Petition — Parklane Hosiery Co. v. Shore

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‘ MAR 17 1978

ee: Te

IN THE

Supreme Court of the United States

October Term, 1°77

wo 77-1305

PARKLANE HOSIERY COMPANY, INC. aad

HERBERT N. SOMEKH,

against

‘ 0 M SHORL.,

Petitioners,

Respondent

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

IRVING PARKER

Counsel for Petitioners

70 Pine Street

New York, New York 10005

Tel. No. (212) 344-1866

OF Counsel.

Josern N. SALOMON

Jacoss Persincer & Parker

INDEX

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hiact ii bio PF ad

! 7

1 '

ae ’

preta

+ yt WW

iit

\ '

4? ;

‘

nin

5) ’

(ii)

ment’s preservation of that right as i ex

isted in 170) and contrary to thie Court's

interpretation of that Amendment .

Ili The Court below established an unpreced

ented and demonstrably untenable rule in

holding that the constitutional jury trial

right in a private action for damages is

waived if such action cannot be expedited

and tried prior to the trial of a related SEC

cnforeement aetion

iV--The Court below established an anpreced

ented and futile requirement that to avoid

waiver of the jury trial right in a private

action for damages it ix necessary to request

a jury ina related SEC enforcement action

in which there ia no jury trial right

V-.-The Court below ruled erroneously that the

use of an advisory jury could satixfy a

Seventh Amendment jury trial right

Vi The decision below raixe« <urnificant amd re

curring problems regarding conflicting con

<iderations of the efficient adjudication of

SKC enforcement actions and the preserva

hon of the jury trial right in related private

actions

Conclusion

Avrexpix A

Arrexpoix B

Arrexoix C

Arrexorn D - ts: : gE ee pe

Arrvexon FE ... Pret ree

rau

(iii)

TABLE OF AUTHORITIES

Cases

Paar

Allegheny Airlines, Inc. ¥, United States, 104 F.2d

104 (7th Cir, 1974), cert. denied, 421 U.S, 978

RS ee ee eer a ee it)

(American) Lumbermena Mutual Casualty Co. of

Ilhinoia v. Timms & Howard, lnc., 108 F.2d 497 (2d

See ss cndons ieabheses nie jeneus ae

Baltimore & Carolina Line, lnc. v. Redman, 295 US.

ff: re reereT seeanee 17

Barr v. Grate’s Heiva, 17 US. 218 (1819) | 17

Beacon Theatres, Inc. ¥. Weatover, 359 U.S. 500

SE ES Se ae 10, 11, 12, 14, 15

Bigelow v. Old Dominion Copper Mining & Smelting

Co,., 225 U.S. 111 (1912) . , Pee y 17

Blonder-Tongue Laboratories, lnc. ¥, University of

Iilinoia Foundation, 402 U.S. 3138 (1971) ........9, 14,15

Bloom +. Illinoia, 391 US. 194 (1968) ©... ......... 21

Brooklyn City and Newtown RR. Co. +. National

Bank of the Republic of N.Y., 102 U.S. 14 (1880) 17

Cannon v. Texas Gulf Sulphur Co., 323 F. Supp. 990

SS EY cnn cccck puatdeceusdeeeeace: i)

Curtis v. Loether, 415 U.S, 189 (1974) ........ . 17,20

Dairy Queen, Ine. ¥. Wood, 369 U.S, 469 (1962) 10,11, 12, 15

Dimick v. Schiedt, 203 U.S. 474 (19385) ........ 2, 9, 12, 17,

19, 20, 21

Goldman, Sacha & Co. v. Edelstein, 494 F.2d 76 (2d

Es GED cucadoceccceducébdbedadcnecdccececes 27

(iv)

rage

Lunne Carol Faahiona. lac. +. Cranaton Print Worka

fo bo) re Jal lige (CW 1972) )

Vallory ‘ ( iftsener j folales - (‘ompany Me 2 | 706

(Qi Cir, 1960) ";

Vet ook 7 Slandard fii f rp ‘ nM r Supp 2

i 1) { al 1, >) q is

Meeker 4 Ambassador Ou {orp Th i SS teh

(1°), gre :, bee ii Nis a | Sy. (10th { 17 } Wi) 10), ll,

12, 15

Vulual Heneft Lafe lnaurance Co. ¥. Tiadale, 1 US

y s Si) li, Is

National li meow blectru f ory , iL eon 4:\4 r Ja

oS, (hth Cie, 190) 17

Rachal v. Hil, 445 F 2d 399 (oth Cir, 1970), cert.

denied. 402 US. O04 (1971) 2.7, 8, 9, 10,

12, 15, 14, 15, 18

Hiiwhland \ f randall yA r Supp Zi4 (S.DLN y

1) 7

hias \ it rel ira i, | Ss tt (19,0) oD, 21

Nehw v. Schone, 119600.70 Tranefer Binder! CCH

real See. I, Rep Sa 552 (SDNY, 1970) 17

Necurilice and EKavrchanae Commiasion \% Associated

ity yal I es re re Kt 1) 124 ' bk 1) Mich 1977) 26

Necurilies Lu / rohanae f‘ommiasion (‘ommon

wealth Chemical Necurtlices. | me No 76 H175 (2d

(ir, Mareh 3, 1978) 22, 2 20

Sey LAIAL % and i] re hanae (‘ommisaion ¥ ke ereat

Vanagement Corp., 445 F 2d 1256 (2d Cir, 1972) 23, 24

Securities and Ee rchanae (‘ommiasion ¥ (ie we ral

Host Corp., © F.RD. 640 (S.D.NLY. 1978), aff'd,

908 F.2d 1392 (2d Cir, 1975) 23, 24, 25

—_

(v)

PAGE

Securities and Exchange Commission v. National

Student Marketing Corp., 59 F.R.D. 305 (D.D.C.

ee ee Cece wei boceeecs 23

Securities and Exchange Commission v. Parklane

Hosiery Co., Inc., 422 F. Supp. 477 (1976), aff’d,

008 F.2d 1083 (2d Cir. 1977) .............e0cee, 6

Securities and Exchange Commission v. Petrofunds,

Inc., 420 F. Supp. 958 (S.D.N.Y. 1976) .......... 26

Securities and Eachange Commission v. Standard

Tafe Corp., 413 F. Supp. 84 (W.D. Okla. 1976) ... 9

Securities and Exchange Commission vy. Wills,

[Current Transfer Binder] CCH Fed. See. L. Rep.

ES 22, 23, 24, 25,

26, 27, 28

Stewart v. United Australian Oil, Inc., [1974-75

Transfer Binder] CCH Fed. See. L. Rep. {, 95,019

Dee eececceecs 9

Thompson v. Utah, 170 U.S. 343 (1898) ............ 21

United States vy. United Air Lines, Inc., 216 F. Supp.

709 (E.D. Wash. 1962), aff’ in part, modified in

part on other grounds sub nom. United Air Lines,

Inc. v. Wiener, 335 F.2d 379 (9th Cir. 1964) ..... 19

United States Constitution

EE 21

U.S. Const. amend. VII .............. 2, 3, 8, 10, 13, 16, 17,

20, 21, 22, 26, 27, 29

(vi)

Statutes

PAGE

Securities Exchange Act of 1933:

CRUG BP Tes SHRED oo wand acicsdccdevesves 5

Securities Exchange Act of 1934:

CSO, GP We Be Kenic cesteiasicscoess 4,5

§13(a), 15 U.S.C. § 78m(a) ...........0. eee eee 5

§ 14(a), 15 U.S.C. § 78n(a) a Per eer ye reer rere 4,5

§20(a), 15 U.S.C. § 78t(a) ......... cece ee eee 4,5

Oy Ws PO hn tnae dado he ccéceeecndudvewers 7

OD TE. GED Mice cc vesccecsescvconsecuany 7

Se Dees S Ae seen cdeansd cdacebdinyewetes 7

Rules and Regulations

fe Oe, SR OF Are rrr er 3, 8, 25, 26

Se A, ls is I Whoo ch uccdsoccdwevecdseccu 3, 4, 8, 26

See GGG, PO, Ts GG Be ccc ckctesmesccatensvess 27

eer eee Serre re 7

Articles and Treatises

Brodsky, The Frustration of Private Counsel:

Uncertainties Favor The Commission, 178(116)

ee Cee Oh Ge 6 bike cecwicaneves cess 28, 29

Mathews and Thompson, SEC Enforcement Pro-

gram: Emphasis on Perquisites Highlights Year’s

Actions, 178(116) N.Y.L.J. (12-19-77) p. 45 ....28, 29, 30

5 Moore’s Federal Practice (2d ed. 1977) .......... 11, 26

Shapiro and Coquillette, The Fetish of Jury Trial in

Civil Cases: A Comment on Rachal v. Hill, 85

BOT. Be, Bes SED CARPE co cen dicccesctucccetes 19

IN THE

Supreme Court of the United States

October Term, 1977

No.

ParkLANE Hostery Company, Inc. and Hersert N. Somexku,

Petitioners,

against

Leo M. SuHore,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioners Parklane Hosiery Company, Inc. and Her-

bert N. Somekh pray that a writ of certiorari issue to

review the judgment and opinion of the United States

Court of Appeals fez the Second Circuit entered in this case

on November 1, 1977. Petitioners’ petition for rehearing

and rehearing en bane was denied by orders dated Decem-

ber 20, 1977.

Opinions Below

The opinion of the Court of Appeals, 565 F.2d 815 (2d

Cir. 1977), is annexed hereto as Appendix A, pages 1la-

19a.* It reversed the order of the United States District

Court for the Southern District of New York which, in

upholding Petitioners’ constitutional jury trial right

* Citation herein to pages of each appendix will appear as fol-

lows: “App. » P. m

against a claim of collateral estoppel, had denied Respond-

ent’s motion for partial summary judgment relating to the

question of liability. The opinion of the District Court was

not reported. It appears at App. E, p. 26a.

Jurisdiction

The judgment of the Court of Appeals sought to be

reviewed was entered November 1, 1977. App. B, p. 20a.

The petition for rehearing and rehearing en bane was

denied by orders dated December 20, 1977. App. C, p. 22a;

App. D, p. 24a. The jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1).

Questions Presented

1. Did the Court below, in reaching a decision ad-

mittediy in conflict with that of the Court of Appeals for

the Fifth Cireuit in Rachal v. Hill, 435 ¥'.2d 59 (1970), cert.

dened, 403 U.S. 904 (1971), rule erroneously upon an

important constitutional question of the right to trial by

jury which has not been, but should be, decided by this

Court?

2. Did the Court below err in denying Petitioners their

Seventh Amendment right to a jury trial of certain issues

‘n this action on the basis of findings made in an earlier-

tried non-jury action in which the jury trial right did not

exist and to which Respondent was not a party?

3. Can the constitutional jury trial right, preserved by

the Seventh Amendment as that right existed in 1791, be

destroyed by a post-1791 change in the common law doce-

trine of collateral estoppel?

4. Does the decision below conflict with the decision of

this Court in Dimick v. Schiedt, 293 U.S. 474 (1935) ?

eae TT Sees)

——) a,

5. Did the Court below err in coneluding that Peti-

tioners lost their constitutional jury trial right in this

action as to those issues determined in a Securities and

Exchange Commission (‘‘SEC’’) enforcement action

(a) by not requesting a jury or an advisory jury

in the SEC action, notwithstanding the fact that

there had never been a right to a jury trial in the

SEC action and Respondent had not been a party

thereto, or

(b) by not seeking to have this action tried prior

to the SEC action, notwithstanding the fact this

action could not have been made ready for, and

brought to, trial before the trial of the SEC action?

Constitutional Provision and Federal Rules Involved

The Seventh Amendment to the United States Constitu-

tion provides:

‘*In Suits at common law, where the value in

controversy shall exceed twenty dollars, the right

of trial by jury shall be preserved, and no fact tried

by a jury shall be otherwise reexamined in any Court

of the United States, than according to the rules of

the common law.’’

Rules 39(b) and (c) of the Federal Rules of Civil Proce-

dure provide:

‘*(b) By the Court. Issues not demanded for trial

by jury as provided in Rule 38 shall be tried by the

court; but, notwithstanding the failure of a party to

demand a jury in an action in which such a demand

might have been made of right, the court in its dis-

cretion upon motion may order a trial by a jury of

any or all issues.

‘*(e) Advisory Jury and Trial by Consent. In all

actions not triable of right by a jury the court upon

motion or of its own initiative may try any issue with

an advisory jury or, except in actions against the

United Siates when a statute of the United States

provides for trial without a jury, the conrt, with the

consent of both parties, may order a trial with a

jury whose verdict has the same efféct as if trial by

jury had been a matter of right.’’

Statement of the Case

This action was commenced on November 13, 1974 by

Respondent, a former shareholder of Petitioner Parklane

Hosiery Company, Inc. (‘‘Parklane’’), against the two

Petitioners and 12 other defendants.* The complaint al-

leged violations of §§ 10(b), 14(a) and 20(a) of the Secu-

rities Mxchange Act of 1934 (the ‘*1934 Act’’), 15 U.S.C,

‘§ 78}(b), 78n(a) and 78t(a), certain rules thereunder and

the common law.** Respondent demanded a trial by jury.

The action followed an October 1974 merger, pursuant

to the laws of the State of New York, whereby Parklane

was returned to its former status as a private company.

The complaint, seeking damages, challenged the validity of

* The 14 defendants named in this actio i : :

of the opinion below. App. A, p. 1a. 2 ore Usted in the caption

** Federal jurisdiction in the court of first instance was based

upon section 78aa of Title 15, United States Code, and sslasioies of

pendent jurisdiction. Section 78aa provides in pertinent part:

“The district courts of the United States, . . .

exclusive jurisdiction of violations of this chapter or the we Ra

regulations thereunder, and of all suits in equity and actions at

law brought to enforce any liability or duty created by this

chapter or the rules and regulations thereunder.” .

the merger and alleged that the related proxy statement

dated September 24, 1974 (the ‘*Proxy Statement’’) was

deficient in a number of respects. The answers denied all

of the material allegations of the complaint. The action

was certified as a class action and the notice thereof in-

formed the class that ‘‘[t]he complaint seeks money dam-

ages for the members of the class.’’

While this action was still in its pre-trial stage, the

SEC, on May 5, 1976, commenced an enforcement action in

the United States District Court for the Southern District

of New York against the two Petitioners (the “SEC ac-

tion’’). The SEC simultaneously moved, by order to show

cause, for the same injunctive and ancillary relicf sought

in its complaint. The SEC did not challenge the validity

of the Parklane merger. Rather, the SEC’s complaint and

its motion were limited to a claim that the Proxy Statement

was deficient in three respects.*

On May 20, 1976, Respondent moved to amend his com-

plaint to include allegations of the same violations alleged

in the SEC’s complaint and to add a claim for rescission.

While Respondent’s motion to amend the complaint was

pending, the trial of the SEC action was ordered to com-

mence on June 2, 1976. The trial, to the Court alone, was

concluded on June 7, 1976; decision was reserved.

* The SEC action was entitled Securities and Exchange Commis-

sion V. Parklane Hosiery Co., Inc., Herbert N. Somekh, 76 Civ. 2024

(KTD). The SEC’s complaint and motion were based upon § 17(a)

of the Securities Act of 1933, 15 U.S.C. § 77q(a); §§ 10(b), 13(a)

and 14(a) of the 1934 Act, 15 U.S.C. §§ 78j(b), 78m(a) and

78n(a); and certain rules promulgated thereunder.

At the time the SEC action was commenced, the instant action

was before District Judge Wyatt. The SEC action was assigned to

District Judge Duffy. As the Court below was informed in response

to its inquiry upon oral argument, Petitioners had applied in writing

to Judge Duffy for reassignment of the SEC action to Judge Wyatt

pursuant to the assignment rules of the District Court applicable to

related cases. Petitioners’ application was denied.

At the time the SEC action was commenced and tried,

this action was not ready for trial. Pre-trial discovery was

far from complete. While there were then outstanding

notices by both sides to take certain depositions, the only

iliseovery in this action had been the production of certain

documents by Parklane,

On September 3, 1976, subsequent to the conclusion of

the trial of the SEC action, Respondent's motion to amend

the complaint was granted. The amended complaint, served

October 1, 1976, repeated Respondent's jury demand. The

answers denied all of the material allegations of the amen.

ded complaint.

On November 9, 1976, the District Court (Duffy, J.) en-

tered an Opinion and Order in the SEC action in which it

found that the Proxy Statement Violated § 14(a) of the

1M Act and Rule Ma-9 thereunder in the three respects

eaimed by the SEC. Securities and Kachanage Commission

¥. Parklane Hosiery Co., Ine., 422 F. Supp. 477, aff'd, 55S

i ree (2d Cir, 1977),* Thereupon, Respondent, on

‘Sovember 24, 1976, moved fo i ri

against Petitioners, _— stead acoso

Respondent 's motion was based upon a contention that

Petitioners Were collaterally estopped in this action by the

findines of fact made in the SEC action. Petitioners, con.

tending they were not so estopped, opposed the motion on

the ground (a) that, in the SEC action, they had had no

right to a jury trial; (b) that, in this action, they do have

a right to the jury trial which Respondent himself had

. District Court denied

except to the extent ail of the vellef tA 48

demanded; and (¢) that Respondent, who was not a party

to the SEC action, could not, through collateral estoppel,

deprive Petitioners of their jury trial right in this action.

The District Court (Wyatt, J.) denied Respondent's

summary judgment motion, relying upon Rachal v. Mill,

435 F.2d 59 (Sth Cir, 1970), cert, denied, 403 U.S, 904 (1971),

a case squarely in point. App, E, p. 26a. Respondent

then moved, pursuant to 28 U.S.C, ¢ 1292(b) and Rule 5,

Fed. App.P., for certification of a question for appeal.

The District Court granted the motion and the Court below

granted the petition for leave to appeal.

The question certified was as follows:

‘Whether the Court's findings of fact in a prior

action commenced by the Securities and Exchange

Commission (““SEC"') ean, by the doctrine of col-

lateral estoppel, be applied to « subsequent action

by a different plaintiff, seeking legal and equitable

relief, based on the same transactions as was the

action commenced by the SEC, when (a) there was

no right to a jury trial in that action and (b) the

Court found that the subject transaction was effected

by means of materially misleading statements and

omissions,’’

In its November 1, 1977 opinion, the Court below, de-

ciding what it termed ‘‘the important question’’ raised

upon the appeal (App. A, p. 2a), reversed the District

Court. Expresxsly stating that it disagreed with the Fifth

Cireuit’s decision in Rachal, supra, (App. A, p. 18a), the

Court below held that Petitioners’ jury trial right in this

action as to issues of fact determined in the SEC action

was extinguished, through collateral estoppel, on the

ground that there had been a full and fair trial to the court

alone in the SEC action.

The Court below also concluded that the jury trial right

'n this action ax to those issues determined in the SEC ac

tion had been waived, though Respondent had not claimed,

and the District Court had not found, any such waiver, The

Court below stated that the jury trial right had been waived

because Petitioners had not (a) sought to expedite the trial

of this action or (b) requested the District Court to try

the SEC action to a jury or before an advisory jury pur.

suant to Rule 39(b) or (c), Fed.R.Civ.P. App. A, p. Ia.

It is from the November 1, 1977 judgement and opinion

of the Court below that Petitioners seek certiorari.

Reasons for Granting the Writ

The decision of the Court below is in di

wi te Fite Canary ecient, cons

F.2d 59 (1970), cert. denied, 403 U.S, 904 (1971), on

the question whether the Seventh Amendment jury trial

right may be extinguished, th

where there Fee eee ee _—

The decision below represents the first time a court has

held that the right of trial by jury, as it existed in 1791 and

was preserved by the Seventh Amendment, has been extin-

cuished by a post-1791 change in the common law. The

Court below held that Petitioners were collaterally estopped

from trying to a jury in this action those issues which had

heen determined in the earlier-tried SEC action in which a

jury trial right never existed and to which Respondent had

not been a party. In so holding, the Court below relied upon

the relatively recent relaxation of the requirement of mu.

tuality of estoppel* in cases where, unlike the case here,

the right to a jury trial had not been in issue. App. A, p. Sa.

In thus denying Petitioners their jury trial right in

thix action, not only was the decision below admittedly in

conflict with the Fifth Cireuit’s decision in Rachal v. Hill,

supra, but it was also in conflict with the long-established

principle, enunciated in Dimick v, Schiedt, 208 U.S. 474

(1935), that a post-1791 change in the common law cannot

he invoked to extinguish the Seventh Amendment jury trial

right as it existed in 1791.

The Fifth Cireuit, in Rachal, in cireumstances indis-

tinguishable from those here, had held that defendants in

a private action for damages under the federal securities

laws could not be deprived of their jury trial right on

the basis of findings made in an earlier-tried SEC enforce-

ment action in which there had been no jury trial right and

to which the plaintiff in the private action had not been a

party. But for the decision below, Rachal has been con.

sistently followed, Securities and Exchange Commission v.

Standard Life Corp., 413 F. Supp. 84 (W.D. Okla, 1976) ;

McCook ¥. Standard Oil Corp., 393 F. Supp. 256 (C.D, Cal.

1975); Cannon v. Texas Gulf Sulphur Co,, 323 F. Supp. 990

(S.D.N.Y. 1971). See also Allegheny Airlines, Ine. v.

United States, 504 F.2d 104, 111 n.7 (7th Cir, 1974), cert.

denied, 421 U.S. 978 (1975); Lynne Carol Fashions, Ine, v.

Cranston Print Works Co., 453 F.2d 1177, 1184 (3d Cir.

1972); Stewart v. United Australian Oil, Ine,, (1974-75

Transfer Binder] CCH Fed. See, L. Rep. 195,019 (S.D.N_Y.

1975).

+ Reaaaiity of Ganaed moms Gas wales SO pee Oe

privies) in a second action are bound by a in a previous

case, neither party (nor his privy) in the action use the

a= —h i —— yi +4, action.”

londer- Laboratories, Inc. v. University of Mlinois Founda-

tion 402 US 313, 320-21 (1971).

A. ee nan Go CRE and Sound Gents

rests upon con interpretations ( ourt’s

decision in Beacon res, Inc. v. Westover, 359

U.S. 500 (1959).

The Second Cireuit here, and the Fifth Circuit in

Rachal, supra, arrived at their conflicting results on the

basis of diametrically opposite interpretations of this

Court's decision in Beacon Theatres, Inc. v. Westover, 359

U.S, 500 (1959). While the Rachal Court found Beacon

Theatres to exemplify this Court's great respect for the

Seventh Amendment jury trial right, 435 F.2d at 64, and

upheld it against collateral estoppel, the Court below

thought that Beacon Theatres evidenced this Court's “in.

herent respect for the doctrine of collateral estoppel’

(App. A, p. 13a) and extinguished that right. However,

Beacon Theatres and this Court's subsequent decision in

Meeker v. Ambassador Oil Corp., 375 U.S. 160 (1963),

rev'g mem,, 308 F.2d 875 (10th Cir. 1962), show that as

hetween the constitutional jury trial right and the common

law principle of collateral estoppel, the jury trial right is

supreme,

In Beacon Theatres, supra, this Court held that, in a

single action presenting claims for equitable and legal

relief, mandamus should issue to compel a jury trial of the

common issues, Since in Beacon Theatres there was mutu-

ality, had the trial court, without a jury, first tried the

common issues, trial of the legal claim to a jury might have

heen precluded. 359 U.S. at 503-04. To preserve the jury

trial right against possible destruction by estoppe!, this

Court held that the common issues should be tried first, to

a jury. Accord, Dairy Queen, Inc. ¥. Wood, 369 U.S. 469

(1962).

Significantly, neither Beacon Theatres nor Dairy Queen,

supra, reached the question whether the right to a jury

trial of the common issues would in fact have been lost if

the equitable claims had first been tried to a court alone.

That question was subsequently presented to this Court

in Meeker, supra. The Court below, however, apparently

without taking Meeker into account, assumed, on its read-

ing of Beacon Theatres, that a prior trial of equitable claims

would result in loss of the jury trial right of issues com.

mon to legal claims, App. A, pp. 10a-lla, Mecker disproves

such an assumption and the interpretation given Beacon

Theatres by the Court below,

In Meeker, plaintiffs asserted both legal and equitable

claims, which presented common issues, and demanded a

jury. The trial court, however, tried and determined the

equitable claim -- and perforce the common issues -- ad-

versely to plaintiffs. As a result, plaintiffs were precluded

from relitigating those issues to a jury on the legal claim.

Plaintiffs thereupon appealed, claiming that they bad been

denied their jury right. The Court of Appeals for the Tenth

Cirenit rejected plaintiffs’ contention.” 308 F.2d at 884.

Though in Meeker plaintiffs had not sought mandamus

to protect their jury trial right and there was no question

that they had beon accorded a full and fair trial by the

court alone, this Court, on the basis of Beacon Theatres and

Dairy Queen, reversed the Court of Appeals, and thereby

preserved the jury trial right against destruction by

estoppel. Plaintiffs were thereby afforded a retrial, to a

jury, of the very same issues which a court had determined

adversely to them.** The identical result was also reached

by the Sixth Cireuit in National Union Electric Corp. vy.

Wilson, 434 F.2d 986, 988 (1970).

* The facts in Meeker, , are discussed in the Court of

— ee Sake

€ 38.11{8.-6) at 128.13 (2d ed. 1977).

** The fact of the retrial in Meeker in the Distiict Court

Docket, Civ. No. 8212 (W.D. Okla.), the Judgment therein filed

December 14, 1965.

Thus, contrary to the decision below, it ia seen from

Mecker that where, as here and in Rachal, there is a right

fou jury trial, that right may not be denied either (a) be.

catiwe a party had been ‘accorded a full and fair opportun.

ity to try those issues in the prior [now-jury| proceeding"

(App. A, p. 7a) or (b) to serve considerations such as

finality and judicial economy, App. A, pp. 1Sa-dda. As

Beacon Theatres, Dairy Queen, and Meeker show, and as

the Fifth Civenit, in Hachal, recognized, such considerations

must how to the preservation of the jury trial right."

The validity of the Fifth Cirenit"s reading of Beacon

Theatres, as contrasted with the Second Cirenit’s misap.

prehension of that case, may also be seen in Beacon

Theatres’ reference to Dimick ¥. Schiedt, supra, which

had held that the jury trial right cannot be impaired by a

post 171 change in the common law. In Beacon Theatres,

this Court granted certiorari when, ax here, the jury trial

right was threatened. Repeating what it had said in Dimick

thix Court, in Beacon Theatres, wrote: .

“We granted certiorari, 356 U.S. 956, because

‘Maintenanee of the jury as a fact-finding body is of

such importance and oceupies so firm a place in our

history and jurisprudence that any seeming curtail.

ment of the right to a jury trial should be serutinized

with the utmost care.’ Dimick vy. Schiedt, 293 U.S.

474, 486."" 359 US, at 501.

* The suggestion of the Court below, that where

1 full and fair non-jury determination of certain facts My

there is no genuine issue as to those facts in a second action in which

there is a ret} trial right (App. A, p. 9a), the very question of

the applicability of collateral estoppel. Thue he i only where, unlike

the case here collateral estoppel can property be invoked that findings

m can b iu @ second

cons cael appl “a action to

B. While the application of collateral estoppel, in the

absence of mutuality, may be discretionary in some

circumstances, the Fifth and Second Circuits are in

conflict as to whether a court’s discretion may be

exercised to destroy a Seventh Amendment jury

trial right.

The Fifth Cireuit in Rachal, supra, and the Second Cir-

eait in this case recognized that the requirement of mutual-

ity of estoppel has been relaxed. They are in conflict,

however, as to whether, in the absence of mutuality, a

constitutional jury trial right may be destroyed through

collateral estoppel. The Court below believed that as long

as there had beer a full and fair trial to a court alone in

ai action in which the jury trial right never existed, a

stranger to the action could invoke collateral estoppel to

destroy the jury trial right in a seeond action. The Fifth

(ireuit, to the contrary, had held that in such circumstances

collateral estoppel could not be invoked and that preserva-

tion of the jury trial right was required.

According to the Fifth Cireuit, the mere fact that there

acd been a full and fair trial is not enough to permit the

epplication of collateral estoppel in the absence of mutual-

itv. The Fifth Cireuit, unlike the Second Circuit, held that

if was also necessary to consider whether the application

of collateral estoppel would result in an injustice to the

perty against whom it is asserted. Thus, in Rachal, the

Fifth Cireuit wrote :

‘‘While the requirement of mutuality need no

longer be mei. the doctrine of collateral estoppel

will not be app.ied unless it appears that the party

against whom the estoppel is asserted had a full and

fair opportunity to litigate the issue in the prior

proceeding and that application of the doctrine will

not result in an injustice to the party against whom

it is asserted under the particular circumstances of

the ease.’’ 435 F.2d at 62. (citations omitted)

The standards for the application of collateral estoppel

in the absence of mutuality so stated by the Fifth Circuit

were confirmed by this Court in Blonder-Tongue, supra.

While Blonder-Tongue represented the first time this Court

permitted the application of collateral estoppel in the ab-

sence of mutuality, it also taught that, in the absence of

mutualit y, collateral estoppel depended upon considerations

of ‘justice and equity’’ and could not be applied pursuant

to an ‘‘automatic formula.’’? 402 U.S. at 334. Though the

Court below, in applying collateral estoppel to extinguish

the jury trial right, indicated reliance upon Blonder-Tongue

(App. A, p. 8a), it overlooked the signifieant fact that

Blonder-Tongue had no oceasion to consider whether. and

did not suggest that, collateral estoppel would apply whore

os here, a jury trial right was at stake. ,

Indeed, Beacon Theatres shows that where the exercise

of diseretion might affect the jury trial right, a court must

wherever possible, preserve that constitutional right. Re.

ferring to a court's discretion in setting the order of trial

of legal and equitable claims, this Court, in Beacon Theatres

wrote: )

‘Since the right to jury trial is a constitutional

one, however, while no similar requirement protects

trials by the court, that diseretion is very narrowly

limited and must, wherever possible, be exercised to

preserve jury trial.’’ 359 U.S. at 510. (footnote

omitted)

. That same principle was followed by the Fifth Circuit

in Rachal, but disregarded by the Court below. The Fifth

Cireuit perceived the injustice of depriving the defendants

in that case of the jury trial right they would have had

had the Rachal plaintiff been a party to the prior SEC

enforcement action and had therein presented his claim

for damages. The Court, in language apposite here, wrote:

‘In light of the great respect afforded in Beacon

Theatres, supra, and its progeny, for a litigant’s

right to have legal claims tried first before a jury in

an action where legal and equitable claims are joined,

it would be anomalous to hold that the appellants

have lost their right to a trial by jury on the issue of

whether they are liable to respond in damages for

violations of the security laws because of a prior

adverse determination by the district court of the

same issue in an action in which their present ad-

versary was not a party and which arose in a differ-

ent context from the present action. Beacon Theatres,

supra, makes it clear that had Hill been a party

plaintiff in the S.E.C. injunction action and there

presented his claim for damages, the appellants

would have received a jury trial on the issue of

liability. It hardly makes sense that Hill ean_now

assume a position superior to that to which he would

have been entitled if he had been a party to the prior

action. Accordingly, we hold that the application of

the doctrine of collateral estoppel was not appro-

priate in view of the particular circumstances pre-

sented by this case and that the district court erred

in granting summary judgment on the issue of lia-

bility.’’ 435 F.2d at 64.*

Thus Rachal, rather than the conflicting decision of the

Court below, is consistent with Beacon Theatres, Dairy

Queen, Meeker and Blonder-Tongue which teach that, in the

circumstances of this case, the jury trial right should be

upheld and not destroyed by collateral estoppel.

* Similarly, in McCook v. Standard Oil Co., supra, the Court

balanced the policy favoring an end to litigation against preservation

of the strong policy favoring the right to trial by jury and concluded,

contrary to the decision below, that where, as here, a court is called

upon to apply collateral estoppel in the absence of mutuality, a party

should not be estopped where it had had no right to trial by jury in

the first action. 393 F. Supp. at 258.

It is respectfully submitted that the conflict between the

Second and Fifth Cireuits and the uncertainty which that

conflict has created as to the scope and importance of the

Seventh Amendment jury trial right, justify the grant of

certiorari and resolution of the conflict by this Court.

The Court below extinguished the jury trial right in

derogation of the Seventh Amendment’s preservation of

that right as it existed in 1791 and contrary to this

Court’s interpretation of that Amendment.

In denying Petitioners their jury trial right in this

action on the basis of non-jury findings made in an SEC

enforcement action in which the jury trial right never

existed and to which Respondent was a stranger, the Court

below reached a result which cannot be reconciled with the

Seventh Amendment and this Court’s interpretation of it.

While the Court below recognized that, in determining

whether a jury trial right exists, it is necessary to ascertain

whether such a right existed in 1791 when the Seventh

Amendment was adopted, the Court below found that it

could not suecessfully make such an historical inquiry.

Thus, the Court below stated that, in respect of actions for

damages under the federal securities laws, it could not ‘‘by

reference to 1791 precedents, determine what jury trial and

collateral estoppel rules would have been developed or ap-

plied by common law courts of that period.’’ App. A, p. 17a.

To the contrary, a determination can be made as to the

jury trial and collateral estoppel rules applicable in the

circumstances here. The decisions of this Court demon-

strate;

(a) that it is ‘*‘a matter too obvious to be

doubted’ ’’ that a Seventh Amendment jury trial

aa ae a eee ae

OO a ete he cat

a Mia 8 arene

right does exist in respect of claims for damages

brought under post-1791 statutes, Curtis v. Loether,

415 U.S. 189, 193 (1974) ; see Schine v. Schine, [1969-

70 Transfer Binder] CCH Fed. See. L. Rep, {| 92,552

(S.D.N.Y. 1970) ; Richland v. Crandall, 259 F. Supp.

274 (S.D.N.Y. 1966) ;

(b) that ‘‘[ijn order to ascertain the scope and

meaning of the Seventh Amendment, resort must be

had to the appropriate rules of the common law

established at the time of the adoption of that con-

stitutional provision in 1791,’’ Dimick v. Schiedt,

supra, 293 U.S. at 476; see Baltimore & Carolina

Line, Inc. v. Redman, 295 U.S. 654 (1935) ;

mutuality, collateral estoppel could not have been

invoked, Bigelew v. Old Dominion Copper Mining &

Smelting Co., 225 U.S. 111, 127 (1912) ; Brooklyn City

and Newtown R.R. Co. v. National Bank of the Re-

public of N.Y., 102 U.S. 14 (1880) ; see Mutual Benefit

Life Insurance Co. v. Tisdale, 91 U.S. 238 (1876) ;

Barr v. Gratz’s Heirs, 17 U.S. 213 (1819), and, hence,

could not - - as was done here - - have extinguished a

jury trial right; and

(d) that the jury trial right may not be extin-

guished by a post-1791 change in the common law

doctrine of collateral estoppel. See Dimick vy.

Schiedt, supra.

In light of these established principles, it is apparent

that the Court below had no basis for applying collateral

estoppel to extinguish Petitioners’ jury trial right. While

the Court below noted that the 1791 law courts “respect [ed]

decrees and findings in equity’’ (App. A, p. 18a), it over-

looked the fact, relevant here, that, in the absence of

mutuality, those courts refused to give such decrees and

findings any estoppel effect. More importantly, the Court

below acknowledged the ‘‘absence of any 1791 authority

for extension of the equitable doctrine of collateral estop-

pel to the present case.’’ App. A, p. 18a.

Nor was there any basis for speculating -- as the Court

below did (App. A, p. 17a) -- that the 1791 courts might

‘*perhaps’’ have created an exception to the mutuality

requirement simply because it was the government, here

the SEC, which had obtained a prior judgment. No such

exception was created by the 1791 courts. See Mutual

Benefit Life Insurance Co, y. Tisdale, supra.

fin Mutual Benefit, supra, this Court illustrated the prin-

ciple that a 1791 private litigant, who was a stranger to an

earlier-tried action brought by the government, could not

invoke the findings made in that action through estoppel

in a private action. As this Court wrote:

‘‘If an indictment for an assault and battery by

A upon B is prosecuted to a trial and conviction, the

— record is conclusive evidence in favor of A upon a

subsequent indictment for the same offense; but, if

B sues A for the same assault and battery, it cannot

be doubted that it would be incompetent to introduce

that record as evidence of the offense. For this pur-

pose, it is inter alios acta. B was no party to that

proceeding. In theory of law he was not responsible

for it, nor capable of being benefited by it.’’ 91 U.S.

at 244.

Moreover, in the very article relied upon by the Court

below (App. A, p. 18a), the authors, referring to the state

of the law in 1791 in relation to Rachal y. Hill, supra, wrote:

*‘{L]imitations on the doctrine of collateral estop-

pel—in particular the doctrine of mutuality—would

have made it impossible for [plaintiff] to deprive

{defendants} of a jury on the issue of liability in an

analogous proceeding in 1791... .’’ Shapiro and

Coquillette, The Fetish of Jury Trial in Civil Cases:

A Comment on Rachal vy. Hill, 85 Harv.L.Rey. 442,

454 (1971).

The fact, noted by the Court below, that relatively re-

cently the common law requirement of mutuality of estop-

pel has been relaxed in some cases (App. A, p. 8a), cannot

affect, let alone extinguish, Petitioners’ right to a jury trial

here. See Dimick v. Schiedt, supra. None of those cases

involved a question of the jury trial right. In no instance

had the jury trial right been denied through any relaxation

of the mutuality requirement.*

Indeed, this Court, contrary to the unprecedented result

reached by the Court below, has made it crystal clear that

the constitutionally preserved right to a jury trial is su-

preme and cannot be lost through a post-1791 change in a

common law doctrine. Thus, in Dimick, supra, this Court

wrote:

‘Tt is said that the common law is susceptible of

growth and adaptation to new circumstances and

situations, and that the courts have power to declare

and effectuate what is the present rule in respect of

a given subject without regard to the old rule; and

some attempt is made to apply that principle here.

The common law is not immutable, but flexible, and

upon its own principles adapts itself to varying

* Collateral estoppel could be applied as to a legal issue in the

absence of mutuality only where, unlike the case here, the constitu-

tional right to trial by jury has been satisfied by an opportunity to try

that issue to a jury in a prior action. See e.g., United States v. United

Air Lines, Inc., 216 F. Supp. 709, 729 (E.D. Wash. 1962), aff'd in

part, modified in part on other grounds sub nom. United Air Lines,

Inc. v. Wiener, 335 F.2d 379, 404 (9th Cir. 1964).

conditions. Funk v, United States, 290 U.S. 371. But

here we are dealing with a constitutional provision

which has in effect adopted the rules of the common

law in respect of trial by jury as these rules existed

in 1791. To effectuate any change in these rules is

not to deal with the common law, qua common law,

but to alter the Constitution.’ 293 U.S, at 487.

In denying Petitioners the benefit of the constitution «i

principles enunciated in Dimick, the Court below relied

upon a demonstrably irrelevant difference between the

claim asserted in Dimick -- a personal injury case - - and the

claim here. App. A, pp. 16a-17a. However, since here, as

in Dimick, the constitutional jury trial right exists, the fact

that the claims asserted were different cannot impair the

applicability in each case of the constitutional principles

enunciated in Dimick.

Apparently misapprehending Dimick and subsequent

decisions of this Court which also have held that the

Seventh Amendment jury trial right, as it existed in 1791,

“shall be preserved,”’ ¢.g., Curtis y. Loether, supra, the

Court below apparently thought that Ross vy. Bernhard,

396 U.S. 531 (1970), ‘somewhat weakened”’ that require-

ment and could justify its unprecedented denial of the jury

trial right as it existed in 17y1. App. A, pp. l5a-16a.

It is respectfully submitted, however, that Ross, supra,

did not in any respect ‘‘weaken”’ the requirement of the

historical inquiry. Rather, Ross simply stated that the

historical inquiry happened to be the “most difficult’’ to

apply among three factors bearing upon the question

whether a particular issue was ‘* ‘legal’ in nature. As this

Court, in Ross, wrote:

‘Of these factors, the first, requiring extensive and

possibly abstruse historical inquiry, is obviously the

most difficult to apply.’’ 396 U.S. at 538 n.10.

It 1s one thing to say, as in Ross, that the **required’’

historical inquiry is difficult; it is an entirely different

matter to say, as the Court below did, that because a prin-

ciple is difficult to apply the principle has been ‘‘weak-

ened’’. Ross simply stands for the proposition that an

enlargement of the jury trial right beyond its 1791 bound.

aries is consistent with the Seventh Amendment.*

By its reliance upon Bloom vy. Illinois, 391 U.S. 194

(1968) (App. A, p. 16a), the Court below further evidenced

its misunderstanding of the principle that the jury trial

right, as it existed in 1791, may not be curtailed. In Bloom,

which involved a Sixth Amendment jury trial right, this

Court enlarged that right to afford it in actions in which

it had not existed in 1791. Indeed, in the very passage

from Bloom quoted below (App. A, p. 16a), this Court con-

trasted Thompson v, Utah, 170 U.S, 343 (1898), where, upon

an historical analysis, an attempted curtailment of the 1791

jury trial right was held to be impermissible. 391 U.S. at

200 n.2.

It is respectfully submitted that the unprecedented cur-

tailment of the jury trial right by the Court below consti-

tutes a violation of the Seventh Amendment mandate that

the jury trial right ‘‘shall be preserved.’ Dimick vy. Schiedt,

supra. The significance of the error of the Court below is

not confined to this case alone. In view of the conflict

between the Second and Fifth Circuits, the right to trial

by jury has become uncertain in every instance in which

the SEC may institute enforcement actions raising the same

issnes as are raised in related private litigation. Securities

and Larchange Commission vy, Wills. [Current Transfer

Binder] CCH Fed. See, L. Rep, 96,321 (D.D.C. 1978): see

also Securities and E rchange Commission v. Com monwealth

Chemical Securities. Ine., No. 76-6175 (2d Cir, March 3,

1978),

The Court below established an unprecedented and

demonstrably untenable rule in holding that the constitu-

tional jury trial right in a private action for damages is

waived if such action cannot be expedited and tried prior

to the trial of a related SEC enforcement action.

Notwithstanding the fact (a) that a right to trial by

jury did not exist in the SEC enforcement action and (b)

that, at the time the trial of that action was ordered, this

action was not ready for trial, the Court below concluded

that the Seventh Amendment jury trial right in this action

had been waived. App. A, pp. 14a, 18a-19a. Respondent

certainly did not claim, and the Distriet Court did not

find, any such waiver, That question was first raised by

the Court below, which did so on demonstrably untenable

grounds,

Thus, the Court below ruled that Petitioners .. who

were the only defendants in the SEC action but are only

two of the 14 defendants named in this action -- should

have ‘sought to expedite trial of the present action’’ to

preserve their jury trial right. App. A, p. 14a. However,

the trial of this action could not have bees » expedited to

avoid a prior non-jury determination of the common issues,

The ruling not only was wholly unrealistic in light of the

procedural posture of each of the eases, but also does vio.

lence to the well-established policy requiring SEC enforce-

ment actions to be tried without being delayed by private

litigation.

The SEC action was commenced on May 5, 1976

and the trial thereof was ordered to commence on June

2, 1976. At that time, pre-trial discovery in this action

was far from complete. There would have been no way, in

the four weeks between the commencement and the trial o

the SEC action, for the parties to this action to have pre-

pared for, and proceeded to, trial. This is to say nothing

of the fact that Respondent's May 20, 1976 motion to amend

his complaint in this action was not decided until September

3, 1976, months after the trial in the SEC action had been

concluded.

Nor could Petitioners have stayed the trial of the SEC

action until after this action wax made ready for trial and

tried. Securities and Exchange Commission v, Wills. supra;

see Securities and Exchange Commission v. Everest Man.

agement Corp., 475 F.2d 1236 (2d Cir. 1972); Securities

and Exchange Commission v. General Host Corp., 60 F.RD,

640 (S.D.N.Y. 1973), aff'd, 508 F.2d 1332 (2d Cir. 1975);

Securities and Exchange Commission v. Natic nal Student

Marketing Corp., 59 F. RD. 305 (D.D.C. 1973).

In Wills, supra, defendants, relying upon the decision

below, sought to preserve their jury trial right in certain

private actions by moving for a stay of the trial of a related

SEC enforcement action until after the trials of the private

actions. In Wills, as was the case here, the private actions

were not ready for trial at the time the SEC action was

ordered to trial. The Court, finding that Congress had

intended that SEC actions should proceed unobsfructed

by private litigation, denied the motion. The Court wrote:

“The SEC is charged with statutory responsi-

bility to vindieate the publie interest. It perceives

the threat of future violations and moves to prevent

them. Congress was at pains to make it abundantly

clear that the Commission in such cireumstances

should proceed unobstructed by private litigation,

See, e.g. 3. Rep. No. 94-75, 94th Cong, Ist Sess,

16-77 (1975). The Commission is rey, discovery is

completed, a trial date is set, and the ease will pro-

ceed with trial to the Court." (Current Transfer

Binder} CCH Fed. See, L. Rep. at p. 93,072.

In Everest Management, supra, the Second Circuit also

refused to delay an SEC enforcement action even to permit

intervention by parties claiming to have been defrauded

in the very transaction complained of by the SEC, There,

Judge Timbers, a member of the Panel below, wrote:

‘Appellants argue, accordingly, {on the basis of

Rachal v. Hill, supra) that, unless intervention in the

present SEC action is permitted, a total relitigation

of the issues would be required in a subsequent

action.

‘Suffice it to say that in our view it is preferable

to require private parties to commence their own ac-

tions than to have SEC actions bogged down through

intervention.’’ 475 F.2d at 1240 n.5.

The same policy was sounded in General Host, supra,

where the Court stated:

‘**As a matter of general policy, it is undesirable

that SEC actions for injunctive relief, whose sole

purpose is the expeditious safeguarding of the public

interest, be subjected to the delays that are inherent

in private litigations, with their different concerns,

even where those private actions parallel the SEC

complaints.’ "' 60 F_RLD. at 641-42.

It is thus apparent that there was no merit whatsoever

to the unprecedented and untenable rule established by the

Court below that to avoid waiver of the jary trial right in

& private action, such action must be expedited and tried

prior to the trial of a related SEC action.

The Court below established an unprecedented and

futile requirement that to avoid waiver Af the jury trial

right in & private action for damages it is necessary to

request a jury in a related SEC enforcement action in

which there is no jury trial right.

The Court below also ruled that to avoid waiver of their

jury trial right in this action Petitioners should have re.

quested Judge Duffy, who tried the SEC enforcement

action, to exercise his diseretion, pursuant to Rule 39(b),

Fed. R.Civ.P., to order the issues in that action tried to a

jury. App. A, p. 14a. Such a suggestion is demonstrably

untenable, The futility of the suggestion is underscored by

Wills, supra, and Commonwealth Chemical, supra, which

held such a request to be groundless,

A jury trial under Rule 39(b) could not have been pro-

perly demanded in the SEC enforcement action. Rule 39(b)

is expressly limited to “an action in which such a [jury]

demand might have been made of right’’, and there certain.

ly was no such right in the SEC enforcement action. Secu-

rities and Exchange Commission vy. Commonwealth Chem-

ical Securities, Inc., supra; Securities and Erchange

Commission <. Wills, supra; Securities and Exchange

Commission ¥. Associated Minerals, Inc., 75 ¥.RD. 724

(E.D. Mich, 1977); Securities and Exchange Commiasion

v. Petrofunds, Inc,, 420 ¥. Sapp. 958 (S.D.N.Y. 1976). A

jury demand under Rule 39(b), suggested by the Court

below, would have been improper,

The confusion which the decision below hax engendered

may also he seen in the fact that while the decision below

suggested that a jury demand should have been made in

the SEC enforcement action, subsequently the Second Cir-

cuit, in Commonwealth Chemical, held that a jury trial

right did not exist in «ach aw action.

The Court below ruled erroneously that the use of

an advisory jury could satisfy a Seventh Amendment

jury trial right.

The further ruling of the Court below that to avoid

waiver of their jury trial right in this action Petitioners

should have requested an advisory jury in the SEC action,

pursuant to Rule 39(¢), Fed. R.Civ.P., (App. A, p. 14a) was

also erroveous, An advisory jury could have had no bearing

whatsoever upon Petitioners’ Seventh Amendment jury

trial right. Securities and Exchange Commission vy. Wills,

supra. ‘* By its nature, the function of the advisory jury is

to enlighten the conscience of the trial court and the jury's

verdict has no binding effect upon that court.’’ 5 Moore’s

Federal Practice © 39.10(3) (24 ed. 1977); Mallory v. Citi-

zens Utilities Company, 342 F.2d 796 (2d Cir. 1965) ;

(American) Lumbermens Mutual Casualty Co. of Minois

v. Timms & Howard, Inc., 108 F.2d 497 (2d Cir. 1939).

In Wills, the Court, addressing the same suggestion

made by the Court below regarding the use of an advisory

jury, wrote:

‘“*The suggestion that an advisory jury might be

used is, on analysis, misplaced. Defendants want to

protect a perceived constitutional right to jury trial,

but an advisory jury does not satisfy this right.”

[Current Transfer Binder] CCH Fed. See. L. Rep.

at pp. 93,072-73.

Moreover, even where an advisory jury is used, the facts are

to be found by the court, Rule 52(a), Fed.R.Civ.P., and the

‘*review on appeal is from the court’s judgment as though

no jury had been present,’’ (American) Lumbermens My-

fual Casualty Co. of Mlinois v. Timms € Howard, Inc., supra,

108 F.2d at 500.

It is respectfully submitted that, contrary to the ruling

of the Court below, to substitute for a jury, which a party

has as of constitutional right, an advisory jury, whose

fact-finding is neither binding nor subject to review, woul!

render the constitutional right illusory. Clearly, there eouid

he no waiver of a Seventh Amendment jury trial right

merely because a request is not made for an advisory jury.*

* While the Court below relied on Goldman, Sachs & Co. v.

Edelstein, 494 F.2d 76 (2d Cir. 1974), that case cannot support the

conclusion of the Court below that trial of the SEC enforcement

action, without objection by Petitioners, resulted “in the destruction

by collateral estoppel of the defendants’ right to a jury trial of the

same issues”. App. A, p. 19a. To the contrary, as has been seen,

o—- were no valid grounds upon which to object to the trial of the

cireumstances here. Unlike the SEC action here, in which the jury

trial right had never existed, Goldman, Sachs involved waiver of a

The decision below raises significant and recurring

problems regarding conflicting considerations of the

efficient adjudication of SEC enforcement actions and

the preservation of the jury trial right in related private

actions.

The effect of the decision below is to place a defendant,

which is party to both an SEC enforcement action and

a related private action, in an untenable position if, as is

the case here, the defendant wishes to preserve its constitu-

tional jury trial right in the private action. Brodsky, The

Frustration of Private Counsel: Uncertainties Favor The

Commission, 178(116) N.Y.L.J. (12-19-77) p. 48; Mathews

and Thompson, SEC Enforcement Program: Emphasis on

Perquisites Highlights Year’s Actions, 178(116) N.Y.L.J.

(12-19-77) pp. 45-46. While this problem arises here in the

context of SEC enforcement actions, it would also arise in

analagous situations involving other agencies of the govern-

ment.

As has been seen, in keeping with the purpose of an

SEC enforcement action to safeguard the public interest,

delay is not to be countenanced. E.g., Securities and Ex-

change Commission v. Wills, supra. Thus, a defendant in

an SEC action cannot stay that action to enable a related

private action to be tried first.* Accordingly, the defendant

faced with an SEC action and a related private action is

left with two choices, each of which would create an obvious

injustice in view of the constitutional right at stake.

* The apparent effect of the suggestion of the Court below that

this action should have been expedited for trial prior to the trial of

the SEC action is in conflict with the policy to have SEC enforcement

actions proceed unobstructed by related private litigation. Thus, in

the circumstances here, the only way to have tried the private action

prior to the SEC action would have been through a stay of the SEC

action - - but, as seen in Wills, such a stay would not be available.

The first choice is to contest the SEC action. However,

hy doing so, according to the Court below, the defendant

exposes itself to the risk of an adverse determination which

would extinguish its constitutional jury trial right in the

private action.

The other choice is to settle the SEC action to avoid a

trial and thereby prevent the possibility of an adverse de-

termination. However, to force a defendant to settle one

action, in which it has no jury trial right, in order to pre-

serve its constitutional jury trial right in a second action,

would be inconsistent with the Seventh Amendment’s

preservation of that right. Moreover, to place a defendant

in such a position is to give the SEC, at a time when its

allegations are as yet unproven, unfair and unwarranted

leverage in dictating settlement terms to a defendant intent

on preserving its jury trial right.

In this regard, the Brodsky article, supra, after discuss-

ing various areas of uncertainty in SEC litigation, stated:

‘‘Thus, in SEC injunction actions the Commis-

sion is now armed with an additional argument in

its powerful array of arguments to persuade targets

of investigations to settle with them—namely, that

even if no injunction is mandated, the court may

issue findings and direct that publie disclosure ma-

terial be corrected. If it does, those findings will be

binding, at least in the Second Circuit, in a private

action for damages.’’ Brodsky, supra, 178(116)

N.Y.L.J. (12-19-77) at p. 48, col. 5.

Similarly, the Mathews and Thompson article, supra,

observed:

‘*Shore on its face is a great boon for class ac-

tion plaintiffs—at least those who are able to bring

their cases in the Second Circuit. The decision may

also benefit the SEC’s enforcement program. Po-

tential SEC defendants are less likely to resist

settlement and to force the SEC to trial knowing

that the strike suitors waiting in the wings will be

able to ride the coattails of the SEC’s substantial

trial preparation and presentation efforts.’’ Ma-

thews and Thompson, supra, 178(116) N.Y.L.J. (12- .

19-77) at p. 46, col. 1. :

In sum, the decision below places defendants in private

actions under the federal securities laws in the Second

Cireuit, unlike defendants in such actions in the Fifth Cir-

cuit, in a position which either does violence to their ¥

Seventh Amendment jury trial right or may force them

to refrain from contesting allegations they deny in related

SEC enforcement actions.

CONCLUSION

For all of the foregoing reasons, it is respectfully

submitted that certiorari should be granted.

Respectfully submitted,

Irvine Parker

Counsel for Petitioners

70 Pine Street

New York, New York 10005

Tel. No. (212) 344-1866

Of Counsel:

JoserpH N. Satomon

Jacoss Perstncer & ParKER

APPENDIX A

UNITED STATES COURT OF APPEALS

For tHe Seconp Crevir

—_

~ =

No. 49—September Term, 1977,

(Argued September 12,1977 Decided November 1, 1977.)

Docket No. 77-7163

——

Leo M. Sxonz,

Plaintiff-A ppellant,

—against—

Parxiaye Hostery Compayy, Inc., Herzert N. Somexa,

Denise D. Somexn, Hersert N. SoMEEH, as Trustee of

trusts for the benefit of his children, Cuarues B. Yarrt.

Bevian Yarre, Dav N. Davip, Nex B. Prersky, Carn

ApreL, Estuer Appen, FLorence McKkamMeL, ARTHUR

Gotp, Stayter Kvuscuyer and Harotp Stonz,

Defendants,

Parkuaye Hosrery Company, Iwc., and

Hersext N. Somers,

Defendants-Appellees.

Before:

Maysrretp and Tmrsers, Circuit Judges,

and Doouine, District Judge.*

—_—-

—

ad Of the United States District Court for the Eastern District of New

York, sitting by designation.

ee ee ae ee —

Interlocutory appeal by plaintiff pursuant to 28 U.S.C.

§1292(b) from an order of the Southern District of New

York, Inzer B. Wyatt, J udge, in a stockholders’ class action

for damages against corporate officers and directors alleg-

ing issuance of false proxy statement in violation of §l4(a)

of the Securities Exchange Act of 1934, which denied plain-

tiffs motion for summary judgment against two defendants

(Parklane Hosiery Company, Inc. and Herbert N. Somekh)

based on the ground that they were collaterally estopped

from denying adverse findings made by the district court

in a prior action against them that had been afirmed on

appeal, see SEC v. Parklane Hosiery Co., Inc. and Herbert

N. Somekh, 422 F. Supp. 477 (S.D.N.Y.), affd., 558 F.2q

1083 (2d Cir. 1977).

Reversed.

v—w—w

Samvet K. Rosey, Esq., New York, N.Y. (Stuart

D. Wechsler, Esq., Patricia I. Avery, Attor-

ney, Kass, Goodkind, Wechsler & Gerstein,

New York, N.Y., of counsel), for Plaintiff-

Appellant.

Invivc Parger, Esq., New York, N.Y. (Joseph

N. Salomon, Esq., Norman Trabulus, Esq.,

Jacobs Persinger & Parker, New York,

N.Y., of counsel), for Defendants-Appellees,

MansrreLp, Circuit Judge:

This appeal raises the important question of whether a

party who has had issues of fact determined against it

after a full and fair opportunity to litigate them in a non-

jury trial of an action against it may, in a different suit

against it by another Person, obtain a jury trial of the

same issues of fact arising out of the same transaction.

We hold that it is collaterally estopped from doing so.

In November 1974 the present class action was com-

menced on behalf of stockholders of Parklane Hosiery Com-

pany, Inc. (“Parklane”) against Parklane and 19 of its

officers, directors and stockholders, alleging that a proxy

statement issued by them on September 24, 1974, contained

materially false and misleading statements in violation of

§$10(b), 13(a), 14(a) and 20(a) of the Securities Exchange

Act of 1934 as amended, and rules and regulations promul-

gated thereunder. Parklane had been a publicly-held com-

dants. In furtherance of a Proposed merger whose pur-

pose was to convert Parklane into a privately-owned com-

pany controlled entirely by defendants, they caused a proxy

statement to be sent to Parklane’s stockholders in Septem-

ber advising that on October 14, 1974, there would be a

meeting to consider the proposal. Following the meeting

the plan was consummated. Parklane merged with Now

PLHC Corp., a private company controlled by defendants,

and each of the minority stockholders, including plaintiff,

was paid $2 per share for his holdings, subject to the right

of any dissenting stockholder to obtain an appraisal pur-

suant to the New York Business Corporation Law.

The Amended Complaint alleges that the proxy state-

ment

(1) failed to disclose that the Purpose of the merger

was to help defendant Herbert N. Somekh, Parklane’s

president, to meet his personal obligations rather than

to further any valid corporate objective;

(2) failed, in referring to Parklane’s termination of

negotiations with respect to its lease of certain prop-

erty from the Federal Reserve Board of New York,

to reveal that continuation of the negotiations could

result in substantial financial benefits to Parklane; and

(3) failed to disclose, in advising that two apprais-

ers had been employed by Parklane to determine the

fair value of its stock, that the appraisers had not

been furnished with suficient information to prepare

a true and complete valuation.

It further alleges that the distribution of the proxy state-

ment was part of a fraudulent scheme giving rise to liabil-

ity to the plaintiff and other members of the class pursu-

ant to Rule 10b-5 of the Securities Exchange Act of 1934.

The complaint seeks damages, a rescission of the merger,

costs and such other relief as might be granted by the court.

In May 1976, about a year and a half after commence-

ment of the present action, the Securities and Exchange

Commission (“SEC”) brought suit in the Southern Dis-

trict of New York against Parklane and Somekh, alleging

that their issuance of the September, 1974, proxy state-

ment violated §$17(a) of the Securities Act of 1933, 15

U.S.C. S77q(a), and $$10(b), 13(a), and 14(a) of the Se-

eurities and Exchange Act of 1934, 15 U.S.C. $§78j(b),

*Sm(a) and 78n(a), and rules promulgated thereunder.

The SEC charged that the proxy statement was materially

false and misleading in essentially the same respects as

those that had been alleged by the plaintiff in this action.

The SEC sought equitable relief, including the appoint-

ment of a special counsel to determine the fair value of

the Parklane shares held by the minority stockholders

eliminated by the merger and an injunction against further

violations by the defendants of the antifraud, proxy and

reporting provisions of the federa] securities laws, After

a trial in which the SEC’s appleation for preliminary in-

junctive relief was consolidated with trial of the action

EAD IPE Le Tt oY mt Teapel t te

pare Crcinanns

Ce ee a ae

on the merits pursuant to Rule 65(a), F.R.Civ.P., and both

Parklane and Somekh were accorded a full and fair Op-

portunity to adduce evidence and cross-examine Witnesses

produced by the SEC, J udge Kevin T. Dutfy of the South-

ern District of New York on November 9, 1976, filed a

26-page opinion which constituted his findings of fact,

conclusions of law and final order in the case.

Board when in fact negotiations were continuing in early

October 1974 and the Federal Reserve Board’s representa-

established by the Supreme Court in TSC Industries, Ine.

v. Northway, 426 U.S. 458 (1976). See also SEC y.

Gulf Sulphur Co., 401 F.2d 833, 849 (2d Cir. 1968), cert.

denied, 394 U.S. 976 (1969).

Although the district court concluded in the SEC case

that the defendants had violated $14(a) of the Exchange

Aci of 1934, it decided that the requesied relief—an injune-

tion and appointment of a special counse} to determine the

fair value of the Parklane shares—would not be appropri-

ate and limited relief to a direction that Parklane amend

its prior filings with the SEC to correct the misstatements

and non-disclosures and file a Form 10K for 1975, if one

had not been filed. Judge Duffy’s decision was affirmed by

us on July 8, 1977, see 558 F.2¢ 1083, in an opinion spe-

cifically upholding each of his findings and his determina-

tion that each of the misstatements or omissions was ma-

terial.

On the basis of the district court’s N ovember 9, 1976,

decision plaintiff in the present action moved on November

24, 1976, for summary judgment against Parklane and

Somekh, contending that by reason of J udge Duffy’s de-

tailed findings of fact, those two defendants were collater-

ally estopped from asserting that any genuine issues of

material fact regarding liability remained for trial. The

motion was denied by J udge Inzer B. Wyatt in a cryptic

opinion as follows: “The within motion is denied. Rachal

v. Hill, 435 F.2d 59 (5th Cir. 1970). So ordered.”

In Rachal the Fifth Circuit was faced with the question

before us—whether corporate officers who have had issues

of fact determined against them in a non-jury trial of an

SEC suit for injunctive relief are collaterally estopped

from relitigating those issues before a jury in a subsequent

class and derivative action for damages brought by stock-

holders. The court, conceding that mutuality of parties

was no longer a prerequisite for collateral estoppel, never-

theless held that the Seventh Amendment right to a jury

trial of contested issues of fact survived any prior non-

mat Se

jury adjudication, relying principally on the Supreme

Court’s decision in Beacon Theatres Inc. vy. Westover, 359

U.S. 500 (1959).

Following his decision Judge Wyatt certified his order

pursuant to 28 U.S.C. §1292(b). Since it involved a con-

trolling question, we permitted an interlocutory appeal in

the interests of avoiding a wastefyl and unnecessary trial,

see F.R.A.P. 5(a). We reverse,

Discussion

Absent a demand for a jury trial in the present action,

it is clear that Parklane and Somekh would be collaterally

opportunity to try those issues in the prior proceeding.

That the prior Proceeding was equitable in nature has

findings or judgment of a court of equity, even before

merger of the law and equity systems, Katchen v. Landy,

382 U.S. 323, 337-38 (1966) ; Brady v. Daly, 175 U.S. 145,

159 (1899); Smith v. Kernochen, 48 U.S. (7 How.) 198

(1849); Crane Co. v. dmerican Standard, Inc., 490 F.2d

trine of collateral estoppel, see Bigelow vy. Old Dominion

Copper Mining & Smelting Co., 295 U.S. 111, 127 (1912),

this court in Zdanok v. Glidden Co., 327 F.2d 944 (2d Cir.

1964), following the lead of Justice Traynor in Bernhard

v. Bank of America, 19 Cal.2d 807, 122 P.2d 892 (1942),

dispensed with mutuality as a requirement, taking the view

that a requirement of complete identity of parties serves

no purpose as long as the person against whom the findings -

are asserted or his privy has had a full and fair oppor-

tunity to litigate the identical issue in the prior action.

Any lingering doubt in the matter was eliminated by the

Supreme Court’s decision in Blonder-Tongue Laboratories,

Inc. v. University of Illinois Foundation, 402 U.S. 313

(1971), where the Court, citing Zdanok and Bernhard with

approval, unanimously concluded that a determination of

patent invalidity against a party in prior litigation was

binding against it in a subsequent suit to enforce the pr tent

against others.!

Turning to the question of whether, notwithstanding the

doctrine of collateral estoppel, the defendants are entitled

to relitigate the same issues of fact before a jury, it must

be recognized that the Seventh Amendment? does not create

new jury trial rights. It simply preserves the right to a

1 Prior to Blonder-Tongue, the Supreme Court in United States v. Utah

Construction ¢ Mining Co., 384 U.S. 394 (1966), had held that when

an administrative agency acts in a judicial capacity, collateral estoppel

effect may be given to its findings of fact against the respondent rather

than require relitigation in subsequent legal proceedings, 384 U.S. at

421-22. This principle has since been applied to give such effect to

agency determinations in later private damage suits against the respon-

dent. See H.L. Robertson ¢ Assoc. Inc. v. Plumbers Local No. 519, 429

F.2d 520, 521 (5th Cir. 1970) ; Comment, Use of Government Judgments

in Private Antitrust Litigation: Clayton Act Section 5(a), Collateral

Estoppel and Jury Trial, 43 U. Chi. L. Rev. 338, 356 (1976).

2 The Seventh Amendment provides:

“In Suits at common law, where the value in controversy shall exceed

twenty dollars, the right of trial by jury shall be preserved, and no

fact tried by a jury, shall be otherwise reexamined in any Court

of the United States, than according to the rules of the common

law.”

jury trial as it existed in 1971, 5 Moore, Federal Practice

138.05(5], at 82-83 (2d ed. 1974). Moreover, the right to a

jury trial exists only in “suits at common law” rather than

those in equity, see Ross v. Bernhard, 396 U.S. 531 ( 1970),

and only with respect to disputed issues of fact. Fidelity

€& Deposit Co. v. Tnited States, 187 U.S. 315, 319-20 (1902).

Where no genuine issue of material fact exists, the court

may, without violating Seventh Amendment rights, grant

summary judgment pursuant to Rule 56, F.R.Civ.P. E.g.,

Diamond Door Co. v. Lane-Stanton Lumber Co., 505 F.2d

1199, 1203 (9th Cir. 1974) ; United States vy. Stangland, 249

F.2d 843, 848 (7th Cir. 1957). Similarly the court may,

consistently with the Serenth Amendment, withdraw a case

from the jury and order the entry of a directed verdict

where the evidence, viewed most favorably to the party

against whom the judgment is entered, would not be suffi-

cient to support a verdict in that party’s favor. Rule 50,

F.R.Civ.P.; Baltimore & Carolina Line v. Redman, 295

US. 654 (1935). Failure to make a prompt demand for a

Jury constitutes a waiver of the right to one. Rule 38( d),

F.R.Civ.P.

Since the Seventh Amendment preserves the right to a

jury trial only with respect to issues of fact, once those

issues have been fully and fairly adjudicated in a prior

proceeding, nothing remains for trial, either with or with-

out a jury. The party seeking the retrial has already exer-

cised his right to be heard on the issues and to cross-

examine witnesses with respect to them. The interests of

finality, certainty and economy of judicial resources then

come into play to preclude his relitigating the same issue

a second or third time, with the possibility of inconsistent

findings, absent some showing of fundamental unfairness

in the prior proceeding or some unusual circumstances such

as fraud that would render inappropriate the application

of the doctrine of collateral estoppel. See Commissioner

10a

v. Sunnen, 333 U.S. 591, 597 (1948); Cromwell v. County

of Sacramento, 94 U.S. 351 (1876).

Apparently accepting these fundamental principles, ap-

pellees rely, as did the district court, on the Fifth Circuit’s

decision in Rachal v. Hill, swpra, for the proposition that

they are nevertheless entitled to a second trial of issues

once determined, this time before a jury. In reaching

that conclusion the court in Rachal rested its decision al-

most entirely upon its interpretation of Beacon Theatres

v. Westover, 359 U.S. 500 (1959). That case, however, did

not deal with the question of whether a party has a right

under the Seventh Amendment to a jury retrial of issues

already adjudicated in a non-jury proceeding, but with the

scope of a judge’s discretion in determining the order or

sequence in which legal and equitable claims joined in the

same action under the liberal federal rules, which merge

law and equity, see Rule 18, F.R.Civ.P., and mandate the

assertion of compulsory counterclaims, see Rule 13, F.R.

Civ.P., must be tried. Plaintiff in Beacon Theatres brought

an action seeking a declaratory judgment and injunctive

relief against the institution of a treble damage antitrust

suit, to which the defendant responded by interposing a

compulsory counterclaim for treble damages raising the

same issues and demanding a jury. Were the equitable

claims tried first to the court, the defendant would have

been precluded under the doctrine of collateral estoppel

from relitigating issues common to the two claims in a

trial before a jury to which the defendant was entitled

under the Seventh Amendment. Recognizing this alterna-

tive, the Supreme Court held that it was an abuse of dis-

cretion for the district court to schedule the equity claims

first for trial.

The Court in Beacon Theatres was not required to face

the question of whether, once there has been a prior non-

jury trial of the issues without objection in an independent

eine ee

lia

equity proceeding, as was the case here, the losi

may then meer a jury retrial of the same rvteig Bow.

ever, as we noted in Crane Co. v. American Standar , Ine.

490 F.2d 332, 342 (1973), the Supreme Court’s ao

over which of the claims should first be tried, rather than

evidencing support for such procedure, was based on the

assumption that unless the jury trial was held first the

findings in the non-jury Proceeding would be conclusive.

Indeed, even with respect to the order of presentation of

legal and equitable claims, Justice Black indicated in Bea-

com Theatres that there might be some exceptional in-

first in the equity proceeding even though this could result

im precluding a jury trial, stating:

“If there should be cases where the availability of

declaratory judgment or joi i i

Or) Joinder in one suit of ]

and equitable causes woul ae

gal or equitable canse

be | the right to jury trial is

4 constitutional one, however, while no similar require-

ment protects trials by the court, that discretion is

very narrowly limited and must, wherever possible, be

exercised to preserve jury trial.” 359 U 5

note omitted). ‘S. at 510 (foot-

. Thus Beacon Theatres simply asserts that where parties

Join legal and equitable claims arising out of the same

3 Three years later the Court extended the princi

, les

to hold in Dairy Queen, Inc. v, Wood, 369 U.S. eS ae ee

469 (1962), that where

12a

However, we do not view the decision as compelling the

result reached in Rachal. If anything, Beacon Theatres

implicitly confirms the long-accepted principle that a non-

jury adjudication of issues asserted in an equitable Claim

will collaterally estop a later jury trial of the same issues

presented by the same party in a legal claim. Had it not

been for that basic assumption the Supreme Court would

not have been concerned about the order in which the legal

and equitable claims were to be tried, since the defendant

would then have been guaranteed a jury trial of the coun-

terclaim regardless of the outcome of the equitable claim.

As Justice Black noted in his majority opinion, if the com-

mon issues were first resolved by the district court upon

a non-jury trial of the complaint for declaratory relief

“the effect of the action of the District Court could be,

as the Court of Appeals believed, ‘to limit the peti-

tioner’s opportunity fully to try to a jury every issue

which has a bearing upon its treble damage suit,’ for

determination of the issue of clearances by the judge

might ‘operate either by way of res judicata or col-

lateral estoppel so as to conclude both parties with

respect thereto at the subsequent trial of the treble

damage claim.’ 252 F.2d at 874.” 359 TS. at 504.

This underlying premise was equally implicit in Dairy

Queen Inc. v. Wood, 369 U.S. 469 (1962), and Meeker vy.

Ambassador Oil Corp., 375 U.S. 160 (1963). It was later

confirmed in Katchen v. Landy, 382 U.S. 323, 336-40 (1966 ,

where the Court upheld the right of a bankruptcy trustee

to recover a preference through a summary proceeding,

for which a jury is not required, over the objection that

@ plaintiff joined demands for injunctive relief and damages in one

suit, the deferdant who made a timely demand for a jury could not

be deprived of his constitutional right to a jury trial by earlier resolu-

tion of the issues with respect to the equitable claim.

13a

this procedure would deprive the claimant of his right to

a jury trial, to which he would be entitled under the Sev-

enth Amendment in a plenary proceeding under 460 of the

Bankruptcy Act, 11 U.S.C. §96; Schoenthal v. I rving Trust

Company, 287 U.S. 92, 94-95 (1932). Katchen stated:

“In practical effect, the denial of a jury trial would be

no less were the bankruptcy court merely to determine

the existence and amount of the preference, since that

determination would be entitled to res judicata effect

in any subsequent plenary action. And we have held

that equity courts have power to decree complete re-

lief and for that purpose may accord what would other.

wise be legal remedies.

“For, as we have said, determination of the preference

issues in the equitable proceeding would in any case

render unnecessary a trial in the plenary action be-

cause of the res judicata effect to which that determi-

nation would be entitled... . Both Beacon Theatres

and Dairy Queen recognize that there might be situa-

tions in which the Court could proceed to resolve the

equitable claim first even though the results might be

dispositive of the issues involved in. the legal claim.”

382 U.S. 338, 339-40.

In view of the limited scope of the Supreme Court’s

decision in Beacon Theatres and its inherent respect for

the doctrine of collateral estoppel, we do not view the ease,

either in logic or in spirit, as requiring us to hold that

after a litigant has had a full and fair non-jury trial of

issues he may always invoke the Seventh Amendment to

obtain a second trial of the same issues. To so hold would

violate basic principles of fairness, finality, certainty, econ-

lé4a

—_—- ----—

omy in utilization of judicial resources,‘ avoidance of pos-

sibly inconsistent results, and achievement of the “inst,

speedy and inexpensive determination of every action,”

Rule 1, F.R.Civ.P.5 Were there any doubt about the mat-

ter, it should in any event be resolved against the defen-

dants in this case for the reason that, although they were

fully aware of the pendency of the present suit throughout

the non-jury trial of the SEC case, they made no effort to

protect their right to a jury trial of the damage claims

asserted by plaintiffs, either by seeking to expedite trial

of the present action or by requesting J udge Dutfy, in the

exercise of his discretion pursuant to Rule 39(b), (c), F.R.

Civ.P.,* to order that the issues in the SEC case he tried

by a jury or before an advisory jury. Thus, to the extent

that foreseeability of the possible use of collateral] estop-

pel in a later private action for damages is a factor in

4 Although plaintiffs have joined with Parklane and Somekh in the

Present suit other persons who were not parties to the SEC proceeding,

they advised the district court that, in the event their summary judg-

5 As Justice White observed in Blonder-Tongue, supra, the fundamenta!

question is “whether it is any longer tenable to afford a litigant more

than one full and fair opportunity for judicial resolution of the same

issue,” 402 U.S. a 328, a question which the Court answered in the

negative.

6 Rule 39 provides in pertinent part:

“(b) By the Court. Issues not demanded for trial by jury as

provided in Rule 38 shall be tried by the court; but notwithstanding

the failure of a party to demand a jury in an action in which such

a demand might have been made of right, the court in its discre-

tion upon motion may order a trial by a jury of any or all issues.

“(¢) Advisory Jury and Triai by Consent. In all actions not

triable of right by a jury the court upon motion or of Ys own

initiative may try any issue with an advisory jury or, except in

actions against the United States when & statute of the United

States provides for trial without a jury, the court, with the consent

of both parties, may order a trial with a jury whose verdict has

the same effect as if tria] by jury had been a matter of right.”

an cereale SR a blithe ae Lal De

i ee ere |

Ak aah CD Bes Se ee ee

Sars IIPS

lia

determining whether application of estoppel principles

would be unjust,’ see The Evergreens v. N uman, 141 F.2d

927, 929 (2d Cir.), cert. denied, 323 U.S, 720 (1944), no

unfairness exists in the present case, because the defen-

dants, being parties to two suits pending at the same time,

_ Were fully aware of the estoppel consequences.

Notwithstanding the Supreme Court's respect for the

doctrine of collateral] estoppel, defendants urge that their

right to a jury trial under the Seventh Amendment must

be preserved on historical grounds. Frankly conceding in

their brief that if there had been mutuality of parties “the

application of collateral] estoppel could result in the loss

of a jury trial right” (Appellees brief Pp. 15), they argue

that since principles of non-mutual estoppel had not yet

jury trial at common law as it then existed. In support of

this position they point to Dimick v. Schiedt, 293 U.S. 474

(1935), where the Court looked to custom governing the

right to a jury in 1791 to determine whether a personal

injury plaintiff could be forced to accept a court’s increased

award of damages after a jury verdict had been found

inadequate or whether the plaintiff was entitled to a new

jury for the assessment of damages as a matter of consti-

tutional right. Such a strict histdrica] approach to the

Seventh Amendment, which would freeze the jury trial at

7 It has been chserved that

“Since one of the major functions of injunctive actions brought by

the Commission is the alerting of potential Private plaintiffs to

actionable violations of the securities laws, the defendants should

be well aware of the possibility of multiple private suits at a later

date. Thus, it is unlikely that the defendants would regard the

injunction as unimportant and therefore fail either to defend the

first suit vigorously or to appeal an adverse judgment.” (Foot.

notes omitted). Comment: The Effect of SEC Injunctions in Sub-

sequent Private Damage Actions—Rachal y. Hill, 71 Colum. L. Rev.

1329, 1338-39 (1971).

l6éa

its 1791 level—no more, no less—has been somewhat weak-

ened by recent Pronouncements. See, ¢.g., Ross y. Bern-

hard, 396 U.S. 531 (1970), where the Court found that

because of the “extensive and possibly abstruse historical

inquiry” involved, such an analysis is “most difficult to

apply.” 396 U.S. at 538, n.10. The inquiry into pre-1791

practice is complicated by the Paucity of precedent and

the merger of law and equity, see The Supreme Conrt,

1969 Term, 84 Harv. L. Rev. 1, 17 5-76; MeCoid, Procedural

Since the term “Suits at common law” as used in the Sey-

enth Amendment does not embrace equitable claims, it

becomes necessary to determine, with respect to rights

and remedies arising out of Statutes that were not in ex-

istence in 1791, what the closest common law analogue

might have been, which is often a tenuous Procedure at

best. See Note, United States v. J. B. Williams Co., 498

F.2d 414 (2d Cir. 1974), 88 Harv, f. Rev. 1035, 1041-49

construction of the Constitution. Cf. Thompson vy. Utah

170 U.S. 343, 350 (1898).” 391 U.S, at 200 n.2.

In any event, application of a strict historica] standard

}

;

Pn WE dae aE i wi dabcs as tn al an ne

COREA

2 ey

Whack o: wv

17a

the common garden-variety type that had long existed at

common law prior to 1791 and had always been triable by

jury. Moreover, the pre-1791 law clearly prohibited the

Court from increasing a jury award in such a case, 293 U.S.

at 482. In the Present case, on the other hand, we find no

18th century counterpart or analogue to an SEC proceed-

ing for injunctive relief or a stockholders’ suit based on an

federal securities laws. We therefore cannot, by reference

to 1791 precedents, determine what jury trial and collateral

estoppel rules would have been developed or applied by

common law courts of that period in such suits if these

Statutes of recent vintage, which contemplated both public

and supplementary private enforcement, see J. J. Case y.

Borak, 377 US. #26, 452 (1964), had been in effect. Had

the 1791 courts been faced with the question, perhaps they,

the statutory purposes would best be facilitated by per-

mitting private plaintiffs to utilize the SEC-obtained find-

ings and by easing the mutuality requirement accordingly,

giving collateral estoppel effect to such findings against a

party who had had a full and fair trial of the issues in the

case brought by the SEC rather than allow him a second

trial before a jury. Moreover, in Dimick the trial] judge’s

(labelled a “compromise” by the Court) was not ques-

tioned, and becanse of its clear inadequacy the plaintiff

there, unlike the defendants here, did not receive a fair

first trial. Here, in contrast, there was nothing unfair or

erroneous about the district court’s findings and decision in

the SEC proceeding, which have been affirmed by us. See

998 F.2d 1083 (2d Cir. 1977).

In view of these obvious limitations upon a historica]

inquiry, including the inability to determine what would

18a

have been the precise 1791 boundaries with respect to laws

that were not then in existence, much less dreamed of, and

the willingness of the law courts even in 1791 to respect

Rachal v. Hill, 35 Harv. L. Rey. 442, 451, 454-55 (1971),

Wwe should not be confined to a rigid strait-jacket merely

because of the lack of a common law analogue and the

absence of any 1791 authority for extension of the equitable

doctrine of collatera] estoppel to the present case.

decree in equity had “preclusive effect in a subsequent

action at law between the same Parties,” 490 F.2d at 343,

Although Crane did not involve non-mutual estoppel, Judge

Friendly intimated that the same Principles would apply

in a non-mutual case to estop the party which had had a

full and fair Opportunity to litigate the same issues in an

equity proceeding, citing with approval the Note by Shap-

iro and Coquillette, supra, which had been highly critica]

to foreclose the potential destruction of the defendant’s

right to a jury trial” which would occur if one of the non-

jury cases Presenting the same issues first went to trial

and resulted in findings adverse to the defendants, Ip the

EON nity

tient on, SE

eae a eatin UAB Reel

Detain ally te, selene

19a

Present case that event has occurred, resulting in the de-

struction by collateral estoppel of the defendants’ right

to a jury trial of the same iss*es.$

For these reasons we reverse se order of the district

court and remand the case to it for Lorther proceedings

not inconsistent with the foregoing.

8 Nor is Judge Oakes’ dissent in Goldman, Sachs ¢ Co. v. Edelstein,

supra, inconsistent with the result reached by us here since Goldman,

Sachs took timely steps to protect its right to a jury trial from being

destroyed through collateral estoppel by objecting to trial of the non-

jury suits until the jury actions against it had first been tried. The

dissent was persuaded that under such circumstances collateral estoppel

effect should not be given to the findings in a non-jury case if it first

proceeded to trial. In the present case, howerer, no such timely objection

was voiced or other steps taken by Parklane or Somekh to protect their

right to a jury trial of the issues before the non-jury SEC proceeding

went to trial.

20a

APPENDIX B

UNITED STATES COURT OF APPEALS

For tHE Sreconp Cracurr

At a stated Term of the United States Court of

Appeals for the Second Cireuit, held at the

United States Courthouse in the City of New

York, on the frst day of N Ovember, one

thousand nine hundred and seventy-seven.

Present:

Hows. Watrer R. MANSFIELD

Hox. Wouus 4. TIMBERS

Circuit Judges

Hon. Jonny F. Doourxe

District Judge

17-7163

Lzo M. Sxorz,

Plaintiff-Appellant,

ParKLaxe Hosiery Company, Ivc., Herserr N. SoMEKH,

Deyise D. Somerxz, Herpert N. Somexu, as Trustee of

Trusts for the benefit of his children, Cuarrrs B. Yarre,

Beviaw Yarre, Dav N. Dav, Nex B. Persky, Carn

AppeL, Esruer APPEL, Florence Mvuxgamer, Arruur

Goxp, Stayzey Kuscuyer and Harotp Stone,

Defendants-Appellees.

ee ee eee ae

Oe Be aE te

| ee re Wt ee Sa het, eh Me is Med en

ee Ne ee

2la

Appeal from the United States District Court for the

Southern District of New York.

This cause came on to be heard on the transcript of

record from the United States District Court for the South-

ern District of New York, and was argued by counsel,

On Consmeration Wuenreor, it is now hereby ordered,

adjudged, and decreed that the judgment of said District

Court be and it hereby is reversed and the action be and it

hereby is remanded to said District Court for further pro-

ceedings in accordance with the opinion of this court with

costs to be taxed against the appellees.

A. Dantex Fusaro,

Clerk

By Artuur Heuter,

Deputy Clerk

Docketed as a Judgment 78,416

on January 5, 1978

22a

APPENDIX C

UNITED STATES COURT OF APPEALS

Seconp Circuit

At a Stated Term of the United States Court of

Appeals, in and for the Second Cireuit, held

at the United States Court House, in the City

of New York, on the twentieth day of Decem-

ber, one thousand nine hundred and seventy-

seven.

Present:

Hon. Watrer R. Mansrieitp

Hox. WinuiasM H. Timpers

Circuit Judges

Hon. Joun F. Doo.ine

District Judge

77-7163

Leo M. SHore,

Plaintiff-A ppellant,

PaRKLANE Hostery Company, Inc., Hersert N. Somexku,

Denise D. Someku, Herperr N. SomMeku, as Trustee of

trusts for the benefit of his children, Cuarves B. Yarre,

BevLau Yarrr, Davip N. Davin, Nem, B. Persky, Carr

ApreL, Estruer ApreL, FLorence MvuKaMeL, Arrnur

GoLp, STanLey Kuscuner and Haroup Stone,

Defendants,

Parx Lane Hostery Co., Inc. and Herserr N. Somexa,

Defendants-A ppellees.

23a

A petition for a rehearing having been filed herein

by counsel for the appellees.

Upon consideration thereof, it is ordered that said

petition be and it hereby is denied.

A. Dante, Fusaro

A. Daniel Fusaro

Clerk

24a

APPENDIX D

UNITED STATES COURT OF APPRALS

Seconp Circurt

At a Stated Term of the United States Court of

Appeals, in and for the Second Circuit, held

at the United States Court House, in the City

of New York, on the twentieth day of Decem-

ber, one thousand nine hundred and seventy-

seven.

Leo M. Suorg,

Plaintiff-Appellant,

ParkLang Hosiery Company, Inc., Herperr N. Somexu.,

Denise D. SoMEKH, Herpert N. SOMEKH, as Trustee of

trusts for the benefit of his children, CHarues B. YAFFE,

Beutan Yarrr, Davip N. Davip, Ner B. Persky, Cari

ApreL, Esruer APPEL, FLORENCE MvuKAMEL, ARTHUR

GoLp, Stantey Kuscuner and Haroup Srone.

Defendants.

PARKLANE Hosiery Co.. Inc. and Hersperr N. SOMEKH,

Defendants-A ppellees,

- | sat

on et

25a

A petition for rehearing containing a suggestion that

the action be reheard in bane having been filed herein by

counsel for the appellees, and no active judge or judge who

Was a member of the panel having requested that a vote be

taken on said suggestion,

Upon consideration thereof, it is ordered that said

petition be and it hereby is denied.

Irvine R. KaurmMan

Irving R. Kaufman

Chief Judge

26a

APPENDIX E

UNITED STATES DISTRICT COURT

SourHern District oF New Yorx

Leo M. SHORE,

Plaintiff,

agaist

PaRKLANE Hosiery Company, Inc., ef al,,

Defendants.

The within motion is denied.

Rachal v. Hill, 435 F.2¢a

59 (5th Cir. 1970),

So ordered.

S/ Inzer B. Wyarr

U.S.D.J.

Jan. 14, 1977

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