# Petition — REA Express, Inc. v. Travelers Insurance Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_2248%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1977 - **Citation:** 434 U.S. 858 ## Text Supreme Court of the United States OcTOBER TERM, wee): REA Express, Inc., on its own behalf and on behalf of certain of its former employees now retired, Petitioner, v. THE TRAVELERS INSURANCE COMPANY, et al., Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT ArTHUR M. WISEHART WISsEHART, Friou & Kocn Bar Building 36 West 44th Street New York, New York 10036 (213) 730-0044 Attorney for Petitioner S. CHESTERFIELD OPPENHEIM 1730 Pennsylvania Avenue, N.W. Washington, D. C. 20006 Of Counsel Paess or Byron S. ADAMS PRINTING, INC., WASHINGTON, D.C. a og TABLE OF CONTENTS Page ELIE Seta Gee FEY Fe ES 1 Ne ee cca uaes 2 I nS ee ee 2 a ads aed ccUbudn 2 EE Sr ne ee 3 Basis FoR FepERAL JURISDICTION ..........00ce0ceees 4 Reasons roR GRANTING THE WRIT ..............0005: 6 Question 1: Whether Bangor Punta Encompasses EF TE SES ig) aso as ge Ra a 6 1. Creditors’ Interests .......ccccccccccces 8 ee as ec a ceeenee 10 yp GS exc avenwceuoeaasun 11 4. Distinction Between Legal and Equitable PCA SECTORS 12 i Gt vi wccndecotcdebscedee 14 6. The Contemporaneous Ownership Rule .. 15 Question II: The Impact of Illinois Brick ....... 17 Question III: The Propriety of Summary Judg- BD. ed gekkecddscbdeekaed bina tenenensiaeay 19 - .. s cicasetetassaddebenelanumineke 22 Aprenpix A: Section 1 of the Sherman Act, 15 U.S.C. Dt ives duueecanckeredinasneediacnen eee la Appenpix B: Opinion of the United States Court of Appeals for the District of Columbia ........... 5a Appenpix C: Memorandum and Order of the United ee EO eee 8a ii INDEX OF CITATIONS CasEs: Page Bangor Punta Operations v. Bangor & Aroostook ailroad Co., 417 U.S. 703 (1974) ............ passim Continental Ore Co. v. Union Carbide & Carbon Co., Dee Weems Ge CREE ccvecdecnenscenss dens dawns 17 Fleitmann v. Welsback Street Lighting Co., 240 U.S. Oy COMO os os dao n4atkdvidiadecs eee 13 Fortner Enterprises, Inc. v. U.S. Steel Corp., 394 U.S. oR ee BR re ere ee 17 Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) .. 7 Hanover Shoe, Inc. v. United Shoe Machinery Corp., ee eras Ge Oe COG CRe v6 vnc casauies checane Home Fire Insurance Co. v. Barber, 67 Neb. 644, 93 Ss UE 0 0b Dr ccths bnesde bee ciao 6, 14 Illinois Brick Company v. State of Illinois, ——~— US. —, 45 U.S.L.W. 4611 at 4615 .......... 2, 13, 17,18 Minnesota Mining & Mfg. Co. v. New Jersey Wood Finishing Co., 381 U.S. 311 at 318 (1965) ........ 17 Northern Pacific Railroad Co. v. United States, 356 7 AE Reel ee Ser erie et are 7 Pepper v. Litton, 308 U.S. 295, 306-307 (1939) ...... 21 Perma Life Mufflers, Inc. v. International Parts Corp., a I FR erry 8, 13, 16 Poller v. Columbia Broadcasting System, Inc., 368 U.S. — Freer sdutneatdueconee 19 Radiant Burner v. People Gas Light & Coke Co., 364 ek SEE nsnwakantees vents absce bar ea 17 Radovich v. National Football League, 352 U.S. 445 at Sy EE os b's KR b Man bdannd os dbeet ant ds toes 8,17 REA + ¥* Inc. v. Travelers Insurance Co., et al., Ge hn SI, Bie MIE cevccccdccsccdcnvdsess 2 Ross v. Bernhard, 396 U.S. 581 (1970) .............. 13 Timken Roller Bearing Co. v. United States, 341 U.S. EE och ni.deb iin’ daben seed tuseawdhaasse 16 United Mine Workers v. Gibbs, 383 U.S. 715 (1977) .. 3 United States v. Diebold, Inc., 369 U.S. 654, 655 EE 64 cba idlndddedeiedkedd saab xk éhoda 9,11 United States v. National Association of Real Estate Boards, 339 U.S. 485 (1950) ..........esceeeees 7 United States v. Soconoy-Vacuum Oil Co., 310 U.S. CEE n'tn 6 tang nda chbelduvand éuaka weknenbe 7 United States v. Trenton Potteries Co., 273 U.S. 392 EN ch bnd-ns ab be maidens dade akdedhieaalans 7 White Motor Co. v. United States, 372 U.S. 253 (1963) 19 Index of Citations Continued ili Page Rute: Federal Rule of Civil Procedure 15(b) .............. if) STaTuTes: Clayton Act, 15 U.S.C. §$ 15, 20 ............ 2, 4, 6, 12, 13 Sherman Antitrust Act, 15 U.S.C. §1-3 ............ 2,4 EE ED cc ccudiSb.ccoedccvccacoeesegaess 2 Se RS Ee EE TE IS, o De ccccccecceectesoesone 4 i Ns os cee teesesabeesdetég wet 4 OrHer AUTHORITIES: 4A Collier on Bankruptcy 70.29[3] .............545. 21 New York Debtor & Creditor Law § 276 ............ 10 Report of the Attorney General’s National Committee to Study the Antitrust Laws, page 30, fn.106.... 16 Report of Dermott Noonan, C.P.A., to Robert L. Wright, Esq., special counsel to the trustee, dated September 27, 1976, and filed in the Bankruptcy Court, S.D.N.Y., in Matter of REA Express, Inc., a bankrupt, 75-B-253 ..........+eeeeeeeee 20 Rosenberg, ‘‘Intercorporate Guaranties and the Law of Fraudulent Conveyances: Lender Beware,’’ 125 U.Pa.L.Rev. 235 at 259 (1976) ...5.....- cee ee ee 10 RET CET eee = TR a RES - = UT IS Ss a i I TI I cs se IN THE Supreme Court of the United States OcToBER TERM, No. REA Express, INc., on its own behalf and on behalf of certain of its former employees now retired, Petitioner, v. THE TRAVELERS INSURANCE COMPANY, et al., Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT REA Express, Inc., (‘‘REA’’), through its trustee in bankruptcy, C. Orvis Sowerwine, petitions for a writ of certiorari to review a judgment in the above entitled case by the United States Court of Appeals for the District of Columbia Circuit. The judgment affirms in part and reverses in part a decision of the United States District Court for the District of Columbia. OPINIONS BELOW The opinion of the Court of Appeals is set forth at pp. 5a-7a of the appendix annexed hereto. The District Court’s opinion is at pp. 18a-19a. It is also reported 2 as REA Express, Inc. v. Travelers Insurance Co., et al., 406 F.Supp. 1389 (1976). JURISDICTION The judgment of the Court of Appeals was dated and entered on April 21, 1977. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). QUESTIONS PRESENTED 1. Whether the reach of this Court’s decision in Bangor Punta Operations v. Bangor & Aroostook Rail- road Co., 417 U.S. 703 (1974), encompasses the circum- stances of this case, which include inter alia per se antitrust violations, substantial insurance companies not involved in the prior ownership of the plaintiff, creditor fraud, and a subsequent bankruptcy in the in- terest of which this case is now being pursued. 2. Whether those guilty of per se antitrust viola- tions will be permitted to escape liability altogether if no proper party plaintiff exists under this Court’s rulings in Bangor Punta and Illinois Brick. 3. Whether the District Court improperly used summary judgment to pretermit trial on important factual issues on which defendants’ claim of an anti- trust exception is based. STATUTES INVOLVED The statutes involved are Sections 1-3 of the Sher- man Antitrust Act, 15 U.S.C. §1-3, and §§4 and 10 of the Clayton Act, 15 U.S.C. §§15, 20, which are set forth in Appendix A annexed hereto. 3 STATEMENT OF THE CASE The case presented by this petition is simple, but im- portant. It involves antitrust claims based upon the purchase of group benefits for former employees of the bankrupt, REA Express, Inc. As a result of REA’s bankruptcy, the life insurance benefit of the retired employees has lapsed. They and others are creditors of the bankrupt estate. It appears that the assets of the bankrupt will be inadequate to pay any part of the claims of the general creditors unless substantial re- coveries are obtained from petitioner’s antitrust liti- gation. Claims exceed assets by substantially in excess of $40 millicn. The District Court dismissed petitioner’s claims with prejudice on the basis of motions for summary judgment by respondents. In a per curiam decision, the Court of Appeals af- firmed in part and reversed in part. It affirmed re- garding the antitrust claims, stating simply, without analysis, that they ‘‘are foreclosed by Bangor Punta Operations v. Bangor & Aroostook Co., 417 U.S. 703 (1974).’’ However, regarding the pendent state claims, the Court of Appeals reversed the District Court’s ‘“‘with prejudice’’ dismissal, quoting from United Mine Workers v. Gibbs, 383 U.S. 715 (1977). Finally, the Court of Appeals said (7a) : ‘It is our view that the insurance claims of for- mer employees of appellant are not part of this litigation, so nothing herein or in the District Court’s opinion should be read as affecting those claims. Nor are the claims of creditors of the bank- rupt appellant before this court. Consequently any claims they may have against appellees herein also remain unaffected by our judgment and the judg- ment of the District Court.’’ (Footnotes omitted.) 4 BASIS FOR FEDERAL JURISDICTION The District Court’s jurisdiction in this case is con- ferred under Section 4 of the Clayton Act (15 U.S.C. §15), for violations of the antitrust laws, 28 U.S.C. §§ 1321 and 1337, D.C. Code § 11-501, and under the doctrine of pendent jurisdiction. The amended complaint alleges inter alia, an illegal per se price-fixing combination and conspiracy between The Travelers Insurance Company (‘‘Travelers’’), the railroad defendants, and their collective bargain- ing conference committees, in violation of Sections 1, 2 and 3 of the Sherman Act. The complaint also alleges violation of Section 10 of the Clayton Act, based upon the interlocks between railroad officials and REA’s Board of Directors, and pendent state claims including breach of fiduciary duty by the interlocked directors, unjust enrichment, and excision of insurance benefits without consideration. The focal claim of REA revolves around the pur- chase by REA, then owned and dominated by a rail- road-interlocked Board of Directors, of a Travelers group insurance policy for its employees, which re- quired REA to pay the same uniform premiums per employee/month as did the railroads. REA was co- erced into participation in the master Travelers policy, since all of REA’s officers were under the control of a Board of Directors composed of railroad officers. The Travelers’ master policy uniform premiums were fixed collusively by Travelers and the railroads without reference to the costs of an individual em- ployer. As revealed in discovery, a number of other large insurance companies participated as ‘‘re-insur- ers’’, further extending the effect of the anti-competi- tive activity. 5) Absent competitive bidding and price competition, REA was thus compelled to pay substantially higher uniform rates fixed by the defendants than it could have obtained individually from other insurance com- panies. By an Amendment 16 to the master policy, adopted without the participation of REA, and in anticipation of its sale by the railroads, insurance un- der the policy regarding a given class of employees, ineluding previously retired employees, was made to terminate on the date the employer withdrew from the policy. REA did withdraw from the policy and prior to its adjudication as a bankrupt on November 6, 1975, REA obtained insurance coverage for its em- ployees at premiums lower than the uniform premiums conspiratorially fixed by the defendants. When REA was adjudicated a bankrupt, the insurance benefits of its former employees, including the life insurance of those who retired prior to REA’s sale by the railroads, lapsed because premiums could no longer be paid. This iilegal per se price-fixing conspiracy caused substantial injury to REA, while giving the railroads the benefits from the excess premiums paid by REA and greater profits for Travelers and the large insur- ance companies participating as re-insurers. Following three years of extensive discovery through interrogatories and production of documents, REA filed a motion for partial summary judgment based on its belief of undisputed facts related to the above- described illegal per se price-fixing conspiracy. The defendant railroads and Travelers filed cross-motions for summary judgment based on this Court’s 5-4 ruling in Bangor Punta. 6 REASONS FOR GRANTING THE WRIT Question I: Whether Bangor Punta Encompasses This Case The holding in Bangor Punta was that the controll- ing shareholder of over 99 per cent of the railroad’s stock, Amoskeag Company, the real beneficiary of any corporate recovery, lacked standing to sue in equity on the principle that a stockholder may not reap a ‘‘windfali’’ profit from acts of corporate mismanage- ment, if he acquires his shares from the alleged wrong- doers after the wrongs occurred. 417 U.S. at 711, 712. The majority relied principally on Home Fire Insur- ance Co. v. Barber, 67 Neb. 644, 93 N.W. 1024 (1903). This petition is based on the importance of resolv- ing the important and novel issue of the conflict be- tween standing to sue for treble damages in a private antitrust suit, under Section 4 of the Clayton Act, for an alleged illegal per se price-fixing combination and conspiracy, in violation of the Sherman Act, and stand- ing in an equity suit grounded on private corporate law principles pertaining to corporate waste and mis- management. The decision of the District Court, affirmed by the Court of Appeals in a per curiam opinion, holding that REA’s federal claims are foreclosed by Bangor Punta, totally misconceives the rationale and ruling of the ma- jority opinion in that case. The decision also results in an unjust and harsh result, which petitioner believes is erroneous as a matter of law, and not intended by the limited ruling of the Bangor Punta majority. Petitioner’s basic position is that the two lower courts indiscriminately applied the decision in Bangor Punta to the radically different circumstances in 7 REA’s suit. In doing so, the rulings below are in direct conflict with this Court’s series of decisions upholding private treble-damage suits under Section 4 of the Clayton Act as a Congressional enactment to redress injury to a nerson’s property or business causally re- lated to an antitrust violation and as a deterrent to other such violations. This Court has repeatedly condemned conspiratorial price-fixing as conclusively presumed to be unreason- able per se restraints, without elaborate inquiry into the precise injury to competition or the business justifi- eation for their use. See Northern Pacific Railroad Co. v. United States, 356 U.S. 1 at 5 (1958). The Court has not receded from its condemnation of horizontal, illegal per se price-fixing agreements as reflected in the recent application of that rule even to minimum fee schedules of bar associations in Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975). There the opinion of a unanimous Court stressed that ‘‘more comprehensive’”’ language than that of the Sherman Act ‘‘is difficult to conceive.’’ 421 U.S. at 787. Con- spiratorial price-fixing has been repeatedly regarded by this Court as a classic illegal per se Sherman Act violation. The uniform premiums fixed by the defend- ants in REA’s suit, including inordinate profit margins and costs, clearly fall within the Congressional con- demnation of concerted price-fixing, which this Court has construed strictly ever since its landmark rulings in United States v. Trenton Potteries Co., 273 U.S. 392 (1927) and United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940). Those ruling were later applied to conspiratorial prices for services in United States v. National Association of Real Estate Boards, 339 U.S. 485 (1950). 8 In all those cases, this Court has emphasized the Con- gressional intent that the strong public policy against price-fixing combinations be construed strictly against any claims of exception thereto. Petitioner submits that the grounds for granting the writ in this case are as compelling as those recognized by the Court in Perma Life Mufflers, Inc., v. Interna- tional Parts Corp., 392 U.S. 134 (1968). There Mr. Justice Black’s majority opinion revealed that because the ruling by the Court of Appeals ‘‘seemed to threaten the effectiveness of the private antitrust action as a vital means for enforcing the antitrust policy of the United States, we granted certiorari... .’’, 392 U.S. at 136. In Radovich v. National Football League, 352 U.S. 445 at 454 (1957), the Court stressed that ‘‘require- ments to burden the private litigant beyond what is specifically set forth by Congress’’ should not be added to the antitrust laws by the courts, For convenient reference, we present below excerpts from the majority opinion in Bangor Punta to show that substantial questions exist as to whether its reach encompasses the radically different circumstances of this case. 1. Creditors’ Interests The Bangor Punta opinion notes that the action was not brought on behalf of any creditors, that it was never so contended by the plaintiffs, and that ‘‘the financial health of the railroad is excellent.’’ Footnote 15, 417 U.S. at 718. As the District Court below itself recognized, the aspect of this case ‘‘perhaps most troubling’’, is the argument (16a-17a) 9 ‘*. .. that the interests of the REA employees and creditors make Bangor Punta inapplicable. The caption of the complaint asserts that REA sues in its own capacity and on behalf of its em- ployees. Moreover, REA was adjudicated a bank- rupt on November 6, 1975, so that any recovery in this lawsuit would first inure to the benefit of the estate, and be distributed ultimately to the ereditors of REA.”’ The Court of Appeals, in that portion of its per curiam opinion quoted above at p. 3, states that ‘‘the insurance claims of former employees of appellant are not part of this litigation’’. However, this is not an insurance claim, but an antitrust claim, the proceeds of which are sought to fund the insurance benefits of the employees which lapsed, converting them into credi- tors, and to pay other creditors monies to which they are rightfully entitled for furnishing goods and services. In addition to being contrary to the admonition of United States v. Diebold, Inc., 369 U.S. 654, 655 (1962), regarding the proper procedure on summary judg- ment, the handling of this case by the courts below is wholly inconsistent with the fact that under Federal Rule of Civil Procedure 15(b), the pleadings ought to be deemed amended to conform to the proof. This is especially important here since the bankruptcy of REA interceded following the initial pleading in the ease, and the ‘‘with prejudice’’ dismissal was on mo- tions for summary judgment. Neither reasons of judi- cial efficiency nor the limited resources of the bank- rupt estate support that cavalier treatment of the anti- trust claims which, in the light of present circum- stances, are the chief hope of recovery of thousands of creditors. 10 2. Fraud or Deceit ‘*Amoskeag does not contend that the purchase transaction was tainted by fraud or deceit... .”’ 417 U.S. at 710. Count V of the complaint alleges that Amendment No. 16 to the policy, wiping out the vested life insur- ance benefits of 4,000 employees was adopted by the de- fendants without consideration to REA. The effect of this amendment was to wipe out the vested life in- surance benefits from the railroads’ group policy for several thousand employees who retired while REA was still owned by the railroads. These employees are now creditors of the bankrupt as a result. Such a trans- action with inadequate consideration, made with intent to hinder or delay either present or future creditors, is deemed fraudulent under the Uniform Fraudulent Conveyances Law (adopted in New York where the bankrupt’s principal place of business was located). N. Y. Debtor & Creditor Law § 276. While the word ‘‘fraud’’ was not used in the com- plaint, lack of consideration and breach of fiduciary duty were alleged, and the action was brought by plain- tiff on its own behalf ‘‘and on behalf of certain of its former employees now retired’’. Actual ‘‘fraud’’ may be inferred in such circumstances when, as here, the transactions were not at arm’s length and the parties were affiliated corporations. See Rosenberg, ‘‘Inter- corporate Guaranties and the Law of Fraudulent Con- veyances: Lender Beware,’’ 125 U.Pa. L.Rev. 235 at 259 (1976). Further, creditor fraud was clearly put in issue by plaintiff’s affidavits and its statement of genuine issues of fact necessary to be litigated: esie tee ee ee. Oe ee ee. ee. cele ~ aes ree ee -< 11 ‘‘Amendment No. 16 and the circumstances of the sale of REA were fraudulent with respect to REA, its creditors, employees, retired employees and purchasers.’’ (J.A. 89). The only further requirement under the Uniform Fraudulent Conveyances Act is insolvency or under- capitalization when the transaction occurred, a cireum- stance which also was put in issue by the statement of disputed issues (ibid.) : ‘‘On or about the time of the sale of their REA stock by the railroads, REA was undercapitalized, and the effect of Amendment No. 16, adopted with- out consideration for REA, was to aggravate that condition as to REA’s present and future credi- tors.”’ We stress the foregoing discussion of creditor fraud not to establish an independent basis of an action for fraudulent conveyances, but to show that a substantial question exists whether, under Bangor Punta, federal antitrust causes of action should be viewed as having been extinguished. Thus, having in mind that ‘‘[o]n summary judgment the inferences to be drawn from the underlying facts contained in such material [affidavits, exhibits and depositions] must be viewed in the light most favor- able to the party opposing the motion’’, this case, un- like Bangor Punta, must be regarded as one involving fraud or deceit. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). 3. Non-Prior Owners The holding in Bangor Punta is premised upon claims against former owners and the inequitable effect 12 of recovery resulting in a windfall profit for those who purchased stock from them. 417 U.S. 716. However, the principal defendant in this case is Travelers, a company in no way involved in the prior ownership of REA. Further, discovery in the case revealed collusive price-fixing action between Travelers and other large insurance companies which acted as re-insurers. Like Travelers, the re-insurers were not former stockholders of REA. These other insurance companies are not named as defendants in the com- plaint, but that is unnecessary. Travelers would be jointly and severally liable for damages resulting from their collusive activity. Such a situation was not involved in Bangor Punta, and it is important that the question of whether collu- sive activity by non-prior owners with prior owners can be used to insulate the former from joint and sev- eral liability for antitrust violations not otherwise pro- tected. 4. Distinction Between Legal and Equitable Causes of Action The Bangor Punta opinion characterizes the action there as ‘‘in substance, a typical derivative suit seeking an accounting from the previous controlling share- holder for various acts of corporate waste and mis- management.’’ 417 U.S. at fn. 13, On the other hand, the case at bar involves the claim of per se Sherman Act violations not involved in Bangor Punta. Bangor Punta, like the present case, also involved the claim of Section 10 Clayton Act viola- tions. 417 U.S. at 706, 710. The Section 10 claim was subsumed by the majority under the ‘‘corporate waste and mismanagement’”’ category of claims, although the 13 four dissenting Justices disagreed. No claim of Sher- man Act violations was made, however. Treble damage suits under the Sherman Act have been consistently treated by this Court as legal in na- ture, not equitable, see Fleitmann v. Welsback Street Lighting Co., 240 U.S. 27 (1916), and the merger of law and equity through adoption of the Federal Rules in 1938 was not to cut down on legal remedies, but to supplement them in a single action. See Ross v. Bern- hard, 396 U.S. 531 (1970). As this Court recently stated in Illinois Brick Com- pany v. State of Illinois, —— U.S. ——, 45 U.S.L.W. 4611 at 4615, ‘‘.. . considerations of stare decisis weigh heavily in the area of statutory construction, where Congress is free to change this Court’s interpretation of its legislation.’’ Prior decisions regarding construc- tion of Section 4 of the Clayton Act, under which the antitrust claims hereunder are brought, are entitled to a ‘presumption of adherence’’. Ibid. It therefore is important for a determination to be made in the context of this case whether the presump- tion of adherence is to be applied to prior decisions that treble damage Sherman Act claims are actions at law, contrasted with the equitable nature of the treat- ment of the claims in Bangor Punta, in order to pre- serve ‘‘the effectiveness of the private antitrust action as a vital means for enforcing the antitrust policy of the United States,’’ the basis upon which this Court granted certiorari in Perma Life Mufflers, Inc. v. In- ternational Parts Corp., 392 U.S. 134 at 136 (1968). The inapplicability of the equitable concepts relied upon by the opinion in Bangor Punta in an action at law was made clear by Dean Pound’s pivotal opinion 14 in Home Fire Ins. Co. v. Barber itself, which states that ‘‘where a corporation is proceeding at law, .. . the corporation is regarded as a person separate and dis- tinct from its stockholders, or any or all of them’’ (93 N.W. at 1033), and goes on as follows (93 N.W. at 1035) : ‘‘As we have seen, even if Barber had owned all the stock in the company, he would have had no title to the corporate property, so far as to be able to deal with it in his own rather than in the cor- porate name. But he was only a majority stock- holder. When he withdrew money or assets of the corporation, and converted it to his own use, there was as clear a conversion as if the transaction had taken place between natural persons. If he con- cealed and covered up these transactions by avail- ing himself of the opportunity afforded him as secretary and manager of the company, and they were not discovered until a change in management resulted in an investigation of the books, we see no reason why the company should not recover the sums so misappropriated,”’ (Emphasis added.) 5. Continuing Injury The opinion in Bangor Punta pointed out that any claim of a continuing injury exception was inapplica- ble in the circumstances of that case. 417 U.S. at fn. 6. In the case at bar, on the other hand, the life insur- ance benefits placed in jeopardy by Amendment No. 16 did not lapse until REA’s bankruptcy in 1975 made continuation of the premium impossible. This was over six years after the sale of REA by the railroads, and a situation clearly giving rise to the question of whether it is inequitable to insulate the railroads from antitrust liability because of the continuing effect created by the adoption of Amendment No. 16. 15 6, The Contemporaneous Ownership Rule The opinion in Bangor Punta relies heavily upon the ‘‘contemporaneous ownership’’ rule as setting forth a principle of equity which governs a suit which the new owners of a corporation cause it to bring against its former parent. 417 U.S. at 711, 712. We submit that the transmutation of this rule to a governing principle in antitrust litigation is by no means made clear by the fact that a Section 10 Clayton Act claim was included in the allegations of corporate waste and mismanagement which characterized the Bangor Punta complaint as a whole. We have already pointed out that Bangor Punta did not involve allegations of per se Sherman Act viola- tions. Another distinction of great importance is the fact that in Bangor Punta, there was a relationship be- tween a parent corporation and a subsidiary, whereas in this case, REA was owned by over sixty railroads, not by a single parent. Petitioner submits that as a matter of law and fact, REA was not correctly considered as a subsidiary cor- poration. Not only was Bangor Punta correctly regarded as in- volving a true wholly-owned parent/subsidiary rela- tionship, but the owning parent in that case was not a competitor. REA’s sixty-odd stockholding railroad owners, on the other hand, were competitors of REA, and for REA’s business. Since no single railroad had anything approaching a majority of the stock, a ‘‘com- bination’’ was involved each time the railroad-inter- locked Board of Directors took action. i6 The 1955 Report of the Attorney General’s National Committee to Study the Antitrust Laws, at page 30, footnote 106, defined a subsidiary ‘‘as a corporation wholly-owned by a parent or a corporation with a ma- jority of voting stock owned by a parent and a minority held by non-competitors of the parent only for invest- ment’’. (Emphasis added.) Petitioner knows of no antitrust case where 60 com- panies with widely distributed affiliation by stock own- ership has or can claim to be a ‘‘parent.’’ As this Court said in Timken Roller Bearing Co. v. United States, 341 U.S. 593 (1950), common ownership or control of the contracting corporations does not liberate them from the impact of the antitrust laws. Even the label ‘‘joint venture’’ cannot justify, this Court said, ‘‘agreements between legally separate per- son and corporations to suppress competition among themselves and others.’’ 341 U.S. at 598. To the same effect, see Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134 at 141-142 (1938). In sum, the paramount federal question as presented by petitioner, and on whieh the antitrust bar urgently needs clarification by this Court, is the fundamental difference stressed in the majority opinion in Bangor Punta between private corporate law principles of standing, in what was considered in essence a typical derivative stockholder suit, and the overriding public policy of Section 4 of the Clayton Act in this REA’s suit grounded in an illegal per se conspiratorial price- fixing agreement. Unless that basic difference is made clear, the mis- application of the rationale of Bangor Punta by the District Court and the Court of Appeals below ee oe 6 eine, SI we we ee 17 threatens to negate and conflict with this Court’s re- peated pronouncement that the strong incentive of treble damage suits was designed by Congress itself both to redress injury to private parties causally re- lated to antitrust violations—especially illegal per se price fixing—and also to serve as a general deterrent to potential antitrust violators. See Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 at 494 (1968) ; Radovich v. National Football League, supra; Radiant Burner v. People Gas Light & Coke Co., 364 U.S. 656 (1961); Continental Ore Co. v. Union Car- bide & Carbon Co., 370 U.S. 690 (1962); Minnesota Mining & Mfg. Co. v. New Jersey Wood Finishing Co., 381 U.S. 311 at 318 (1965); and Fortner Enterprises, Inc. v. U.S. Steel Corp., 394 U.S. 495 at 502 (1969) where the Court said: ‘‘Congress has encouraged private antitrust liti- gation not merely to compensate those who have been directly injured but to vindicate the impor- tant public interest of free competition.”’ Question II: The Impact of Illinois Brick This Court’s June 9, 1977 decision in J/linois Brick Company v. State of Illinois, —— U.S. ——, 45 U.S.L.W. 4611, concerns the treble damage remedy in a ‘‘pass-on’’ situation. Although differing conclu- sions are reached, the emphasis in both the majority and dissenting opinions is upon making that an effec- tive remedy, not in emasculating it. As stated in the majority opinion (45 U.S.L.W. at 4618) : ‘‘We think the longstanding policy of encour- aging vigorous private enforcement of the anti- trust laws, see, e.g., Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 139 (1968), supports our adherence to the Hanover 18 Shoe rule, under which direct purchasers are not only spared the burden of litigating the intricacies of pass-on but also are permitted to recover the full amount of the overcharge.”’ This result was reached even though the possibility that the direct purchaser as plaintiff might be ‘‘over-com- pensated’’ was clearly recognized. Insofar as the case here is concerned, REA is the direct purchaser of the insurance coverage in question. Therefore, unless certiorari is granted to review this important question of who is the proper party plaintiff, Illinois Brick may be regarded as saying that the anti- trust suit can only be brought in the name of REA. Ironically, however, the present law of the case, under the Circuit Court’s per curiam decision, seems to be that the only party which Jllinois Brick appears to say © may bring the action, is prevented from doing so by Bangor Punta. The seriousness of the problem thus created is not limited to the fact that the preclusion of an antitrust remedy, in view of REA’s bankruptcy, has a direct effect upon its creditors by depriving them of the bene- fit of a treble damage remedy. Deterrence of future antitrust violations is also a chief purpose of the anti- trust laws. The importance of deterrence in this case is underscored by the continuation of the collusive re- lationship between Travelers, the other large insurance companies who are ‘‘re-insurers’’, and the railroads, to this day. And in that context, the assistance offered by the railroads to Travelers and its friends in the insur- ance industry, by seeking to help stretch the Bangor Punta tent to cover them as well, becomes a matter of concern, if the important public purpose embodied in Be Oe a ee etre ee et 2 a iy en ee Lee wees eC atns acle + stl te 0G tet Oe 19 treble damage actions as a means of enforcing the anti- trust laws is to be served. Question III: The Propriety of Summary Judgment Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464 (1962), warns against indiscriminate and hasty application of summary judgment of dismissal in an antitrust action where there are genuine issues of material fact. Cf. White Motor Co. v. United States, 372 U.S. 253 (1963). As pointed out above, issues of creditor fraud have been raised in the statement of disputed factual issues. Proof of motive and intent would be directly relevant to such issues. If creditor fraud is found to exist, the foundation for establishing antitrust recovery through the non-applicability of Bangor Punta would appear clear. Further, Count VII of the complaint raises an issue of unjust enrichment as against Travelers. This is an issue of fact, not a determination to be made on sum- mary judgment. Notwithstanding the issue, the Dis- trict Court made a determination on unjust enrich- ment, a clear abuse of discretion. The railroads can be expected to assert, as they have in the past, that the REA bankruptcy trustee would be overcompensated by treble damages because the amount claimed as damages in this and other pending antitrust actions exceeds the amount of in excess of $40 million by which REA’s liabilities exceeded its assets. However, it is well known that the amount of damages pleaded in a complaint, drafted before dis- covery has taken place, is not evidence, and may tend to be visionary. The prejudice caused by this kind of 20 fallacious assertion by the railroads can not be used to defeat plaintiff’s right to a trial on the issue of dam- ages. If damages in excess of the $40 million deficit are proved, then is the time for the unjust enrichment issue to be confronted, not before. The importance of such a determination has been increased by this Court’s decision, on June 13, 1977, affirming, in Docket 76-1203, the decision of the Inter- state Commerce Commission upholding the issuance of more than $27 million in notes from REA to the rail- roads in 1959. The railroads have filed claims of in excess of $40 million, including the notes and accrued interest, in REA’s bankruptcy proceeding, as credi- tors.* It is paradoxical indeed that those who pur- chased the express company for only $100,000 in 1929, and as owners were permitted to milk it of millions of dollars over the years from 1929 to 1969, when they sold it for over $2 million plus warrants, in a condi- tion already burdened with in excess of $27 million in notes from REA to themselves, should on one hand ‘‘crowd out”’ other creditors and aggravate the bank- rupt’s extreme undercapitalization, created by them- selves, by filing claims of in excess of $40 million as creditors of REA in its bankruptcy proceeding, and yet be permitted to prejudice still further the interests of the other creditors, such as REA’s former em- ployees, by contending that any antitrust recovery, utilized for their benefit, would constitute unjust en- richment. * Report of Dermott Noonan, C.P.A., to Robert L. Wright, Esq., special counse] to the trustee, dated September 27, 1976, and filed in the Bankruptcy Court, S.D.N.Y., in Matter of REA Express, Inc., a bankrupt, 75-B-253. — a - i Tr ee om a Sere ea 21 Also anomalous, in the light of this Court’s holding that controlling stockholders are fiduciaries to credi- tors in the event of bankruptcy, see Pepper v. Litton, 308 U.S. 295, 306-307 (1939), would be a result which, because of Bangor Punta, excuses those same former stockholders from antitrust liability for acts which occurred when they were the controlling stockholders, to the detriment of the other creditors including those who were employees at the time, and the objects of their fiduciary duty—by depriving them of the benefits of antitrust claims against the same former stock- holders. This result would stand the controlling stockholders’ ereditor-fiduciary rule of Pepper v. Litton on its head. It would be particularly inequitable as to the creditors who are former employees, hired while the railroads still owned the company, whose life insurance, after they retired (at a time when railroad ownership con- tinued) later lapsed because of manipulations placed in issue by this litigation. Former employees are essen- tially ‘‘involuntary creditors’’. They cannot change jobs at whim without jeopardizing seniority and other bene- fits built up by years of work. If they have retired, they ean do nothing to change their former employment, ob- viously. Bangor Punta involves estoppel in a situation limited to the relative equities of the present and former stock- holders of a corporation. But in bankruptcy, estoppel as against the former stockholders does not estop the trustee in bankruptcy from pursuing a corporate cause of action for the benefit of the creditors. See 4A Collier on Bankruptcy 1 70.29[3]. 22 Nor does the concept of a ‘‘windfall’’ profit em- bodied in Bangor Punta have economic validity as ap- plied to the claims of creditors generally. To conclude that those who have not been paid for goods and ser- vices furnished by them receive a ‘‘windfall’’ if the trustee in bankruptcy is later enabled to pay their claims by virtue of a treble damage antitrust recovery, would be flagrantly unjust and incorrect as a matter of economic principle; yet that is the result of the deci- sions below. Full scale consideration of the reach of Bangor Punta in a bankruptcy context therefore is clearly warranted in place of the cursory short circuiting by summary judgment which this case received below. CONCLUSION For the foregoing reasons, this petition for a writ of certiorari should be granted. Respectfully submitted, ARTHUR M. WISEHART WIseEHART, Frou & Kocu Bar Building 36 West 44th Street New York, New York 10036 (213) 730-0044 Attorney for Petitioner S. CHESTERFIELD OPPENHEIM 1730 Pennsylvania Avenue, N.W. Washington, D. C. 20006 Of Counsel APPENDIX la APPENDIX A Section | of the Sherman Act, 15 U.S.C. § 1. §1. Trusts, etc., in restraint of trade illegal; exception of resale price agreements; penalty Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is de- clared to be illegal: Provided, That nothing contained in sections 1 to 7 of this title shall render illegal contracts or agreements prescribing minimum prices for the resale of a commodity which bears, or the label or container of which bears, the trademark, brand, or name of the producer or distributor of such commodity and which is in free and open competition with commodities of the same general class produced or distributed by others, when contracts or agreements of that description are lawful as applied to intrastate transactions, under any statute, law, or public policy now or hereafter in effect in any State, Territory, or the District of Columbia in which such resale, and the making of such contracts or agreements shall not be an unfair method of competition under section 45 of this title: Provided further, That the preceding proviso shall not make lawful any contract or agreement, providing for the establishment or maintenance of minimum resale prices on any commodity herein involved, between manufacturers, or between producers, or between wholesalers, or between brokers, or between factors, or between retailers, or be- tween persons, firms, or corporations in competition with each other. Every person who shall make any contract or engage in any combination or conspiracy declared by sec- tions 1 to 7 of this title to be illegal shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding fifty thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. July 2, 1890, c. 647, $1, 26 Stat. 209; Aug. 17, 1937, c. 690, Title VIII, 50 Stat. 693; July 7, 1955, c. 281, 69 Stat. 282. 2a Section 2 of the Sherman Act, 15 U.S.C. § 2. §2. Monopolizing trade a misdemeanor; penalty Every person who shall monopolize, or attempt to mo- nopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the severa] States, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding fifty thou- sand dollars, or by imprisonment not exceeding one year, or by bot said punishments, in the discretion of the court. July 2, 1890, c. 647, § 2, 26 Stat. 209; July 7, 1955, ¢. 281, 69 Stat. 282. Section 3 of the Sherman Act, 15 U.S.C. § 3. $3. Trusts in Territories or District of Columbia illegal ; combination a misdemeanor Every contract, combination in form of trust or other- wise, Or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Ter- ritory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the Dis- trict of Columbia and any State or States or foreign na- tions is declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceed- ing fifty thousand dollars, or by imprisonment not exceed- ing one year, or by both said punishments, in the discre- tion of the court. July 2, 1890, ¢. 647, § 3, 26 Stat, 209; July 7, 1 69 Stat. 282. Spite rans te 3a Section 4 of the Clayton Act, 15 U.S.C. § 15. $15. Suits by persons injured; amount of recovery Any person who shall be injured in his business or prop- erty by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in contro- versy, and shall recover threefold the damages by him sus- tained, and the cost of suit, including a reasonable at- torney’s fee. Oct. 15, 1914, ¢. 323, § 4, 38 Stat. 731. Section 10 of the Clayton Act, 15 U.S.C. § 20. § 20. Purchases by common carriers in case of interlocking directorates, etc. No common carrier engaged in commerce shall have any dealings in securities, supplies, or other articles of com- merce, or shall make or have any contracts for construction or maintenance of any kind, to the amount of more than $50,000, in the aggregate, in any one year, with another corporatica, firm, partnership, or association when the said common carrier shall have upon its board of directors or as its president, manager, or as its purchasing or selling officer, or agent in the particular transaction, any person who is at the same time a director, manager, or purchasing or selling officer of, or who has any substantia] interest in, such other corporation, firm, partnership, or association, unless and except such purchases shall be made from, or such dealings shall be with, the bidder whose bid is the most favorable to such common carrier, to be ascertained by competitive bidding under regulations to be prescribed by rule or otherwise by the Interstate Commerce Commis- sion. No bid shall be received unless the name and address of the bidder or the names and addresses of the officers, 4a directors, and genera] managers thereof, if the bidder be & corporation, or of the members, if it be a partnership or firm, be given with the bid. Any person who shall, directly or indirectly, do or at- tempt to do anything to prevent anyone from bidding, or shall do any act to prevent free and fair competition among the bidders or those desiring to bid, shall be punished as prescribed in this section in the case of an officer or director. Every such common carrier having any such transactions or making any such purchases shall, within thirty days after making the same, file with the Interstate Commerce Commission a full and detailed statement of the transac- tion showing the manner of the competitive bidding, who were the bidders, and the names and addresses of the directors and officers of the corporations and the mem- bers of the firm or partnership bidding; and whenever the said commission shall, after investigation or hearing, have reason to believe that the law has been violated in and about the said purchases or transactions, it shall transmit all papers and documents and its own views or findings regarding the transaction to the Attorney General. If any common carrier shall violate this section, it shall be fined not exceeding $25,000; and every such director, agent, manager, or officer thereof who shall have know- ingly voted for or directed the act constituting such viola- tion, or who shall have aided or abetted in such violation, shall be deemed guilty of a misdemeanor and shall be fined not exceeding $5,000 or confined in jail not exceeding one year, or both, in the discretion of the court. Oct. 15, 1914, c. 323, § 10, 38 Stat. 734, a nd A ee eee a eh Me 5a APPENDIX B UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 76-1450 REA Express, Inc., on its own behalf and on behalf of certain of its former employees now retired, Appellant Vv. Tus TraveLers [NsuRANCE Company, et al. == Appeal from the United States District Court for the District of Columbia (D.C. Civil Action No. 2141-71) —_ —— —-——— Argued March 29, 1977 Decided April 21, 1977 Arthur M. Wisehart, with whom S. Chesterfield Oppen- heim was on the brief, for appellant. Frederick L. Wood also entered an appearance for appellant. Edwin M. Zimmerman, with whom William D. Iverson was on the brief, for railroad appellees The Atchison, Topeka & Sante Fe Railway Company et al.; also argued on behalf of all other appellees. 6a Michael M. Maney, William Piel, Jr., and Mark I. Fish- man were on the brief for appellee The Travelers Insur- ance Company. Francis M. Shea, Richard T. Conway, and John D. Aldock were on the brief for appellees National Rail- way Labor Conference and Eastern Carriers Conference Committee. Before Bazeton, Chief Judge, and Wricut and Ross, Circuit Judges. Per Curiam: The background and facts relating to this case are adequately stated in the opinion of the District Court, see REA Express, Inc. v. Travelers Ins. Co., 406 F.Supp. 1389 (D. D.C. 1976), so we shall not repeat them here. We agree with that opinion insofar as it holds that appellant’s federal claims are foreclosed by Bangor Punia Operations, Inc. v. Bangor & Aroostook R. Co., 417 US. 703 (1974). Consequently, we affirm that part of the Dis- trict Court’s judgment which dismissed those claims with prejudice. The District Court also dismissed appellant’s pendent state claims with prejudice on the basis that Delaware law would govern and that Delaware precedents con- formed to the doctrine adopted in Bangor Punta. See 406 F.Supp. at 1394. However, the issues involved in this case are novel and the trial court found them ‘‘troubling.’’ Jd. at 1395. In these circumstances, the admonition of the Supreme Court in United Mine Workers v. Gibbs, 383 U.S. 715 (1966), should have been followed: Needless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring for them a surer- footed reading of applicable law. Certainly, if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense, the state claims should be dismissed as well. SRM OBE ns te ee ree oe 7a Id. at 726 (footnotes omitted). Following Gibbs, we affirm the dismissal of appellant’s state claims, but require their dismissal to be without prejudice.’ It is our view that the insurance claims? of former employees of appellant are not part of this litigation, so nothing herein or in the District Court’s opinion should be read as affecting those claims. Nor are the claims of creditors of the bankrupt appellant before this court.’ Consequently any claims they may have against appellees herein also remain unaffected by our judgment and the judgment of the District Court. So ordered. * Appellant agrees that the state claims should be dismissed if we affirm the District Court’s disposition of the federal claims. It only contests the dismissal with prejudice. ? See 406 F.Supp. at 1392 & 1395. * See id. at 1395. 8a APPENDIX C UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA Memorandum and Order In this action, REA Express, Inc. (REA) has sued Travelers Insurance Company [Trevelers], twenty-two railroad companies [railroad defendants], the National Railway Labor Conference [NRLC], the Eastern Carriers’ Conference [ECC], and the Eastern Carriers’ Conference Committee [ECCC]. Counts I and II allege, respectively, violations of Section 10 of the Clayton Act, 15 U.S.C. § 20 (1970), and Section 1 of the Sherman Act, 15 U.S.C. $1 (1970). Counts III through IX allege common law causes of action based on breach of fiduciary duty, unjust enrich- ment, wrongful interference with business relations, and breach of contract. REA has moved for partial summary judgment with respect to the issue of defendants’ liability under Section 1 of the Sherman Act for alleged price-fix- ing. The railroad defendants, ‘he ECCC and the NRLC have jointly moved for summary judgment with respect to the entire case. Travelers has separately moved for complete summary judgment. Finally, ECCC and NRLC have moved for summary judgment with respect to Counts III through IX, the common law claims. The various mo- tions now pending before the Court raise numerous issues with respect to the various defendants’ liability. Those motions have been fully briefed and the Court has heard argument of counsel. The Court need not reach the merits of those issues, however, since one threshhold issue— REA’s standing in equity to sue these defendants—is dispositive of REA’s complaint. BacKGROUND In January 1929, substantially all the railroads in the United States joined to form the Railway Express Agency, now REA Express, Inc., to conduct the railway express 9a business in this country. The railroads accomplished this result by purchasing all the assets of the sole express agency then operating, the American Railway Express Company, and transferring these assets to the newly formed REA. All of the capital stock in REA was sold to 85 participating railroads, and operating agreements were executed between REA and the railroads using the express service. These agreements provided that REA would be the exclusive express agency of the railroads and that annual revenues of REA, after deduction of operating ex- penses, would be distributed to the railroads executing the operating agreements in proportion to their express business. On February 11, 1929, the ICC approved in cer- tain respects this arrangement. 150 ICC 423 (1929). Until June 1968, all the capital stock in REA continued to be owned by the various railroads. Moreover, while the agreement for division of earnings had been modified or replaced between 1929 and 1968, the sole beneficiaries of REA’s earnings were the railroads. In June 1968, in order to prepare for sale of REA, the stockholding railroads deposited their stock in a voting trust. The voting trustees took over formal management of REA in June, and continued in such position until the sale of REA’s stock on August 21, 1969. The stock was sold to the REA Holding Corporation, which was formed by a group of REA executive officers who had been em- ployed by the voting trustees in 1968 and 1969. The Hold- ing Corporation presently owns more than 99 per cent of the REA stock. DispuTED TRANSACTIONS Between 1929 and June 1968, the Board of Directors of REA consisted of officers or directors of various of the stockholding railroads. Although REA’s complaint is framed in a number of different legal theories involving both federal and common law causes of action, at bottom 10a it is a typical suit seeking recovery for waste and misman- agement by the Board of Directors. REA challenges two transactions undertaken by the REA Board in 1956 and 1968. In 1956, the Board approved REA participation in GA 23000, then a health insurance policy written by Trav- elers and held by the railroads for the benefit of their employees. REA was directed to participate at a premium rate which was identical to the rate paid by all other par- ticipating railroads. REA claims that this uniform pre- mium provision denied it the benefit of a higher experience rating’ which it allegedly enjoyed. To force REA’s par- ticipation in GA 23000 at this uniform premium rate, ac- cording to REA, constituted illegal price-fixing, waste, and mismanagement. Further, REA claims that the railroad defendants violated Section 10 of the Clayton Act by fail- ing to require competitive bidding before awarding the in- surance contract to Travelers. In 1965, GA 23000 was amended to provide life insur- ance benefits. It is REA’s contention that those benefits vested immediately in employees who were covered by the plan and later retired, a contention which Travelers and the railroad defendants disputed in 1968. Therefore, in March 1968, the railroads and REA, acting at the behest of the Board and through its agent, the ECCC, approved Amendment 16 to GA 23000, which provided that life in- surance benefits did not vest in the retired employees, and that such benefits would lapse if any participant withdrew from the policy. Since certain REA officers had previously voiced their intention to seek REA’s withdrawal from GA 23000, REA contends that this action constituted illegal monopolization by Travelers of the railroad insurance market, as well as waste and mismanagement by the REA Board. * An experience rating measures the safety record of employees over a period of time. REA claims that its employees enjoyed a better safety record than the employees of other railroads, which should have reduced the rates payable by REA. lla = REA withdrew from participation on March 31, 1968, except as to a small number of employees represented by the International Association of Machinists.’ It claims that Amendment 16 has forced it to seek life insurance for its 4,000 retired employees to replace the allegedly vested benefits they enjoyed prior to approval of the amendment. REA’s Stanpinc 1n Equity To Sve With one exception to be addressed later, the factual posture of this case is almost identical] to that in Bangor Punta Operations v. Bangor @ A.R. Co., 417 U.S. 703 (1974). There the Supreme Court held that the plaintiff had no standing in equity to sue, a result which this Court feels compelled to reach in this case as well. In Bangor Punta, the following factual setting was pre- sented. In 1964, Bangor Punta acquired through a subsidi- ary 98.3% of the stock of the Bangor and Aroostock Rail- road. It thereafter controlled and directed the railroad until 1969, when it sold its entire stock interest to the Amoskeag Company. Then in 1971, the railroad filed suit against Bangor Puuta and its predecessor in interest for mismanagement, misappropriation, and waste of the rail- road’s assets during the period of Bangor Punta’s owner- ship of the railroad. Damages were also sought for viola- tions of Section 10 of the Clayton Act and Section 10 of the Securities and Exchange Act. Without analyzing the merits of any of the railroad’s claims, the Court immediately framed the issue as Amo- skeag’s* standing in equity to sue Bangor Punta for vio- * REA finally withdrew as to these employees on June 1, 1972. * Although the named plaintiff was the railroad, the Court stated that ‘‘Amoskeag, the principal beneficiary of any recovery and itself estopped from complaining of petitioners’ alleged wrongs, cannot avoid the command of equity through the guise of proceed- ing in the name of respondent corporation which it owns and controls. 417 U.S. at 713. 12a lations of the Clayton Act and Securities and Exchange Act during Bangor Punta’s term of ownership: The resolution of this issue depends upon the applica- bility of the settled principle of equity that a share- holder may not complain of acts of corporate mis- management if he acquired his shares from those who participated or acquiesced in the allegedly wrongful transactions. 417 U.S. at 710. Amoskeag could not point to any injury which it had suffered. All of the acts complained of had occurred during the term of Bangor Punta’s ownership; there were no allegations that Amoskeag had been misled or defrauded in its purchase of the railroad or received less than the true value of its purchase; and there was no showing that the alleged wrongful acts had a continuing effect on the railroad or on the value of Amoskeag’s stock. As the Court summarized, ‘‘In other words, Amoskeag seeks to recover for wrongs Bangor Punta did to itself as owner of the railroad.’’ 417 U.S. at 712. Based upon these facts, the Court found Amoskeag with- out standing in equity to sue. Since Amoskeag owned 98.3% of the railroad’s stock, and would receive any re- covery in the railroad’s name, the Court further held that the railroad had no standing to sue. Particularly persua- sive to the Court in reaching this decision was the realiza- tion that Amoskeag, if it were to recover, would have pur- chased the railroad at its fair value and in addition would have received a windfall for injuries which presumably were reflected in the purchase price. 417 U.S. at 712, 716. The Court of Appeals had upheld Amoskeag’s standing to sue in the name of the railroad. It focused on the bene- fit which would accrue to the public from enforcement of the antitrust and securities laws. The Supreme Court ex- pressly rejected this as a consideration which could over- 13a come equity’s aversion to unjust enrichment. The Court stated in footnote 13: The dissent argues that respondents’ complaint is based on federal antitrust and securities statutes and that such laws are designed in part to benefit the public. With that much we agree. But the statutory design has not been effectuated through the indiscrim- inate provision of causes of action to every citizen. Rather, these statutes create specifically defined legal duties to particular plaintiffs and vest the appropriate causes of action in them alone. Here the statutorily designated plaintiffs are respondent corporations. But as we have stated, these plaintiffs cannot maintain the present action because a recovery by Amoskeag would violate the established principles of equity. 417 U.S. at 716-17 n.13. The clear thrust of the Court’s opinion is that the unjust enrichment which would benefit Amoskeag precludes it—or its wholly-owned subsidiary— from recovering, regardless of the public interest involved. The Court further found that the equitable principle which precluded Amoskeag’s recovery based on the federal causes of action likewise precluded recovery on the com- mon law causes of action, since Maine recognized the va- lidity of that principle. 417-U.S. at 714. REA’s situation is identical to that of the railroad in Bangor Punta, with one exception that will be addressed later. The REA Holding Corporation owns, as did Amos- keag, over 98% of REA’s stock, which it had purchased from the defendant railroads in 1969. REA has alleged no fraud or deceit in the sale to the Holding Corporation. In- deed, the Holding Corporation was the corporate instru- mentality for the new management sain which entered the REA structure when the railroads‘established the vot- ing trust to sell REA, and REA does not dispute that the group knew as well as anyone the value of REA. More- l4a over, the two acts complained of, the uniform premium provision of the 1956 insurance contract and the alleged divesting of retired employee life insurance benefits em- bodied in Amendment 16, were inflicted by the railroads on their wholly owned subsidiary REA during their own- ership of REA. If these transactions harmed anyone, they harmed the railroads. The allegedly higher premiums would ultimately affect the income of the railroads as stockholders, and the railroads would have been required to maintain the Travelers policy after Amendment 16 if they wished to continue their retired employees’ life in- surance benefits. That the railroad defendants anticipated selling REA when Amendment 16 was adopted is immaterial since the Holding Company through the new management group had full knowledge of both transactions, as well as the effect on REA. There are no allegations that this effect was not a factor in the purchase price, or that the railroad defend- ants failed to disclose the transactions; hence the Court must assume that the purchase price reflected REA’s true value. To allow the Holding Corporation, through REA, to recover, would permit the Holding Corporation to pur- chase REA for its true value and then receive additional **compensation’’ for damage to REA which was previously reflected in the purchase price. Such a result is clearly condemned by the Bangor Punta Court: The equitable principles of Home Fire preclude Amos- keag from reaping a windfall by enhancing the value of its bargain to the extent of the entire purchase price plus an additional $2,000,000. Amoskeag would in effect have acquired a railroad worth $12,000,000 for only $5,000,000. Neither the federal antitrust or se- eurities laws nor the applicable state laws contemplate recovery by Amoskeag in these circumstances. 417 U.S. at 716. 15a Delaware law applies to REA’s common law claims as- serted in Counts III through IX of its complaint, since it is the state of REA’s incorporation. See Weiss v. Kay Jewelry Stores, Inc., 152 U.S. App. D.C. 350, 359, 470 F.2d 1259, 1268 (1972). Delaware recognizes the same equitable principle articulated in Bangor Punta. See Good- man v. Futrovsky, 42 Del. Ch. 468, 213 A.2d 899, 903 (Sup. Ct. 1965). Therefore, REA’s common law claims cannot be maintained for the reasons stated above. See 417 U.S. at 713-14. REA attempts to escape the Bangor Punta doctrine in several ways. First, REA claims that Bangor Punta is in- applicable to this case because it involves allegations of price-fixing, which are per se violations of the antitrust laws. While a per se violation of the antitrust laws was not involved in Bangor Punta, the Court’s clear emphasis on equity’s aversion to unjust enrichment as the basis for its holding renders irrelevant the nature of the antitrust violation. Second, REA attempts to apply the intra-enter- prise conspiracy doctrine of antitrust law to this case. That doctrine holds that an agreement between a parent corporation and its subsidiary can constitute a combina- tion or conspiracy under the antitrust laws. See United States v. Citizens & Southern National Bank, 422 U.S. 86, 116-117 (1975). Even assuming that a Sherman Act or Clayton Act violation could be established by REA through the use of the intra-enterprise conspiracy doctrine, how- ever, the equitable principle established by the Bangor Punta Court would preclude recovery by REA. 417 USS. at 716-17 n.13. The court was not concerned with the na- ture or method of the antitrust violation; it was the un- just enrichment of Amoskeag (here, REA Holding Cor- poration) which denied the railroad (here, REA) stand- ing in equity to sue. Thus, applicability of the intra-enter- prise conspiracy doctrine is irrelevant. Third, REA argues that since in the instant case several railroads, rather than l6a one parent corporation as in Bangor Punta, inflicted the injury on the subsidiary, Bangor Punta is inapposite. As noted earlier, the Court’s rationale is avoidance of unjust enrichment; it did not focus on the defendant’s conduct or corporate structure. Whether there be one or several par- ent corporations is simply irrelevant to the Bangor Punta doctrine. Fourth, REA attempts to distinguish Bangor Punta by proffering a ‘‘continuing wrong’’ exception. In Bangor Punta, the Court noted, ‘‘Nor does it appear that the al- leged acts of prior mismanagement have had any continu- ing effect on the corporations involved or the value of their shares.’’ 417 U.S. at 711. The Court did not elabor- ate on this apparent exception to the rule it enunciated, and the railroad defendants argue that the exception does not and should not exist since it would ‘‘swallow the rule.’’ See also Bangor ¢ Aroostook R. Co. v. Bangor Punta Operations, Inc., 353 F. Supp. 724, 727 n.1 (D. Maine 1972). Whether the exception is indeed valid need not be decided since there are no facts to support its application. If there is any continuing injury, it has flowed from Amendment 16, which forced REA to continue paying the allegedly higher premiums or lose all life insurance bene- fits for its retired employees. If REA has had to pay higher premiums to reestablish these benefits after its withdrawal from the policy on March 30, 1968, it is not alleged anywhere that the purchase price—agreed to Au- gust 20, 1969—did not reflect this increased liability. In short, any wrong inflicted by the railroad defendants through Amendment 16 was known to the Holding Cor- poration and should have been reflected in a lower pur- chase price. The railroad defendants were injured thereby, not the Holding Company. Fifth, and perhaps most troubling, REA argues that the interests of the REA employees and creditors make Ban- gor Punta inapplicable. The caption of the complaint as- 17a serts that REA sues in its own capacity and on behalf of its employees. Moreover, REA was adjudicated a bankrupt on November 6, 1975, so that any recovery in this lawsuit would first inure to the benefit of the estate, and be dis- tributed ultimately to the creditors of REA. Even if REA had not been adjudicated bankrupt, the re- mote interest of the employees in any recovery would not justify excepting REA from application of the Bangor Punta doctrine. A similar argument was made in Bangor Punta that Amoskeag could use its recovery to benefit the public. The Court rejected this argument as a basis for granting Amoskeag standing to sue because ‘‘there is no assurance that the public would receive any benefit at all from these funds.’’ 417 U.S. at 715. Similarly here, there is no assurance, whether bankrupt or not, that REA would use its recovery to benefits its employees.’’ * Nor can the more immediate interests of the creditors justify REA’s exemption from the Bangor Punta doc- trine. To be sure, the Supreme Court observed in a foot- note, in response to an argument by Justice Marshall in dissent, that the railroad had not brought the action on behalf of creditors, and that the financial health of the rail- road was ‘‘excellent.’’ 417 U.S. at 718 n.15. The extent and importance of this observation is unclear and unde- veloped. It is this Court’s opinion, however, that an excep- tion to Bangor Punta should not be made on the facts of the case presented. First, this suit is not brought on behalf of creditors. It is only because of REA’s recent bankruptcy that the cred- itors now pose a prominent interest. Surely, if the pending motions had been argued and decided prior to November ‘Although REA asserts that it has ‘‘implicit authorization’’ from the unions representing employees to sue on behalf of the employees, there is no binding agreement that REA use the money it would recover for the benefit of the employees. 18a 6, 1975, the date of the bankruptcy, there would be no question that Bangor Punta would require dismissal of this action. The illogie of allowing REA to recover now only serves to underscore the artificiality of an exception to Bangor Punta which would permit a corporation to re- cover only if it became bankrupt during the pendency of the proceeding. It cannot be gainsaid that the creditors would benefit from a recovery by REA; but the creditors of Amoskeag in Bangor Punta would also have benefitted, their position being strengthened by the increased financial stability of Amoskeag. Moreover, counsel for REA at oral argument did not know of any instance of a creditor (other than the railroad defendants) who had a debt outstanding prior to the change of ownership in 1969. Since that time, any creditor would have or should have been fully ap- prised of the financial condition of REA. To that extent, the creditors in the instant case stand in the same shoes as the Holding Corporation which purchased REA, and Amoskeag in Bangor Punta.’ Both the post-1969 creditors and the Holding Corporation had knowledge of the finan- cial condition of REA when entering into their respective transactions, and to allow them to now recover more than the value of the bargain they freely entered would clearly constitute unjust enrichment. In short, REA has not shown any injury which accrued to anyone but the railroad defendants. To allow REA, the Holding Corporation, or REA’s creditors, to recover for wrongs inflicted by the defendants on themselves, would * Pre-1969 creditors, tc the extent that they had been wronged by actions of the REA board after entering into the credit arrange- ment with REA, might have a stronger interest if they were before this court. Whether a recovery would be appropriate even in that instance reed not now be decided, since, as noted earlier, this is not a creditors’ suit, and no pre-1969 creditors other than the rail- road d-fendants have any interest in REA’s assets. — 19a clearly be unjust enrichment and cannot be permitted un- der the doctrine of Bangor Punta. In light of the foregoing, it is this 2d day of February, 1976 Orperep that the motions of Travelers, the railroad de- fendants, the NRLC, and the ECCC for summary judg- ment be and the same hereby are granted; and it is FurTHER Orperep that plaintiff’s complaint be and the same hereby is dismissed with prejudice. /s/ Wirutram B. Jones Chief Judge. * Travelers and the conference defendants, of course, cannot be held liable, either, since the basis of Bangor Punta is avoidance of unjust enrichment, not deterrence of allegedly illegal or im- proper conduct. See 417 U.S. at 717. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_2248%3A1. Public record. Not legal advice.