Opposition Brief — Bergeron v. Loeb

Sowt, OL

D ee tL & D

No. 84-095” JAN 16 1985

ALEXANDER L. STEVAS,

In the Supreme Cotse—~-—

OF THE

United States

OcTOBER TERM, 1984

RICHARD R. BERGERON,

Petitioner,

v.

Nackey 8. Logs, Executrix of the

Estate of William Loeb, Deceased,

Respondent.

On Petition for a Writ of Certiorari to the

Suprene Gaes <f Meveds

BRIEF : FOR RESPONDENT IN OPPOSITION

——

PRINCE A. HAWKINS

HAWKINS, RHODES & SHARP

One East Liberty Street

P.O. Box 750

Reno, Nevada 89504

(702) 786-4646

RALPii WARREN SULLIVAN

MALLoy & SULLIVAN

59 Water Street

Hingham Harbor, MA 02043

(617) 749-4141

Attorneys for Respondent

BOWNE OF GAN FRANCISCO, INC. * 190 NINTH ST * SF. CA 84103 A (415) 664-2300

QUESTIONS PRESENTED

Respondent believes petitioner did not correctly state

the issue. This is not a case of diversity where Bergeron

chose to bring suit in federal] court in the same state

where the probate was pending. He brought his suit in

New Hampshire, not in Nevada. Petitioner’s statement of

the question does not disclose that Bergeron’s suit was

brought in New Hampshire.

In respondent’s view, the questions presented are:

1. Is NRS 107.130 unconstitutional in requiring that

when a claim against a decedent’s estate has been filed in

the district court in the State of Nevada, and is rejected

by the Executrix, any suit to enforce that claim must be

brought in the district court in Nevada, not in federal

court in New Hampshire.

Note: While the Nevada Supreme Court held that the

Nevada district court was the proper court, this was in

the context of the suit having been filed in New Hamp-

shire. The question of a suit in federal court in Nevada

under diversity was not at issue.

2. Whether the constitutional question now presented

was timely and properly raised in the courts below.

3. Whether the issue presented by this case is of

sufficient importance to warrant review by this Court.

il

TABLE OF CONTENTS

Page

Questions peesmmtee .. «i oiac ks sarees 4

‘Tans OF COTE... 5 ons cae eee iil

Ce NN Cg on skeen e531 eee ee 1

Peer re pr ri es oy PN Ee 2

Statutory and constitutional provisions.......... 2

Dtatement of (0 GHOS «.... 5 56.65 a6 ees 3

Argument—Reasons for denying certiorari ...... 5

I

The issue presented by this case is not deserving of

ee a Aves 5)

II

The constitutional issue now presented was not

timely and properly raised before the courts below = 6

Ill

The Nevada probate statute is not unconstitutional 7

1. Has the Nevada Supreme Court decision

“diminished” the jurisdiction of the New

Hampshire Federal Court? .............. 11

2. Federal law recognizes the right of the states

to control the administration of decedent’s

og REET eo ree eee 14

A. The probate exception .............. 14

B. Abe . i. 65605 eee 20

COMSMNMNOR «wos 0 k'ei ns ceed eae aan eee 21

—— =e

Mm ay =~ Me

ili

APPENDIX

Appendix A—Bergeron’s Creditor’s Claim filed in

the Seeond Judicial District Court

for the State of Nevada March 17,

1982. Reeord on Appeal to Nevada

Supreme Court, p.109 ..........

Appendix B—Editorial published May 19, 1978.

Record on appeal to Nevada

Supreme Court, p.153. ..........

Appendix C—Judgment of the United States Dis-

trict Court for the District of New

Hampshire, entered October 12,

1984

Appendix D—Order of the United States District

Court for the District of New Hamp-

shire, on Motion for Clarification,

entered December 11, 1984 ......

Je eg) Oe Nt i eo pe we ee ae Or i ce ae a? er oo ae ae

5

A-1

A-7

iv

TABLE OF AUTHORITIES

Cases

Page

Akin v. Louisiana National Bank, 322 F.2d 749 (5th

Sr EE hen Ws ora arate 2a as a ela ak ates ads 14

Anderson v. Benson, 117 F.Supp. 765 (D. Neb.

RR co Ce a PA rei UO TS a ale 19

Bassler v. Arrowood, 500 F.2d 138 (8th Cir. 1974),

eert. denied, 419 U.S 1116 (1975) .......... 20

Beach v. Rome Trust Co., 269 F.2d 367 (2d Cir.

I orev AGN Ct ee ee as Ot a gh dll 14

Bergeron v. Loeb, 100 Nev. 54, 675 P.2d 397

CN on ac ae ne ae we oe ana eee ee ace 8,9,10,15

Blakeman v. Conroy, 512 F.Supp. 325 (E.D.N.Y.

SER he oe ae ieee a ee or 19

Brownell v. Leutz, 136 F.Supp. 783 (D.N.D. 1956) 19

Chicago & Northwestern Railway Co. v. Whitton, 13

Wem. are, OO U.B. Bre CROTLD . ccc e cece aus 13

Clark v. Bever, 139 U.S. 96 (1891) ............ 12

DeWitt v. Duce, 675 F.2d 670 (5th Cir. 1982) 20

DiTinno v. DiTinno, 554 F.Supp. 996 (D. Mass.

OS Ne ee rae is gi aie atk oe bee he kos 19

Ewald v. Citizens Fidelity Bank & Trust Co., 242

Pome SID (GR Civ. 19ST) nn cc eve cc cc eee 16

Farrell v. O’Brien, 199 U.S. 89 (1905) ........ 19

Federal Savings & Loan Insurance Corp. v. Field-

ing, 316 F.Supp. 82 (D. Nev. 1970) .......... 14

Gardner Hotel Supply v. Estate of Clark, 83 Nev.

ee, HR IE EME D cc bos bit 0,6 cae wees 8

Greyhound Lines v. Lexington State Bank & Trust

Co., 604 F.2d 1151 (8th Cir. 1979) .......... 14

Harrison v. St. Louis & San Franciseo Railroad Co.,

ee ees Es evtre wipes a wn ee ws od eae 12

Hess v. Reynolds, 113 U.S. 73 (1885) .......... 12

Vv

TABLE OF AUTHORITIES

CASES

Holt v. King, 250 F.2d 671 (10th Cir. 1957) .... 19

Hurlburt v. Eno, 17 F.R.D. 230 (D. Vt. 1955) .... 14

In re Lummis’s Estate, 118 F.Supp. 436 (D.N.J.

| | tare ere SoM Pear er ink eres Mri meg ee, Oe 14

Kline v. Burke Construction Co., 260 U.S. 226

CRN 6 bi ds ew eee Pra Oh he eee reas 9

Lamberg v. Callahan, 455 F.2d 1213 (2d Cir. 1972) 14

Lee v. Hunt, 431 F.Supp. 371 (W.D. La. 1977) 14

Looney v. Capital National Bank, 235 F.2d 436 (5th

CE: ER ood ok a ek oe eee ed ees 19

Markham v. Allen, 326 U.S. 490 (1946)

Pe eb oe a ere ee pee eres re eR: 13,15

Markham v. City of Newport News, 292 F.2d 711

Ce Se BNE. cco kc hain bee eee Re 14

Monk v. Morgan, 192 P. 1042, (1920) ........ 18

Monogram Industries, Ine. v. Zellen, 467 F.Supp.

SO Ca Se: SUE 6k hah ok cece aca 14

Princess Lida of Thurn and Taxis v. Thompson, 305

te ree ce rors ware 16, 17

Quinlan v. Empire Trust Co., 139 F.Supp. 168 (S.D.

Wea Ree, cliche ay aus ee CARS Petey, Te ay 19

Rauser v. Rauser, 52 Wis. 2d 665, 190 N.W. 2d 875

CPE. oh cask whe bee eRe eel wee ae 7,9

Rice v. Rice Foundation, 610 F.2d 471 (7th Cir.

RPE | ies be nto eee ee 18, 20

Rice v. Sayers, 198 F.2d 724 (10th Cir. 1952) .... 19

Rosenberg v. Baum, 153 F.2d 10 (10th Cir. 1946) 14

Simlar v. Wilson, 210 F.2d 99 (10th Cir. 1954) 19

United States v. Bank of New York & Trust Co., 296

U0 Gee (eee) 6 owen eee 17,18

vi

TABLE OF AUTHORITIES

CASES

United States v. Estate of Slate, 304 F.Supp. 380

(S.D. Tex. 1969), aff'd, 425 F.2d 1208 (5th Cir.

PE x ob eck DORs ee ee eee 14

United States v. Swanson, 75 F.Supp. 118 (D. Neb.

I cw hk wd Rao ee Oe i4

Waterman v. Canal-Louisiana Bank & Trust Co., 215

os Ol erry ee ere 13,15

Wells Fargo & Cc v. Wells Fargo Express Co., 556

Oe Oe Eee Cee BOOT D. oi es re es ee Oe 13

Statutory and Constitutional Provisions

0 eS | errr Ter ie ee

SE . ive ds oe abae bel ve ve eee eee ee ees 8

Boe eee ere ee eee ree ere er en 2

NRS 147.130

Reve awe se hs 2, 3, 4, 8, 10, 11

Oy Ses SON, TOU Oe 6c ee wd VSS A 6

Oe Ue ie: ROE sn ie eee DNR 2

GR me ee | ere rr ee ey 3

U.S. Constitution, Article VI, Clause 2.......... 2

Miscellaneous

ish § » rare sho, Ae en ky 5 |

ea & Se Tl ee eres herons rer rere eyes 6 |

Bancroft Probate Practice (2nd Ed., 1950) See. 40,

MED i's co oe a ee eee a ee 18

a TS

No. 84-934

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1984

RICHARD R. BERGERON,

Petitioner,

v.

NACKEY S. LOEB, Executrix of the

Estate of William Loeb, Deceased,

Respondent.

On Petition for a Writ of Certiorari to the

Supreme Court of Nevada

BRIEF FOR RESPONDENT IN OPPOSITION

Respondent, Nackey 8S. Loeb, Executrix of the Estate

of William Loeb, deceased, respectfully prays that the

Petition for Certiorari be denied.

OPINIONS BELOW

September 17, 1982: Order, Second Judicial District

Court of the State of Nevada — petitioner’s Appendix C.

September 29, 1982: Judgment, Second Judicial

District Court of the State of Nevada — petitioner’s

Appendix D.

January 25, 1984: Opinion, Supreme Court of the

State of Nevada, petitioner’s Appendix A.

October 4, 1984: Order Denying Rehearing, Supreme

Court of the State of Nevada, petitioner’s Appendix B.

lo

JURISDICTION

The jurisdiction of this Court is invoked under 28

U.S.C. See. 1257(3).

STATUTORY AND CONSTITUTIONAL PROVISIONS

Nevada Revised Statutes:

147.040. Filing of claims: Must be filed within 90

days.

1. All persons having claims against the deceased

must, within 90 days after the first publication of the

notice specified in NRS 147.010, file the same, with

the necessary vouchers, with the clerk of the court,

who shall file and register each claim.

147.130. Rejection of claim; notice; time to file suit;

service of summons; removal of executor or

administrator for default.

1. When a claim is rejected by the executor or

administrator or the district judge, in whole or in

part, the holder must be immediately notified by the

executor or administrator, and the holder must bring

suit in the proper court against the executor or

administrator within 60 days after such notice,

whether the claim is due or not; otherwise the claim

is forever barred. If the holder of a claim resides out

of the county, he may be informed of the rejection of

his claim by written notice forwarded to his post

office address by registered or certified mail.

U.S. Constitution, Article VI:

* * *

This Constitution and the Laws of the United

States which shall be made in Pursuance thereof; and

all Treaties made, or which shall be made, under the

Authority of the United States, shall be the supreme

Oo

Law of the Land; and the Judges in every State shall

be bound thereby, any Thing in the Constitution or

Laws of any State to the Contrary notwithstanding.

* * *

28 USC See. 1332:

(a) The district courts shall have original

jurisdiction of all civil actions where the matter in

controvers,, exeeeds the sum or value of $10,000,

exclusive of interest and costs, and is between—

(1) eitizens of different States; ..

STATEMENT OF THE CASE

The Nevada statute requires that a claim against a

decedent’s estate be filed in the District Court for the

county where the estate is being probated.

If the claim is rejected, the statute requires that suit to

compel payment be brought “in the proper court.’”” NRS

147.130. The Estate argued, and the Nevada Supreme

Court held, that the legislative intent of the statute was

for suit to be brought in the court in which the probate

was pending.

In the instant case, Bergeron had actual notice of the

probate, and did in fact file a Claim, respondent’s

Appendix A, on time, in the court where the probate was

pending, that is, in the Second Judicial District Court of

Nevada, in and for the County of Washoe. The claim was

filed with the court, not merely presented to the executrix,

as petitioner stated. His Claim was rejected, and he had

actual notice of rejection. He thereafter did not file suit in

the Second Judicial District Court of the State of

Nevada, or in the United States District Court for the

State of Nevada, but instead, filed suit in New

Hampshire, in the United States Court for the District of

New Hampshire.

4

The Nevada court, both the Second Judicial District

Court, and, on appeal, the Nevada Supreme Court, held

that the filing in New Hampshire did not constitute

bringing suit in the proper court as required by NRS

147.130, and therefore the Creditor’s Claim against the

Estate was forever barred.

It is to be noted that the question of whether Bergeron

might have filed in the United States District Court for

the District of Nevada, not in New Hampshire, is not an

issue in this case. He did not file in Nevada; he filed in

New Hampshire.

The Estate was not probated in New Hampshire.

Neither Mr. nor Mrs. Loeb were residents of New

Hampshire; Mrs. Loeb was personally served in New

Hampshire; the Estate owned no property in New

Hampshire.

The Union Leader Corporation is a New Hampshire

corporation. All of the stock of the corporation was

pledged to the Security Bank of Nevada as security for a

loan made to the corporation; it was physically situated in

the vault of the bank at Reno, Nevada. The stock was and

is owned by Nackey S. Loeb, Trustee of The William Loeb

Union Leader Trust, an Intervivos Trust, over which the

State of Nevada has and has exercised in rem

jurisdiction. Case No. 82-5478, Second Judicial District

Court of the State of Nevada.

It is not material to the issue before this Court, but

respondent must take exception to petitioner's assertion

that William Loeb reneged on a promise to his employees.

Such is only petitioner's contention. Respondent's

contention is that Mr. Loeb and his wife, the executrix

herein, decided of their own free will that after the death

of the last of them to survive, and of their named trustees,

the stock of the newspaper would be distributed to the

then-employees of the newspaper. This was published in a

front-page editorial in the newspaper on May 19, 1978,

5

and a copy, from page 153 of the Record on Appeal, is

attached as Appendix B to this brief.

On October 12, 1984, the United States District Court

for the District of New Hampshire entered Judgment

against plaintiff Bergeron upon his suit in that court.

Appendix C. Bergeron’s motion for reconsideration of

that judgment has been denied. Appendix D.

ARGUMENT

I

IS THE ISSUE PRESENTED BY THIS CASE

DESERVING OF CERTIORARI?

Under Supreme Court Rule 17, review is to be granted

only when there are special and important reasons

therefor.

The issue presented by this case will never be raised

again, for no one who has filed a claim in a Nevada

probate would ever hereafter fail to file suit in Nevada.

Indeed it is puzzling why this claimant, having had actual

knowledge of the Nevada probate, and having filed his

claim in the Nevada probate, and having had Nevada

counsel, did not file suit in the Nevada court. Neither Mr.

nor Mrs. Loeb resided in New Hampshire, and there is no

claim that they did. Nor did they have property in New

Hampshire. The issue presented is not of importance to

warrant review by the United States Supreme Court.

Petitioner addresses this issue by stating the decision

of the Nevada Supreme Court has already begun to wreak

constitutional havoc. Translation: petitioner lost in New

Hampshire. Requiring a claimant to follow his claim with

a suit in the same forum would not create havoe, nor is it

even significant.

6

II

THE CONSTITUTIONAL ISSUE NOW PRESENTED

WAS NOT TIMELY AND PROPERLY RAISED )

BEFORE THE NEVADA SUPREME COURT

Supreme Court Rule 21.1(h) requires petitioner to

specify the stage in the proceedings, both in the court of

first instance and in the appellate court, at which the

federal questions were raised, with specific references ‘as

will show that the federal question was timely and

properly raised.”

The issue before the Supreme Court of Nevada was of

statutory construction: Whether the Nevada Legislature

intended suit upon a claim filed in the district court, and

rejected, to be filed in the district court, or whether it

might be filed anywhere, such as in New Hampshire.

Bergeron’s brief to the Nevada Supreme Court did not

cite the supremacy clause of the U.S. Constitution.

Bergeron did not challenge the constitutionality of the

Nevada statute. Bergeron did argue that the New

Hampshire federal court was the proper court to bring

suit, and cited cases in support thereof, which were cases

where the suit in the federal court was brought in the |

same state as where the probate proceeding was pending.

Bergeron argued that holding New Hampshire was not

the proper court would divest it «© jurisdiction—but he )

did not specifically argue that the Nevada statute was

unconstitutional. This court can read the original Opinion |

of the Nevada Supreme Court and decide for itself |

whether or not the issue of constitutionality was raised.

As to the additional challenge now being made to the

Nevada statute, that a federal court would have exclusive

jurisdiction over a 15 U.S.C. See. 78aa action, the Nevada

Supreme Court in its order denying rehearing, noted that

this issue (constitutional or not) was being raised for the

first time in the petition for rehearing, and was contrary

to the position asserted in Bergeron’s brief. Also, that

—————————————

7

Bergeron had failed to present that argument to the

Nevada district court.

(The securities issue itself is a sham issue on the facts

of this case. It is not a Securities Exchange Act case. The

New Hampshire court entered a Summary Judgment

against the securities claim, even assuming ll

contentions of plaintiff to be true. The complaint, read as

a whole, shows there was no “purchase or sale” of stock,

without which the act is not applicable. Bergeron’s

Creditor’s Claim filed in the Nevada district court,

respondent's Appendix A, does not make a securities

claim.)

Petitioner has not shown he raised constitutional issues

in the court below. Even his appendix is an excerpt from

his trial court memorandum, not from his supreme court

brief.

III

THE NEVADA PROBATE STATUTE IS NOT

UNCONSTITUTIONAL

Is it unconstitutional for Nevada to provide that when a

ereditor’s claim is filed against a Nevada estate, and

rejected, any suit brought to enforce payment of that

claim must be brought in Nevada?

Bergeron filed his creditor's claim in the Nevada

probate. He thereby submitted himself to the jurisdiction

of the Nevada court.

Rauser v. Rauser, 52 Wis. 2d 665, 190 N.W.2d 875

(1971)

A copy of Bergeron’s claim is attached to this brief as

Appendix A. Bergeron had actual knowledge of the

probate. He filed his claim on time. He had actual

knowledge of the rejection of his claim. He did not file

8

suit in Nevada; he filed suit in New Hampshire on the

63rd day after notice of rejection was mailed.’

The publie policy of the State of Nevada is that estates

in probate be administered and distributed efficiently and

expeditiously. This has been declared by statute and

judicial decision, and is repeated in the opinion of the

Nevada Supreme Court:

“NRS 147.130(1) is part of Title 12 of the Nevada

Revised Statutes, relating to wills and Estates of

Deceased Persons. The entire statutory scheme set

out in Title 12 demonstrates an intention on the part

of the legislature to ensure the speedy and certain

distribution of decedent's estates. For example, NRS |

143.035 requires that an executor or administrator |

use reasonable diligence in administering an estate.

It further requires him to file a report with the court

explaining why the estate has not been closed within |

six months of his appointment if no federal tax |

return need be filed for the estate, and within

eighteen months if a tax return is required.

Subsection 4(c) of this statute provides for

revocation of the letters of an executor or

administrator who has not used reasonable diligence

in the administration of an estate.”’ Opinion,

Petitioner's Appendix, page 5.

“As we stated in Gardner Hotel Supply v. Estate of

Clark, 83 Nev. 388, 391, 432 P.2d 495, 497 (1967):

‘The spirit and letter of Nevada statutes relating to

the filing of claims and administration of estates )

speak to the policy of our laws that efficient and |

expedient administration is essential.’ ’’ Ibid, page 6.

' The trial court also held that the suit was not timely. The Nevada

Supreme Court, without discussion, stated that the claim had been filed

within the requisite 60-day period.

9

Realistically, if a suit on a claim filed in a Nevada

estate proceeding can be brought wherever the executrix

ean be personally served, New Hampshire, New Jersey,

New York, New Mexico, or anywhere, Nevada is denied

the right to efficiently and expeditiously distribute

decedent's estates. The Nevada Supreme Court in its

opinion said:

“It is difficult to conceive of a less efficient method of

administering an estate than to require the Nevada

district court having jurisdiction over the assets of

an estate to await the final adjudications, including

appeals, of any number of other courts that may be

considering matters which could materially and

adversely affect Nevada's established authority to

proceed.” Ibid, page 8.

Nevada acquired jurisdiction over Bergeron in this

cause March 17, 1982, when Bergeron filed his claim in

the Nevada court. Rauser v. Rauser, supra.” This was long

before Bergeron filed suit in New Hampshire. The Nevada

Supreme Court cited Kline v. Burke Const. Co., 260 U.S.

226, 229 (1922), and quoted from that opinion with part

of the quotation being:

“The converse of the rule is equally true, that where

the jurisdiction of the state court has first attached,

the federal court is precluded from exercising its

jurisdiction over the same res to defeat or impair the

state court’s jurisdiction.” Petitioner's Appendix,

page 10.

Petitioner complains that the Nevada statute as

construed by the Nevada Supreme Court “diminishes”

the jurisdiction of the federal court in New Hampshire.

Yet the Nevada trial court, and the Nevada Supreme

* Failure to file suit upon a claim filed and rejected in Nevada barred

subsequent suit in Wisconsin on issues which might have been litigated

in the Nevada Probate Court, 190 N.W. 2d 875, 878 (1971).

10

Court, both said they did not purport to determine the

jurisdiction of the New Hampshire court. P

The Nevada trial court said:

“This Court does not purport to decide the

jurisdiction of the United States District Court in

this matter, but instead only finds today the Federal

action brought in New Hampshire was not timely and

was the improper forum to assert relief from the

denial.”’ Petitioner's Appendix, page 22.

The Nevada Supreme Court said:

“Although we cannot, and do not, decide the

propriety of the New Hampshire federal court’s

exercise of jurisdiction, we do econelude that

appellant’s action was not brought in ‘the proper )

court’ as required by NRS 147.130(1).” Petitioner's

Appendix, page 13.

The New Hampshire court said:

eS SS 8 edt

“The denial of the temporary restraining order is not

indicia that this court is ruling that it does not have

jurisdiction in this case.” Petitioner's Appendix,

page 101.

“The court opines that on the state of the pleadings

now before it this court has jurisdiction.”

Petitioner's Appendix, page 103.

The New Hampshire court since exercised jurisdiction

by entering judgment against Bergeron and in favor of

respondent. Recons*ieration has been denied.

ee

11

1. Has the Nevada Supreme Court Decision

“Diminished” the Jurisdiction of the New

Hampshire Federal Court?

It is obvious from the statements above, of both the

Nevada court and the New Hampshire federal court, that

it has not.

Nor is an issue of federal supremacy involved in this

case.

Bergeron’s Nevada claim was for breach of contract for

failure to bequeath the stock of the corporation. His New

Hampshire suit, excluding the securities item otherwise

disposed of, was for the same breach of contract. The

position of the federal court in New Hampshire is exactly

the same as that of a state court in New Hampshire. Its

powers are dependent upon personal service in New

Hampshire or upon the New Hampshire long-arm statute.

Federal preemption has nothing to do with this case. It is

just the same as if the suit had been brought in the state

court of New Hampshire and then removed to the federal

court in New Hampshire.

It is axiomatic that the jurisdiction of the federal court

in a diversity case is only the jurisdiction and process of

the state court in which it is sitting.’ The conflict, if there

is one, is between the State of Nevada and the State of

New Hampshire, not with the federal court. The federal

supremacy clause is not applicable.

Referring to the cased cited by petitioner:

“The Nevada court spoke in the context of the suit having been filed

in New Hampshire. Petitioner's quote on page 15 left out the

underlined words: “We simply determined that, under the

circumstances of this case and as a matter of policy, the Nevada State

District Court was the proper, more appropriate court for bringing suit

on the claim under NRS 147 130(1). We therefore, deny rehearing on

this ground.”

12

Hess v. Reynolds, 113 U.S. 73 (1885) is a case which

holds that the federal right of removal from state court to

the federal court of the same state cannot be defeated by

state law. Such cases are not relevant here. Respondent

does not dispute that where federal law grants a right of

removal such right exists. (However, Bergeron could not

have removed from the Nevada state court to the New

Hampshire federal court. )

It was a suit by Hess against the estate of Warren

Sherwood. Hess himself brought the suit in the probate

court but the law at that time permitted subsequent

removal to the federal Cireuit Court on filing an affidavit

of prejudice. The decision held that the right to remove

could not be defeated by state statute. The primary issue

was the time when the affidavit might be filed, and

whether the statute under which he sought removal was

still in foree. The case is not pertinent.

Clark v. Bever, 139 U.S. 96 (1891) was a suit by Clark,

also brought in state court, against George Green’s

estate. Clark was a creditor of the Burlington Railroad

and claimed that Green owed the railroad because he took

stock in settlement of debt the railroad owed Green.

Clark claimed that Green, who took the stock for 20% of

its face value, owed the corporation the remaining 80%

under principles of corporate law, even though the stock

was worthless.

Clark, in some way, perhaps like Hess, removed to the

federal Circuit Court of the same state. The decision said

the removal was proper but Green did not have to pay.

Again, this case is authority only for the proposition that

a-state cannot override the right to remove.

Harrison v. St. Louis and San Francisco Railroad Co.,

232 U.S. 318 (1914) was also a same state removal case,

holding that Oklahoma could not prevent removal by the

railroad company through the device of revoking its

charter to do business in Oklahoma.

13

Chicago & Northwestern Railroad Co. v. Whitton, 80 U.S.

270 (1871) likewise was a same state case, not a probate

case, where the wife of the plaintiff was killed crossing the

track and the railroad removed to federal court.

Petitioner's next group of cases are more relevant in

that they do involve suits where they have been brought

by the plaintiff in federal court, rather than removed, but

they again all involve same state cases. The suits were

brought in the federal court in the same state where the

probate was pending.

Markham v. Allen, 326 U.S. 490 (1946) is the leading

case establishing the principles where a federal court may

or may not involve itself with a state probate proceedings.

It will be cited and relied upon later in this brief. It is

relevant to the ambit of the so-called probate exception. It

is not relevant to the propriety of suit being brought in a

federal court of a different state from that in which

probate is being had. Markham was the Alien Property

Custodian acting under the Trading with the Enemy Act.

He brought suit in federal court in California in relation

to an estate being administered in the Superior Court of

/ California. The decision was that he was entitled to sue in

| the California federal court instead of in the California

state court.

eS A ee SN

Waterman v. Canal-Louisiana Bank & Trust Co., 215

U.S. 33 (1909) shows Mrs. Waterman suing the bank in

federal court in Louisiana to determine her interest in an

alleged lapsed legacy in an estate being probated in

Louisiana. Again, it was a same state case.

Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d

406 (9th Cir. 1977), a trademark case against a

Lichtenstein corporation, is cited for the proposition that

the trial court had jurisdiction to determine its own

jurisdiction, which is not an issue here.

h seteetiniaieireeieemiatl

14

Markham v. City of Newport News, 292 F.2d 711 (4th

Cir. 1961) where the plaintiff and her vehicle fell into a

sewer manhole, said that in determining its own

jurisdiction a federal district court must look to the

sources of its power.

Of the eases cited in Footnote 7 of petitioner’s brief, :

Greyhound, Rosenberg and Monogram were same state

eases. U.S. v. Swanson, same state, was for money loaned

by the United States to the decedent, and U.S. v. Estate of

Slate, same state, was to collect taxes. Hurlburt was a

same state case. None of these indicate Nevada

diminished the jurisdiction of New Hampshire.

The remaining eases cited by petitioner, Lamberg,

Beach, Akin, Rosenberg, Lee and Lummis’s, are all also

same state cases. The cases in petitioner's Footnote 8 are

antitrust or patent, and the Nevada case in Footnote 9,

Federal Savings, is merely substitution of the executrix

for the decedent.

None of the cases cited by petitioner conflict with the

right of the State of Nevada to require a suit upon a

rejected claim be brought in Nevada.

2. Federal Law Recognizes the Right of the States to

Control the Administration of Decedent’s Estates.

A. The Probate Exception

The states have the right to determine who shall

participate in the distribution of their decedents’ estates.

They presumably could declare estates forfeited to the

crown (a 100% tax), or descend only to the eldest son, or

not be subject to the claims of creditors. (Joint tenancy

property is not subject to the claims of creditors.)

Nevada has a statutory scheme for distribution of

estates. It includes payment of creditors, provided they

file a claim, and, when rejected, sue in “the proper court.”

pel NLA ir, nt alas ee a ret

15

The proper court, Nevada says, is the district court where

the probate is pending.

By contrast, the laws of some other states impose no

statutory restriction on the place where suit must be

brought. Nevada, however, does; perhaps that attention to

detail, among others, accounts for Nevada estates being

expeditiously administered.

Is that requirement unconstitutional or even unrea-

sonable? The New Hampshire federal court obviously

does not think so. In its Order of December 11, 1984,

which denied reconsideration of the judgment entered

against Bergeron, October 12, 1984, it said:

“The continued exercise of concurrent jurisdiction

would substantially interfere with the strong state

policy in the orderly administration of estates and

trusts. Markham v. Allen, 326 U.S. 490 (1945);

Waterman, supra; Buck v. Hales, 536 F.2d 1330

(10th Cir. 1976), (administration of a trust).”

Respondent’s Appendix D, page A-12

* * *

“The exercise of federal review would also disrupt

the Nevada efforts to establish coherent public policy

on the definition of ‘proper court’ for filing probate

claims, Bergeron v. Loeb, supra; Burford v. Sun Oil

Co., 319 U.S. 315 (1943). Ibid., page A-12

Markham v. Allen, supra, the California Alien Property

Custodian case, is the landmark ease stating that federal

courts of equity (same state) have jurisdiction to

entertain suits in favor of creditors

‘so long as the federal court does not interfere with

the probate proceedings or assume general

jurisdiction of the probate or control of the property

in the custody of the state court.”’

16

In the instant case, adjudication in New Hampshire of

Bergeron’s claim against the estate would interfere with

the probate proceeding as established by Nevada law. It

also would assume control of the property in the custody

of the state court.

Bergeron’s ereditor’s claim, Appendix A, was for a pro

rata share of the actual stock of the company. His suit

sought to “return the stock to Loeb’s estate for

distribution to Bergeron and the class he represents.”

Petitioner's Footnote 1, page 5. This would be an

assumption of control of the property in the custody of

the state court. Ewald v. Citizens Fidelity Bank & Trust

Co., 242 F.2d 319 (6th Cir. 1957).

Bergeron’s suit was for equitable relief and for

recovery of the stock itself. There was no suit for money

damages as Bergeron’s brief, page 12, asserts, referring

to “his prayer for money damages.” There is no prayer for

money damages. See petitioner's Appendix E, page 82,

and prayers to the previous counts.

The oft-quoted statement from Princess Lida of Thurn

and Taxis v. Thompson, 305 U.S. 456 (1939), is that

where the judgment is strictly in personam, both state

and federal court may proceed until judgment is obtained

in one of them. But if the two suits are in rem so that the

court has possession or must have control of the property,

to grant the relief sought, the jurisdiction of one court

must yield to that of the other. The principle applicable to

both federal and state courts is that the court first

assuming jurisdiction over the property, may maintain

and exercise that jurisdiction to the exclusion of the

other. The doctrine is necessary to the harmonious

cooperation of federal and state tribunals.

Here, the stock is, and throughout the entire period of

time referred to, has been, within the in rem jurisdiction

of the Seeond Judicial District Court of the State of

Nevada. It also was the first court to have jurisdiction in

17

this ease, even in personam jurisdiction over Bergeron

when he filed his claim. It therefore should be the forum

for resolution of the dispute, which, as pointed out above

is for ownership of the stock.

The Princess Lida ease states that the doctrine has no

application to a ease where the plaintiff seeks merely

adjudication of his right or interest as the basis of a claim

against a fund in the possession of an estate. Bergeron’s

claim is not a mere claim for an interest in a fund—he is

claiming the res—the stock.

In the ease of U.S. v. Bank of New York & Trust Co., 296

U.S. 463 (1936), the United States filed suit in federal

distriet court claiming ownership of a fund, which was

currently under the jurisdiction of the State Court of

Appeals and being administered by a _ state court

appointed agent. Both courts sought to establish

jurisdiction of the res. The Supreme Court rejected the

government’s argument that the suit in the federal

district court was one in personam because the

government demanded that the court appointed agent pay

over to the United States the entire amount of the fund.

The court concluded at page 478 that: **... the object of

the suit is to take the property from the depositories and

from the control of the state court and to vest the

property in the United States to the exclusion of all those

whose claims are being adjudicated in the state

proceedings.” Accordingly, where the party seeks

ownership and possession of the entire res, the suits are

in rem, and the court must have possession or control of

the res in order to proceed with the cause and to grant the

relief sought.

In the case at bar, petitioner in his complaint prays for

an order vesting title of the Union Leader Corporation

stock in the name of plaintiff and other employees of the

corporation and to transfer and deliver to plaintiff

18

and all employees of the corporation their respective

proportionate shares of ownership of the stock.

Petitioner's demand, therefore, is equivalent to the

government's demand in the (8. v. Bank of New York &

Trust Co. ease, which makes this action one in rem, and

subject to the jurisdiction of the State Court of Nevada

which exercised control over the res.

Nevada probate proceedings are in rem proceedings.

NRS 136.010. See generally Bancroft’s Probate Practice

See. 40 (2nd ed. 1950). When the notice provisions of the

probate statutes are complied with, “... the entire world

is called before the court, and the court acquires

jurisdiction thereby over the estate and over all persons

for the purpose of determining their rights to any portion

of the estate...” Monk v. Morgan, 192 P.1042, 1044

(1920); Baneroft’s Probate Practice, supra, See. 61.

Every person interested in an estate, including a creditor,

is a party to the proceeding, and the action of the court,

whether he appears and presents his claim or not, is

equally conclusive upon him. Monk v. Morgan, supra.

Rice v. Rice Foundation, 610 F.2d 471 (7th Cir. 1979),

noted that the probate exception is a serious question of

subject matter jurisdiction, and pointed out that applying

the principle to a particular set of facts is not easy. Here,

particular facts are:

A. Bergeron submitted to the jurisdiction of the

Nevada district court when he filed his claim and has been

vigorously litigating there ever since.

B. Nevada has a strong publie policy for rejected

claims to be resolved in the district court where the

probate is pending.

(. It is a sound poliey and an integral part of the

estate distribution scheme.

D. The res is Nevada.

19

E. Jurisdiction first attached in Nevada.

Therefore, respondent submits that the situation

presented by this particular case is within the probate

exception.

Referring to petitioner's additional cases: in DiTinno,

Massachusetts abstained; in Farrell, this court affirmed a

decision that the probate exception applied.

In Looney v. Capital National Bank, 235 F.2d 436 (5th

Cir. 1956), the question was the validity of a trust, and

the court said, where the state court of general

jurisdiction was granted the power to determine inter

partes, the validity vel non of provisions of a will, “a

United States court in that state has jurisdiction to

entertain such an action...so long as it does not

interfere with the administration of the estate in a state

court.” Note that the court said a United States court in

that state. It cited Simlar v. Wilson, 210 F.2d 99, which

also expressly said “in that state.”

Holt was quiet title; Anderson was a reciprocal will;

Brownell denied an attempt to reopen a_ probate;

Blakeman was mismanagement of a corporation; Quinlan

a void will.

None of these cases are close enough factually to affirm

or deny the probate exception here.

In Rice v. Sayers, 198 F.2d 724 (1952), another 10th

Cireuit decision, Kansas had a statute which vested

exclusive jurisdiction of actions to contest wills in the

state probate court; because it was a probate court, and

not a court of general jurisdiction, the cireuit court

ordered the action dismissed with prejudice. Respondent

thinks that the name of the court should not make a

difference. If a state declares that a specific court has

exclusive jurisdiction to make a specific determination in

respect to a rejected probate claim, should not that be

enough to require the claimant to sue in that court?

20

Respondent submits that whether it be termed the

probate exception, an election of forum, jurisdiction of

res, or first attachment of jurisdiction, that it was not

unconstitutional to require Bergeron to proceed in the

Nevada district court.

In DeWitt v. Duce, 675 F.2d 670 (5th Cir. 1982),

plaintiff filed a diversity action for wrongful interference

with inheritance. The district court dismissed for lack of

subject matter jurisdiction because the case dealt with

state probate matters. The cireuit court reversed and

remanded. On remand, the district court held that

plaintiffs were precluded by Florida law. On appeal, the

circuit court certified the question to the Supreme Court

of Florida — did Florida law preclude plaintiffs from

proving tortious interference where plaintiffs had notice

of the probate proceeding and an opportunity to contest

the validity of the will but chose not to do so?

The Supreme Court of Florida answered that plaintiffs

had an adequate remedy in probate court for their

grievance with fair opportunity to pursue it and were

barred by Florida law from a subsequent action. The

circuit court then held that the district court had properly

dismissed the action.

So, here, Bergeron had an adequate remedy in the

Nevada probate court and a fair opportunity to pursue it.

By Nevada law, he was barred from subsequent action.

The Nevada decision should stand.

B. Abstention

The citations show that the federal court has ample

precedent and reason to abstain. Rice v. Rice Foundation,

supra; Bassler v. Arrowood, 500 F.2d 138 (8th Cir.,

1974).

If the abstention doctrine requires clarification, that

should come in an appeal from a federal court decision,

not here.

21

CONCLUSION

Therefore, respondemt submits that Nevada has not

diminished the jurisdiction of the federal court in New

Hampshire; that the power of the New Hampshire federal

court is derived from the state law of New Hampshire

with the diversity element only incidental; that there is no

supremacy issue in this case between federal and state

court; that the Nevada requirement that suit upon a

rejected claim be brought in the district court in Nevada

is constitutional under the facts of this case.

No “first raised" arguments are made in this Brief in

Opposition.

Respondent submits the Petition for a Writ of

Certiorari should be denied.

Respectfully submitted,

Prince A. HAWKINS

HAWKINS, Ruopes & Siuane

RALPH WARREN SULLIVAN

MALLOY AND SULLIVAN

Attorneys for Respondent

Nackey 8. Loeb,

Executriz

January 1985

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A-7

APPENDIX C

United States District Court for the

District of New Hampshire

Civil Action No. 82-317-L

Richard R. Bergeron

v.

Estate of William Loeb

The William Loeb Union Leader Trust

Nackey S. Loeb, individually as Exeeutrix

of the Estate of William Loeb,

and as Trustee of The William Loeb

Union Leader Trust and the

Security National Bank of Nevada

JUDGMENT

In accordance with the granting of Defendants’ Motion

To Dismiss and Motion for Summary Judgment on

October 12, 1984 by the Honorable Martin F. Loughlin,

United States District Judge, judgment is hereby

entered.

By the Court,

KATHLEEN NORTHRUP

Clerk

October 12, 1984

ee: Alan P. Cleveland, Esq.

Ralph Warren Sullivan, Esq.

A-8

APPENDIX D

The United States District Court For The

District of New Hampshire

C82-317-L

Richard R. Bergeron, et al.

v.

Estate of William Loeb, et al.

ORDER ON MOTION FOR CLARI: ICATION

The United States District Court for the District of

New Hampshire granted defendants’ motions to dismiss

and summary judgment on October 12, 1984. The

plaintiffs’ motion for reconsideration and oral motion to

hold in abeyance are denied. The motion for clarification

is granted.

William Loeb died on September 13, 1981. Nackey S.

Loeb, his wife, was appointed executrix of his estate and

trustee of the “‘Union Leader Trust” (trust) pursuant to

the probate by the State of Nevada.

Under Nevada probate procedures, a general claim was

made by the plaintiff class against the estate and trust

which involved 3,750 shares of the Union Leader

Corporation stock (the securities). These shares of stock

were under the jurisdiction and possession of a Nevada

probate court.

Nackey Loeb rejected the claim on April 5, 1982.

Rather than following the procedures of Nevada to

request a hearing before the probate court, the plaintiffs

instigated suit on June 7, 1982 in this district court,

referred to as the federal court.

A-9

The suit was certified as a class action on behalf of

willing employees of the Union Leader Corporation as of

September 13, 1981.

The complaint is summarized as follows:

Count I alleges fraudulent conduct on the part of all

defendants in the purchase and sale of the Union Leader

Corporation securities by means of interstate commerce.

The conduct violates the Securities Exchange Act of

1934, as amended (the “‘Exechange Act’), 15 U.S.C.

§§ 78 et seq., and Rule 10(b). As such, the court has

jurisdiction under 28 U.S.C. § 1331.

Count II alleges a breach of common law contract in the

failure by the defendants to perform an agreement to

transfer the ownership of the securities upon the death of

William Loeb.

Count III alleges a violation of the New Hampshire

Uniform Fraudulent Conveyance Act, RSA 545:1 upon

the inter vivos transfer of the securities to the trust on

August 17, 1979.

Count IV alleges the pledge of the securities to the

Security National Bank (SNB) on August 25, 1980 was

fraudulent conveyance and that the Bank was a party to

the fraud.

Count V alleges that Massachusetts law and not the

Nevada community property rules applied, that the

Second Amendment to the trust was invalid, that the

amendment was made to defraud the employee-creditors

and that the execution of the amendment was therefore a

fraudulent conveyance of a half interest in the securities

to Nackey Loeb.

Counts II through V are properly before the court there

being diversity of citizenship among the parties. 28

U.S.C. § 1332. The plaintiff also seeks a declaration of

rights. 28 U.S.C. § 2201 et seq.

A-10

After this court received the complaint, Nackey Loeb

filed a “Petition for Declaration of Rights and for

Judgment that Creditors’ Claim is Barred” in the Second

Judicial Court in the State of Nevada in and for the

County of Washoe (Nevada Court). The defendant there,

Plaintiff Bergeron, et al here, submitted to the

jurisdiction of the Nevada court and answered the

complaint on June 28,1982. As a result of that action, the

Nevada court rules that the same claim as made in this

federal court was forever barred. The Nevada Supreme

Court affirmed the Nevada Distriet Court. Bergeron v.

Loeb, Slip opinion No. 14465. (Nev. January 25, 1984),

reh. denied, October, 1984.

In light of the Nevada final judgment on October 4,

1984, this court granted defendants’ motion to dismiss

based upon the abstention doctrine. This court also

granted defendant’s motion for summary judgment on the

“Exehange Act” count I of the complaint, (Order dated

October 12, 1984). This court had held the matter in

abeyance pending the request for rehearing pending

before the Nevada Supreme Court from June 16, 1984.

The elaims set forth in Counts II, III, [V and V are

ones which this court had coneurrent jurisdiction with the

Nevada courts’ proceedings.

The United States Supreme Court has _ recently

reaffirmed the discretionary power of the district courts

to dismiss an action to avoid coneurrent jurisdiction

which would conflict with comity. Moses H. Cone Memorial

Hospital v. Mercury Construction Corporation, 460 U.S. 1,

(1983); Moses H. Cone, Meredith v. City of Winter Haven,

320 U.S. 228, 234 (1943).

Under the so-called exceptional circumstances test,

[t]he decision whether to dismiss a federal action

because of parallel state court litigation does not rest

on a mechanical checklist, but on a eareful balaneing

yy

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of the important factors as they apply in a given case,

with the balance heavily weighted in favor of the

exercise of jurisdiction.

Moses H. Cone, Supra, at 16. Upon a balancing of the

factors, the court finds several grounds which favor the

application of abstention.

The allegation contained in plaintiff counts II, [II, IV

and V are claims which were litigated or which could have

been litigated by affirmative defenses or cross claims in

the Nevada “Declaration of Rights” proceedings. As of

the date of this order, a final judgment has been rendered

by the Nevada Supreme Court. Bergeron v. Loeb, supra.

The declaratory judgment entered by the state

ehaneery court has the force and effect of a final

judgment and is binding upon the parties in

subsequent actions.

Continental Insurance Company v. South Jersey Gas Co.,

409 F. Supp. 1130, 1132 (D.N.J. 1976).

If a Writ of Certiorari to the United States Supreme

Court is not brought, is denied, or is affirmed the Nevada

decision would have a res judicata effect on this court.

The outlines of the rule are clearly set forth in

Commissioner v. Sunnen, 335 U.S. 591, 68 S. Ct. 715,

92 L.Ed. 898 (1947):

The rule provides that when a court of competent

jurisdiction has entered a final judgment on the

merits of a cause of action, the parties to the suit and

their privies are thereafter bound not only as to every

matter which was offered and received to sustain or

defeat the claim or demand, but as to any other

admissible matter which might have been offered for

that purpose. (Citations omitted).

Walsh v. International Longshoreman’s Ass., AFL-CIO, 630

F.2d 864, 867 (1st Cir. 1980). That judgment states that

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the ereditor’s claim by Bergeron is forever barred against

the estate and trust. Thus, if the decision is respected by

this federal court, the claims are moot.

In light of the likelihood that the issues before the

court are moot, the continued exercise of jurisdiction

would waste judicial resources. Moses H. Cone, supra.

If this court does give res judicata effect to the Nevada

judgment, this action would cause piecemeal adjudication

of the rights to the estate and trust of William Loeb.

Colorado River Water Conservation District v. United

States, 424 U.S. 800 (1976), (Colorado River). Probate

and trust administrations are fields which are “peculiarly

appropriate for comprehensive treatment in the forums

having the greatest experience and expertise’. Jd at 819-

20. Piecemeal adjudication should be avoided here.

The continued exereise of coneurrent jurisdictior

would substantially interfere with the strong state policy

in the orderly administration of estate and trusts.

Markham v. Allen, 326 U.S. 490 (1945); Waterman,

supra; Buck v. Hales, 536 F.2d 1330 (10th Cir. 1976),

(administration of a trust). The pending suit would affect

the bulk of the assets of the estate and the entire corpus

of the trust. Count V contests the validity of a trust

instrument and choice of law selected by the Nevada

eourts. Clearly, the federal suit amounts to an

examination of the general administration of estates and

trusts by the Nevada courts which this court declines to

do. See, Kittrege v. Stevens, 126 F.2d 263, (1st Cir.

1942).

The exercise of federal review would also disrupt the

Nevada efforts to establish a coherent publie policy on the

definition of a “‘proper court” for filing probate claims.

Bergeron v. Loeb, supra; Burford v. Sun Oil Co., 319 U.S.

315 (1943).

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The conflicts with comity and avoidance of piecemeal

litigation are not avoided if this court restricts its

judgment to a declaration of rights. Where a prayer for

injunctive relief is not premature, claims pursuant to the

Declaratory Judgment Act are decided by the same

standards as those for claims based on diversity of

citizenship. PBG Industries, Inc. v. Continental Oil Co.,

478 F.2d 647, 679 (5th Cir. 1973). As an injunction is

not premature and the issues of the case are ripe, the

court may properly abstain.

The court now turns to count I of the complaint.

Abstention does not apply because the federal courts have

exclusive jurisdiction of Security Exchange Act claims.

15 U.S.C. § 78 aa. A review of the pleadings, affidavits

and all other papers filed with the court indicate the

following facts and reasonable inferences in a light most

favorable to the non-moving party. Pignons S.A. de

Mecqnique de Precision v. Polaroid Corporation, 657 F.2d

482, 486(1st Cir. 1981).

On April 29, 1949 William Loeb was the sole owner of

5,000 shares of Union Leader Corporation stock

(Corporation), representing the entire authorized and

issued capital stock of the Corporation.

In 1949 William Loeb started the cash profit-sharing

plan covering the Corporation employees. The plan

provided for 50% of the Corporation’s profits before

taxes to be annually distributed among the employees.

On September 26, 1956 William Loeb created the

retirement profit sharing plan and trust for the benefit of

employees (called deferred profit sharing plan).

On September 30, 1956 through July 17, 1960 William

Loeb sold 1,250 shares of corporation -stock to the

deferred profit sharing plan for $375,000 in cash from the

plan.

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In 1957 William Loeb founded the Haverhill Journal.

The employees agree to Loeb’s request to terminate the

1949 eash profit sharing plan. Between 1949 and 1957

the emplovees received $696,472.81 from this plan. In

exchange Loeb promised the employees that they would

receiv. ownership of the Corporation upon his death.

Loeb reaffirmed this promise of Corporate ownership

when he extracted promises of loyalty, forebearance from

seeking overtime pay, higher wages and compensation

and benefits from the employees during the Haverhill

venture.

In 1959 William Loeb retroactively deleted the

mandatory payment contributions in the deferred profit

sharing plan and stopped payments. Between 1956-1957

the plan aceumulated $270,000 in the employees’

individual accounts. Loeb told the employees this money

would be returned to them when they received ownership

of the Corporation because every $1.00 used to finance

the Haverhill paper, rather than being put into the

deferred profit sharing plan could be expected to inerease

$40.00 in value.

On May 1, 1959 William Loeb pledged to Alexander R.

Cymrot a Director of the Corporation, all Corporation

stoek held in Loeb’s name as collateral for a $300,000

loan. An additional borrowing of $200,000 by the

Corporation from Cymrot is evidenced by _ loan

agreements dated June 1, 1959 and June 1, 1960.

On April 8, 1963 William Loeb borrowed $500,000

from the Teamsters Central States, Southeast and

Southwest Areas Pension Fund (Teamsters) to repay

Cymrot. Loeb pledged 3,750 shares of the Corporation

owned by him and not held in trust by the deferred profit

sharing plan.

June 25, 1965, William Loeb borrowed $2,000,000

from the Teamsters to repay the 1963 loan. Loeb pledged

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all Corporation stoek held by him as shareholder of

record.

On Mareh 7, 1979 the Corporation borrowed $900,000

from the Seeurity National Bank of Nevada (SNB) to

pay the 1965 Teamsters loan. William Loeb regained

possession of the 3,750 shares of Corporation stock.

On August 17, 1979 William Loeb created the William

Loeb Union Leader Trust (Trust). Nackey Loeb was

appointed sole trustee. Ten successor trustees were also

appointed and after the death of the next to last survivor

of the successor trustees the employees will receive

ownership of the Corporation. William Loeb transferred

all his 3,750 shares to the Trust.

On August 25,1980 William and Nackey Loeb and the

Trust pledged the 3,750 shares to SNB for a $2,000,000

loan. This money was used to buy 1,250 Shares of

Corporation held by Augsbury Organization, Ine. Upon

receipt of the 1,250 shares they were retired by Loeb as

Treasury stock.

On September 13, 1981 William Loeb died. Since May

1, 1959 until this date, exeluding August 17,

1979—August 25, 1980 all 3,750 shares of Corporation

stock held by William Loeb remained pledged and were

physically possessed by third party ereditors and/or the

Corporation.

September 13, 1981 the trust pledged 3,750 shares of

Corporation stock to SNB.

The standard for summary judgment utilized in the

First Cireuit is derived from Astra Pharmaceutical Corp v.

Beckman Instruments, Inc, 718 F.2d 1201,1204 (1st Cir.

1983). If the pleadings depositions, answer to

interrogatories and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to

judgment as a matter of law. Pignons S.A. de Mecanique

A-16

de Precision v. Polaroid Corporation, 657 F.2d 482, 486

(1st Cir. 1981). A dispute of fact is material if it “‘affects

the outeome of the litigation” and is “genuine if

manifested by substantial evidence going beyond the

allegations of the complaint. Pignons 657 F.2d at 486,

Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir. 1975), cert.

denied, 425 U.S. 904, 96 S. Ct. 1495, 47 L.Ed.2d 54

(1976).

In order to maintain an action under Section 10(b) of

the Exchange Act, 15 U.S.C. § 78 (aa) as amended, Rule

10 b-5 and 17 C.F.R. § 240.106-5, the plaintiff must

demonstrate that the fraud alleged was directly

associated with a “purchase or sale of securities”.

Rodriguez Cadiz v. Mercado Jimenez, 579 F. Supp. 1176,

1179-80 (D.P.R., 1983).

The plaintiff alleges that the class of employees were

beneficiaries of a constructive trust or that they were

entitled to specific perfomance of an oral promise to

deliver ownership of the shares in question upon the death

of William Loeb. By analogy, the emplyees would be in

the same position as employees under a formal, non-

contributory pension plan or employee stock ownership

plan. In either case, the employer-manager would owe a

duty to the employees according to the terms of the

agreement. See 56 C.J.S. § 169.

The law is well-established that the Exchange Act does

not apply to non-contributory, compulsory pension plans,

or to employee stock ownership plans. Generally, the

courts have found that there is no affirmative investment

decision and no furnishing of ‘‘value”’ by the employees.

Bauman v. Bish, 571 F. Supp. 1054, 1064 (N.D. W. Va.,

1983). The United States Supreme Court stated in

International Brotherhood of Teamsters v. Dainel, 439 U.S.

551, 560 (1979) that the establishing of a right to the

stocks by the faithful service of employees is not a

“purchase or sale’’. The court said:

A-17

Only in the most abstract sense may it be said that

an employee “exchanges” some purtion of his labor

in return for these possible benefits. He surrenders

his labor as a whole, and in return receives a

compensation package that is substantially devoid of

aspects resembling a security. An employee is selling

his labor primarily to obtain a livelihood, not making

an investment. 439 U.S. at 560.

439 U.S. at 560.

The plaintiff's claim against the defendants concerning

the use of the stock as collateral for a loan from the

Security National Bank of Nevada (SNB) and the

Teamster loans must also fail because there was no

violation of the Securities Act in those transactions.

The purpose of §10(b) and Rule 10b-6 is to

protect persons who are deceived in securities

transactions—to make sure that buyers of securities

get what they think they are getting and that sellers

of securities are sot tricked into parting with

something for a pi ce known to the buyer to be

inadequate or for a consideration known to the buyer

not to be what it purports to be... The Act and Rule

impose liability or a proscribed act in connection

with the purchase or sale of a security; it is not

sufficient to allege that a defendant has committed a

proscribed act in a transaction of which the pledge of

a security is a part.

Chemical Band v. Arthur Anderson & Co., 726 F.2d 930,

943 (2nd Cir. 1984). There is no evidence that SNB or

the Teamsters were defrauded because the equitable lien

in favor of the employees was not disclosed, in which case

only SNB and the Teamsters would have standing as an

aggrieved party. Wright v. Heizer Corporation, 411 F.

Supp. 23, 31-33 (N.D. Ill. E.D., 1975).

A-18

The Securities Acts were not intended to be vehicles for

attacking fraudulent mismanagement of corporate affairs,

a pension plan or trust, but rather were established to

protect defrauded purchasers and sellers of securities.

Birnbaum v. Newport Steel Corp., 193 F. 2d 461 (2nd Cir.

1952); cert. denied 343 U.S. 945 (1952). The 1979

transfer of shares to the William Loeb Union Leader

Trust would amount to fraudulent mismanagement

because the shares were placed in an irrevocable trust

contrary to the original alleged agreement conferring the

corporation’s ownership to the employees until William

Loeb’s death. The existence of the trust virtually places

corporate ownership out of plaintiff's reach and similarly

situated employees’ reach. However, even granting that

this is mismanagement of a trust, the fraudulent transfer

is not a purchase or sale and does not qualify as a cause of

action under the Securities Act.

The motion to dismiss shall stand for the counts II

through V based upon abstention. Upon a careful review

of facts and allegations connected with Count I under the

“Exchange Act’, motion for summary judgment in favor

of the defendant remains.

So Ordered.

December 11,1984

/s/ MARTIN F. LOUGHLIN

Martin F. Loughlin

U.S. District Judge

Alan P. Cleveland, Esq.

Ralph Warren Sullivan, Esq.