Vendo Company v. Lektro-Vend Corporation

PETITIONER:Vendo Company
RESPONDENT:Lektro-Vend Corporation
LOCATION:United States Department of Health, Education, and Welfare

DOCKET NO.: 76-156
DECIDED BY: Burger Court (1975-1981)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 433 US 623 (1977)
ARGUED: Jan 19, 1977
DECIDED: Jun 29, 1977

ADVOCATES:
Barnabas F. Sears – for respondents
Earl E. Pollock – for petitioner

Facts of the case

Question

Audio Transcription for Oral Argument – January 19, 1977 in Vendo Company v. Lektro-Vend Corporation

Warren E. Burger:

We will hear arguments next in 76-156, Vendo Company against Lektro-Vend Corporation.

Mr. Pollock.

Earl E. Pollock:

Mr. Chief Justice and may it please the Court.

This case involves a preliminary injunction against an ongoing State Court preceding, but more specifically the injunction enjoins a State Court proceeding to collect final State Court judgments in the amount of seven-and-a-half million dollars.

Final State Court judgment resulting after 10 years of litigation in the Illinois courts, final judgments fully reviewed by the Illinois Supreme Court and unanimously affirmed by that court in a very thorough opinion by Judge Walter Schaefer, and final judgments which this Court declined to review on petition for certiorari.

Furthermore, the preliminary injunction was issued by the District Court on precisely the same federal grounds which the state defendants have specifically raised by formal pleading in the state preceding as a defense.

A defense which the State Courts, indeed the Illinois Appellate Court, specifically ruled was within the jurisdiction of the Illinois courts to adjudicate.

A defense, however, which when the case was then remanded for trial on that defense in the State Trial Court the state defendants, immediately before trial, moved to withdraw the federal antitrust defense.

That was in 1971, and never again reasserted that federal defense in the state proceeding.

Thurgood Marshall:

It was significant that they withdrew it without prejudice.

Earl E. Pollock:

I do not think so Your Honor, certainly I could have no effect on the either of the Section 2283 question which we are dealing with today, or comity and federalism questions, because obviously any litigant cannot determine for himself by removing a defense or client without prejudice that whether that shall affect the application of principles of comity and federalism.

I thank that so far as this case is concerned regardless of what may have been the right of the state defendants at some later date in the state preceding to again raise the federal defense.

They withdraw that defense without prejudice in 1971 can have no effect for the reason that during the next four years of the State Court proceeding the state defendants never chose to reassert that federal defense.

John Paul Stevens:

But Mr. Pollock, it was then in the Federal Court all this period, wasn?t it?

For some time prior to this trial they had been asserting their federal antitrust theory, had they not?

Earl E. Pollock:

Yes, in a treble damage action which is still pending and which indeed will be going to trial.

John Paul Stevens:

Which was more or less set on the backburners, phrase we used to use, while a state preceding was completed.

Earl E. Pollock:

It was set on the backburner over the objection of my client, Vendo.

We have set forth in a supplement to our brief, supplement B, a full statement of various continuances obtained by the state defendants in the federal case with respect to the treble damage claim.

I would also point out Mr. Justice Stevens that throughout the 10-year period of the State Court proceedings, 1965-1975, at no time where there ever any intimation that at the conclusion of the state case.

The state defendants in there federal case which they have filed after the state proceedings initiated, there is never any information that the state defendants or the federal plaintiffs would ever seek to enjoin the results of the state litigation, but instead every statement by the state defendants or the federal plaintiffs in the federal case was to the effect that if Vendo is successful in its state preceding to recover judgments as it did then the state defendants would seek damages based in part on the State Court proceeding, but not until January 1975 was there ever the slightest intimation, even one word in the record, about obtaining a preliminary injunction against State Court?s decision.

John Paul Stevens:

You will rely and this is the waiver.

They did not have any need for an injunction as long as they are willing to try out the state issues in the State Court.

Earl E. Pollock:

Mr. Justice Stevens we are not arguing waiver, for example we are not contending that the federal plaintiffs are barred from proceeding with their treble damage action.

John Paul Stevens:

You are really just relying on the anti-injunction statute, as I understand it.

Earl E. Pollock:

I relied on the anti-injunction statute, and in addition Your Honor, the principles of comity and federalism in this context where you have a final state judgment.

John Paul Stevens:

But what I am suggesting is the issues would be exactly the same if the problem arose ten years ago instead of today, the legal issues.

Earl E. Pollock:

With respect to Section 2283, I think that is correct, but the additional issue as presented in our petition relating to the application of fundamental principles of federal state relations, are effected very substantially by the fact that here you have State Court defenders who has specifically raised the federal defense, and then went all the way up to the Illinois Appellate Court insisting that they have the right to have the State Court determine that issue.

They persuaded the Illinois Appellate Court that they did have, the Illinois courts did have jurisdiction.

Having persuaded the Illinois courts that the Illinois courts have such jurisdiction — and that opinion of the Illinois Appellate Court is at Pages 77-79 of the Appendix.

Earl E. Pollock:

When the case was remanded for trial, so that they could have the opportunity that they pleaded they wanted to have.

John Paul Stevens:

They then decided whether to try those issues in the Federal Court.

Earl E. Pollock:

That is right, and withdrew the federal defense and for the next four years, the last four years of this marathon, tenure Illinois proceeding.

There was never any reference on their part to the federal defense.

What they did was take the federal defense, stick it in their back pocket, where it could be used possibly at a later day in the event the judgment was added against them, and we say that the circumstances here, the withdrawal the defense, a failure to reassert it, and in addition the clear entitlement of these judgments to full faith and credit, and in addition the basic principle set forth perhaps most clearly in this Court?s decision in the Rucker case that State Court litigants cannot obtain rehearing or appeal by going to a Federal District Court, it has distinguished from seeking review in this Court.

John Paul Stevens:

I do not think they will be seeking any rehearing or appeal of any state issue decided in the state proceeding.

They are claiming that this whole thing is illegal as a matter of federal law, but that is not a review of the state.

Is that a review of any issue decided by the State Court?

Earl E. Pollock:

Yes, it is Your Honor, in the sense that what they have done is to nullify —

John Paul Stevens:

The total result, I understand that.

Earl E. Pollock:

The total result, and not only to nullify the state judgment, not only to nullify the pending state proceedings in the Illinois Trial Court, supplementary proceedings, which have been initiated before the motion for injunction was filed to enforce the judgment.

But they have nullify, to that extent, these fundamental policies of the State of Illinois concerning the fiduciary duties of corporate officers and the records.

But I suppose that it is true that the defendant in the state sued to your opponents could not affect any relief, antitrust relief, in the State Court.

It might have been a defense that they could not have gotten a judgment.

Earl E. Pollock:

Well, it is for that reason Your Honor that we are not saying that they are precluded.

Well, yes or no?

That is true, isn?t it?

Earl E. Pollock:

The relief, you are right, they could not have obtained a primitive relief.

Alright, let us suppose that in the —

Earl E. Pollock:

The relief they could have obtained Your Honor would be to prevent the judgment from being erred.

I understand that.

Now, how about in the Federal Court though, when was the federal suit filed?

Earl E. Pollock:

Federal suit was filed two months after the state proceeding.

It was filed in 1965.

And what if the — did the federal judge there in that suit indicate that he would not go ahead as long as the federal defense was pending in the State Court.

Earl E. Pollock:

No, there were several federal judges who are involved.

Yes

Earl E. Pollock:

So one of the federal judges insisted that the case proceed, counsel for the federal plaintiffs urge the Federal Court, pleaded with the Federal Court to defer any action in the federal case until the State Court proceeding have been concluded, and at least on two occasions have set forth a verbatim —

The federal plaintiffs urge to the Federal Court.

Earl E. Pollock:

Yes, as set forth in supplement B to our brief where we quote exactly what transpired at these various status reports.

Earl E. Pollock:

On at least two occasions, counsel for Vendo protested the delay of the treble damage case, and urged the court to go ahead.

In those instances at that time the federal judge accepted the entreaties of the federal plaintiffs to defer any action.

In large part on the theory that in fact at one point on the ground that the federal antitrust defense would be adjudicated in the State Courts, and almost within the following few months counsel for the federal plaintiffs went into the State Court in which he proved that defense so that it could never be adjudicated.

Well, I suppose that, but I suppose he did not have a choice between or there was a choice to be made as to whether to submit the antitrust defense in the State Court or not, because it was decided against in there, he could never have any relief order in the Federal Court, and then the Federal Court was the only court that could have jurisdiction.

Earl E. Pollock:

No, I think that is incorrect.

I think the —

So it would not be a collateral stopple.

Earl E. Pollock:

There would be a collateral stopple effect with respect to issues which were actually litigated there.

There would not be a res judicata effect with respect to the claim of the federal plaintiffs under the federal treble damage actions.

A number of decisions have pointed out a significant difference and the —

I do not think there would be any res judicata but there would collateral stopple.

Earl E. Pollock:

There would be collateral stopple, the decision —

Those issues could not be retried in the Federal Court.

Earl E. Pollock:

That is right.

We are not suggesting now that in the treble damage case, which is proceeding ahead in the District Court that there is a res judicata bar, nor can there be a collateral stopple bar with respect to issues directly concerning the federal antitrust defense since that was withdrawn.

So, they are free to proceed and they have assured the District Court that even with this within the last month, that regardless of what this Court decides with respect to the injunction, that they are proceeding ahead with their treble damage action.

As I have indicated, we do not believe that there is either an appropriate res judicata bar to their doing so, nor do we think there can be a collateral stopple issue except just to matters which we are actually litigating.

Well, nothing was litigated there with respect to an antitrust defense because that was withdrawn.

Earl E. Pollock:

Well, the problem there Your Honor is that many —

Some of the facts on your affirmative case are the same ones involved in the —

Earl E. Pollock:

Well, that is not quite accurate.

For the reason that as their amended complaint shows which they filed in January of 1975, many of their allegations concerning alleged improper conduct on the part of Vendo concerned various pleadings which Vendo filed in the state proceeding claim, bad faith, for example that at one point in the litigation there was a trade secret theory which was rejected by the Illinois courts.

So that, to that extent, on the basis of their very complaint which goes into almost archeological detail concerning the state proceedings, they have made much of the state proceeding and interval part of the federal case.

This is not, I would point out to Mr. Justice Stevens in further answer to his question earlier that this is not a case in which a federal action is alleged to be, let us say, one part of a sweeping panorama which might be appropriate as evidence in a large scale antitrust case.

If one looks at the allegations of the amended complaint filed by these gentlemen in January 1975, you will find almost item by item objection to certain decisions which were made by the State Court in the state proceeding, and conduct of the, with respect to the filing of pleading, making of arguments, the timing of motions, in the state preceding on part of that.

Can I ask you, would you be here making the same argument that there had never been any antitrust defense filed and withdrawn?

Earl E. Pollock:

I would be making the Section 2283 argument which of course is an absolute and a categorical prohibition.

We still would have that problem because as this Court has repeatedly —

You would not be arguing that he should have and did not present his antitrust defense in the State Court?

Earl E. Pollock:

No, Your Honor, my argument would have to be more limited, and that is why this case is such an extreme case calling for, I believe appropriate relief from this Court.

And if there had been no antitrust defense filed and then withdrawn and then he went to court alleging that the state proceeding in itself and the collection of the judgment would violate the antitrust laws.

Would you would be back to 2283 argument?

Earl E. Pollock:

Well, we would be back on 2283 Your Honor, and then you would have a more difficult comity federalism issue because then you would have the situation where a defense that actually been presented and presumably rejected if the judgments were nevertheless entered.

It would be a more difficult case.

But in the situation here, given the finality of the judgments, the deliberate rejection is not a failure to avail themselves with a federal defense.

But the deliberate rejection of a full and fair opportunity to have this adjudicated, this case is beyond the (Inaudible).

So, let me get it clear.

Suppose no antitrust defense in the State Court and then withdrawn, and the federal antitrust suit filed.

Would you make a motion in that federal antitrust case for the Federal Court to hold its hand or to abstain and let the federal defenses to be presented in the State Court?

Earl E. Pollock:

No, Your Honor, I would not.

So, you are not saying it is Younger — it would be any Younger situation at all.

Earl E. Pollock:

I would not Your Honor urge that stay of the federal case and indeed at least two circuits, the Second Circuit Alliance case and the Ninth Circuit in Mactronix (ph) have held that in such circumstances this treble damage action in the Federal Court should not be stayed.

That is not our argument.

But I would point out that in Alliance case at the same time that Judge Hand held that a stay of the federal case was inappropriate.

But in that same case, an attempt was made to enjoin the state judgment and the Second Circuit held, no that was entirely improper.

They held that it was barred by Section 2283.

Now, just so that we understand what the factual situation is, during the period 1959-1964, Mr. Harry Stoner was both the director and officer of Vendo receiving his salary of $50,000 a year.

The Illinois Supreme Court held that at that very time while he was on the payroll of Vendo and serving as a director and officer, that Stoner had violated his fiduciary duties through misconduct of the most flagrant sort by secretly organizing and financing another vending machine manufacturer, by secretly developing a new type of machine which Vendo itself had been venally trying to develop, by deceitfully misrepresenting Stoner?s relationship with the new company, and by misappropriating a corporate opportunity rightfully belonging to Vendo.

The Illinois Supreme Court in its opinion by Judge Schaefer affirmed the judgments on the basis of those violations of fiduciary duties quite apart – it should be noted – quite apart and regardless of court said, if any liability that might be imposed based on the non competition governance.

After the Illinois Supreme Court denied rehearing, this Court denied certiorari in 1975.

Now, in 1975, these judgments were clearly final.

They clearly were entitled to full faith and credit, and they were, if anything, overwrite for collection.

Towards that end, Vendo had commenced supplementary proceedings in the State Court to collect these judgments.

Now, in an effort to stop those proceedings the state defendants sought stays from Illinois Supreme Court, the Illinois Trial Court, the Illinois Appellate Court, and then Mr. Justice Rehnquist as Circuit Justice.

All these stays were denied.

Then at that point, the state defendants turned to the Federal District Court and obtained a preliminary injunction here in issue.

The injunction prohibits taking any further steps to enforce or collect or attempt to enforce or collect the final state judgments and specifically refers to these supplementary proceedings pending in the State Courts.

Preliminary injunction was sought on two grounds: One ground was that the respondents had allegedly been denied due process in the state proceeding.

The other as I mentioned was this antitrust issue which had been specifically raised in the State Court, specifically held by Illinois court to be within their jurisdiction, and then specifically withdrawn before trial by the state defendants.

In its decision the District Court held that it lacked jurisdiction to consider to due process issue on the ground that only this Court has jurisdiction to review a final state judgment.

Earl E. Pollock:

Nevertheless, the District Court granted the injunction on the antitrust claim on the ground that the Illinois Supreme Court had not passed on the antitrust issue.

Notwithstanding, in fact, that the only the Illinois Supreme Court had not passed on the issue Was because the state defendants had deliberately withdrawn that issue and refused to reassert it at any time thereafter.

Now, I have emphasized very briefly, if it please the Court, what I think the principal issues are and we have canvassed those issues in our brief.

I would like to briefly state so that there can be no confusion on this.

I would like to briefly state what I think are not the issues that are presented here.

To begin with, there is no issue here as to personal liberty or civil rights.

There is no issue as to the jurisdiction of the State Courts to enter the judgments in question.

There can be no issue as to due process or the fairness of the state proceeding, in fact the District Judge so held.

There can be no issue as to the constitutionality of the Illinois common law concerning the fiduciary duties, corporate directors and officers.

There can be no doubt as to Stoner?s guilt of the most egregious violations of those rules.

There can be no issue as to the meritorious nature of Vendo?s claims in the state proceeding, there is nothing baseless or sham about those claims.

All five courts in the Illinois system that dealt with this upheld the —

Mr. Pollock, is it also equally true that there is no issue before us as to the validity of the District Court?s finding that there is a probability of success for your opponents on the antitrust issues?

Earl E. Pollock:

I think that is correct Your Honor.

The only reason being that it seemed to me, as an advocate, appropriate that we narrow the issues for a resolution by this Court.

Yes, it makes a lot of sense– but I just want to be clear.

That is not before us really.

Earl E. Pollock:

But we, of course, do not in the slightest acknowledge —

That is a truth.

Earl E. Pollock:

Right, and furthermore as we point out in our Reply Brief the District Court issued this caveat in its opinion.

The court said the findings here are interlocutory in nature based on incomplete record and of course the complete trial directed to the issues might produce evidence requiring a different or more limited result.

I appreciate, but we just do not need to get into that nor to reach the issue that you do want us to do that.

Earl E. Pollock:

Absolutely correct Your Honor.

There can also be no question of the opportunity provided by the Illinois State Court for adjudication of the federal antitrust defense.

There can be no question that the state defendants deliberately rejected that opportunity.

It sounds though that the submission of the defense that has withdrawal after the appeal is a fairly critical part of your case.

Earl E. Pollock:

Only with respect to the non 2283 issues.

We do not even think you have to reach that Your Honor because this injunction we think is clearly barred by Section 2283.

It does not fall within the expressly authorized exception or the in aid of jurisdiction, and indeed as we argue in our brief, the —

Well, aside from 2283 though, again, assume there had been no filing of the defense and no withdrawal and then after the judgment was entered, this District Court did exactly what it did here.

You would not say it did not have jurisdiction to do it or that it was a violation of Younger against Harris or anything like that.

You will just say that 2283 would be your only point.

Earl E. Pollock:

I think that it is right Your Honor except that in the context of 1983 actions and habeas corpus actions, questions of comity and federalism they arise where there has been an adjudication in the State Courts of a federal defense.

But we do not have to get into that.

I agree with you, but if there had not been the filing in the withdrawal, 2283 would be your sole point.

Earl E. Pollock:

And the final judgment, yes.

I would just conclude by stating relieving sometimes to rebuttal that for nearly two years this injunction has not only nullified the decision of the Illinois Supreme Court and nullified the state proceedings to enforce that judgment in the Illinois Trial Court, but it has, I repeat, nullified to that extent these important state policies with respect to fiduciary conduct.

So, you are well in to your rebuttal time, Mr. Pollock.

Earl E. Pollock:

I would just say finally Your Honor that as a result of what has happened here, the respondents have managed so far to avoid their adjudicated liability for incontestable violations of state law duties.

Thank you.

Mr. Pollock, let me ask you a question on the Court?s time, if I may.

Do you make any claim here that because of the final nature of the judgment of the Illinois court the federal courts were required to accord full faith and credit to it?

Earl E. Pollock:

Oh, yes, precisely.

Then it is different than a 2283 claim, isn?t it?

Earl E. Pollock:

Yes, it is based instead on the governing statute 1738 of the Judicial Code.

We know of no reason on why in fact this whole case could not be disposed off on a basis of full faith and credit.

I am utterly unaware and certainly the respondent?s brief does not help us in this regard.

I am utterly unaware of any reason why this, why the full faith and credit statute is not completely dispositive here.

I know of no exception to the applicability of the full faith and credit here.

That would apply even if the Clayton Act is an exception to 2283.

Wouldn?t it because of the finality of the State Court judgment?

Earl E. Pollock:

Absolutely, it would not even be necessary to reach the questions of 2283 or comity and federalism.

Mr. Pollock, doesn?t the Full Faith and Credit Clause only apply to the states?

Earl E. Pollock:

Oh, no.

It is a statute.

Earl E. Pollock:

It is a statute, Section 1738 of the Judicial Code specifically provides that Federal Courts shall give full faith and credit to State Court judgments in precisely the same way that other State Court shall, and there has been no indications so far as we are aware of any conceivable exception to the full faith and credit requirement.

Warren E. Burger:

Mr. Sears.

Barnabas F. Sears:

Mr. Chief Justice and may it please the Court.

You will pardon me a moment?

There are few matters that I would like to get clarified having listened to the argument of my distinguished friend.

Barnabas F. Sears:

One was his representation that just last a few months ago before His Honor Judge Will (ph) that we had admitted before him that regardless of what this Court decides does not make any difference.

Now, for some reason or other he left out a very important passage that appeared in the transcript of the case.

I have the transcript here, and what he left out was the statement that I made immediately following the statement that Mr. Baker said, ?That is right?, I said ?they do?.

They say they are not trying to interfere with the prosecution of this case.

All they are doing is trying to keep us from getting an injunction to keep this case alive.

That is all it amounts to, and I have some question with respect to with all deference again to my distinguished friend, the propriety according a record like that.

Now, they have got two supplements in this Reply Brief of theirs. One is supplement A which is the statement of Stoner given to the commission.

All that was before His Honor Judge McLaren and that is supposed to be a dispositive of something, I do not know what, but it was all before Judge McLaren.

Now, supplement B is a supplement to their Reply Brief, the trust of which is that we thwarted the prosecution of this case by our dilatory tactics.

Now, we had in our brief what you?re his Honor Judge McLaren said and what they have assured the Court.

We had before the Circuit Court of Appeals a supplement and I have what here which sets forth the entire history of the case.

Now, I desire a supplement to their Reply Brief that certainly seems to me that they should have appended the supplement that we appended.

What do we find in that supplement, if the court will part me from reading it.

Now, this is Mr. Slager statement to the Trial Court on February 10th 1971, we do want to get it tried as soon as possible.

There is a Federal case if they seem to be able to move ahead on.

I realize it is the motion.

It is not like a trial but they have accrued that one firm is handling it.

It seems like they are all in a record, but they are able to move ahead on that but not this one.

Now, again with all deference, it seems to me perfectly obvious that what His Honor Judge McLaren said in this record with respect to the fact that the parties had agreed that the federal case would await the final determination of the state proceedings, and that was evidenced by the proceedings before him.

They agreed to a standby order so he could pass upon the propriety of our application for a preliminary injunction.

As I understand your opponent — it was then your suggestion that Judge thought the federal case ought to await the outcome of the state case.

Barnabas F. Sears:

I think it was in fight Your Honor, I believe that is correct and the parties agreed to it.

I think that is correct.

But however one states the case in its present frame of reference the bald fact is that petitioner is claiming the approach of a successful consummation of an illegal objective.

This would seem startling enough where there is purely private litigation, but it is not.

It is a litigation so deeply impressed with the public interest in the enforcement of the Sherman Act that private persons are endowed with de facto official powers as private Attorneys General to ensure the enforcement of that sadatory and overriding public federal policies so vital to economic welfare of the republic.

In its present form of reference the question is whether the federal antitrust laws can be enforced against the Sherman Act violator.

I say to the present frame —

But your suit can go right ahead Mr. Sears.

Barnabas F. Sears:

I beg your pardon.

Your suit can go right ahead, can?t it?

Barnabas F. Sears:

Well, it can go right ahead without the benefit of a preliminary injunction which if we do not get it will completely destroy it.

It will completely —

If the State Court judgment is enforced the federal plaintiff will be without resources to carry it on, is that it?

Barnabas F. Sears:

Well, as a matter of fact, two of the federal plaintiffs Lektro-Vend Corporation and Stoner Investments who have separate and distinct claims under the Sherman Act will be completely denied a Federal Court room.

I mean I cannot express it any better and than His Honor Judge McLaren expressed it in his opinion.

Now, with respect to the third claim, he found that the Stoner himself would be severely crippled in the prosecution of the case, and therefore he held with respect to the question, there was no case or controversy if that occurred and that it was necessary —

Well, what if the judgments, what if the State Court judgment was against your clients was on some completely unrelated matter.

It is a very large judgment and if it was collected your plaintiffs would be, your clients would be wiped out and could not go forward in the Federal Court.

That would be no excuse for an injunction, I do not suppose, would it?

Barnabas F. Sears:

I do not think it would.

Now, it is critical for you to say that the state suit itself and the collection of the judgment is part of the antitrust violation.

Barnabas F. Sears:

Exactly.

That is precisely what the court found.

Well now, was it or was it not — all in ground in the State Court that your clients were holding a side from the contract, holding a side from the no competition agreements where violating a judiciary obligation?

Barnabas F. Sears:

That is correct.

Is that in a completely separate all in the ground in a State Court.

Barnabas F. Sears:

Well, it is the separate completely all in the grounds they refused to pass on — they held that Stoner had violated his fiduciary duty and that he had ceased a corporate opportunity.

I understand that.

Barnabas F. Sears:

Yeah.

Would be here making the same argument as there had never been a no-competition agreement?

Barnabas F. Sears:

No, I would not, because the question of the breach of the fiduciary duty as Judge McLaren pointed out in his opinion was inextricably interwoven with an anti-comparative characters of the agreement that they sued on in the State court.

You say those are indivisible, so that it could not be in all the ground.

Barnabas F. Sears:

That is correct.

If I understand Your Honor?s inquiry that is absolutely correct and that is what McLaren held because Stoner would never have become a director apart from the covenants and the evidence is replete with evidence, the record is replete with evidence indicating the intent of Vendo in procuring those anticompetitive covenants.

Well the reasons why they made him a director, he was to serve as a director without pay.

It is interesting to know that we examine this record in this case based the court did not upset any statement, any ruling of Judge Schaefer.

He examined those proceedings for the purpose of determining whether or not Vendo prosecuted them as a part of an anticompetitive scheme.

When you examine a record — and we are not seeking to impeach that record in the slightest, but when you do examine that record you will find that the evidence upon which he based, the record on which he based, the statement that Stoner has violated his fiduciary duty, because Vendo did not have a genuine opportunity to purchase the Lektro-Vend machine was completely without support in that State Court record, and that State Court record did not mention at all the fact that Stoner had warned Vendo that their failure to purchase the Lektro-Vend machine was a serious mistake, and add to which in the record before the Judge McLaren.

When the federal depositions came in it became even more conclusive that at no time that Vendo ever wanted to purchase the Lektro-Vend machine and all time they thought that Lektro-Vend machine was completely too expensive to operate.

I made the conclusion on one factual matter Mr. Sears.

You said when he was a director without compensation were not some of these alleged breaches of fiduciary duty, some that were found, events that occurred at a period when he was receiving $50,000 a year as a consulting engineer or a consultant?

Barnabas F. Sears:

Well I have made a mistake Your Honor, I should have said that he was to serve as a director without additional compensation.

That is what I should have said.

And his consulting fee was a separate fact.

Barnabas F. Sears:

Well, they have never consulted him about anything, I mean it was a pure sham from the outset.

But he was receiving $50,000.

Barnabas F. Sears:

Yes he was indeed Your Honor.

He was receiving $50,000 a year, but it was a pure sham and Judge McLaren — five days of hearings now we had.

We had the records of the two state trials and examining that record carefully — and Mr. Stoner was a witness then you had an opportunity to present whatever evidence they desired to present.

Examining that record, carefully examining that record, he found that Section 1 was violated by those non-competitive agreements, those contracts violated Section 1 of the Sherman Act, and he found evidence tending to show that they have violated Section 2.

Now, there was of plenty of evidences to support that.

My dear friend talks about a 10-year marathon.

We had a 10-year marathon indeed.

We had the first case where they sued to enforce those covenants which violated the Sherman Act.

So, there were engaging then in an illegal objective, but we had more than that.

We had a claim assorted that Stoner had stolen a trade secret belonging to Vendo, and the Appellate Court reversed that on the ground that there was not any evidence at all to support that charge, and in the statement of facts that they give that particular finding, they conveniently overlook, if I may be permitted to say so.

So that was part of the 10-year marathon.

So, we continue with this 10-year marathon, and the second time we are confronted with the proposition that he was responsible for the fact that they did not have that FIFO machine.

Now, if there is any thing more conclusive in this record that there was absolutely no evidence upon which to base that claim, and that they knew or should have known certainly at the time they filed a lawsuit back in 1965.

Whether that charge was true they should have asserted all charges they had against him, and this evidence shows also that his is not the first time they used the judicial process for purposes other than what I consider at least to be a legitimate purpose.

Mr. Sear, can I interpret for just a moment?

Barnabas F. Sears:

Yes you can Your Honor.

I have two questions.

It seems to me you are arguing in effect that they did commit an antitrust violation, I should observe that they did refer to the trade secret claim in Footnote 7 of their brief that conveniently omit that, but the question I had is what is your theory of what happens to the state court judgment if you win?

Their last point was rested on full faith and credit.

What will happen to the state court judgment if you prevail in the antitrust litigation?

Will it be collectible or not or will be multiplied by the three and you get three times the value.

Barnabas F. Sears:

Well, I do not think it would be collectible Your Honor.

So what do you say about the statutory requirement of full faith and credit in the State Court judgment.

Barnabas F. Sears:

Well, I would say this about that.

Full faith and credit, I can not say that any better than I think Mr. Justice Stewart in a specially concurring opinion in Younger.

They argue it is difficult to conceive of a state interest more significant than the jurisdiction of its courts, that finality and the integrity of their judgments, and the enforcements of the sate law rules as to fiduciary conduct.

Now, sure in the different context, and I am aware of a fact that a word is not crystal clear and unchanged, it is the skin of a living thought, and may vary greatly in content and meaning depending upon the circumstances and time of its utterance as Justice Holmes(ph) reminded us years ago.

I am mind full of that, but here is what Mr. Justice Stewart said in the Younger case, in such circumstances the reasons of policy for differing to state adjudications are outplayed by the injury flowing from the very beginning of the state proceedings.

By the perversion of the very process that is supposed to provide vindication, and by the need for speedy and effective action to protect federal rights.

Now, record of that on page 74.

So, what Vendo was saying that it may pervert the process as in a State Court and notwithstanding comity or full faith and credit requires that the State Court judgment obtained by such means is entitled to full faith and credit.

Mr. Sears.

Barnabas F. Sears:

Yes, your honor.

I see why you referred to Justice Holmes(ph) algorithm before referring to Justice Stewart concurrence in Younger, because Younger was not dealing with any final judgments of a state court, it was just dealing with the inceptions of a state proceeding.

Barnabas F. Sears:

That is correct.

Do you think that reasoning would necessarily carry over to a final judgment that was presumably protected by the Full Faith and Credit Clause.

Barnabas F. Sears:

Well, and that is the court is assuming as if the judgment is protected by the Full Faith and Credit Clause — I mean this a federal statutory prohibition, and the full faith and credit — are you going to give full faith and credit to a judgment procured in violation of federal law?

Are you going to give full faith and credit to a judgment which was part and parcel of a scheme to violate the federal laws?

Well, what is the scope of this exception that you think is implied in the Full Faith and Credit Statute where you do not have to give full faith and credit the way the statute says?

Barnabas F. Sears:

Well, I think that — I do not think the Full Faith and Credit Statute applies at all.

Why not?

Barnabas F. Sears:

Well, for the very reason that I stated.

I mean isn?t that reductive and absurdtive (ph) to give full faith and credit to a judgment in a Federal Court that was procured as part and parcel of a violation of the Federal Law.

You give that full faith and credit in a Federal Court.

I do not believe you do with all the efforts.

Does that mean Mr. Sears that the threshold question in a claim for full faith and credit which you have been asserted that the court, to which that claim is presented, must re-litigate the case and decide whether it is really entitled to full faith and credit?

Barnabas F. Sears:

Well you know I have said that there is a lot of statutory rules that say that a case within the letter but without the spirit of the statute is without the statute, and a case without the letter but within the spirit is within the statute.

Now, I think that is sort of a casual or thumbnail statement, but I think there is substantial law to support that preposition.

Was the full faith and credit issue presented to Judge McLaren?

Barnabas F. Sears:

No, it was not presented to Judge McLaren.

The only 2283?

Barnabas F. Sears:

2283 —

That was presented but not the full faith and credit?

Barnabas F. Sears:

No, it was not, even I heard hardly in the Circuit Court of Appeals as I recall it.

But it was not presented to Judge McLaren?

Barnabas F. Sears:

No, it was not indeed.

Did Court of Appeals address it?

Barnabas F. Sears:

No, I do not think so.

I am sure the Court of Appeals did not address it.

I should not be dogmatic, I have got no — pardon me — I have lived long enough to know that I should not be dogmatic about anything, and —

At least not too much.

Barnabas F. Sears:

Well, I am not submitting anything.

Mr. Sears, but what I see is, aren?t you asking for the exact same relief you advanced this Court from asserting.

Barnabas F. Sears:

Oh no indeed.

The difference?

Barnabas F. Sears:

Well, the difference is Your Honor that there were not any federal questions.

I mean there were not any federal questions as such except due process.

There were no federal antitrust questions involved in the petition for cert.

They involved due process.

But the fundamental relief you want is to upset the judgment.

To revise it.

Barnabas F. Sears:

No, we want it stayed Your Honor.

I mean, and I do not mean to say that I am —

How long will it state?

Barnabas F. Sears:

Well, it will state pendite lite, that is the only issue that is before the Court.

It would state pendite lite.

Now, what the ultimate state of that judgment might be, it is a question to be decided upon a record where that question is an issue and with respect to that I say well sufficient under the day is the evil thereof, we do not really have that issue before us.

Now, I am about to exhaust in my time.

I want to speak briefly to 2283.

We quoted Kiplen(ph) an opinion by Judge Finley (ph) to support the doctrine of Mitchum versus Foster.

They have applied the doctrine of Mitchum v. Foster and Studebaker v. Gittlin, and you gentlemen are as familiar with case as I am, there is not more so.

They came back and they relegated Studebaker versus Gittlin to a footnote, both in their original brief and in Reply Brief, and they quoted — I guess the white light says I have a few minutes.

Warren E. Burger:

Yes.

Barnabas F. Sears:

Thank you.

They quoted three cases, Vernitron, Jennings, and Glen W. Turner, where each one is contrary to the issue so the injunction here, and each one of those cases completely dissimilar on the facts.

None involved violation of the federal antitrust laws, but the interesting thing about those three cases is the fact that each one of them recognize the doctrine or recognize the Studebaker v. Gittlin which they have relegated to a footnote.

That was just by way of dictum.

So, I do not see how they can be contrary to what we are arguing here when they expressly recognize a case upon which we rely.

That is what the District Court — the District Court did the same thing.

For example, in Jennings which is a procedurally very similar case to ours, Judge Höger (ph) sat for the Third Circuit said, ?Certainly Studebaker qualified under the test subsequently set forth in Mitchum v. Foster whether an act of Congress clearly creating a federal right or remedy enforceable in a Federal Court of equity, could be given its intended scope only by a stay of the state court proceedings.?

Now, our case is stronger than the Securities Act case for the very simple reason that the Securities Act do not to provide for a treble damages, nor does it except in some rare cases, as I understand the law and I am not absolutely certain of this.

It does provide to some cases for the assessment of damages against the defendants.

Now, briefly on comity and federalism, I have quoted the separately concurring opinion of Mr. Justice Stewart with respect to that question.

I think that the Judge McLaren, the Late Judge McLaren, I am perfectly contained to rely on his very carefully written opinion affirmed by the Court of Appeals with respect to that question.

Mr. Sears, did the Judge, the late Judge consider the Supreme Court of Illinois holding that the directors had violated their fiduciary relationship?

Barnabas F. Sears:

Indeed he did.

What did he say about that?

Barnabas F. Sears:

Well, he said that this was part and parcel of the anticompetitive covenants and they couldn?t be snipped apart.

He specifically said that in answer to their argument.

Well, could he — do you think that was a very — well I will put it this way.

If you read the Supreme Court of Illinois? opinion and get the impression that Judge Schaefer was sustaining the judgment on the alternate grounds the breach of fiduciary relationships, and Justice Stevens is saying, even if there were never any contracts here the judgment would stand.

Barnabas F. Sears:

But that is entirely ignoring the facts of the case on antitrust standpoint, which issue was not before him?

I mean the facts that he breached the fiduciary relationship assuming that he did, and the records in this case before Judge McLaren would show no such brief, but even assuming — Pardon me, I am sorry.

Well, go ahead I am sorry.

Barnabas F. Sears:

No, I am sorry.

Well, assuming that the judgment was sustainable under the Illinois Law and the completely independent ground the breach of fiduciary duty, what business did a Federal Court, an antitrust court have enjoining the question of the judgment?

Barnabas F. Sears:

Well, the point about it was that it was not sustainable on a purely…

Well, that depends on how you read Justice Schaefer?s opinion.

Barnabas F. Sears:

Well, it depends on whether you read it.

We have stated what the record showed.

Your Honors can draw your own conclusions about what the state of the record was with respect to —

Let us just suppose that we disagreed with whatever Judge McLaren said about their being intertwining, suppose we read the opinion of the Illinois Supreme Court as same, this judgment is sustainable in the wholly independent ground, would this injunction stands or not?

Barnabas F. Sears:

Yes this injunction would certainly stand.

Barnabas F. Sears:

If I understand Your Honor?s inquiry —

Why would it, because there would be nothing violated the antitrust laws in suing for breach of fiduciary duty.

Barnabas F. Sears:

But how can you — I misunderstood Your Honor?s question.

How is it possible for a court to say that this judgment can stand in so far as the antitrust laws are concerned.

This is what we are talking about; we are talking about a case that was prosecuted as part and partial of a scheme violate the antitrust laws.

Now, if this was prosecuted as a part of a scheme to violate the antitrust laws, it does not make any difference whether the means employed were lawful or unlawful, and it does not make a better difference whether there was a successful consummation of a scheme which had an illegal objective.

They eventually —

So, you are saying that even if there have not been any anticompetitive contracts involved, you could still allege and you would hope to prove that the suit for breach of fiduciary duty was part of an illegal scheme.

Barnabas F. Sears:

Of course it was bound up with it, and so McLaren held and we think that finding on Judge McLaren —

Warren E. Burger:

I think we will terminate here Mr. Sears.

Barnabas F. Sears:

Alright.

Well, I will terminate too Your Honor.

Warren E. Burger:

Mr. Pollock we will have you on at 1 o?clock.

Barnabas F. Sears:

I want to thank you very much and I have enjoyed the honor of the period.

Warren E. Burger:

Mr. Pollock, you may reach your rebuttal, you have three minutes with you three minutes left now.

Earl E. Pollock:

Thank you Mr. Chief Justice.

In those three minutes, I would like to make three very brief points.

First of all with respect to the treble damage suit which is proceeding ahead on the Trial Court, Mr. Sears once again raises the specter that Vendo, if allowed to collect these judgments will obtain control of these two corporations which Stoner controlled, Lektro-Vend and Stoner Investments.

At the District Court, at the Court of Appeals, and now in the Supreme Court of United States, we wish to make clear that Vendo will not obtain control and indeed, consent judgments to that effect were offered in the District Court.

So far as taking control of those two companies, so that somehow there would be laws of Article III jurisdiction by virtue case or controversy, there simply is no issue.

It is at most a red herring which obscures the fact that the respondents do have their treble damage remedy, they are proceeding ahead, there is no danger that those two companies will be taken over by Vendo, Vendo does not wish to have those two companies, and they have that very adequate remedy, indeed their claim has been that in the treble damage case, they will be able to recover three times the amount of the judgment, whether collect it or not.

We of course do not act in that position.

Second, I would like to very tersely amplify my answer to a series of questions of Mr. Justice White directed to me, after talking with my colleagues it appears that I may have not answered all aspects of Mr. Justice White?s question.

Mr. Justice White asked whether there would be any question other than 2283 if the respondents had not withdrawn their federal antitrust defense and had actually litigated it.

I think I replied that there would indeed be a significant comity federalism issue in terms of collateral stopple, and what the impact of that adjudication would be in the federal preceding.

Furthermore, if they had never raised the defense in the state proceeding and simply had ignored it, there would a significant question Your Honor under the Huffman case with respect to the propriety of an injunction against the State Court proceeding, if it is true that there is an adequate opportunity to have presented that question in the state proceeding.

On the other hand, if there was no opportunity —

I think that they resent their affirmative claim of the state proceedings.

Earl E. Pollock:

Well, there is no dispute here Your Honor that no one is attempting to deprive them of the right to present their treble damage claim.

I know, but under Huffman, you dismissed the case.

Earl E. Pollock:

Well, because Huffman was seeking only injunctive relief.

In this instance, we are talking only about a comity federalism bar to an injunction.

We are not, in any sense, taking the position that they are precluded from maintaining their treble damage remedy.

Finally, third point, one of the really key issues here, the threshold issue, I think is the 2283 issue.

We have not had an opportunity to review that issue as fully as we should.

We urge review of our briefs particularly with respect to what we believe to be the utter distortion of the Mitchum decision and the fact that adoption of the decision below, with respect to the expressly authorized exception, would apply to literally dozens of federal statutes which we have set forth at Pages 10 and 11 of our Reply Brief, which are in every respect identical to Section 16 of the Clayton Act for purposes of obtaining injunctive relief.

Thank you very much.

Warren E. Burger:

Thank you gentlemen.

The case is submitted.