Jackson Veit v. Angela Frater
715 F. App’x 524
| 7th Cir. | 2017Background
- Plaintiff Jackson Veit owned ~13% of InfoCorp (renamed “Alter Ego” in his pleading) and alleges a multi-year fraud by controlling member Angela Frater and an entity he calls “New Company” that stripped value from his membership interest.
- Alleged misconduct: denied access to books (2008–2009), false statements about revenue, a $50,000 encumbrance to New Company, a fraudulent balance sheet (2010), and a members’ vote (with inadequate notice) approving a sale of InfoCorp’s assets to Speranza that left Veit with nothing.
- Veit first sued in Wisconsin state court in 2012 (derivative and direct claims) against InfoCorp-related parties (not including Frater). The state court granted summary judgment for defendants in 2013; Veit did not appeal. He filed multiple additional suits thereafter.
- In 2016 Veit sued Frater and “New Company” in federal court alleging conspiracy, promissory estoppel, and violations of §10(b)/Rule 10b-5 and §20(a) (1934 Act). Defendants moved to dismiss on claim-preclusion and related grounds.
- The magistrate judge dismissed Veit’s federal suit as barred by claim preclusion; the Seventh Circuit affirmed as to non-securities claims (conspiracy, estoppel) but vacated and remanded as to the federal securities-law claims because those claims could not have been adjudicated in state court. The court declined Rule 38 sanctions but urged the district court to consider other sanctions on remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether prior state-court judgment is a final judgment on the merits | Veit: state case did not produce a final judgment that bars this federal suit | Frater: state court entered summary judgment disposing of all claims; that's a final judgment | Held: There was a final, on-the-merits judgment in state court; claim-preclusion element satisfied |
| Whether the federal claims arise from same transaction(s) (identity of causes of action) | Veit: federal suit asserts different transactions/theories; not same nucleus of operative facts | Frater: both suits arise from the same common nucleus (books denied, false statements, sale to Speranza/New Company) | Held: The suits arise from the same transaction(s); claim preclusion applies to overlapping claims |
| Whether Frater and InfoCorp defendants are in privity (identity of parties) | Veit: Frater was not a party in state suit; New Company is distinct from Speranza | Frater: She is in privity via her role/ownership and participation; New Company is essentially Speranza | Held: Frater is in privity with state-court defendants; New Company was not served and is not bound on current record |
| Whether claim preclusion bars securities claims under the 1934 Act | Veit: federal securities claims can be litigated now | Frater: all claims should be barred by preclusion | Held: 1934 Act claims are within exclusive federal jurisdiction and could not have been brought in state court, so they are not precluded; other state-law claims are precluded |
Key Cases Cited
- Hayes v. City of Chicago, 670 F.3d 810 (7th Cir. 2012) (standard of review for dismissal; accept well-pled allegations)
- Walczak v. Chicago Bd. of Educ., 739 F.3d 1013 (7th Cir. 2014) (standard for Rule 12(c) / de novo review of pleadings dismissal)
- Balcerzak v. City of Milwaukee, 163 F.3d 993 (7th Cir. 1998) (Full Faith and Credit requires applying state preclusion rules)
- Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373 (U.S. 1985) (state judgments generally do not preclude claims within exclusive federal jurisdiction)
- Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning, 136 S. Ct. 1562 (U.S. 2016) (federal courts have exclusive jurisdiction over claims under the Securities Exchange Act)
- Kruckenberg v. Harvey, 694 N.W.2d 879 (Wis. 2005) (Wisconsin transactional approach and elements for claim preclusion)