Court Opinion

ID: 9457770
Source: CourtListenerOpinion
Date Created: 2023-08-04 20:32:42.771792+00
Date Added: 2024-06-11T17:31:44.816421
License: Public Domain

MULLIGAN, Circuit Judge
(concurring) :
I concur in reversing the order granting summary judgment in view of the existence of disputed issues of fact which are developed in the majority opinion. I further agree that the burden assumed by the stockholders is a heavy one when they in effect attempt to establish duress as a defense to the compromise agreement, which they so quickly disavowed after having accepted its benefits. I think in fact their burden is substantially heavier than indicated in the majority opinion, and to that extent I disagree with it.
The majority indicates, inter alia, that the stockholders will have to show that there was no other means of immediate relief available to them, such as a postponement of the closing. I believe that the full range of reasonable alternatives available to the stockholders should be explored before the trier could conclude that their free will was so overcome that they were compelled to submit to Pepper’s demands. See United States v. Bethlehem Steel Corp., 315 U.S. 289, 301, 62 S.Ct. 581, 86 L.Ed. 855 (1942); Austin Instrument, Inc. v. Loral Corp., 29 N.Y.2d 124, 130-131, 324 N.Y.S.2d 22, 25-26, 272 N.E.2d 533, 535-536 (1971). For example, I think the stockholders should be required to establish what economic consequences the loss of the Unger deal would cause the corporation. The economic coercion cases generally have involved situations where the coercer takes advantage of some desperate plight in which his victim is helplessly involved. In addition to the possibility of postponing the closing until the New York Supreme Court had acted, what were the chances of selling the assets rather than the stock, thus foiling Pepper? Why was time so essential here — would the stock become worthless or decline in value if the Unger opportunity was not seized? What other possibilities of sale exist — how marketable was the stock? In short, I believe the stockholders should develop a convincing case of exposure to real loss before they can establish their victimization by Pepper.
There is another dimension to the problem here which I would think the trier must explore. While Pepper’s conduct is scored in the majority opinion, I think the trial court should determine whether the conduct of the stockholders, represented by counsel, was also open to question. While it is entirely possible that a compromise agreement can be induced by fraud, mistake or duress so as to make it vulnerable to rescission in equity or to an equitable defense if sued upon, it is also true that those who depend upon equity as a shield or a sword, must themselves have clean hands. In this case an agreement of compromise was entered into by presumably sophisticated parties in which they solemnly represented that Pepper had claimed an attorney’s lien of $116,000, that it was disputed and that Pepper was willing to settle for $75,000, that the parties would exchange mutual releases and that the stockholders were acting of their own free will. In return for Pepper’s surrender of all the corporate paraphernalia, the stockholders agreed to assign the agreed upon amount from the proceeds of the sale. Immediately upon the execution *637of the agreement on Friday, June 7th Pepper completely performed, but on Monday, June 10th the stockholders repudiated the agreement and directed Unger to withhold payment to Pepper. While one should hesitate to characterize the motivation of either side before a trial of the issues, I think that the possibility exists that the compromise agreement was simply a charade, that it was not the product of duress but constituted a fraud upon Pepper. In any event, the circumstances of its execution and prompt repudiation by stockholders are pertinent inquiries for a court of equity in reaching any determination of economic duress.
As another noted Mansfield once observed “The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act.” Holman v. Johnson, 98 Eng.Rep. 1120, 1121 (K.B.1775) (L. Mansfield). In this case the question will be, who has acted immorall> or did both.