# Opposition Brief — Bergeron v. Loeb > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1829%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1985 - **Citation:** 469 U.S. 1212 ## Text 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 -cusnntsinennenneeemeee ec, Los yo Ag Ny IStINIAGY Oo fe ue. °23°> Se aes ie zu ‘Gl’ Mssevsig Sth} 4 ep F3ADees- m BX SDCNIMO UIE ep) FOCUS. 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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 A-1li 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 A-12 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). A-13 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. A-14 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 A-15 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. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1829%3A2. Public record. Not legal advice.