12, 22, 23, 25

CasEs: PAGE

Avon Fub. Co. v. American News Co., 143 F. Supp. 516

Se ME Ser ciceSséukeudé¥agechsbeue donee 12

Bascom Launder Corp. v. Telecoin Corp., 9 F.R.D. 667

i Pe bee ane an ene cee esens dun keen 12

Carter v. Ogden Corp., 524 F.2d 74 (5th Cir. 1975) ..12,15

Cousins v. Wigoda, 409 U.S. 1201 (1972) ............ 19

Francis v. Henderson, 48 L.F.d.2d 149 (1976) ........ 21

Helfenbein v. International Industries, Inc., 438 F.2d

i Ue ce duke ces he kn 12, 14, 21

Huffman v. Pursue, Ltd., 420 U.S. 592 (1975) ........ 19

In re Glenn W. Turner Enterprises Litigation, 521

ae Oe Cs Se BED ve GEGK c 605s EME Wickiwine snc 22-23

Kelly v. Kosuga, 358 U.S. 516 (1959) ............... 21

Lyons v. Westinghouse Electric Corp., 201 F.2d 510

(2d Cir.), cert. denied, 345 U.S. 923 (1953) ....... 12,13

Lyons v. Westinghouse Electric Corp., 222 F.2d 184

(2d Cir.), cert. denied, 350 U.S. 825 (1955) ........ 18

Mitchum v. Foster, 407 U.S. 225 (1972) 11, 12, 15, 16, 17, 19

Mullis v. Arco Petroleum Corp., 502 F.2d 290 (7th Cir.

46404 Gil awian ens Fbsks ON Ghee met entocteens 21

Oklahoma Packing Co. vy. Oklahoma Gas and Electric

SUD neSudsceusawswascsecevte’s 18, 25

Potter v. Carvel Stores of N.Y., Inc., 314 F.2d 45 (4th

SE OU oon 505066502 4600350550.20450068606- 12,14

Red Rock Cola Co. v. Red Rock Bottlers, 195 F.2d 406

TED 6.0560 cabh us taNe kk68 5 CREA K0b00* 20

Reines Distributors, Inc. v. Admiral Corp., 182 F.

rr rs PE wr ndedh oboe cunece ness 12

Response of Carolina v. Leasco Response, Inc., 498

F.2d 314 (5th Cir.), cert. dented, 419 U.S. 1050

DEE Acadia hoedyendhs<kussentseeeeuncuan 19, 20, 21

CasEs: PAGE

Rizzo v. Goode, 423 U.S. 362 (1976) ..............2.. 19

Rooker v. Fidelity Trust Co., 263 U.S, 413 (1913) .... 23

Sar Industries, Inc. v. Monogram Industries, Inc.,

1976-1 Trade Cases § 60,816 (C.D. Cal.) ......... 12, 24

Singer v. A. Hollander & Son., 202 F.2d 55 (3d Cir.

FOU) cocvcceccesecesetecuseces suueenenee 21, 22

Stone v. Powell, 44 U.S.L.W. 5313 (U.S., July 6, 1976) 21

Studebaker Corp. v. Gittlin, 360 F.2d 692 (1966) ..... 14

T. Smith & Son, Inc. v. Williams, 275 F.2d 397 (5th

Cop. BGR) .icccccecescesssuesusessusenl 16

The Vendo Co. v. Stoner, 105 Ill. App. 2d 261, 245

8 Ff FF) | Pee ee 6

The Vendo Co. vy. Stoner, 58 Til. 2d 289, 321 N.E.2d 1

(TBGG) occ ccccccveeccéeebebesneun cee 4-8

Toucey v. N.Y. Life Ins. Co., 314 U.S. 118 (1941) .... 15

United States v. Bayer Company, 135 F. Supp. 65

C33 8 | ee 14

Vernitron Corp. v. Benjamin, 440 F.2d 105 (2d Cir),

cert, dented, GB U.S. GU CRUE) cc cencenconeneu 16

Younger v. Harris, 401 U.S. 37 (1971) .............. 19

STATUTES:

Civil Rights Act of 1871 § 1, 42 U.S.C. § 1983 .........

PITTTTTTTTTT TTT ee 15-18, 19, 23

Clayten Act 44, 15 USO. 626 ...sccncccsuseueeeeee 3

Clayton Act § 16, 15 U.S.C. § 26 ......... 2, 3, 11-18, 19-23

Federal Anti-Injunction Act, 28 U.S.C. § 2283 .......

PTeTETT Tree 2-3, 11-18, 19, 24

Judicial Code, 28 U.S.C. § 1254(1) ................. 2

OTHER AUTHORITIES:

Moore, Federal Practice (2d ed. 1974) .............. 18

IN THE

Supreme Court of the Gnited States

Ocrosper Term, 1976

THE VENDO COMPANY, a Missouri corporation,

Petitioner,

vs.

LEKTRO-VEND CORP., a Delaware corporation,

HARRY B. STONER and STONER INVESTMENTS, INC.,

a Delaware corporation,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Petitioner prays that a writ of certiorari issue to review

the judgment and opinion of the United States Court of

Appeals for the Seventh Circuit entered in this action on

May 28, 1976, affirming an order of the District Court

granting a preliminary injunction in favor of respondents.

Opinions Below

The opinion of the Court of Appeals is unofficially

reported at 1976-1 ‘trade Cases { 60,919 and is reproduced

in Appendix A. The Memorandum Opinion and Order of

the District Court is reported at 403 F. Supp. 527 and is

reproduced in Appendix D.

Jurisdiction

The final judgment of the Court of Appeals was entered

on May 28, 1976. The Court of Appeals denied petitioner’s

petition for rehearing on July 16, 1976. The jurisdiction

of this Court is invoked under 28 U.S.C. § 1254(1).

Questions Presented

In a previously filed state court proceeding, the Illinois

Supreme Court affirmed judgments to compensate petitioner

Vendo for respondent Stoner’s violation of his state-law

fiduciary duties while serving as a Vendo director and

officer, and this Court denied certiorari. Before the judg-

ments could be collected, however, Stoner obtained from the

Federal District Court a preliminary injunction against

enforcement of the judgments on the basis of Stoner’s claim

that the state proceeding and the judgments violated the

federal antitrust laws. The questions presented are:

(1) Whether §16 of the Clayton Act “expressly autho-

rizes” injunctions against state court proceedings as an

exception to the Anti-Injunction Statute, 28 U.S.C. § 2283.

(2) Whether principles of comity and federalism nor-

mally applicable to requested injunctions against state

court proceedings do not apply where the injunction is

sought under § 16 of the Clayton Aet.

(3) Whether a single federal district judge has juris-

diction to review and nullify a tinal decision of the highest

court of a state.

(4) Whether state court defendants who have deliber-

ately withdrawn their federal antitrust defense (and there-

by have prevented its consideration by the state courts)

may on the same federal antitrust ground subsequently ob-

tain a federal preliminary injunction against collection of

final judgments entered in the state proceeding.

Statutes Involved

The Federal Anti-Injunction Act, 28 U.S.C. § 2283, pro-

vides:

A court of the United States may not grant an in-

junction to stay proceedings in a State court except as

expressly authorized by Act of Congress, or where

necessary in aid of its jurisdiction, or to protect or

effectuate its judgments.

Section 16 of the Clayton Act, 15 U.S.C. § 26, provides:

Any person, firm, corporation, or association shall be

entitled to sue for and have injunctive relief, in any

court of the United States having jurisdiction over the

parties, against threatened loss or damage by a viola-

tion of the antitrust laws, including sections 13, 14, 18,

and 19 of this title, when and under the same condi-

tions and principles as injunctive relief against threat-

ened conduct that will cause loss or damage is granted

by courts of equity, under the rules governing such

proceedings, and upon the execution of proper bond

against damages for an injunction improvidently

granted and a showing that the danger of irreparable

loss or damage is immediate, a preliminary injunction

may issue: Provided, That nothing herein contained

shall be construed to entitle any person, firm, corpora-

tion, or association, except the United States, to bring

suit in equity for injunctive relief against any common

carrier subject to the provisions of the ‘Act to regulate

commerce, approved February fourth, eighteen hun-

dred and eighty-seven, in respect of any matter subject

to the regulation, supervision, or other jurisdiction of

the Interstate Commerce Commission.

STATEMENT OF THE CASE

Introduction

This is a federal antitrust action brought in the Northern

District of Illinois under $44 and 16 of the Clayton Act

(15 U.S.C. $4 15 and 26). In their complaint the respond-

ents (plaintiffs below) allege, inter alia, that petitioner

Vendo violated the Sherman Act by bringing and prosecut-

ing an action in the Illinois state courts against two of the

respondents, Harry B. Stoner and Stoner Investments,

Inc., resulting in judgments against them totalling

$7,516,335.

These judgments against respondents Stoner and Stoner

Investments were affirmed by the Illinois Supreme Court

in The Vendo Co. v Stoner, 58 Ill. 2d 289, 321 N.E. 2d 1

(1974), holding that Stoner, while both an officer and di-

rector of Vendo, had repeatedly vioiated his state-law

fiduciary duties to Vendo. This Court denied certiorari,

420 U.S. 975 (1975).

Nevertheless, to forestall collection of the judgments, the

respondents then obtained from the District Court in this

ease an order which preliminarily enjoined Vendo from

taking “any further steps to enforce or collect. or attempt

to enforce or collect” the judgments (App. 40).* The Court

of Appeals affirmed on May 28, 1976 (App. 1, 17) and

denied Vendo’s petition for rehearing on July 16, 1976

(App. 18).

Vendo’s state court suit was filed eleven years ago in

August, 1965. This federal action was filed two months

later by respondents Stoner and Stoner Investments, the

defendants in the state court suit, and Lektro-Vend Corp.,

a company (like Stoner Investments) controlled by Stoner

and members of his family.

Stoner was the president and the controlling owner of

Stoner Manufacturing Corporation (now Stoner Invest-

ments), which had been engaged for many years in the

business of making and selling candy-vending machines

throughout the United States. In April, 1959, Vendo and

Stoner Manufacturing entered into a contract for Vendo’s

*“App.” references are to the pertinent pages in the Appendices

to this Petition, infra.

purchase of the assets of Stoner Manufacturing.* Stoner

also executed an employment contract with Vendo (provid-

ing for a salary of $50,000 a year), and Stoner became a

director of Vendo as well as president of the company’s

Aurora Division (formerly the Stoner Manufacturing

plant). Stoner ceased being a Vendo director in March or

April of 1964, and Stoner’s contract of emplovment termi-

nated June 1, 1964. (58 Ill. 2d at 293, 295, 300-01, 321 N.E.

2d at 4, 7-8.)

The State Court Proceeding

In the marathon state court proceeding (lasting approxi-

mately nine-and-one-half years), it was determined that

Stoner, individually and through Stoner Investments, had

violated his fiduciary duties to Vendo during the 1959-64

period that he was an officer and director of Vendo (a) by

secretly supporting the development and marketing of a

new type of candy vending machine by Lektro-Vend, (b) by

withholding the facts concerning his involvement with

Lektro-Vend and misleading Vendo with regard to its

possible acquisition of the Lektro-Vend machine, and (c)

by misappropriating Vendo’s opportunity to acquire the

machine.

It was also determined that Stoner and Stoner Invest-

ments had unlawfully breached the non-competition cove-

nants in their agreements with Vendo, but that in any event

the judgments were proper on the basis of Stoner’s viola-

tion of his fiduciary duties “[q]uite apart from any liability

which may be predicated upon a breach of the covenants

* Under the sale contract Vendo agreed to pay Stoner Manufac-

turing (1) $3,400,000 in cash; (2) 60,000 shares of Vendo stock;

(3) for a period of 10 years (or until such time as Vendo might

exercise an option to purchase the Stoner plant) all profits in

excess of $250,000 realized from the use of the assets being pur-

chased; and (4) for a period of 10 years, 25% of the income re-

ceived from foreign sales realized from the use of assets being

purchased.

against competition. . .” and “[rJegardless of the...

disposition of those restraint-of-trade issues. . .” (58 Ill.

2d at 303-04, 308, 321 N.E. 2d at 9, 12.)

In Decen:! er, 1966, the state trial court sitting without a

jury found in favor of Vendo and initially entered a judg-

ment against the two defendants jointly for $1.100.000 and

a judgment against Stoner individually for $250,000.

The defendants appealed to the Illinois Appellate Court,

which in 1969 sustained the trial court’s conclusion concern-

ing Stoner’s misconduct* but remanded the case to the trial

court for a further hearing with respect to the amount of

damages recoverable by Vendo. (105 Ill. App. 2d 261, 245

N.E. 2d 263.)

The Illinois Appellate Court sustained the validity

of the non-competition covenants in the sale and employ-

ment contracts. It found that the defendants’ breaches of

the covenants occurred “in-term,” i.e., during the period

specified by the contract in which Stoner was to be paid to

perform services for Vendo and in which Stoner Invest-

ments was to be paid a percentage of Vendo’s profits de-

rived from the assets it had sold to Vendo. (105 Ill. App.

2d at 281-86, 245 N.E. 2d at 273-76.)

On the other hand, the Illinois Appellate Court held that

the trial court had erred in striking the defendants’ federal

antitrust defense and that they were entitled on remand to

a hearing on the issue. (105 Ill. App. 2d at 294-97, 245 N.E.

2d at 279-81.) However, just before the second trial was

to commence, Stoner and Stoner Investments formally with-

drew their federal antitrust defense which the Illinois Ap-

pellate Court had at their behest sustained and had directed

the trial Court to consider. (App. 7.)

* In addition to Stoner’s violation of his fiduciary duties as an

officer and director, Stoner had also been held liable by the trial

court on the ground of theft of trade secrets belonging to Vendo,

but this alternative ground was reversed by the Illinois Appellate

Court and the issue was not pursued thereafter.

At the second trial, in 1971, on the basis of additional

evidence on damages, the trial court awarded a judgment

to Vendo in the amount of $170,835 against Stoner and a

judgment against both defendants for $7,345,000. The

defendants again appealed to the Illinois Appellate Court,

which in 1973 affirmed the judgment against Stoner Lut

reversed the judgment against the two defendants jointly

and remanded the case for a further hearing. (13 Ill. App.

3d 291, 300 N.E. 2d 632.) Each side filed a petition for leave

to appeal to the Illinois Supreme Court, and both petitions

were allowed.

In its opinion, written by Mr. Justice Schaefer, the

Illinois Supreme Court unanimously affirmed both trial

court judgments, holding:

“Quite apart from any liability which may be predi-

cated upon a breach of the covenants against compe-

tition contained in the sales agreement and the employ-

ment contract, it is clear that Stoner violated his fidu-

ciary duties to plaintiff during the period when he was

a director and an officer of plaintiff... .

“Stoner had a foot in each camp. Not only did his

undisclosed individual interest in controlling the fur-

ther development and ultimately the manufacture and

sale of the Lektro-Vend create the possibility of his

taking an unfair advantage of plaintiff, but the evi-

dence gives strong indication that he actually misled

plaintiff while he was purportedly acting as plaintiff’s

agent with regard to plaintiff’s possible acquisition of

the Lektro-Vend.” (58 Ill. 2d at 303-04, 321 N.E. 2d at

9; italies added.)

With respect to the non-competition covenants, the IIli-

nois Supreme Court held:

“The appellate court concluded, in our opinion cor-

rectly, that defendants’ activities directed toward the

development and thereafter the marketing of the

Lektro-Vend, consisting of substantial financial aid,

and the provision of physical facilities, as well as

defendant’s ownership interest in the Lektro-Vend

enterprise, were so substantial as to go beyond the

limits established by the covenants.

“Regardless of the appellate court’s disposition of

those restraint-of-trade issues, the defendants may, as

we have pointed out, be held liable on the ground of a

breach of fiduciary obligation on the part of Stoner....

“At the original trial defendants raised as an affirm-

ative defense and by way of counterclaim a charge

that the sale agreement and the employment contract

violated both the Illinois Antitrust Act (Ill. Rev. Stat.

1973, ch. 38, par. 60-1 et seq.) and the Federal antitrust

laws (15 U.S.C. see. 1 et seg.). The latter charge was

withdrawn by defendants on the remand, and refer-

ences in the record indicate that at some point a suit

was filed against plaintiff in the United States District

Court for the Northern District of peel weating to

the alleged violations of Federa} -lav.-

“With respect to the State antitrust claim .. . the

Illinois act, having been enacted in 1965, long after the

contracts here in question were entered into, cannot

properly form the basis of a counterclaim by defen-

dants.” (58 Ill. 2d at 308-10, 321 N.E. 2d at 11-12;

italics added.)

On November 27, 1974, the Illinois Supreme Court denied

a petition for rehearing filed by Stoner and Stoner Invest-

ments. On December 9, 1974, Mr. Justice Schaefer of the

Illinois Supreme Court denied their request for a stay of

execution pending consideration of their petition for cer-

tiorari in this Court. On January 28, 1975, Mr. Justice

‘Rehnquist also denied a request by Stoner and Stoner

Investments for a stay of execution pending consideration

of their petition for certiorari. On March 17, 1975, this

Court denied the petition for certiorari. (420 U.S. 975.)

The Federal Action and the Decision Below

On January 2, 1975, after Vendo had commenced efforts

to collect its state court judgments, respondents reactivated

this federal suit, filing an amended complaint reasserting

their antitrust claim with respect to the state action. There-

after, on January 29, 1975, respondents filed a motion for a

preliminary injunction against the proceedings in the state

courts to collect Vendo’s judgments.

On May 29, 1975, the District Court issued its Memoran-

dum Opinion and Order, announcing its decision to grant

the preliminary injunction (App. 19).* Thereafter, on

June 30, 1975, the District Court’s Order Granting Pre-

liminary Injunction was entered (App. 36). Vendo appealed

to the Court of Appeals, which on May 28, 1976, affirmed

the District Court’s order (App. 1, 17).

In its opinion, the Court of Appeals held that the Federal

Anti-Injunction Statute, 28 U.S.C. § 2283, did not bar the

injunction. The Court held, on the ground that (16 of

the Clayton Act lodges equitable jurisdiction only in fed-

eral courts, that § 16 is one of those federal statutes under

which stays of state court proceedings are “expressiv

authorized” within the scope of that exception to 4 2283.

(App. 11, 13.)

* The District Court, it should be noted, neither held nor found

that enforcement of the judgments would violate tne antitrust laws.

Instead, the Court merely stated that “There is persuasive evidence

that Vendo’s activities in its litigation against the Stoner interests

in Illinois state ccurt were not a genuine attempt to use the

adjudicative process legitimately” (App. 30), citing only events

in the 1963-66 period. The District Court also stated that, “Jf the

state court litigation was itself part of the anticompetitive scheme,

a jndgment arising from such litigation is not an ordinary debt”

(App. 31, italies added), and “Jf federal law is violated by con-

tinuation of the state action the paramount national interest re-

quires court intervention” (App. 34, italics added), but reached no

conclusion as to the correctness of the “if” clauses of these hypo-

thetical statements.

The Court of Appeals also rejected Vendo’s argument

that, entirely apart from the absolute prohibition of § 2283,

principles of comity and federalism barred the District

Court’s injunction against enforcement of the decision of

the highest court of a state. The Court of Appeals sweep-

ingly held: “The principle of comity has no applicability

when the exclusive remedy for an injury lies in the federal

court” (App. 14).

In addition, the Court of Appeals expressly sanctioned

the District’s Court’s assertion of its jurisdiction to review

a final decision of the Illinois Supreme Court. The Court

stated (App. 14) that “We agree” with the District Court

that such a review was “imperative” because the Illinois

Supreme Court had not considered the respondents’ federal

antitrust defense—notwithstanding the fact (acknowledged

in a footnote by the Court below, App. 7) that it was the

respondents themselves who had prevented the state courts

from considering their federal antitrust defense by for-

mally withdrawing the defense several years earlier and

never again raising the issue in the state proceeding.

REASONS FOR GRANTING THE WRIT

The decision below, in disregard of fundamental policies

governing the relationship between federal and state courts,

conflicts in principle with decisions of this Court and con-

flicts directly with the decisions of other Courts of Appeals.

As set forth more fully in the Statement (supra, pp.

0-8), the Ilhneis Supreme Court, after nearly ten arduous

vears of litigation, affirmed judgments to compensate

Vendo for Stoner’s flagrant violations of his state-law

fiduciary duties while serving as a Vendo director and

officer. This Court denied certiorari, and the state judg-

ments were unequivocally final and entitled to full faith

and credit. But then, in order to forestall collection of

the judgments against them, Stoner and Stoner Invest-

ments hit upon a new strategem. They obtained from the

District Court a preliminary injunction against enforce-

ment of the judgments on the claim that the state suit from

its very inception was violative of the federal antitrust

laws—the same claim, moreover, which they had deliber-

ately withdrawn as a defense in the state proceeding (and

thereby prevented the state courts and this Court from

adjudicating).

The ramifications of this procedure—approved by the

Court below—are, to say the least, extraordinary. It would

give to every district judge the power to review, set aside,

and nullify final state court judgments through the prelim-

inary injunction device. It would reduce the highest tribu-

nals of any state to the status of special masters subject

to de novo control by a single district judge. Nor is there

any reason why such control should be exercised only under

the federal antitrust laws; on precisely the same theory,

final state court judgments—even, as here, after the denial

of certiorari—could likewise be preliminarily enjoined

under myriad other federal statutes as well.

As we shall show, the decision below sanctioning such a

procedure is fundamentally at war with settled law regard-

ing the Anti-Injunction Statute, principles of comity and

federalism, and collateral review of state court judgments.

I. In Holding that §16 of the Clayton Act “Expressly

Authorizes” Injunctions against State Court Proceed-

ings for Purposes of 28 U.S.C. § 2283, the Decision Be-

low Is in Direct Conflict with Decisions of Other Courts

of Appeals and Conflicts in Principle with the Decisions

of This Court.

The Anti-Injunction Statute, 28 U.S.C. § 2283 (supra,

pp. 2-3), categorically prohibits all federal court injunctions

against state court proceedings “except as expressly autho-

rized by Act of Congress,” or unless one of the other two

exceptions stated in § 2283 applies. Atlantic Coast Line R.

Co. v. Brotherhood of Locomotive Eitgineers, 398 U.S. 281,

286-87 (1970); Mitchum v. Foster, 407 U.S. 225, 228-29

(1972).

Furthermore, this Court has repeatedly held that the

exceptions to §2283 are to be strictly and narrowly

construed. Thus, in Amalgamated Clothing Workers of

America v. Richman Bros., 348 U.S. 511 (1955), the Court

stated, in referring to the enactment in 1948 of § 2283 in

its present form, that “. . . Congress made clear beyond

eavil that the prohibition is not to be whittled away by

judicial improvisation” (p. 514) and that “This is not a

statute conveying a broad general policy for appropriate

ad hoc application” (pp. 515-16, italies added). Similarly,

in the .1tlantic Coast Line case, supra, the Court admon-

ished that “the exceptions should not be enlarged by loose

statutory construction.” (398 U.S. at 287, italics added;

see also p. 297.)

In accordance with that principle, and as pointed out by

this Court in Mitchum v. Foster, supra, 407 U.S. at 224-37,

only a small number of federal statutes have been held to

“expressly authorize” federal injunctions against state

court proceedings. And more specifically, prior to the Dis-

trict Court’s decision in this case, no court had ever held

that §16 of the Clayton Act (supra, p. 3) was such a

statute. On the contrary, every court which had expressly

considered the issue had uniformly held that 416 does not

“authorize” injunctions against state court proceedings."

*See Lyons v. Westinghouse Electric Corp., 201 F.2d 510 (2d

Cir.), cert. dented, 345 U.S. 923 (1953), affirming 109 F. Supp.

925, 926 (S.D.N.Y. 1952); Potter v. Carvel Stores of N.Y., Inc.,

314 F.2d 45 (4th Cir. 1963), affirming 203 F. Supp. 462 (D. Md.

1962) ; Reines Distributors, Inc. vy. Admiral Corp., 182 F. Supp.

226 (S.D.N.Y. 1960); Bascom Launder Corp. v. Telecoin Corp.,

9 F.R.D. 677 (S.D.N.Y. 1950); Avon Pub. Co. v. American News

(o., 143 F. Supp. 516 (S.D.N.Y. 1956); American Manufacturers

Mutual Ins. Co. vy. American Broadcasting-Paramount Theatres,

Inc., 1966 Trade Cases 971,918 (S.D.N.Y.). See also the recent

decision in Carter v. Ogden Corp., 524 F.2d 74, 75 (5th Cir. 1975),

reversing an injunction issued under § 16 of the Clayton Act and

holding “that under 28 U.S.C.A. § 2283 this injunction was pro-

hibited. .. .” On the other hand, compare Sar Industries, Inc. v.

Monogram Industries, Inc., 1976-1 Trade Cases % 60,816 (C.D.

Cal.), relying on the District Court’s decision in this ease.

Thus, the Court below not only is the first Court of Appeals

ever to hold that § 16 of the Clayton Act “expressly author-

izes” injunctions against state proceedings, but further-

more its holding is inconsistent with the holdings of other

Courts of Appeals as well as the rationale of this Court’s

decisions.

A. The Decision Below Is in Direct Conflict with De-

cisions of Other Courts of Appeals as to the Appli-

cability of § 2283.

Prior to the decision below, the only Courts of Appeals

which had decided the issue—the Second and Fourth Cir-

cuits—had held that § 16 of the Clayton Act does not “ex-

pressly authorize” injunctions against state proceedings.

The decision below is in direct conflict with both of those

decisions.

Lyons v. Westinghouse Electric Corp., 201 F.2d 510 (2d

Cir.), cert. denied, 345 U.S. 923 (1953), involved circum-

stances remarkably similar to those present in the instant

case. Westinghouse had sued Lyons and others in the New

York state courts for breach of a contract and an aeccount-

ing. The state court defendants raised a federal antitrust

defense in the state suit, claiming that the contract violated

the antitrust laws. Thereafter, they brought suit in the

federal court against Westinghouse under the federal anti-

trust laws advancing the same federal antitrust grounds

which they had asserted by way of defense in the state

proceeding. The District Court held that it could not

enjoin the state proceedings, “even though the [federal]

Anti-Trust Laws are involved in both actions, as in this

case,” because “a stay of these State court proceedings is

not expressly authorized by any act of Congress, and it is

not required in aid of this court’s jurisdiction or to effec-

tuate its judgments.” 109 F. Supp. 925-26 (S.D.N.Y. 1952)

(italics added). The Court of Appeals for the Second

Circuit affirmed, specifically holding that the District Court

“rightly held that 28 U.S.C.A. § 2283 prevents the issuance

of such a stay.” 201 F.2d at 510 (italies added).*

Potter v. Carvel Stores of New York, Inc., 314 F.2d 45

(4th Cir. 1963), likewise involved companion state and

federal lawsuits in which the state court defendant was the

plaintiff in a federal antitrust action brought against the

state court plaintiff. The District Court refused to enjoin

the state action on the ground that it was barred by § 2283,

specifically agreeing that “$16 of the Clayton Act, 15

U.S.C.A. § 26, which provides for private antitrust injunc-

tive relief is not one of the ‘Act of Congress’ exceptions

engrafted into the flat prohibition of 28 U.S.C.A. § 2283.”

203 F. Supp. 462, 465 (D. Md. 1962). The Court of Appeals

for the Fourth Circuit affirmed, holding that “. . . for the

reasons stated by [the District Court], we think that the

* Neither the Clayton Act nor any antitrust issues were even

involved in the Seeond Cireuit case cited below (App. 12-13),

Studebaker Corp. v. Gittlin, 360 F.2d 692, 698 (1966). The passing

reference to the Clayton Act in Studebaker, by way of dictum, did

not conclude that § 16 “expressly authorizes” injunctions against

state court proceedings, did not cite any case where such a con-

clusion had been reached, and did not even remotely overrule the

Second Cirecuit’s prior decision in Lyons, supra.

Equally inapposite are the other two cases cited by the Court

below concerning § 2283 (App. 11-12). Helfenbein v. International

Industries, Inc., 438 F.2d 1068, 1071 (8th Cir. 1971), neither held

nor implied that § 16 “expressly authorizes” injunctions against

state court proceedings. Helfenbein merely decided that, since the

plaintiff’s injury had not resulted from an antitrust violation, no

injunction of any sort was authorized by § 16. The Court did not

even reach the question whether, if a proper showing of causation

had been made, the injunction would nevertheless have been barred

by § 2283. United States v. Bayer Company, 135 F. Supp. 65

(S.D.N.Y. 1955), was based on a different exception to § 2283—

the “effectuate its judgments” exception—and does not even refer

to the “expressly authorized” exception. —

refusal to enjoin the state court proceedings is unassailable

on appeal.” 314 F.2d at 46.

See also the recent decision in Carter v. Ogden Corp., 524

F.2d 74 (5th Cir. 1975), reversing an injunction issued under

§ 16 of the Clayton Act and holding “that under 28 U.S.C.A.

§ 2283 this injunction was prohibited. . . .”

Review of the decision below is essential to resolve the

clear conflict between the Circuits.

B. The Decision Below Conflicts in Principle with This

Court’s Decisions Construing the “Expressly Autho-

rized” Exception to § 2283.

As previously stated (supra, pp. 11-12), this Court has

repeatedly held that 4 2283 and the exceptions thereto are to

be strictly and narrowly construed. In Mitchum v. Foster,

407 U.S. 225 (1972), this Court dealt specifically with the

“expressly authorized” exception.

The Court (pp. 234-35) reviewed the seven federal

statutes which it had previously held fall within that excep-

tion and pointed out_(pp. 236-37) that “the criteria to be

a eed aaa Pes ,

applied are those reflected in the Court’s decisions prior to

Toucey” (Toucey v. N. Y. Life Ins. Co., 314 U.S. 118

(1941)). In applying those criteria to the statute involved

there—§ 1983 of the Civil Rights Act—and after carefully

analyzing the origins and history of that statute, the Court

in Mitchum found that:

“The very purpose of § 1983 was to interpose the fed-

eral courts between the States and the people, as guard-

ians of the people’s federal rights—to protect the peo-

ple from unconstitutional action under color of state

law, ‘whether that action be executive, legislative, or

judicial’.” (407 U.S. at 242, italics added.)

On these grounds, this Court determined that § 1983 quali-

fied as an eighth federal statute that “expressly authorized”

stays of state court proceedings.

In this ease, in holding that § 16 of the Clayton Act is also

a federal statute which “expressly authorizes” stays of state

court proceedings, the Court below misapplied the criteria

recognized in Mitchum and violated the strictures contained

in this Court’s other decisions interpreting § 2283. The

decision below represents, in fact, a broad departure from

the whole line of this Court’s cases concerning § 2283 and

sets forth an approach which, if generally accepted, would

have serious consequences for the relationship between the

federal and state courts, not only in the antitrust field but

in many other areas of the law as well.

Without even attempting to analyze the origins and

history of § 16, in the way this Court analyzed § 1983 in

Mitchum, the Court below held that § 16 created a “uniquely

federal remedy” merely on the ground that its grant of

injunctive powers to enforce the antitrust laws was con-

ferred only on the federal courts (App. 11, 13). According

to the Court below (7bid.), this jurisdiction “would be frus-

trated” if Vendo were allowed to enforce its state court

judgments. However, it is well established that a grant

of exclusive jurisdiction is not a ground for holding that

the “expressly authorized” exception applies. Amalga-

mated Clothing Workers of America v. Richman Bros., 348

U.S. 511, 515 (1955). In that case, this Court specifically

held that § 2283 may bar an injunction even where federal

substantive law preempts state law altogether and a state

court has acted “wholly without jurisdiction over the subject

matter, having invaded a field preempted by Congress.”

Accord, e.g., T. Smith & Son, Inc., v. Williams, 275 F.2d

397 (Sth Cir. 1960); Vernitron Corp. v. Benjamin, 440 F.2d

105, TOS (2d Cir.), cert. denied, 402 U.S. 987 (1971).

Even more important, the impropriety of holding that

§16 “expressly authorizes” stays of state proceedings is

demonstrated by comparing 416 with the seven statutes

reviewed in Mitchum (407 U.S. at 234-35) and with §1983

of the Civil Rights Act. Each of these statutes provides for

a special set of uniform federal procedures or remedies.

But in addition each of these statutes either contains

specific language providing for stays of state proceedings

or, in the absence of such language, necessarily requires by

its very nature and function that conflicting state judicial

proceedings must be enjoined in order to achieve its

purpose.*

Section 16 of the Clayton Act is clearly not a statute of

this type. Even apart from the absence of specific lan-

guage providing for stays of state proceedings, there is

not the slightest basis (and the Court of Appeals pointed

to none) for believing that 4 16—unlike, e.g., § 1983 of the

* The seven statutes enumerated by the Supreme Court are as

follows: (1) the provisions in the Bankruptey Act expressly pro-

viding for stays of suits against the bankrupt; (2) 28 U.S.C.

§ 1446(e), providing that upon the filing of a petition to remove

a state suit to federal court the “State court shall proceed no

further unless and until the ease is remanded”; (3) 46 U.S.C. § 185,

providing that upon filing of a shipowner’s petition in federal court

for limitation of his liability and deposit of the requisite funds by

the shipowner with the court, “all claims and proceedings against

the owner with respect to the matter in question shall cease”; (4) _

28 U.S.C. § 2361, providing that in federal interpleader actions

“a district court may ... enter its order restraining [all claimants]

. . . from instituting or prosecuting any proceeding in any State

or United States court affecting the property, instrument, or

obligation involved in the interpleader action”; (5) 11 U.S.C.

§ 203(s)(2), the provision of the Frazier-Lemke Farm Mortgage

Act expressly staying “all judicial or official proceedings in any

eourt”; (6) 28 U.S.C. § 2251, providing that a federal court before

which a habeas corpus proceeding is pending may “stay any pro-

ceeding against the person detained in any State Court . . . for

any matter involved in the habeas corpus proceeding”; (7) § 205(a)

of the Emergency Price Control Act of 1942, governing the powers

of the Price Administrator to enforce the provisions of the Act.

Civil Rights Act—was designed to prevent abuses by state

courts or other governmental bodies. There likewise is

not the slightest basis (and the Court of Appeals pointed

to none) for believing that Congress’ purpose in enacting

the statute was even remotely to place injunctive restraints

on state court proceedings.

Furthermore, it simply is not true that federal courts

have exclusive jurisdiction to enforce the federal antitrust

laws. While the Clayton Act confers only federal jurisdic-

tion of original claims for relief brought under the federal

antitrust laws, it is well-settled that the state courts have

jurisdiction to adjudicate federal antitrust defenses to state

law claims. See, e.g., Lyons v. Westinghouse Electric Corp.,

222 F.2d 184, 187 (2d Cir.), cert. denied, 350 U.S. 825

(1955); LA Moore, Federal Practice 70.208 (2d ed. 1974),

p. 2325.

Indeed, in the context of this case, it is especially clear

that Stoner’s federal antitrust remedy against Vendo’s

prosecution of its state court action was by no means

“uniquely federal.” As the Illinois Appellate Court had

specifically held in that proceeding, Stoner was entitled to

assert the federal antitrust issues in state court as a de-

fense to Vendo’s claims. But then Stoner chose to withdraw

that defense at the opening of the second state court trial.

If that defense to Vendo’s claims was valid, it could and

should have been asserted in the state court proceedings,

and Stoner could thereby have “nipped in the bud” any

alleged “injury” from the state action.

Of course, as the Court below pointed out, the federal

antitrust laws express an important public policy. But the

same is true of numerous other federal statutes as well as

the Anti-Injunction Statute itself. See, e.g., Oklahoma Pack-

ing Co. v. Oklahoma Gas and Electric Co., 309 U.S. 4, 8-9

(1939). Clearly the importance of the antitrust laws is

not a proper criterion for determining whether the “ex-

pressly authorized” exception to § 2283 is applicable.

II. In Holding that Principles of Comity and Federalism

Are Inapplicable, the Decision Below Also Directly

Conflicts with the Decisions of Another Court of

Appeals and in Principle with Decisions of This Court.

In Younger v. Harris, 401 U.S. 37, 43-45 (1971), and in

Mitchum v. Foster, supra, 407 U.S. at 243, this Court re-

affirmed the principles of comity and federalism “that must

restrain a federal court when asked to enjoin a state court

proceeding,” even in a case where such an injunction is not

absolutely barred by § 2283. See also Rizzo v. Goode, 423

U.S. 362, 379-80 (1976); Cousins v. Wigoda, 409 U.S. 1201,

1205-06 (1972). Thus, such principles apply even where an

injunction is sought under a federal statute that “expressly

authorizes” injunctions against state court proceedings.

In Huffman v. Pursue, Ltd., 420 U.S. 592 (1975), this

Court specifically held that principles of comity and fed-

eralism barred an injunction against a civil state court

proceeding in the context of a suit brought under § 1983 of

the Civil Rights Act—the very statute which Mitchum held

was designed to afford protection against unconstitutional

acts by (inter alia) state courts.

In this case, however, the Court below held that these

principles of comity and federalism were inapplicable for

the same reason underlying its decision as to § 2283—

namely, that § 16 of the Clayton Act confers equitable juris-

diction only on federal courts. According to the Court

below (App. 14): “The principle of comity has no appli-

eability when the exclusive remedy for an injury lies in

the federal court.”” Even apart from the fact that Stoner

had a complete remedy in the state courts but deliberately

chose to abandon that remedy, the ruling below is not only

irreconcilable with the cited decisions of this Court, but

furthermore is in direct conflict with decisions of the Court

of Appeals for the Fifth Circuit.

In both Response of Carolina v. Leasco Response, Inc.,

498 F.2d 314 (5th Cir.), cert. denied, 419 U.S. 1050 (1974),

and Red Rock Cola Co. v. Red Rock Bottlers, 195 F.2d

406 (5th Cir. 1952), federal injunctions against state court

proceedings were (as in this case) sought under § 16 of

the Clayton Act. In both cases, the requested injunctions

had been granted by the district courts. But in both cases

the Fifth Circuit reversed, holding that—even apart from

§ 2283—the injunctions were improper on the basis of prin-

ciples of comity and federalism.

In Response of Carolina, supra, 498 F.2d at 320, the

Fifth Cireuit held:

“... the principles of comity and federalism recognized

by this Court in Red Rock Cola Co. v. Red Rock Bot-

tlers, supra, 195 F.2d 406... mitigate against unneces-

sarily interfering with pending state court proceedings.

Red Rock involved a question similar to the issue in

this case, whether an injunction could issue under the

antitrust laws to enjoin a state court suit. This Court

reversed the issuance of the preliminary injunctions

on the grounds of federalism and comity.”

Similarly, in the Red Rock case, supra, 195 F.2d at 410,

the Fifth Cireuit held, quoting Alabama Public Service

Commission v Southern Railway Co., 341 U.S. 341, 350

(1951):

“Considering that ‘few public interests have a higher

claim upon the discretion of a federal chancellor than

the avoidance of needless friction with state policies,’

the usual rule of comity must govern the exercise of

equitable jurisdiction by the District Court in this

case.”

In addition, contrary to the apparent premise of the

Court below in brushing aside principles of comity and

federalism, a federal injunction against the enforcement

of the state court judgments was never Stoner’s “exclusive

remedy” under the federal antitrust laws. Instead, as the

Illinois Appellate Court had held, the respondents were

entitled to assert their federal antitrust defense as a bar

to Vendo’s claim in the state court. But, for their own

tactical reasons, they deliberately chose to abandon that

remedy which, if their defense was meritorious, would have

prevented the very “injury” of which they now complain."

No greater insult to the processes of a state judicial

system can be conceived than that which has occurred here:

Having deliberately abandoned the assertion of their

federal antitrust defense in the state courts (which had

provided them with “an opportunity for full and fair litiga-

tion” of that defense—see Stone v. Powell, 44 U.S.L.W.

5313, 5321 (U.S., July 6, 1976); Francis v. Henderson,

48 L.Ed. 2d 149, 154 (1976)), and having elected to

proceed to final judgment in the state courts on that basis,

the Stoner group then attacked the result of that process

by asserting in federal court, as justification for an injunc-

tion against the state judgments, tlie same issues that they

had withdrawn from the state courts’ consideration. Thus,

far from being inapplicable, principles of comity and fed-

* Furthermore, § 16 of the Clayton Act authorizes injunctions

only against “threatened loss or damage by a violation of the anti-

trust laws.” (Italies added.) If the alleged “injury” results from

a separate obligation or is based on independent grounds, no in-

junction may issue under § 16. See Response of Carolina vy. Leasco

Response, Inc., 498 F.2d 314, 317 (5th Cir.), cert. denied, 419 U.S.

1050 (1974) ; Melfenbein v. International Industries, Inc., 438 F.2d

1068, 1071 (8th Cir. 1971); Mullis v. Arco Petroleum Corp., 502

F.2d 290, 293 (7th Cir. 1974) (per Stevens, J.).

Here, the Illinois Supreme Court squarely held that the state

court judgments are based on Stoner’s violation of his fiduciary

duties under state law and that the liability of Stoner and Stoner

Investments was independent of the non-competition covenants

(supra, pp. 7-8). Consequently, even assuming arguendo that

Vendo could be found to have violated the antitrust laws, this

would provide no basis for enjoining collection of the Illinois

judgments or for reif®\fg Stoner of his Illinois fiduciary obliga-

tions. See, e.g., Singer v. A. Hollander & Son, Inc., 202 F.2d 55,

59 (3d Cir. 1953); ef. Kelly v. Kosuga, 358 U.S. 516 (1959).

eralism are particularly relevant in the circumstances of

this case and should have barred such a flagrant abuse of

federal equity power.

III. The Decision Below, in Expressly Sanctioning the

District Court’s Review of the Final Decision of

the Illinois Supreme Court, Has So Far Departed

from the Accepted and Usual Course of Judicial

Proceedings as to Call for an Exercise of This Court’s

Supervision.

The Court of Appeals’ express approval of the District

Court’s assertion of jurisdiction to review the final deci-

sion of a state court of highest resort (as to which, more-

over, this Court had denied certiorari) also is contrary to

fundamental principles underlying the relationship of fed-

eral and state courts.

In Atlantic Coast Line R. Co. v. Brotherhood of Loco-

motive Engineers, 398 U.S. 281, 286 (1970), this Court

pointed out:

“Thus from the beginning we have had in this country

two essenually separate legal systems. Each system

proceeds independently of the other with ultimate re-

view in this Court of the federal questions raised in

either system”,

The Court also warned (ibid.):

“Obviously this dual system could not function if state

and federal courts were free to fight each other for

control of a particular case.”

See also, e.g.. Singer v. A. Hollander & Son, Inc., 202 F.2d

09, 09 (3d Cir. 1953) (“. . . it is not our business to review

the correctness of fact conclusions reached by the Vice

Chancellor of the State of New Jersey and its Supreme

Court”); Zn re Glenn W. Turner Enterprises Litigation,

521 F.2d 775, 780 (3d Cir. 1975) (“. .. the state and lower

federal courts are independent, and ... a federal action is

not superior to a state proceeding merely because of its

federal character. .. .As a corollary to this principle, judg-

ments resulting from federal actions are not preferred to

judgments resulting from state actions because of their

federal character.”).

As the District Court in the instant case recognized

(App. 19-20), it was without jurisdiction to review the

Illinois Supreme Court's decision under the Civil Rights

Act, 42 U.S.C. $1983. See, e.g., Rooker v. Fidelity Trust Co.,

263 U.S. 413 (1913). Yet, inexplicably, the District Court

concluded that it had such jurisdiction under §16 of the

Clayton Act (App. 25). The Court of Appeals “agreed” on

the ground that the Illinois Supreme Court “expressly re-

fused to consider” the federal antitrust issues raised by the

Stoner group (App. 14).

However, although acknowledged in a footnote (App.

7), the Court below then disregarded the fact that it was

the respondents themselves who withdrew the federal

antitrust issues from consideration by the state courts, and

that it was only for this reason that the Illinois Supreme

Court did not pass on those issues. Thus, the Illinois

Supreme Court never “expressly refused to consider” the

federal antitrust issues. No such issue was even before the

Iilinois Supreme Court since it had been withdrawn by

respondents years before and never raised again, and the

Illinois Supreme Court merely noted that fact in its opinion.

In any event, the decision of the Illinois Supreme Court

is final and entitled to full faith and credit. This Court,

which is the only federal court with power to review the

final decision of the highest court of a state, denied cer-

tiorari, and the matter should have rested there. The anti-

trusi laws confer no greater power on a federal district

court to perform this Court’s reviewing functions than the

Civil Rights Act or any other federal law. See Atlantic

Coast Line R. Co. vy. Brotherhood of Locomotive Engineers,

supra, 398 U.S. at 286.

IV. The Decision Below Raises Issues of Broad National

Significance and Is Likely to Have a Serious Detri-

mental Impact on the Relationship between State

and Federai Courts.

Under the analysis of the Court below, wherever a fed-

eral statute provides for a private injunction action main-

tainable only in the federal courts, then:

1. The bar of § 2283 would not apply, and state

court proceedings would therefore be subject to federal

stays without regard to the Anti-Injunction Statute;

2. No considerations of comity or federalism would

apply in considering whether to grant such injune-

tions: and

3. Even a final judgment of a state court, reviewed

bv the highest court of that state, would be subject to

collateral review by a federal district court in such

an injunction action.

Through this technique, state court defendants would be

able to utilize the federal courts to frustrate and inter-

fere with the state court proceedings in which they are

involved, and (as in this ease) even to nullify final judg-

ments reviewed by the highest state courts. Moreover, it

is not only the antitrust laws that might be utilized in that

way by state court defendants,* but indeed many other fed-

eral statutes as well.

Review of the decision below is essential, we submit, in

view of the critical importance to the Nation’s parallel

federal and state judicial systems of a clear set of proce-

dural restraints upon improper interference by the courts

of one system with those of the other. Such restraints have

* At least one such injunction has already been granted by

another federal distriet court on the basis of the District Court's

opinion in this case. Sar Industries, Inc. v. Monogram Industries,

Inc., 1976-1 Trade Cases © 60,816 (C.D. Cal.)

long been recognized as a basic part of our federal-state

structure, and this Court has referred to the Anti-Injunc-

tion Statute as

“a limitation of the power of the federal courts dating

almost from the beginning of our history and express-

ing an important Congressional policy—to prevent

needless friction between state and federal courts.”

Oklahoma Packing Co. v. Oklahome Gas and Electric

Co., 309 U.S. 4, 8-9 (1939).

The maintenance of that policy, and the “fundamental

constitutional independence of the States and their courts,”

Atlantic Coast Line R. Co. v. Brotherhood of Locomotive

Engineers, supra, 398 U.S. at 287, are seriously threatened

by the decision of the Court of Appeals in this case.

CONCLUSION

For the foregoing reasons, the petition for writ of cer-

tiorari should be granted.

Respectfully submitted,

Earu FE. Pottock

Gary SENNER

Pup A. HaBer

Louis C. KEeILer

SONNENSCHEIN CARLIN NATH

& RoseENTHAL

Attorneys for Petitioner

LAMBERT M. OcHSENSCHLAGER

Wayne F. WEILER

Rerp, OCHSENSCHLAGER, Murpuy & Hupp

Of Counsel

Dated: August 4, 1976.

ROS a TT

‘

APPENDICES

App. 1

APPENDIX A

Opinion of the United States Court

of Appeals for the Seventh Circuit

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Nos. 75-1792 and 75-1793

LexktTro-VEND Corporation, a Delaware corporation; Harry

B. Sroner: and Stoner Investments, Inc., a Delaware

corporation,

Plaintiff s-Appellees,

Tue Venvo Company, a Missouri corporation,

Defendant-A ppellant.

Appeals from the United States District Court for

the Northern District of Illinois, Eastern Division.

No. 65 C 1755

Ricnarp W. McLaren, Judge.

Arevep Dec per 8, 1975 — Decipep May 28, 1976

Before Swycert and Sprecuer, Circuit Judges, and

Warren, District Judge.

Swycert, Circuit Judge. The overe!l question is whether

the district court properly issued a preliminary injune-

' The Honorable Robert W. Warren, United States District Judge

for the Eastern District of Wisconsin, is sitting by designation.

App. 2

75-1792, 75-1793

tion in this antitrust case, thereby staying enforcement

proceedings in the Illinois state courts to collect two

judgments entered in a suit on an employment contract

that contained a noncompetition covenant. Among the

specific issues raised is whether section 16 of the Clayton

Act, 15 U.S.C. § 26, comes within the “expressly autho-

rized” exception of the anti-injunction statute, 28 U.S.C.

§ 1183. We hold that it does. We also hold that the dis-

trict judge did not abuse his discretion in finding the plain-

tiffs have a likelihood of success on the merits and they

would suffer irreparable injury absent an injunction. We

therefore affirm the district court’s grant of a preliminary

injunction.

The Vendo Company is located in Kansas City, Mis-

souri. In 1959 it was a leading manufacturer and seller

of vending machines for cold beverages, ice cream, and

certain other products. It did not manufacture vending

machines for ice cream, candy, cigarettes, sandwiches, or

coffee, but was conducting research and development in

that area.

Stoner Manufacturing Company, located in Aurora,

Illinois, was principally engaged in the manufacture of

eandy vending machines that had a nationwide market.

Compared with Vendo it was a smaller and less diversi-

fied enterprise. Harry H. Stoner, his wife, and other mem-

bers of his family owned all of the Stoner Manufacturing

stock. Stoner was the president and controlled the com-

pany.

Following negotiations with Stoner, Vendo purchased

the assets of Stoner Manufacturing Corporation in April

1959 with the exception of its real estate and buildings.

(Upon consummation of the purchase, Stoner Manufac-

turing was reorganized as Stoner Investments, Inc.) The

sales agreement imposed a ten-year noncompetition re-

striction on Stoner Manufacturing not to own, control, or

manage any business engaged in the manufacture or sale

App. 3

75-1792, 75-1793

of vending machines. In addition, an employment con-

tract between Vendo and Harry B. Stoner was executed

whereby the latter would serve Vendo as a consultant for

five years at an annual salary of $50,000. This contract

had a noncompetition covenant also. Stoner agreed that

during the term of the contract and for five years fol-

lowing the termination of his employment he would not

“(Directly or indirectly, in any of the territories in which

the Company [Vendo] .. . is at present conducting busi-

ness and also in territories which Stoner knows the Com-

pany ... intends to extend and carry on business .. .”

enter into the vending manufacturing business. The em-

ployment contract provided that Stoner “[S)hould regu-

late his own hours of employment and shall determine

the amount of time and effort he shall devote .. .” to

Vendo.?

Almost immediately after the Stoner Manufacturing as-

sets were acquired by Vendo, friction developed between

2 The full text of the noncompetition clause reads:

5. During the term of this agreement and for a period of

five (5) years following the termination of his employment

hereunder, whether by lapse of time or by termination as here-

inafter provided, Stoner shall not directly or indirectly, in any

of the territories in which the Company or its subsidiaries or

affiliates is at present conducting business and also in terri-

tories which Stoner knows the Company or its subsidiaries or

affiliates intends to extend and carry on business by expansion

of present activities, enter into or engage in the vending ma-

chine manufacturing business or any branch thereof, either

as an individual on his own account, or as a partner or joint

venturer, or as an employee, agent or saleman for any person,

firm or corporation or as an officer or director of a corperation

or otherwise, provided however that the Company, its subsid-

iaries and affiliates shall be excluded from the restrictions

hereof and provided also that Stoner shall be permitted to

own, hold, acquire and dispose of stocks and other securities

which are traded in the investment security market whether

on listed exchanges or over the counter.

App. 4

75-1792, 75-1793

Stoner and his employer. Stoner complained that his

services as a consultant were not being utilized and that

he was being treated as a mere figurehead. Very likely

this state of affairs prompted the development of the

events that lead to the litigation in both the state and

federal courts.

For several years before the sale to Vendo, Rod Phil-

lips was the Stoner plant superintendent and his son, Bill,

the assistant superintendent. Because of their disagree-

ment with the policies and operations of Vendo, the father

and the son resigned from their respective positions in

mid-1960. Bill Phillips after quitting Vendo began the

design of an electronic coin detecting device and attempted

to interest Stoner in financing its development. Stoner

evinced interest and agreed to pay the younger Phillips

$650 per month to develop the device. It was agreed that

any patents on the invention would belong to Stoner Invest-

ments. By the end of 1960 a model was completed and a

patent applied for. The patent was issued in October 1960

and was assigned to Stoner Investments; however, the

patented device was never produced commercially.

About this same time Rod and Bill Phillips developed

a machine for vending candy that was radically different

from any previous machine. It combined in a novel vet

practical design three existing vending machine features:

stock rotation (known as “first-in, first-out”), a window

to display the product to be vended, and a capacity for

stocking mixed items in a single conveyance.* At Rod

*In 1959 when Stoner Manufacturing sold out to Vendo it was

manufacturing a eandy vending machine called a “drop shelf” ma-

chine. The Phillip’s machine, which became known as the “Lektro-

Vend” model, was an extension of the “drop shelf” model. After

the purchase of the Stoner assets in April 1959, Vendo began ex-

perimenting with the same idea as that developed by the Phillipses.

Two models were built. Vendo, however, considered the models

defective in certain mechanical respects and too expensive to pro-

duce. The project was dropped.

App. 5

75-1792, 75-1793

Phillips’s request Stoner agreed to finance the develop-

ment of this new machine; however, neither Stoner nor

Stoner Investments was to have any ownership or con-

trol over the venture. Interest-free loans aggregating

$200,000 were made by Stoner to the Phillipses during

1961-62. Stoner also made available a building in Aurora

rent free.

By October 1962 prototypes of the machine developed

by Rod and Bill Phillips had been constructed and were

exhibited at a trade show in San Francisco. The machine

won favorable interest in the industry. In the meantime

Lektro-Vend Corporation had been organized. The orig-

inal stockholders were Rod and Bill Phillips, Ruth Net-

ray (Stoner’s sister-in-law), and several employees of the

corporation.

In December 1962 Mrs. Netray loaned the Phillipses

$350,000. The loan was later increased to $525,000. The

proceeds of those borrowings were used in part to pay

off the $200,000 loan made by Stoner. During that same

month Stoner asked Vendo to be released from his em-

ployment contract, saying that he had an opportunity to

invest in the Lektro-Vend venture. Vendo refused to ac-

cede to his request and Stoner was told that Vendo itself

was interested in buying the Lektro-Vend machine. Stoner

was asked to learn whether Rod Phillips was interested

in selling and, if so, to arrange a meeting between Phil-

lips and representatives of Vendo. Stoner reported that

Rod Phillips was asking $1,500,000.

Rod Phillips met with certain Vendo officials in January

1963 to show them the operation of the machine. Stoner

was present, but took no part in the meeting. In March

Stoner wrote Vendo’s vice-president that he had told

Phillips that he assumed in the absence of any word from

Vendo that Vendo no longer had any interest in the pat-

ent. The vice-president responded that Vendo was still

interested, but that the asking price was too high.

App. 6

75-1792, 75-1793

During the summer of 1963 Stoner had a conversation

with Vendo’s president. Upon inquiry from the latter as

to the actual extent of Stoner’s involvement with Phil-

lips, Stoner said that his relationship was confined to

loans which had been repaid by another person. He did

not disclose that the other person was his sister-in-law.

In March 1964 Stoner Investments contracted to sell

Lektro-Vend a new plant which had been built in Aurora

by Stoner Investments during the previous year. The deal

was financed through a bank loan which was subject to

an agreement that Stoner Investments would repurchase

the property in the event of default.

Stoner’s contract of employment terminated June 1,

1964. During that same month Lektro-Vend issued 5,000

shares of stock to Mrs. Stoner and in July it issued 5,000

shares of stock to Stoner Investments. Stoner sent a

letter to fifty vending machine operators in which he iden-

tified himself with the old Stoner Manufacturing Company

and said that he was now interested in Lektro-Vend. He

went to great lengths to recommend the Lektro-Vend prod-

uct. Litigation followed.

Vendo sued Stoner and Stoner Investments in the Illinois

state court in August 1965. In October 1965 Lektro-Vend,

Stoner, and Stoner Investments sued Vendo in the federal

court. The action in the state court was finally terminated

in November 1974 when the Illinois Supreme Court denied

a petition for rehearing of its decision affirming judgments

against Stoner and Stoner Investments, Inc. in excess of

$7 ,000,000.4

*In an attempt to aid the reader to better understand this com-

plex litigation and at the same time to shorten the opinion, a sum-

mary of the state court litigation follows.

Vendo v. Harry B. Stoner and Stoner Investments, Inc.

The suit was filed in Kane County, Illinois on August 10, 1965;

the complaint charged breach of noncompetition covenants; an

App. 7

75-1792, 75-1793

The complaint in the federal action alleged violations

by Vendo of sections 4 and 16 of the Clayton Act (15 U.S.C.

§§ 15 and 26). The case lay dormant until June 1975 when

the district court granted plaintiffs’ motion for a prelimi-

nary injunction staying defendant’s efforts to collect its

state court judgments until the merits of the federal suit

could be determined. That action precipitated the present

appeal under the provisions of 28 U.S.C. § 1292(a).

4 (Continued)

amended complaint also charged theft of trade secrets. After a

bench trial the court on December 16, 1966 found for Vendo.

Judgments against Stoner for $250,000 and against both defend-

ants for $1,100,000 were granted. Stoner and Stoner Investments

were enjoined from further acts of competition.

An appeal was taken to the Appellate Court of Illinois. That

court entered its decision on January 30, 1969, 105 Ill. App. 2d 261.

The court held that no trade secrets were involved, the noneompeti-

tion covenants were valid and enforceable, and the covenants had

been breached by the defendants. The grant of injunctive relief

was affirmed. The court also held that though the trial court erred

in striking the affirmative defense based on the federal antitrust

laws, it was correct in denying the defense based on the Illinois

antitrust laws. The cause was remanded for a determination of

damages and further proceedings.

Upon remand the defendant withdrew its affirmative defense as-

serted under the federal antitrust laws. The trial court, after

hearing evidence, entered judgments against Stoner and Stoner

Investments which totaled $7,363,500.

Upon a second appeal to the Illinois Appellate Court, the court

decided, on September 12, 1973, 13 Ill. App. 3d 291, that the trial

court erred in the measurement of damages. The case was re-

manded for assessment of damages in accordance with the Appel-

late Court’s original opinion.

Upon appeal to the Illinois Supreme Court on September 27,

1974, 58 Ill. 2d 289, the appellate court was reversed and the trial

court’s judgments were affirmed. The Supreme Court in deciding

the case constructed a different theory of recovery—the breach of

a fiduciary obligation on the part of Stoner—then had been asserted

by Vendo.

App. 8

75-1792, 17-1793

The threshold question relates to the authority of a

federal court to enjoin a proceeding pending in a state

court. Specifically, the question is whether section 2283 of

the Judicial Code® prevented the district court from issuing

a preliminary injunction staying the efforts of Vendo to

collect its state court judgments against Stoner and Stoner

Investments, Inc.®

The underlying purpose of this section, grounded in

federalism is “[T]o prevent friction between state and fed-

eral courts.” Oklahoma Packing Co. v. Oklahoma Gas €

Electric Co., 309 U.S. 4, 9 (1940). The statute is to be

strictly applied Amalgamated Clothing Workers v. Rich-

man Bros. Co., 348 U.S. 511, 515-16 (1955). Unless one

of the three exceptions listed in the statute is evident,

it constitutes an absolute ban upon a federal court in-

junction against a pending state court proceeding. Atlan-

tic Coast Line R.R. Co. v. Brotherhood of Locomotive

Engineers, 398 U.S. 281, 286-87 (1970).

In the instant case the district court held that both the

“as expressly authorized” exception and the “in aid of

its jurisdiction” exception applied and issued the prelim-

inary injunction. Since we are of the view that the judge

was correct in holding the first exception applicable, we

need not reach the question raised as to the second ex-

ception.

*°28 U.S.C. § 2283 provides:

A court of the United States may not grant an injunction to

stay proceedings in a state court except as expressly authorized

by Act of Congress, or where necessary in aid of its jurisdiec-

tion, or to protect or effectuate its judgments.

®* The injunction preserved Vendo’s lien and rights under the

state court judgments. It also contained detailed provisions regu-

lating the conduct of the judgment debtors during the pendency

of the injunction.

App. 9

75-1792, 75-1793

Section 16 of the Clayton Act (15 U.S.C. § 26) provides

that any person is entitled to sue for and have injunctive

relief in any court of the United States having jurisdiction

over the parties against threatened loss or damage from

violations of the antitrust laws. The complaint in the

instant case alleges violations of section 7 and 2 of the

Sherman Act (15 U.S.C. §§7 and 2) and reads in part:

On or about August 10, 1965, Vendo filed suit in

the Cireuit Court for the Sixteenth Judicial Circuit of

Illinois against Stoner and Stoner Investments. The

full text of the complaint is attached to this complaint

as Exhibit C. The complaint alleges that Stoner had

breached his agreement not to compete of June 1, 1959

and that Stoner Investments had breached that portion

of the April 3, 1959 contract of sale which sought to

eliminate competition for 19 years throughout the

world. As has been previously alleged, the world-wide

non-competition covenants contained in the said con-

tracts -e illegal and in violation of the antitrust laws

of the Uuited States, particularly Sections 1 and 2 of

the Sherman Act. The purpose of the said law suit is

to unlawfully harass Stoner and Stoner Investments

and to eliminate the competition of Stoner, Stoner

Investments and Lektro-Vend. The lawsuit is part of

Vendo’s plan to monopolize the vending machine man-

ufacturing business. The threats to enforce such non-

competition covenants ard the bringing of a suit in an

attempt to enforce the illegal covenants are overt acts

of Vendo in monopolization and constitute an attempt

to monopolize the trade or commerce in the State

of Illinois among the several states and foreign coun-

tries in the manufacture of such vending machines.

Lektro-Vend, Stoner and Stoner Investments have

been injured in their business and property as a direct

and proximate result of these overt acts of Vendo.’

7 Other allegations specifically refer to the noncompetition cove-

nants contained in the 1959 agreements.

App. 10

75-1792, 75-1793

The question before us is whether section 16 of the Clayton

Act, 15 U.S.C. § 26, should be interpreted as coming within

the “expressly authorized” provision of section 2283 of

the Judicial Code.

The Supreme Court’s decision in Mitchum v. Foster, 407

U.S. 225 (1972), provides guidance. In that case the

Court held section 7 of the Civil Rights Act of 1871, 42

U.S.C. § 1983, came within the meaning of the “expressly

authorized” exception of the anti-injunction statute. The

Court initially noted that, “Despite the seemingly un-

compromising language of the anti-injunction statute prior

to 1948, [it was] soon recognized that exceptions must

be made to its blanket prohibition if the import and pur-

pose of other Acts of Congress were to be given their

intended scope.” Jd. at 233-34. The court also cataloged

six separate instances in which it had found federal courts

empowered to enjoin state court proceedings in carrying

out the will of Congress “despite the anti-injunction stat-

ute.” Mr. Justice Stewart observed that “[i]n addition to

the exceptions to the anti-injunction statute found to be

embodied in the various Acts of Congress, the Court

[has] recognized other ‘implied’ exceptions to the blanket

prohibition of the anti-injunction statute.” Id. at 235. The

relevant criteria to be applied in determining whether

an Act of Congress comes within the “expressly author-

ized” exception were listed: (1) The “federal law need

not contain an express reference” to the anti-injunction

statute; (2) “[A] federal law need not expressly authorize

an injunction of a state court proceeding in order to

qualify as an exception”; and (3) “[A]n Act of Congress

must have created a specific and uniquely federal right or

remedy, enforceable in a court of equity, that could be

frustrated if the federal court were not empowered to

enjoin a state court proceeding.” Jd. at 237. Sammariz-

ing these criteria, Mr. Justice Stewart wrote: “The

test . . . is whether an Act of Congress, clearly creating

a federal right or remedy enforceable in a federal court of

App. 11

75-1792, 75-1793

equity, could be given its intended scope only by a stay

of a state court proceeding.” Jd. at 238.

Applying these criteria to section 16 of the Clayton

Act, we are of the view that it falls within the “expressly

authorized” exception. Mitchum noted that section 1983 .

of the Civil Rights Act “opened the federal courts to

private citizens, offering a uniquely federal remedy” in

vindicating basic federal rights. Id. at 239. So, too, does

section 16 of the Clayton Act open the federal courts

to private citizens offering a uniquely federal remedy as

an important part of the enforcement provisions of the

antitrust laws. The private enforcement of these laws by

injunctive relief is vested exclusively within the jurisdic-

tion of the federal courts. This jurisdiction would be

frustrated if federal courts did not have the power to

enjoin a state court proceeding in an appropriate case.

The present situation is a classic example. Here Vendo

seeks to thwart a federal antitrust suit by the enforce-

ment of state court judgments which are alleged to be the

very object of antitrust violations.

Several cases support our holding. In Helfenbein v.

International Industries, Inc., 438 F.2d 1068 (8th Cir.

1971), decided prior to Mitchum, the plaintiffs had filed

suit seeking to recover treble damages for violation of the

Sherman and Clayton Acts. The loss or damages claimed

in the federal suit were due to one plaintiff being forced

into arbitration and other plaintiffs being evicted from

leased premises—consequences which under the issues

presented to the federal court were alleged to have re-

sulted from antitrust violations. The court, in upholding

the trial judge’s determination to deny an injunction,

stated that there was no authority under the federal

antitrust laws to enjoin state enforcement or remedy for

collection of ordinary debts. The court found that the

plaintiffs had “only remotely alluded] to their potential

loss or damage under federal law.” Jd at 1071. There had

App. 12

75-1792, 75-1793

been “no attempt in either the arbitration or eviction pro-

ceedings to enforce the very conduct . . . prohibited by

the Clayton or Sherman Acts.” Jd. The court found that

the loss or damage done to the plaintiffs was related to

their defenses as provided under state law. The loss did

not flow from any prohibition under federal laws—there

was no evidence that the evictions resulted from their

refusal to buy according to a “tie-in” agreement they had

executed with the defendants. While the court did not ex-

pressly decide that injunctive relief would have been proper

had the loss or damage been intricately connected to a

federal antitrust claim, it is clear from the logic of the

decision that this result would have been reached.

Another decision prior to Mitchum reached exactly this

result. In United States v. Bayer, 135 F. Supp. 65 (S.D.N.Y.

1955), the court held that a contract between Bayer and

I. G. Farber violated the Sherman Act. As part of the

afforded relief, the court enjoined an assignee of Faber

from enforcing in state court royalty payments under the

contract. In holding that section 2283 did not bar the in-

junction, the court said:

The answer [to section 2283] is that 44 of the Sher-

man Act grants the United States District Court juris-

diction “to prevent and restrain violations” of the Act.

The injunction is a necessary incident to the Court’s

power in order to effectuate its judgment that the

Bayer contracts are illegal. Simply to declare the

agreement illegal and at the same time permit recovery

of the proceeds would render the decree of the court

quite sterile. he purpose of the decree is not only to

prevent repetition of past offenses but also “to prevent

the defendants from acquiring any of the fruits of the

condemned project.” 135 F. Supp. at 73.

Studebaker Corp. v. Gittlin, 360 F.2d 692 (2d Cir. 1966),

is also instructive. In an appeal by a stockholder from an

order of the district court enjoining the use of other stock-

App. 13

75-1792, 75-1793

holder authorizations obtained without compliance with the

proxy rules in a state court proceeding to obtain inspection

of Studebaker’s shareholders’ lists, the Second Circuit held

that section 2283 did not bar the injunction. The court

distinguished the federal securities statutes wmch afford

enforcement by private parties from the provisions of the

National Labor Relations Act which restrict the enforce-

ment of its provisions to the National Labor Relations

Board. Judge Friendly, writing for the court, stated: “Sec-

tion 16 of the Clayton Act... affords a closer parallel, since

there as here the private suit plays an important part in

enforcement.” 360 F.2d at 698. He concluded that “where

the very act of prosecuting the state proceeding violated

federal law .. .,” section 2283 did not stand in the way of

enjoining the state court action. /d.°

When Congress enacted the various antitrust laws it

created federal rights and remedies enforceable by private

parties in a federal court of equity. That such powers were

vested exclusively in the federal courts reflect the Congres-

sional belief that the national objectives of the antitrust

laws will be effectuated if entrusted to the jurisdiction of

the federal courts. If federal courts are prohibited from

enjoining state court proceedings which are part of an an-

ticompetitive scheme in violation of the federal antitrust

laws, the full scope and force of those laws will be seriously

impaired. Moreover, the national interest in the preserva-

tion of competition—one of our-most important public

policies—would be frustrated. Accordingly, we ho!d that

section 16 of the Clayton Act constitutes an “expressly

authorized” exception to the anti-injunction provision of

the Judicial Code.

Vendo further contends that even if the district court

was not barred by section 2283 from issuing the injunction,

8 Gittlin was cited in Mitchum (407 U.S. at 237, n. 25) in dis-

cussing the meaning of the “expressly authorized” exception.

App. 14

75-1792, 75-1793

principals of comity and federalism constitute a bar. The

principle of comity has no applicability when the exclusive

remedy for an injury lies in the federal court. We are in

agreement with the trial court’s observation:

Principles of comity and federalism do not prevent

the issuance of an injunction considering the peculiar

nature of this case. The federal action here is based

in part on the very proceeding sought to be enjoined.

If federal law is violated by continuation of the state

action the paramount national interest requires court

intervention. Lektro-Vend Corp. v. Vendo Company,

403 F. Supp. 527, 537 (N.D. Til. 1975).

It is also argued that the district court lacked jurisdiction

to reverse, review, or revise the state court judgments in a

collateral attack. While the district court conceded that it

had no power to directly review cases from state courts, it

went on to point out that here the plaintiffs’ claim that

“(The state court proceedings did not take account of

Vendo’s violations of antitrust law and were prosecuted in

violation of Sections 1 and 2 of the Sherman Act...” Jd. at

529. Therefore, the “[S]tate court proceedings must be

examined by this Court for the purpose of determining

whether Vendo prosecuted those cases as part of an anti-

competitive scheme.” Jd. at 532. The judge additionally

commented: “The final Illinois Supreme Court opinion

makes such a review imperative. The Illinois court ex-

pressly refused to consider the allegations that the state

proceedings were part of an anti-competitive scheme. Plain-

tiffs, having never had a trial on this issue, must be heard

in the only forum now aveilable.” Id. at 532, n. 4. We agree

with these comments.

In determining that interlocutory relief was appropriate,

the district court concluded that the plaintiffs had demon-

strated a likelihood of ultimate success on the merits of their

App. 15

~ 75-1792, 75-1793

claims. Defendant attacks this ruling by arguing that there

was a total failure of proof. It says that the state court

judgments are based on Stoner’s violation of fiduciary duties

and do not depend (contrary to the trial judge’s findings)

on the noncompetition covenants. Additionally, it is argued

that the covenants are lawful when tested by antitrust

standards.

In the first place, defendant’s attack is overbroad. As

we said in Bath Industries v. Blot, 427 F.2d 97, 111 (7th

Cir. 1970), “[I)t is not necessary that the trial court

find the certainty of a wrong, a likelihood is sufficient.”

Furthermore, since the grant of a temporary injunction

rests within the sound discretion of the trial court,

Prendergast v. New York Telephone Co., 262 U.S. 43

(1923), appellate review is narrow. Scherr v. Volpe, 466

F.2d 1027 (7th Cir. 1972).

Secondly, when the Supreme Court of Illinois affirmed the

judgments on the unadvanced theory that Stoner had

violated his fiduciary duties, it did not consider or decide

any of the antitrust issues presented here. It did not and

could not evaluate Vendo’s alleged monopolistic scheme

which included the enforcements of the noncompetition cove-

nants. The district court found that the covenants were

“overly broad” and that there was substantial evidence that

Vendo had the “required specific intent to monopolize” in a

relevant market. Given the limitations of our review, we

cannot say the trial court erred.

The judge states in his memorandum opinion:

On the record as a whole, the Court finds that a

preliminary injunction will prevent irreparable harm,

protect the public interest, and will benefit plaintiffs

more than it will burden Vendo. Continued efforts

at collection will prevent Lektro-Vend Corporation

from marketing a promising, newly-developed vend-

ing machine. The state court collection process places

insurmountable barriers in the way of raising capital

App. 16

75-1792, 75-1793

for any expansion program. Moreover, collection of

the state judgment will effectively place Lektro-

Vend in the hands of—or at least at the disposition

of—Vendo. Stoner Investments is controlled by Mr.

Stoner; 78.57% of Lektro-Vend is owned by Stoner

Investments. Needless to say, Vendo would also con-

trol Stoner Investments. The case or controversy

requirement contained in Article III then would re-

quire dismissal of Lektro-Vend and Stoner Invest-

ments. Continued collection thus would eliminate two

of the plaintiffs herein. Moreover, Mr. Stoner’s abil-

ity to effectively prosecute this action would be

severely limited by further execution of the state

court case. This also amounts to irreparable harm.

(Citations omitted.)

We are not prepared to say that the court erred in reach-

ing these conclusions.

Defendant’s last contentions are that laches, waiver,

and collateral estoppel bar injunctive relief. Issues not

raised in the trial court cannot be presented for the first

time on appeal. United States v. Tyrrell, 329 F.2d 341,

345 (7th Cir. 1964). As we noted in Hamilton Die Cast,

Inc. v. United States F. & G. Co., 508 F.2d 417, 420 (7th

Cir. 1975): “[A] trial court should not be reversed on

grounds that were never -urged or argued below.” Defen-

dant failed to raise these issues in the trial court. Regard-

less of this procedural defect, we are convinced that these

contentions are without merit.

The grant of interlocutory relief is affirmed.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

Oo ane et

App. 17

APPENDIX B

Order and Judgment of the United States

Court of Appeals for the Seventh Circuit

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

May 28, 1976

Before

Hon. LUTHER M. SWYGERT, Circuit Judge

Hon. ROBERT A. SPRECHER, Cireuit Judge

Hon. ROBERT W. WARREN, District Judge*

) Appeal from the United

States District Court

LEKTRO-VEND CORP., etc., et al., 9 a No ~~

Plaintiffs-Appellees, trict of Illinois East-

ern Division No. 65 C

No. 75-1792 & 75-1793 vs. r 1755

THE VENDO COMPANY, etc., The Honorable

Defendant-Appellant. | Richard LS McLaren,

‘ udge

This cause came on to be heard on the transcript of the

record from the United States District Court for the

Northern District of Illinois, Eastern Division, and was

argued by counsel.

On consideration whereof, it is ordered and adjudged

by this court that the judgment of the said District Court

in this cause appealed from be, and the same is hereby,

AFFIRMED, with costs, in accordance with the opinion

of this Court filed this date.

* Honorable Robert W. Warren, United States District Judge for

the Eastern District of Wisconsin, is sitting by designation.

App. 18

APPENDIX C

Order of the United States Court of Appeals

for the Seventh Circuit, On Rehearing

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

July 16, 1976

Before

Hon. LutHer M. Swycert, Cireuit Judge

Hon. Rosert A. Sprecuer, Circuit Judge

Hon. Roperr W. Warren, District Judge*

LEKTRO-VEND CORP., etc., et al., P - ne United

Plaintiffs-Appellees, | “2P<2's ‘tom the United

No. 75-1792, 75-1798 vs. : es at ee ee

ern Division.

THE VENDO COMPANY, etc.,

Defendants-Appellants. | No. 65 C 1755

On consideration of the petition for rehearing and sug-

gestion that it be reheard en banc filed in the above-entitled

cause, no judge in active service having requested a vote

thereon, nor any judge having voted to grant the sugges-

tion, and all of the members of the panel having voted to

deny a rehearing,

Ir 1s Orperep that the petition for a rehearing in the

above entitled cause be, and the same is hereby, Deniep.

Note: Judges Cummings, Pell and Tone did not partici-

pate in the disposition of this petition.

* The Honorable Robert W. Warren, United States District Judge

for the Eastern District of Wisconsin, is sitting by designation.

Ae ee ee a oe

App. 19

APPENDIX D

Opinion of the United States District

Court for the Northern District of Illinois

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

— — ———————- ——

LEKTRO-VEND CORP., a Delaware

corporation, HARRY B. STONER

and STONER INVESTMENTS, INC.,

a Delaware corporation,

Plaintiffs, | Wo, 65 C 1755

THE VENDO COMPANY, a

Missouri corporation,

Defendant. |

—_————— ——————

MEMORANDUM OPINION AND ORDER

This is a complex antitrust action’ by Lektro-Vend Cor-

poration, Harry B. Stoner and Stoner Investments, Inc.,

1 Plaintiffs also assert a civil rights claim pursuant to 42 U.S.C.

§ 1983 claiming certain portions of the Illinois Supreme Court de-

cisions violated procedural and substantive due process. The Court

has no jurisdiction to entertain this claim. Rooker v. Fidelity

Trust Co., 263 U.S. 413 (1923); Louis Ender Inc. v. General Foods

Corp., 467 F.2d 929 (8th Cir. 1972) ; Sarelas v. Slechan, 326 F.2d

490 (7th Cir. 1963). As explained in Adkins v. Underwood, 370 F.

Supp. 510, 514-15 (N.D.TIl. 1974) :

“While lower federal courts were given certain power in the

Judiciary Act of 1789, they were not given any power to

directly review cases from state courts, and they have not been

(Footnote continued on following page.)

App. 20

plaintiffs, against the Vendo Company, the defendant.

Vendo recently obtained a $7,345,500 state court judgment

against Mr. Stoner and Stoner Investments for violation

of their purported fiduciary duties to Vendo. Vendo v.

Stoner, 58 Ill.2d 289, N.E.2d (1974), cert. denied,

US. (1975). Plaintiffs? now seek a preliminary

injunction preventing Vendo from taking any further steps,

pending a trial of this case, to collect its state court judg-

ment, urging that the state court proceedings did not take

account of Vendo’s violations of antitrust law and were

prosecuted in violation of sections 1 and 2 of the Sherman

Act, 15 U.S.C. §§ 1 and 2. For the reasons and on the con-

ditions stated below, the motion will be granted. Insofar

as required, this opinion shall constitute the Court’s find-

ings of fact and conclusions of law. F.R.Civ.P. 52(a), 65(d).

(Footnote continued from preceding page.)

given such power since that time. . . . Only the Supreme Court

is authorized to review on direct appeal the decision of state

courts. From the beginning this country has had two essen-

tially separate legal systems. Each system, federal and state,

proceeds independently of the other with ultimate review in

the United States Supreme Court of federal questions raised

in either system.

“Even if a state court decision is constitutionally wrong, that

does not make the judgment void, it merely leaves it open to

reversal or modification in an appropriate and timely appel-

late proceeding. Unless and until so reversed or modified, it

would be an effective and conclusive adjudication. Under the

legislation of Congress, no court of the United States other

than the United States Supreme Court ean entertain a pro-

ceeding to reverse or modify a state court judgment which is

in error.”

* The motion for preliminary injunction only sought relief for

Mr. Stoner and Stoner Investments, not Lektro-Vend Corporation.

It is clear, however, that the hearing litigated the interests of all

three plaintiffs and that Vendo acquiesced in this procedure.

Plaintiff's motion to amend the motion to include Lektro-Vend is

therefore granted.

een

App. 21

To demonstrate the necessity of a preliminary injunc-

tion a brief excursion into the history of the relationship

between the parties is required. This action has its genesis

in the 1959 purchase of Stoner Manufacturing Corp. by

Vendo. This sale was occasioned primarily by Mr. Stoner’s

health problems. At that time Stoner Manufacturing was

primarily a producer of candy vending machines through-

out the United States. Vendo prior to 1959 was a manu-

facturer of beverage and ice cream vending machines. The

record in the state court proceedings and here demonstrates

that Vendo had two purposes in purchasing Stoner Man-

ufacturing: expansion of its product line® and elimina-

tion of Mr. Stoner as a potential competitor in the vending

machine market. The parties agree that Mr. Stoner was a

design genius in creating innovative vending machine prod-

ucts.

The sale agreement between Vendo and Stoner Man-

ufacturing provided that Vendo would pay the Stoner in-

terests $3,400,000 and deliver 60,000 shares of Vendo stock

to Mr. Stoner. This made Mr. Stoner a major shareholder

of Vendo. Mr. Stoner also became an officer and director

of Vendo. His employment contract with Vendo had a five

year term and his salary was $50,000 per year. The 1959

agreements also provided that Stoner Manufacturing would

not directly or indirectly participate in the management,

ownership or control of a vending machine business for

ten years in the United States or any foreign country in

which Vendo was doing business. Mr. Stoner’s employment

contract provided that for a period of five years following

the termination of his employment, Mr. Stoner would not

compete with Vendo in any territory in which Vendo was

doing business or intended to do business.

3 Federal Trade Commission approval was required before Vendo

could purehase the Stoner vending machine interests. Apparently

this was accomplished by misrepresenting to the Commission that

Stoner Manufacturing and Vendo were not actual or potential com-

petitors. The record demonstrates that at the least Vendo was a

potential competitor of Stoner Manufacturing.

App. 22

Shortly after the 1959 agreements were consummated Mr.

Stoner and Vendo had a falling out. Mr. Stoner had been

led to believe he would be able to take an active role in

research and development and would be treated as chair-

man of the board with respect to operation of the pur-

chased assets of Stoner Manufacturing. In actuality Mr.

Stoner was virtually ignored or bypassed by the Vendo

management. The Vendo management admittedly was thus

only paying Mr. Stoner not to compete rather than employ-

ing him for performance of actual services.

The succeeding events are adequately set out in the first

opinion of the Illinois Court of Appeals at 105 Tll.App.2d

261, 269-77. During the fall of 1960 Mr. Stoner began

financing vending machine research and development by

certain former Stoner Manufacturing employees. This

work culminated in the development of a revolutionary

first-in-first-out (FIFO) candy vending machine, called the

Lektro-Vend machine. The first prototypes of the Lektro-

Vend were exhibited at a trade show in October 1962.

Vendo employees were present and made initial inquiries

about purchasing the design. The inventors, however,

decided to manufacture and market the machine on their

own. Mr. Stoner was asked to join these efforts. Thus in

December 1962 Mr. Stoner sought to be released from his

Vendo employment contract stating that he wanted to in-

vest in the Lektro-Vend machine. Mr. Stoner did not dis-

close at that time his previous backing of the Lektro-Vend

project.

Vendo refused the release request because it did not

want to compete with Stoner. Vendo officials stated that

part of the consideration for the 1959 agreements was

the non-competition clauses. Instead, Stoner was requested

to help Vendo purchase the Lektro-Vend from the in-

ventors. The inventors sought $1,500,000; Vendo thought

this price too high and declined to purchase the machine.

Vendo also thought that there were inherent technical

problems in the Lektro-Vend and that it was too costly to

a Te ee

se yh tn ai he le acl tl. nt a ae ea At es

App. 23

produce. Mr. Stoner warned that was a serious mistake

not to purchase the Lektro-Vend.

Some time shortly after the Vendo refusal to purchase

the Lektro-Vend, Mr. Stoner revealed his financial support

of the Lektro-Vend inventors. It appears, however, that

Vendo was well aware of the Stoner involvement with

Lektro-Vend as early as the 1962 trade show.

Mr. Stoner’s and Stoner Investments’ involvement with

the Lektro-Vend inventors and the Lektro-Vend Corpora-

tion continued. Stoner Investments helped Lektro-Vend

Corporation establish a production plant and further loans

or loan guarantees were made by both Mr. Stoner and

Stoner Investments. Meanwhile Mr. Stoner’s employment

contract with Vendo terminated on June 1, 1964, although

Mr. Stoner remained on the Vendo board until the spring of

1965. It is clear, however, that neither Mr. Stoner nor

Vendo thought until late in the state court litigation that

this relationship created for Mr. Stoner any further obliga-

tions beyond those duties purportedly contained in the

non-competition covenants.

In March 1965 Lektro-Vend salesmen reported that

Vendo salesmen were circulating rumors in che trade that

Lektro-Vend was about to go out of business. Mr. Stoner

responded with a letter to 50 vending machine operators.

This letter, denominated by the parties as the “Dear Oper-

ator” letter, stated that Stoner was now “interested” in

Lektro-Vend Corporation and would guarantee its con-

tinued existence.

Conflict between the parties sharpened in August 1965

when Vendo brought suit against Mr. Stoner and Stoner

Investments. The Court proposes to examine these pro-

ceedings only insofar as they may reflect illegal anti-com-

petitive conduct by Vendo. The original Vendo complaint

focused on alleged violation of the non-competition cove-

nants in the employment and sales agreements and sought

$500,000 in damages. This complaint was amended to add

2 EEE eevee

App. 24

a charge of theft of trade secrets and the ad damnum was

raised to $1,500,000. An injunction against Stoner and

Stoner Investments preventing further aid to Lektro-Vend

running until July 1, 1969 was also sought. The Illinois

Appellate Court opinion after the first trial reveals that the

evidence during the first trial was directed to the covenants

and the trade secrets issue. After the first trial, the Illinois

trial court entered judgment against Mr. Stoner for

$250,000 for violation of the covenants and $1,100,000 for

theft cf a trade secret. The Appellate Court at 105

Ill.App.2d 261 reversed as to the latter, stating that Vendo

had no trade secret. It is clear from all the evidence that

Vendo should have known that there was no theft of a trade

secret; indeed, the first Illinois Court of Appeals’ decision

demonstrates that the effort by Vendo to prove theft of a

trade secret amounted to vexatious litigation.

The Appellate Court remanded the case with directions

for further hearings on damages. Before the second state

trial, Vendo again raised the ad damnum, this time to

$7,345,500. At trial, however, Vendo attempted to prove

the entirely new theory that Stoner was legally at fault

for Vendo’s failure to have a FIFO machine. On this basis,

the trial court entered judgment against Stoner for

$170,835 for forfeiture of salary for the time in which he

purportedly illegally competed, and for $7,345,500 against

Stoner and Stoner Investments for the lost profits for

failure of Vendo to have a FIFO machine. Mr. Stoner and

Stoner Investments again appealed and the Appellate Court

again reversed, stating that Vendo’s failure to have a FIFO

vending machine was not attributable to the Stoner inter-

ests. The salary forfeiture was affirmed. Each side was

then granted leave to appeal to the Illinois Supreme Court.

The Illinois Stpreme Court reinstated the trial court

judgment, predicating liability on a corporate opportunity

theory. It held that as a director of Vendo Mr. Stoner

breached his fiduciary duty by failing to adequately dis-

close his financial involvement in the Lektro-Vend machine.

App. 25

The court thus concluded that it could not say that Vendo

would have declined to purchase the Lektro-Vend machine

had adequate disclosure been made or a genuine oppor-

tunity to purchase existed. It affirmed the $7,345,500 dam-

age award on the Vendo lost profits theory. The Stoner

interests sought a rehearing on the grounds that tu. cor-

porate opportunity theory denied it substantive and p.-

cedural due process because Stoner was functionally denied

a trial on this issue. The Illinois Supreme Court denied the

petition for rehearing and a petition for certiorari was sub-

sequently denied by the United States Supreme Court. As

noted above, the Court believes that it does not have juris-

diction to review the due process aspects of the state court

proceedings; however, as will be more fully explained

below, the state court proceedings must be examined by

this Court for the purpose of determining whether Vendo

prosecuted those cases as part of an anti-competitive

scheme.*

II.

Three legal issues are raised by the brief outline of facts

just concluded: (1) Have plaintiffs established under the

four usual requirements that a preliminary injunction is

necessary? (2) Have plaintiffs met their special burden of

establishing the necessity for enjoining a state court pro-

ceeding? (3) Assuming an injunction is necessary, what

type of bond is appropriate?

The four factors usually examined to determine whether

interlocutory relief is appropriate are:

(1) likelihood of ultimately prevailing on the merits;

* The final Illinois Supreme Court opinion makes such a review

imperative. The Illinois court expressly refused to consider the

allegations that the state proceedings were part of an anticompeti-

tive scheme. Plaintiffs, having never had a trial on this issue, must

be heard in the only forum now available.

a Le

App. 26

(2) likelihood of irreparable harm;

(3) balancing the hardships; and

(4) protection of the public interest.

In the instant case, this Court believes that plaintiffs

have demonstrated likelihood of ultimate success on both

the section 1 and section 2 Sherman Act claims. The sec-

tion 1 claim arises from the 1959 agreement. Under section

1 of the Sherman Act, contracts which unreasonably re-

strain interstate commerce are void. The federal antitrust

laws make covenants not to compete which are overly

broad in geographical scope or in time unreasonable re-

straints of trade. Once antitrust jurisdiction is invoked,

the validity of the challenged covenants is measured solely

under federal law, regardless of legality under state law.

Schine Chain Theatres v. United States, 334 U.S. 119

(1948).

Under federal law a non-competition covenant is legal

under two conditions:

(1) the covenant is merely ancillary to the main pur-

pose of a lawful contract;

(2) the covenant is necessary to protect the legiti-

mate property interests purchased by the covenantee.

See Uniied States v. Addyston Pipe & Steel Co., 85 F.

271 (6th Cir. 1898), aff'd as modified, 175 U.S. 211.

Moreover, a covenant not to compete examined in light

of other monopolistic practices can be declared illegal

even if otherwise lawful if it can be shown that the

object and the effect of the agreement was primarily

directed at the elimination of competition. Schine

Chain Theatres v. United States, supra; Bowl America,

Inc. v. Fair Lane, Inc., 299 F.Supp. 1080 (D.Md. 1969).

Here it appears that the covenants extracted were overly

broad, and the facts and circumstances surrounding the

1959 agreement and subsequent activities demonstrate that

their object (and effect) were primarily directed at the

App. 27

elimination of competition rather than protection of good

will. As drafted, the covenants were intended to protect

the good will of Vendo where Vendo was doing or planning

to do business; they were not limited to areas in which

Stoner Manufacturing was operating. Under Addyston

Pipe and similar cases this amounts to prima facie proof

of illegality. Additionally, Vendo’s president admitted the

major purpose and intent of the employment contract was

to obtain the anticompetitive benefits accruing from the

covenants. It should also be noted even after Vendo re-

ceived notice that Stoner was invoived in the Lektro-Vend

project it refused to terminate his employment as the

contract allowed. It appears to the Court that this course of

conduct was adopted by Vendo in an attempt to limit Mr.

Stoner’s activities for the full planned term of the post-

employment agreement, showing that protection of good will

was not a significant goal in obtaining the covenant. Since

Mr. Stoner apparently was never called upon to perform

significant services for Vendo the covenant amounted to

a naked agreement not to compete, solely anticompetitive

in purpose and effect.

Vendo argues that even if the covenants are illegal under

section 1 of the Sherman Act, the state court judgment did

not rely on these contractual terms and therefore is un-

assailable. The section 1 claim does not rest alone on the

theory that the state litigation was an essential part of an

illegal anticompetitive scheme but rather depends on an

analysis of the total circumstances surrounding creation of

the 1959 agreements. The Court believes that viewed in

this light the corporate opportunity theory relied on in

the final state court decision cannot either in logic or as a

matter of federal antitrust law be separated from the

anticompetitive intent and effect of the covenants. Mr.

Stoner’s position as a director was dependent on the ac-

quisition and employment contracts. He would not have

become a corporate director of Vendo absent entry of the

anticompetitive agreements. Additionally, his status as a

director clearly was not intended to create additional

App. 28

duties; it only encompassed duties already undertaken as

an employee of Vendo. The general rule that where a con-

tract is only partially illegal under the antitrust laws, the

illegal portions can be severed, is therefore inapposite. Here

the anticompetitive clauses are essential primary elements

of the bargain and thus cannot be severed, making all ele-

ments of the 1959 agreements unenforceable. See Superior

Bedding v. Serta Assoc., Inc., 353 F.Supp. 1143 (N.D.Il.

1972). See also Reynolds Metals Co. v. Metals Disintegrat-

mg Co., 8 F.R.D. 347 (D.N.J. 1948), aff'd 96 F.2d 90 (3d

Cir. 1949). Vendo’s reliance on the ultimate theory of the

state court litigation thus is not well taken. The 1959 agree-

ments were cut from one piece of anticompetitive cloth and

cannot be snipped apart.

Plaintiffs also argue that a violation of the “attempt to

monopolize” proscription of section 2 of the Sherman Act

occurred here. To prove violation of section 2, plaintiffs

must establish three elements of proof: (1) a dangerous

probability of actual monopolization in a relevant market;

(2) specific intent to establish a monopoly power; and (3)

overt acts. Plaintiffs need not prove that Vendo has suc-

ceeded in establishing monopoly power but must merely

show that Vendo has the capacity to make a serious attempt

to acquire monopoly status. Lorain Journal v. United

States, 342 U.S. 143 (1951); Kearney & Trecker Corp. v.

Giddings &€ Lewis, Inc., 452 F.2d 579 (7th Cir. 1971).

In the instant case the relevant market is a recognized

sub-market within the vending machine industry—coin op-

erated food and beverage vending machines. Lektro-Vend

and Vendo are actual competitors in the sub-market, al-

though the price structure of the industry prevents absolute

congruity of competition. The geographic market is nation-

wide in scope. Within this market the number of competi-

tors has been steadily declining. Between 1958 and 1966

the number of vending machine manufacturers was nearly

halved and the number of competitors with sales over

$100,000, particularly in the candy bar section of the in-

dustry, became quite small. Within this increasingly con-

App. 29

centrated market, Vendo maintained a significant market

share. While it appears that the evidence is somewhat in

conflict, Vendo’s market share is most probably over 20%.

The “attempt to monopolize” prohibition in section 2 was

intended to “nip incipient monopolies in the bud”; with

this congressional policy in mind, considering the structure

of the vending machine industry, the Court believes that,

unchecked, Vendo’s alleged practices raise a dangerous

propensity for creation of an actual monopoly.

The Court also finds that plaintiffs have produced sub-

stantial evidence that Vendo had the required specific intent

to monopolize and that it performed overt acts intended

to create a monopoly position. Prior to 1959, Vendo had

an aggressive acquisition program to buttress its product

line and market share. The courts have consistently held

that such conduct, along with other evidence of anticom-

petitive conduct, is persuasive evidence of an attempt to

monopolize. See e.g., United States v. Grinnell Corp., 384

U.S. 563 (1966). Vendo’s uniform policy of extracting

broad covenants not to compete—such as the ones involved

in the instant litigation—also evidences specific intent to

monopolize. In addition, there is evidence that Vendo used

litigation as a method of harassing and eliminating com-

petition.

The right to litigate commercial controversies comes

within the penumbra of the first amendment. Cf. Eastern

R.R. Pres. Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127

(1961); California Motor Transport Co. v. Trucking Un-

limited, 404 U.S. 508 (1972). However, if litigation is used

as an integral part of a scheme attempting to monopolize

and exclude competition from the marketplace, that litiga-

tion can lose its first amendment protection. Walker

Process Equip. v. Food Mach. Corp., 382 U.S. 172 (1965).

As the Supreme Court stated in California Motor Trans-

port:

“Tt is well settled that First Amendment rights are

not immunized from regulation when they are used as

App. 30

an integral part of conduct which violates a valid

statute ....If the end result is unlawful, it matters

not what the means used in violation may be lawful.”

404 U.S. at 5145

This holding was recently reaffirmed in United States v.

Otter Tail Power Co., 4) U.S. 366 (1973); aff'd after re-

mand, 417 U.S. 901 (1974). Thus if plaintiffs can prove

that Vendo’s state court litigation against the Stoner in-

terests was not a genuine attempt to use the adjudicative

process legitimately, antitrust liability in the instant case

under section 2 of the Sherman Act would follow. Cf. Metro

Cable Co. v. CATV of Rockford, 74-1492 (7th Cir. April 2,

1975). See also Mach-Tronics Inc. v. Zirpoli, 316 F.2d 820

(9th Cir. 1963) (antitrust liability arises from anticompeti-

tive institution of state trade secret case); Kobe, Inc. v.

Dempsey Pump Co., 198 F.2d 416 (10th Cir. 1952).

There is persuasive evidence that Vendo’s activities in

its litigation against the Stoner interests in Illinois state

court were not a genuine attempt to use the adjudicative

process legitimately. Its theft of trade secret claim was

clearly non-meritorious and litigation of this claim might

well be interpreted—considering the record as a whole— —

as an attempt to further harass the Stoner interests and

limit the amount of aid Stoner could lend Lektro-Vend.

The attempt to enforce the covenants not to compete by

way of injunction and damages may be similarly indication

of a violation of section 2. It may also be argued that, had

this litigation been legitimately undertaken to protect good

will or confidential information, Vendo would have exercised

its right to terminate Mr. Stoner’s employment as soon

as it discovered Mr. Stoner’s relationship with the Lektro-

Vend project; instead it prolonged Mr. Stoner’s employ-

ment for the full term even though he was given no duties.

As noted above, the intent of this action appears to have

been to lengthen the period for which the non-competition

covenants would run. The purpose of this portion of the

state litigation seems purely anticompetitive. If so, this

App. 31

scheme was successful, for the state litigation severely

hampered Lektro-Vend’s development.

Despite the above stated line of reasoning, defendant

contends that the Supreme Court’s decisions in Bruce’s

Juices v. American Can Co., 330 U.S. 743 (1947) and Kelly

v. Kosuga, 358 U.S. 516 (1959) bar injunctive relief under

the instant circumstances. These cases hold that the anti-

trust laws provide no defense for actions under state law

for collection of debts for sale of goods and services:

“If the contract provisions sued on in the state court

do not embody or further the anti-competitive prac-

tices, then there has been no irreparable loss or dam-

age from violation of the antitrust law” requiring in-

junctive relief.

Response of Carolina v. Leasco Response, Inc., 408 F.2d

314, 319 (5th Cir. 1974).

However, when the precise conduct proscribed by the

antitrust laws is sought to be furthered in a state court

action, the antitrust defense and injunctive relief are avail-

able in federal court. Continental Wallpaper Co. v. Lewis

Voigt & Sons, 212 U.S. 227 (1909). See also Farbenfa-

briken Bayer, A.G. v. Sterling Drug, Inc., 307 F.2d 207 (3d

Cir. 1962). Bruce’s Juices and Kelly therefore do not ap-

ply. If the state court litigation was itself part of the anti-

competitive scheme, a judgment arising from such litiga-

tion is not an ordinary debt.

On the record as a whole, the Court finds that a prelim-

inary injunction will prevent irreparable harm, protect the

public interest, and will benefit plaintiffs more than it will

burden Vendo. Continued efforts at collection will prevent

Lektro-Vend Corporation from marketing a promising,

newly-developed vending machine. The state court collec-

tion process places insurmountable barriers in the way of

raising capital for any expansion program. Moreover,

collection ef the state judgment will effectively place

Lektro-Vend in the hands of—or at least at the disposition

App. 32

of—Vendo. Stoner Investments is controlled by Mr.

Stoner; 78.57% of Lektro-Vend is owned by Stoner Invest-

ments. Needless to say, Vendo would also control Stoner

Investments. The case or controversy requirement con-

tained in Article III then would require dismissal of Lektro-

Vend and Stoner Investments. Cf. Mar Foods v. First

Nat'l Bank of Chicago, 73 C 1959 (N.D.Il. November 6,

1974). Continued collection thus would eliminate two of

the plaintiffs herein. Moreover, Mr. Stoner’s ability to

effectively prosecute this action would be severely limited

by further execution of the state court case. This also

amounts to irreparable harm. Milsen v. Southland, 454 F.2d

363 (7th Cir. 1972).

In the Court’s view, the public interest also requires

issuance of a preliminary injunction. Few public policies

are more important than protection of competition. In the

instant case, as previously mentioned, the number of com-

petitors in the vending machine market is declining. Thus

the courts have a duty to vigilantly protect the remaining

competition. The balance of equities also favors plaintiffs.

Vendo’s state judgment is protected by judgment liens and

security agreements. Stoner and Stoner Investments, de-

spite Vendo’s protestations to the contrary, have substan-

tially complied with these agreements. Vendo has already

realized over $582,000 from an escrow trust agreement. If

it is ultimately successful here, its only loss will be certain

interest payments which the Stoner interests concededly

cannot pay. On the other hand, the Stoner interests and

Lektro-Vend’s losses arising from denial of the prelim-

inary injunction will be severe, as demonstrated above. See

Semmes Motors, Inc. v. Ford, 429 F.2d 1197 (2d Cir. 1970).

Because they seek an injunction against state court pro-

ceedings, plaintiffs are faced with a special burden. The

anti-injunction statute, 28 U.S.C. § 2283, prohibits issuance

of an injunction to stay proceedings, in a state court except

wee

App. 33

under three conditions: (1) when expressly authorized by

an act of Congress, (2) where necessary in aid of jurisdic-

tion, and (3) to protect or effectuate federal judgments.

Moreover, the principles of comity and federalism militate

against unnecessarily interfering with pending state court

actions even if § 2283 is satisfied. Mitchum v. Foster, 407

U.S. 225 (1972).

There is a paucity of authority on the issue of whether

the injunction provisions contained in 15 U.S.C. § 26 pro-

vide express congressional authorization to grant injunc-

tions against state court actions. United States v. Bayer,

135 F. Supp. 65 (S.D.N.Y. 1955) indicates that express

authorization is provided while Helfenbeim v. International

Ind., Inc., 498 F.2d 1068 (8th Cir. 1971) states no such

authority exists. The Supreme Court’s decision in“Mitchum

v. Foster, supra, seems to clarify the issue. In Mitchwm, a

42 U.S.C. § 1983 case, the Court held that to qualify under

the “expressly authorized” exception of the anti-injunction

statute, a federal law need not contain an express reference

to § 2283 nor expressly authorize an injunction of a state

court proceeding. To qualify as an expressly authorized

exception the statute would, however, have to create

“a specific and uniquely federal right or remedy,

enforceable in a federal court of equity, that could be

frustrated if the federal court were not empowered to

enjoin a state court proceeding.” 407 U.S. at 237.

These tests are equally applicable to antitrust actions.

When Congress passed the various antitrust laws it clearly

created federal rights and remedies enforceable in a federal

equity court. In fact, such power was exclusively vested in

the federal court system, indicating congressional approval

of enjoining certain state actions, if necessary. Cf. Lemel-

son v. Ampex, 372 F. Supp. 708 (N.D. Ill. 1974). This Court

therefore holds that these laws, in the instant case, can only

be given their intended scope by staying the state court

proceedings and that § 2283 authorizes an injunction here

App. 34

where the state court proceedings are part of the anti-

competitive scheme.

The Court also holds that § 2283 authorizes an injunction

here because further collection efforts would eliminate two

plaintiffs, Stoner Investments and Lektro-Vend Corp., as

parties under the case or controversy provisions of Article

IIT since they would necessarily be controlled by Vendo.

Vendo’s offer to place the Stoner Investment and Lektro-

Vend stock under control of the Court does not meet this

problem because as a matter of substance Vendo would con-

trol both plaintiff and defendant, requiring dismissal under

Article III. Thus the injunction is also necessary to protect

the jurisdiction of the Court. Principles of comity and

federalism do not prevent the issuance of an injunction

considering the peculiar nature of this case. The federal

action here is based in part on the very proceeding sought

to be enjoined. If federal law is violated by continuation

of the state action the paramount national interest requires

court intervention.®

Since the Court has determined that a preliminary in-

junction should issue, the terms and conditions of the

injunction must be determined. The first issue is what type

of security must plaintiffs produce pursuant to F.R.Civ.P.

65(c). The amount of security required is within the sound

discretion of the court and is intended to protect against

such cost and damages as may be incurred by any party

wrongfully restrained or enjoined. However, there is no

liability for damages resulting from issuance of an injunce-

tion erroneously granted unless the suit was prosecuted

maliciously and without probable cause. See 7 Moore’s

Federal Practice § 65.10 at p. 98 and cases cited therein.

° The findings contained herein are interlocutory in nature neces-

sarily based on an ineomplete record. Of course, a complete trial

specifically directed to the issues in this case might produce evi-

dence requiring a different or more limited result.

App. 35

Because the plaintiffs have placed considerable evidence in

the record demonstrating illegal anticompetitive behavior

on the part of Vendo, it seems unlikely that Vendo will be

able to prove any compensable damage arising from issu-

ance of this injunction. Moreover, since this injunction will

not remove the pre-existing judgment liens, Vendo remains

well protected. Accordingly, a nominal bond of $2,500.00

(Twenty Five Hundred Dollars) will be required. See

Scherr v. Volpe, 466 F.2d 1027 (7th Cir. 1972); Urbain v.

Knapp Bros. Mfg., 217 F.2d 810 (6th Cir. 1954).

The remaining issue concerns the scope of the prelim-

inary injunction. Such an injunction should protect plain-

tiffs from harm due to collection of the state court judg-

ment while preserving the Stoner interests’ assets so that

Vendo will be able to collect on the judgment if it is ulti-

mately successful. The Court believes that these two goals

can be accomplished by enjoining further collection efforts

but leaving intact those portions of the state decrees (and

liens) which prevent transfer of any of the Stoner assets.

As previously indicated, Mr. Stoner and Stoner Invest-

ments will be required to pay all taxes, utilities and main-

tenance from currently collected income to preserve the

assets. Plaintiffs shall prepare and present on notice a

draft order in conformance with the views expressed herein

within ten (10) days.

It Is So OrpERED

ENTERED:

/s/ R. W. McLaren

United States District Judge

Datep: May 29, 1975

App. 36

APPENDIX E

Preliminary Injunction Order of the

United States District Court for the

Northern District of Illinois

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

LEKTRO-VEND CORP., a Delaware 7

corporation, HARRY B. STONER

and STONER INVESTMENTS, INC.,

a Delaware corporation,

Plaintiffs,| Wo. 65 01755

THE VENDO COMPANY, a

Missouri corporation,

Defendant. |

ORDER GRANTING PRELIMINARY INJUNCTION

Tuts Cause Cominc on For Hearne on plaintiffs’ motion

for a preliminary injunction and the Court having con-

sidered the pleadings, the record, the evidence and argu-

ment and the post-trial briefs submitted by the parties, and

the Court having made its findings of fact and conclusions

of law, as more particularly appear in its Memorandum

Opinion and Order dated May 29, 1975; and

Ir APPEARING TO THE CouRT:

1. That the plaintiffs have demonstrated likelihood of

ultimately prevailing on the merits of their claims under

Section 1 and Section 2 of the Sherman Act, as alleged in

Count I of the Amended and Supplemental Complaint;

2. That the balance of equities favors plaintiffs in that

the harm to defendant from the issuance of the preliminary

App. 37

injunction will be slight, whereas denial thereof would re-

sult in severe loss to plaintiffs ;

3. That plaintiffs will suffer irreparable harm if a pre-

liminary injunction is not granted in that the continued

action of the defendant in collecting its state court judg-

ments, hereinafter enjoined: (a) will prevent Lexrro-

Venp from marketing a promising, newly-developed vend-

ing machine, and put insurmountable barriers in the way

of its raising capital necessary to the prosecution of its

business; (b) will effectively place Stoner INVESTMENTs,

Inc. and Lextro-Venp Corp. under the control of defendant,

which would require dismissal of the action under Article

III of the Constitution of the United States as to said

plaintiffs; and (c) will severely limit the ability of the indi-

vidual plaintiff effectively to prosecute this action;

4. That the public interest in protection of competition

requires the issuance of a preliminary injunction; that the

paramount national interest requires court intervention by

a preliminary injunction herein; that the failure to issue

such injunction will deprive the Court of full and effective

jurisdiction of the said federal antitrust claims set forth

in Count I of the Amended and Supplemental Complaint

and will impair, obstruct, or render fruitless the Court’s

determination of said claims; and that a preliminary in-

junction as provided herein is necessary to protect the

jurisdiction of this Court; and

The Court being sufficient advised in the premises, It

Is ORDERED:

1. That the liens of those certain judgments in the

amounts of $170,835 and $7,345,000, plus costs of suit,

entered on August 13, 1971, in the cause entitled The Vendo

Co. v. Harry B. Stoner and Stoner Investments, Inc., Gen-

eral No. 65-2134, in the Cireuit Court for the Sixteenth

Judicial Cireuit, Kane County, Illinois, and the two Bonds

and the Security Agreement In Connection With Appeal

Bonds, which Bonds and Agreement were dated and were

App. 38

approved December 14, 1971, by the Honorable John S.

Peterson, Cireuit Judge, and which were entered into in

connection with said judgments, remain in full force and

effect. A copy of said Security Agreement is attached

hereto and marked Exhibit A, and the parties thereto shall

abide by the terms thereof, except that where said Security

Agreement requires or permits application to the Court,

such application shall hereafter be made to this Court. In

order to preserve said assets subject to said judgment liens

while this injunction is in foree, Harry B. Sroner and

Stoner INVESTMENTs, Inc. shall pay all taxes on, and bills

for utilities and maintenance of said assets, including in-

surance presently covering said assets, from currently

collected income.

2. That the enforcement of those certain supplementary

Proceedings to Discover Assets Citations which defendant,

Tue VeNpo Company, has caused to be issued in connection

with said state court judgments, namely:

Respondent Date Issued

Chicago Title & Trust Co. December 20, 1974

Stoner Investment, Ine. January 3, 1975

Valley National Bank January 3, 1975

Dreyer, Foote & Streit Assoc. January 21, 1975

Harry B. Stoner January , 1975

Clifford Zabka January 21, 1975

be and they are hereby stayed, provided, however, that

VeNpo may apply to the Cireuit Court for the Sixteenth

Judicial Cireuit, Kane County, Illinois, from time to time,

for periodie extensions of said Citations, in order to pre-

vent the automatic termination thereof, as provided by TIli-

nois Supreme Court Rule 277(f), and plaintiffs may not

object to such applications. All assets of Stoner and Stoner

INVESTMENTS, Inc. attached as the result of said Citations

are released to the extent that Sroner and Sroner In-

VESTMENTS, Inc. may collect all rent, interest, dividends,

salaries, bank deposits, or other amounts due and owing

App. 39

to them from the entities and persons named in said Cita-

tions.

3. Nothing in said Security Agreement shall preclude

Sroner InvestTMENTS, Inc., in the ordinary course of busi-

ness, from:

(a) collecting rents, interest, dividends and other

income deriving from its assets for use as funds for

payment of taxes, maintenance, insurance, and utili-

ties so as to conserve and protect its assets;

(b) opening, maintaining, and using checking and

savings accounts in any federally or state chartered

bank in Illinois (Stoner INvesTMENTs shall give notice

to defendant of the establishment of any new account).

(ec) paying all trade and other creditors’ obligations

incurred in the ordinary course of business;

(d) paying to its employees, excepting Harry B.

Sroner, their ordinary salaries and wages;

(e) agreeing with any bank to conipletely cancel or_

subordinate any accounts receivable, notes or obliga.

tions which were in existence prior to January 14, 1975,

including interest thereon, owing to Stoner Lyvest-

MENTS, Inc. by Lektrro-VeND Corp., to any loans to

LextTro-VEenp Corp. by such bank or other lender.

4. Plaintiffs shall be authorized to pay their reasonable

attorneys fees for services and expenses in this case, but

plaintiffs may not make payments therefor prior to the

rendering of such services or the incurring of such ex-

penses, and this Court’s approval shall be required before

any such fees or expenses are paid.

5. This order shall not be construed to prevent defendant

or its agents or attorneys from participating in any pending

contempt proceedings in Kane County, Illinois Circuit

Court, provided that such participation is required by that

Court and that the Kane County Court determines to pro-

ceed sua sponte with that action.

App. 40

6. Until otherwise ordered by this Court, the defendant,

Tue Venpo Company, its agents, servants, employees and

attorneys, and all persons in active concert or participation

with them, are enjoined from taking any further steps to

enforcer collect, or attempt to enforce or collect, or com-

mence or prosecute any related or supplementary actions

or proceedings with regard to those certain judgments in

the amount of $170,835 and $7,345,500, plus costs of suit,

entered on August 13, 1971, in the cause entitled The Vendo

Company v. Harry B. Stoner and Stoner Investments, Inc.,

General No. 65-2134, in the Circuit Court for the Sixteenth

Judicial Cireuit, Kane County, Illinois.

7. Plaintiffs shall not dissipate any assets which may be

subject to the above-described judgments and they shall

make no expenditures or investments out of the ordinary

course without Court approval.

Ir 1s, THEREFORE, FurTHER OrveRED that upon filing by

plaintiffs of an undertaking in the sum oi Twenty-Five

Hundred Dollars ($2,500.00), in the form of a surety bond,

or bond secured by the deposit of that sum in cash with the

Clerk of this Court, for the payment of such costs and

damages as may be incurred or suffered by defendant if it

is found to have been wrongfully enjoined, there issue out

of this Court, under the seal thereof, a Writ of Preliminary

Injunction, restricting said defendant, its agents, servants,

employees and attorneys and all persons in active concert or

participation with them, from doing any of the facts pro-

hibited herein, unless otherwise ordered by this Court.

ENTERED:

R. W. McLaren

United States District Judge

Datep: June 27, 1975

App. 41

APPEAL TO THE APPELLATE COURT OF ILLINOIS

SECOND JUDICIAL DISTRICT

FROM THE

CIRCUIT COURT FOR THE SIXTEENTH JUDICIAL

CIRCUIT, KANE COUNTY, ILLINOIS

THE VENDO COMPANY, :

Plaintiff-Appellee,

— | No. 65. C-2134

HARRY B. STONER and

STONER INVESTMENTS, INC.,

Defendants-Appellants. |

SECURITY AGREEMENT

IN CONNECTION WITH

APPEAL BONDS

AGREEMENT between Harry B. Stoner, Ann M. Sroner

and Stoner INVESTMENTs, Inc.

Wuereas, on August 13, 1971, the Court entered judg-

ments in this case against the defendant, Harry B. Stoner,

individually, and against dcfendants Harry B. Stoner and

Sroner IyvestTMEnNtTs, [nc.; and,

Wuereas, Notice of Appeal from said judgments was

filed in the Circuit Court for the Sixteenth Judicial Circuit,

Kane County, Illinois, on November 3, 1971; and,

Wuereas, Harry B. Stoner, individually and Sroner

INVESTMENTS, Inc. have executed appeal bonds in connec-

tion with their appeal of said judgments; and,

Wuereas, said Defendants-Appellants are unable to

provide a surety company bond or schedule real or personal

property as security for said bonds, yet are of the opinion

App. 42

that they have good and meritorious grounds for appeal

of said judgments; and,

Wuereas, it is to the mutual benefit of the parties that

this Security Agreement be executed by the Appellants to

secure the Appellee and in order to permit the prosecution

of said appeal without undue burden on the Appellants and

without unduly jeopardizing the rights of Appellee to

collect said judgments, if they are affirmed.

Now, THererore, It Is AGREED between Harry B. Stoner

and Ann M. Stoner, as shareholders, directors and officers

of Stoner InvesTMENTs, Inc., and by Stoner INVESTMENTS,

Inc. :

1. Harry B. Stoner and Ann M. Sroner represent that

they are the sole stockholders of Stoner INvEstMENTs, INc.,

holding 245 shares and 155 shares, respectively, which

shares are all of the stock issued and outstanding of an

authorized issue of 1,000 shares; that Harry B. Stoner is

President and Ann M. Stoner is Assistant Secretary of

Stoner Investments, Inc. and, together, they comprise two

of the three member Board of Directors.

2. Harry B. Stoner and Ann M. Sroner represent they

are duly authorized to execute this Agreement for and on

behalf of Sroner Investments, Inc.; that the balance sheet

for the year ended December 31, 1968 and the balance sheet

as of September 30, 1971, attached hereto as Exhibits A

and B, fairly reflect the financial condition of Stoner

INVESTMENTS, INc. as of the dates stated. No material

adverse change has since occurred.

3. Harry B. Stoner and Ann M. Stoner hereby repre-

sent that Stoner Investments, Inc. has made no invest-

ments in, advances to or guarantees of the obligations of

any company, individual, or other entity, except those dis-

closed in said balance sheets.

4. Harry B. Stoner and Ann M. Stoner agree that as

a condition of the Court’s approval of the said Appeal Bonds

App. 43

signed by said Stoner Investments, Inc. and Harry B.

Sroner that during the term of said bonds, less other-

wise permitted by order of court, upon notice to plaintiff,

and for good cause shown:

(a) They will continue to act in their said cap*-ity

as officers and directors of Stoner Investments, Inc.

(b) Will not transfer or sell any of said shares of

stock now owned by them; and

stock of Stoner Investments, INc., or an increase in

the membership of its Board of Directors.

5. Sroner Investments, Inc., during the term of said

bond, except as permitted by order of court, upon notice to

plaintiff, and for good cause shown, will not:

(a) Sell or dispose of any of its assets below the

fair value thereof.

(b) Purchase any shares of its stock.

by good business or in order to prevent possible ad-

verse tax consequences, if a dividend were not declared.

(d) Become a party to any merger or consolidation

with any other company.

(e) Increase the aggregate compensation of its

officers or directors in any fiscal year more than ten

per cent (10%) above the compensation paid during

the preceding fiscal year; and

(f) Make any material change in the management

of Stoner Investments, Inc. or conduct its business

other than in a good and businesslike manner.

6. Promptly after approval of this Security Agreement

and the appeal bonds to which it is related, by the Circuit

App. 44

Court of Kane County or by the Appellate Court of Lllinois

for the Second District or by the Supreme Court of Illinois,

Stoner InvestMENTS, Inc. will cause the trustees of all the

land trusts of which Stoner Investments, Inc. is the bene-

ficial owner, to convey all the lands held by such trusts to

Stoner Investments, Inc. and the lien of said judgments

will attach thereto.

7. Svoner Investments, Inc. will enter into an Escrow

Agreement with The Chicago Title and Trust Company,

satisfactory to that company, which will provide for the

deposit with The Chicago Title and Trust Company of the

net proceeds of the sale of real estate sold by Sroner

InvesTMENTS, INnc., or by any land trust of which SToner

INVESTMENTS, Inc. is the beneficial owner, which proceeds

may be invested by The Chicago Title and Trust Company

and which investments shall be held by Chicago Title and

Trust Company and the income thereon accrued and added

to the fund. The Escrow Agreement shall also provide that

a portion of the net proceeds (not to exceed, in any one

year, the lesser of (a) $15,000, or, (b) the net proceeds

deposited in that year), of sales of real estate so deposited

are to be paid by The Chicago Title and Trust Company to

Stoner Investments, Inc. to reimburse Stoner INvest-

MENTS, Inc. for real property taxes, interest, penalties and

costs levied and paid on unimproved property held directly

or indirectly by Stoner INvestMEnts, Inc.

8. Defendants have made a disclosure of the terms of a

certain lease entered into between Merchants National

Bank, as Trustee under Trust No. 1824, and Stoner Shop-

ping Center, Ine., dated May 1, 1971, by furnishing Venpo

with a copy thereof, but nothing in this Security Agreement

shall be construed as denying VeNpo the right to claim that

Defendants have a property interest in Stoner Shopping

Center, Ine.

In Witness WuereEor, the parties hereto have signed this

Agreement as of the 14th day of December, 1971, to become

App. 45

effective upon the approval thereof by the Circuit Court of

Kane County.

Harry B. SToner

Harry B. Stoner

Anw M. Stoner

Ann M. Stoner

Sroner INVESTMENTs, INc.

By Harry B. Stoner,

Attest: Harry B. Stoner,

President

Ann M. Sroner

Ann M. Stoner

Asst. Secretary

Taken and approved by me this 14th day of December,

1971.

Joun B. Petersen

Circuit Judge

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.