Powell v. American Bank & Trust Co. (640 F. Supp. 1568, 1986)

ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on motions to dismiss filed by all defendants. On December 3, 1985, the defendants filed their briefs in support of the motions to dismiss. The plaintiffs filed their brief in opposition on January 31, 1986. Defendants American Bank and John Kightlinger filed their reply on February 27, and defendants John Bell, Jr. and Bell Fibre replied on March 4, 1986. The plaintiffs filed a supplemental brief in opposition on March 10, 1986. The court held a hearing on the motions on May 23, 1986. On August 4, 1986, Bell and Bell Fibre filed a Supplemental Brief in support of their motion to dismiss, which prompted the plaintiffs to file a Supplemental Brief in opposition on August 11,1986. For the following reasons, the motions to dismiss will be denied.

This cause arises out of the sale of certain stock held in trust for the benefits of the plaintiffs (“Powells”), as well as stock individually owned by some of the plaintiffs, to defendant John L. Bell, Jr. (“Bell”). The Powells claim they were defrauded by the failure of the defendants to disclose allegedly material information about the value of the stock, and that they suffered damages as a result of fraud, breaches of fiduciary duties owed them, and the operation of a racketeering enterprise. They sue under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5 of the Securities and Exchange Commission, the Indiana Securities Regulations (I.C. 23-2-1-19), common law counts of fraud and breach of fiduciary duty, and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq. The Powells seek actual damages of $200,000 and punitive damages of two million dollars. The defendants now seek to dismiss the complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

In deciding a motion to dismiss for failure to state a claim, this court must take the well pleaded factual allegations of plaintiffs complaint as true. Ashbrook v. Hoffman, 617 F.2d 474 (7th Cir.1980). A complaint should be dismissed for failure to state a claim only if it appears “beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). However, Conley has never been interpreted literally. Sutliff, Inc. v. Donovan Companies, 727 F.2d 648, 654 (7th Cir.1984). The test is whether a complaint contains either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory. Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir.1984). This court must consider the complaint in the light most favorable to the plaintiff and must resolve every reasonable doubt in favor of the claimant. Henry C. Beck Co. v. Fort Wayne Structural Steel, 701 F.2d 1221 (7th Cir.1983). “The heavy costs of modern federal litigation ... counsel against launching the parties into pretrial discovery if there is no reasonable prospect that the plaintiff can make out a cause of action from the events narrated in the complaint.” Sutliff, 727 F.2d at 654.

Based upon these principles, the facts of this case are as follows. The Powells are the beneficiaries of a testamentary trust (“Trust”) established by Verne Powell; plaintiff Helen Powell (“Helen”) is the income beneficiary, and her sons, plaintiffs F. Verne Powell (“F. Verne”), George M. Powell (“George”), and Andrew K. Powell (“Andrew”) are the remainderman beneficiaries. The plaintiffs are all citizens of Michigan, residing in Traverse City, Michigan. The Trust was established at the Marion National Bank, and the Bank and Helen were named co-trustees. In 1978, Marion National Bank dropped its national bank status and became a state bank known as American Bank & Trust Co. (“ABT”). A company known as Marion National was the holding company for both Marion National Bank and ABT. Bell is the Chairman of the Board for ABT, and is the President, Treasurer and director for Marion National.

The corpus of the Trust until August 1984 consisted of sixty shares of common stock in Marion National and 3,499 shares of common stock in ABT (the “Trust stock”). In addition, F. Verne and George individually owned ABT stock, F. Verne owning one hundred eighty-five shares and George owning one hundred eighty-six shares (the “Individual Stock”).

For seventeen consecutive sessions of the Indiana General Assembly prior to 1984, attempts had been made to pass legislation allowing cross-county banking, whereby bank holding companies could acquire more than one bank, banks could open branches in contiguous counties, and out of state bank holding companies could acquire Indiana banks and bank holding companies. The concept of cross-county banking was supported by larger Indiana banks, who were represented by the League for Economic Development (League). Smaller banks, represented by the Independent Banking Association of Indiana (IBAI), opposed the concept. The only other major banking organization in Indiana, the Indiana Banking Association (IBA), remained neutral on the subject because its members included both large and small banks. Because of the opposition of IBAI, the attempts at cross-county banking legislation failed in each of the seventeen legislative sessions.

In March 1984, the IBA appointed a committee to examine the issue of cross-county banking and to see whether a compromise between the League and the IBAI could be reached. A compromise was ultimately reached (“the Compromise”), and on June 11, 1984, the IBA directors adopted the Compromise and IBAI announced that it would support the Compromise in the legislature’s next session. The June 12, 1984 issues of the Indianapolis Star and the Indianapolis News both carried stories announcing the Compromise and stating that the Compromise would greatly improve the chances that cross-county banking legislation would be passed in 1985.

In April 1984, prior to the announcement of the Compromise but after the IBA began its efforts to seek a compromise, Helen made two trips to Marion, Indiana to meet with Jack S. Kightlinger (“Kightlinger”), a trust officer at ABT who was responsible for administering the Trust. Kightlinger told Helen that Bell was interested in buying the Marion National stock in the Trust. He told Helen that the price of ABT stock was terribly depressed, and that Bell had recently purchased ABT stock at $20 a share. At the second meeting, Kightlinger told Helen that Bell was willing to buy the Marion National stock in the Trust for $110.10 a share and that he might be interested in buying the ABT stock in the Trust for a price higher than what he had recently paid.

On June 14, 1984, two days after the Compromise had been announced, Bell wrote identical letters on the stationery of Bell Fibre, Inc., a company which Bell owned, to George and F. Verne stating that his family had owned the majority of ABT stock and that there had not been a ready market for the stock. Bell offered to purchase any and all of the stock owned individually by George and Verne.

On June 27, 1984, Bell wrote Helen a letter on Bell Fibre stationery stating that Kightlinger had indicated that Helen had not yet reached a decision on Bell’s offer to purchase the Marion National stock for $110.10. Bell described how he had purchased several thousand shares of ABT stock for $20 a share, but that if Helen wished to sell both the Marion National and ABT stock in the Trust then Bell would pay $110.10 and $25 a share respectively.

Some time between the receipt of the June 27 letter and the end of July, Helen contacted Kightlinger on the telephone and asked him what he thought of Bell’s offer. Kightlinger told Helen that he thought the offer was “the very best we [the Trust] can do.” The plaintiffs decided to accept Bell’s offer, both as to the Trust stock and the individual stock, and Helen wrote Kightlinger a letter to that effect.

On August 9, 1984, Kightlinger wrote Helen on ABT stationery stating that he was in receipt of her letter accepting Bell’s offer. Kightlinger wrote that, because of Bell’s close affiliation with ABT and Marion National, Kightlinger thought it best to petition the probate court for permission to sell the Trust stock. He enclosed two copies of a “Petition to Sell Corporate Stock” and four waivers. Helen signed both copies of the Petition, and the four plaintiffs each signed a waiver.

In none of the communications between the plaintiffs and Kightlinger or Bell was any mention ever made of the existence or the possible effect of the Compromise on the value of the Trust stock or the individual stock.

On August 22, 1984, the Petition and Waivers were filed in the Grant Circuit Court. The court signed an order approving of the sale of the Trust stock. The order stated that the court read the petition and waivers and “heard evidence thereon.” The order also stated that the sale was privately negotiated between the plaintiffs and Bell, and that ABT “played no part in the negotiations.” The order also stated that the prices exceeded the market value of the stock, implying that evidence was heard on the value of the stock. In fact, no hearing was ever held before the court; the court simply signed an order which had been prepared by attorneys for the defendants. The order made no mention of the existence or possible effect of the Compromise.

In April, 1985, the Indiana General Assembly passed legislation allowing for cross-county banking in Indiana. The Act became effective on July 1, 1985.

On July 18, 1985, ABT and Summcorp, a bank holding company with its principal place of business in Fort Wayne, Indiana, announced an agreement whereby Summcorp agreed to buy ABT at $90.50 a share. For some time prior to this announcement, ABT had employed a consulting firm to develop merger and acquisition plans for ABT.

The plaintiffs allege six separate counts in their complaint. The first count asserts violations of Rule 10b-5 and the Indiana securities regulation statute, I.C. 23-2-1-19, by all the defendants. The basis of the claim is that the defendants failed to disclose the existence of the Compromise and its possible effect on the value of the Trust stock. The plaintiffs claim that this information was material and that the defendants had a duty to disclose that information, for the plaintiffs would not have sold their stock if they knew those facts. The second count alleges common law fraud against ABT, Bell and Kightlinger for intending to deceive the plaintiffs by failing to disclose the Compromise and its effect. Counts three through five are RICO counts, and differ from each other only in the enterprise identified. Count three alleges that the Trust was an enterprise, count four that ABT was an enterprise, and count five that Bell Fibre was the enterprise. The final count claims that ABT, Bell and Kightlinger had fiduciary duties to the plaintiffs, which were breached by carrying out the sale of the Trust stock without disclosing the Compromise.

The motions to dismiss offer three general arguments against the entire complaint. ABT and Kightlinger claim that the suit is nothing more than an attempt to set aside the judgment of the Grant Circuit Court in a collateral proceeding, and therefore argue that the August 22, 1984 order of that court must be given full faith and credit. Bell and Bell Fibre raise the second argument in their reply brief when they assert that the Grant Circuit Court order was res judicata on the issues in this case. The final general issue was also raised in Bell and Bell Fibre’s reply brief: that the probate exception to federal jurisdiction applies in this case.

As to the individual claims, the defendants argue that, because the fact of the Compromise was published in the Indianapolis Star and Indianapolis News, the information which the plaintiffs claim should have been disclosed was in the public domain. This, defendants assert, is fatal to all of the plaintiffs’ claims. The Rule 10b-5 claim must fail because there is no duty to disclose information in the public domain. The common law fraud claim fails because there can be no fraudulent concealment of information in the public domain. The RICO counts fail because the securities fraud and common law fraud claims fail. Defendants finally argue that the breach of fiduciary duty claim fails as to Bell because Bell had no fiduciary duty to the plaintiffs.

The court will begin by examining the general arguments raised by the defendants and then proceed to the arguments against the individual claims.

ABT and Kightlinger raise the first general argument against the complaint. They argue that ABT, with the knowledge and consent of Helen, petitioned the Grant Circuit Court for instructions as trustee, and that the court reviewed the propriety of the sale of the stock and the terms and conditions of the sale, and approved that sale. ABT and Kightlinger argue that the plaintiffs here seek to set aside the order approving the sale, which should be entitled to full faith and credit under 28 U.S.C. § 1738.

ABT and Kightlinger misconstrue the thrust of the plaintiffs’ complaint. The Powells do not seek to have the sale of the Trust stock set aside; their prayer for relief does not seek to have the stock returned to the Trust or to F. Verne and George. Rather, the Powells seek to get what they believe to be the full price that should have been paid in August 1984. Far from seeking to set aside the sale approved by the Grant Circuit Court, the Powells seek to ratify the sale. It is therefore hard to see how a plaintiffs’ verdict in this cause would, in ABT and Kightlinger’s words, “nullify the Order of the Grant Circuit Court approving the specific transaction.” True, a plaintiffs’ verdict might entail reaching some factual findings inconsistent with the August 22, 1984 order, but that implicates principles of res judicata, not full faith and credit. Quite simply, the court finds that the complaint in this cause is not a collateral attack on the Grant Circuit Court’s order approving the sale of the Trust stock, and that the full faith and credit clause is not implicated here.

Even if the complaint was a collateral attack on the August 22, 1984 order, this court would still be able to entertain this lawsuit. The full faith and credit statute requires a federal court to give a prior state court judgment the same preclusive effect as would the courts of the state in which the judgment was rendered. Krison v. Nehls, 767 F.2d 344, 347-48 (7th Cir. 1985). The allegations of the complaint are that the August 22, 1984 order was obtained by the submission of a form of order containing untrue factual assertions — for example, that the court heard evidence on the sale and the value of the stock, and that ABT played no part in the negotiations. Under Indiana law, judgments obtained by fraud are open to collateral attack. See In re Chapman, 466 N.E.2d 777, 780 (Ind.App.1984). Thus, this complaint could continue because it sufficiently alleges that the defendants obtained the order by virtue of fraud both on the court and on the plaintiffs.

ABT and Kightlinger attempt to get around this general rule by arguing that any fraud committed would have been committed on the Grant Circuit Court, but that such fraud could be negated by the Grant Circuit Court taking judicial notice of the existence of the Compromise when it considered the propriety of the sale of the Trust stock. This argument fails for at least two reasons. First, there is absolutely no evidence currently that the Grant Circuit Court actually did take judicial notice of the existence of the Compromise and how that might affect the value of the Trust stock. If the court was unaware of the Compromise and its effect, then the defendants’ failure to bring this fact to the court’s attention may well have been a fraud on the court. Second, the complaint also alleges a fraud on the plaintiffs, both in the sale itself and in the procurement of the August 22, 1984 order. An extrinsic fraud — that is, a fraud practiced directly on a party so as to prevent that party from presenting all of his case to the court— which occurs in the procurement of a judgment subjects that judgment to collateral attack. Scola v. Boat Francis R., Inc., 546 F.2d 459, 460-61 (1st Cir.1976). The fraud allegedly worked on the plaintiffs is an independent ground for a collateral attack.

The court therefore finds that ABT and Kightlinger's full faith and credit argument fails.

The second argument is somewhat related to the first. Bell and Bell Fibre argue that the August 22, 1984 order is res judicata. The order contained language which stated that the Grant Circuit Court found that the sale of the Trust stock was a bona fide, arms length transaction. Bell and Bell Fibre argue that this language, and the August 22, 1984 order generally, approved the sale and found it to have been proper. The present complaint is viewed as challenging the propriety of the sale, and Bell and Bell Fibre argue that this issue was already decided in the August 22 order. This, Bell and Bell Fibre conclude, is barred by res judicata.

The court concludes that res judicata cannot apply in this case. If the factual allegations of the complaint are true (and the court must so assume for purposes of the motion to dismiss), then the defendants worked a fraud on the plaintiffs by not disclosing the existence of the Compromise or its effect on the value of the Trust stock. By virtue of that fraud, the defendants induced Helen to approve of the submission of the sale to the Grant Circuit Court for approval. In submitting the sale for approval, the defendants committed a fraud on the court by drafting a petition and a court order which contained false factual assertions. Having defrauded the plaintiffs, the defendants now want to use the court order obtained by that fraud as a bar to the plaintiffs litigating the issues which the fraud effectively prevented any litigation about. To sanction the preclusion of the plaintiffs’ claim via res judicata under facts such as these would be to sanction the defrauding of any litigant by an opponent fast enough and shifty enough to get a state court order pertaining to the issues which the innocent litigant seeks to argue before a court. Surely res judicata was not created to protect such fraud upon the courts.

From a constitutional perspective, res judicata is inappropriate under these circumstances. Due process requires the opportunity to be heard at a meaningful time and in a meaningful manner. Krison, 767 F.2d at 349. Under the facts as alleged here, the plaintiffs never had an opportunity to be heard by the Grant County Court because of the fraud worked on them by the defendants. The petition seeking the court’s approval of the sale was premised on the alleged fraud of the stock sale itself, and the August 22 order was premised on the fraud inherent in submitting a form of order containing false factual statements which the court was induced to sign. To use such a court order to preclude this litigation would be to deprive the plaintiffs of an opportunity to be heard. Such use of res judicata would violate due process.

The final general argument pertains to the so-called “probate exception” to federal jurisdiction. Courts have recognized that cases involving probate matters — the probate of a will or the administration of an estate — may be matters over which federal courts should not take jurisdiction. See Loyd v. Loyd, 731 F.2d 393, 396-97 (7th Cir.1984); Dragan v. Miller, 679 F.2d 712, 713-14 (7th Cir.1982), cert. denied, 459 U.S. 1017, 103 S.Ct. 378, 74 L.Ed.2d 511 (1983). The court finds that this exception does not apply in this case for at least three reasons. First, both Loyd and Dra gan indicate that the probate exception applies to diversity jurisdiction; there is nothing to suggest that a federal court cannot take jurisdiction over a federal question raised by a plaintiff. Here, four of the six claims are federal statutory claims, and the court certainly can take jurisdiction over these. Second, there is nothing to suggest that this case involves the probate of a will or the administration of an estate. The complaint does not seek to enjoin any probate proceedings or reach property in the hands of the state court. The Dragan court found that a complaint such as this does not ask the federal court to probate a will or administer an estate, nor does it seek to interfere with probate proceedings or assume general jurisdiction over the probate and property in custody of the state court. 679 F.2d at 713. Finally, the probate exception does not deny this court of jurisdiction, but rather leaves such jurisdiction to the court’s discretion. As the Seventh Circuit stated in Loyd: “We simply do not think the exception is a hard and fast jurisdictional rule.” 731 F.2d at 397. The court finds that the probate exception does not apply in this case, both because federal question jurisdiction exists and because this cause does not involve any interference with the probate of a will or the administration of an estate.

The court therefore finds that it has complete jurisdiction over the plaintiffs’ claims. It now proceeds to examine the arguments of the motions to dismiss directed to the individual claims raised in the complaint.

At the May 23, 1986 hearing, defense counsel admitted that the challenges to the six counts in the complaint all hinged on the proposition that the June 12, 1984 articles in the Indianapolis newspapers placed the information of the Compromise in the public domain, thereby relieving the defendants of any duty to disclose it. However, the argument takes slightly different forms under the different counts, and so the court will analyze each count separately-

1. Securities Law Claims

The plaintiffs contend that the failure to disclose the existence and effect of the Compromise violated the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and the Indiana statutes governing securities, I.C. 23-2-1-19. The parties agree that the state law claim is governed by the case law interpreting the federal statute and Rule 10b-5.

Rule 10b-5 provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange,

(a) to employ any device, scheme, or artiface to defraud,

(b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.

This rule makes it unlawful to misrepresent or fail to disclose material information in connection with the purchase or sale of securities. Michaels v. Michaels, 767 F.2d 1185, 1194 (7th Cir.1985), cert. denied, — U.S. -, 106 S.Ct. 797, 88 L.Ed.2d 774 (1986). The Powells contend that the failure of the defendants to inform them of the existence or effect of the Compromise is a violation of this rule.

Bell and Bell Fibre make a weak attempt to argue that the Compromise was not a material fact. They argue that, because Helen visited Marion, Indiana in April 1984 and Bell’s offer for the Trust stock was communicated at that time, the offer occurred before the Compromise was announced, and so the Compromise could not have been a material fact. The argument fails for two reasons. First, the sale itself did not occur until August 1984, two months after the Compromise was announced. Assuming that the Compromise would have had some effect on Helen’s decision to accept Bell’s offer (which the Powells assert it would have), then the Compromise would have become material during the course of the negotiations of the sale. The materiality of information misstated or withheld is determined in light of what the defendants knew at the time the plaintiff committed himself or herself to sell the stock, Michaels, 767 F.2d at 1194, not when the offer was first made.

Second, there are sufficient factual allegations to establish that the Compromise was a material fact. The Michaels court stated: “For purposes of section 10(b) and Rule 10b-5, an omission or misstatement is material if there is a ‘substantial likelihood that, under all the circumstances, the omitted [or misstated] fact would have assumed actual significance in the deliberations of the reasonable shareholder.’ ” 767 F.2d at 1194, quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). The test for materiality is an objective one, TSC Industries, 426 U.S. at 445, 96 S.Ct. at 2130; the court must determine the significance of the information from the perspective of a reasonable shareholder. Id.; Kademian v. Ladish Co., 792 F.2d 614, 623 (7th Cir.1986). The plaintiffs have alleged that the struggle for cross-county banking in Indiana has a long history; seventeen consecutive attempts to pass legislation allowing it were defeated by the efforts of the smaller banks in the state, represented by the IBAI. This history suggests that the larger banks in the state felt they had something to gain by cross-county banking, and the smaller banks felt they had something to lose. Thus, the Compromise was a significant breakthrough which indicated at least the possibility that the banking environment in Indiana would change. Given the fact that the traditional opponent of cross-county banking (the IBAI) announced it would support the legislation indicated that such legislation would have an excellent chance of passing.

What significance would the passage of such legislation have on a reasonable investor? The ability of holding companies to buy banks or to own more than one bank would mean that there was a possibility that large holding companies would be looking to buy up banks. That would have the potential to increase the value of the stock both of the acquiring company and the acquired bank (the alleged increase in the value of ABT stock, from $20 a share to $90.50 a share, is a dramatic example of this effect). The ability of banks to open branches in contiguous counties would affect the competitive environment, which could have an effect on bank performance and ultimately stock values. Admittedly, what would happen to a particular stock would be hard to predict, but it seems clear that some change in the banking industry would occur; few banks would be unaffected by the changing environment around them. Thus, a reasonable investor about to sell bank stock at the time the Compromise was announced would probably attach considerable significance to the Compromise because the market’s valuation of his bank stock which existed before the Compromise might now be obsolete in light of the pending changes in the industry. The court therefore concludes that, under the objective test for materiality, the Compromise is a material fact.

In an extremely tardy brief to the court, Bell and Bell Fibre attempt to bring this case within the parameters of the rule set forth in Guy v. Duff & Phelps, Inc., 628 F.Supp. 252 (N.D.Ill.1985), and Jordan v. Duff & Phelps, Inc., Fed.Sec.L.Rep. Par. 92,724 (CCH) (N.D.Ill.1986) [Available on WESTLAW, DCTU database]. In both cases, the plaintiffs sued for the failure to disclose that acquisition negotiations for Duff & Phelps were underway. In Guy, the court followed the reasoning of the Third Circuit in Greenfield v. Heublein, Inc., 742 F.2d 751 (3d Cir.1984), cert. denied, 469 U.S. 1215, 105 S.Ct. 1189, 84 L.Ed.2d 336 (1985), and the Second Circuit in Reiss v. Pan American World Airways, 711 F.2d 11 (2d Cir.1983). Those cases held that there is no duty to disclose “mere negotiations” for a merger or acquisition, and that the duty to disclose does not arise until there is an “agreement in principle” on the price and structure of the deal. Greenfield went as far as to say that “preliminary merger discussions are immaterial as a matter of law.” 742 F.2d at 756. Bell argues that this rule applies to the present ease because there was no merger agreement with ABT until a year after the sale of the Trust stock.

Bell and Bell Fibre’s argument fails because the principles behind the rule of Greenfield and Reiss do not apply here. As the Reiss court stated in justifying its ruling:

such (preliminary negotiations are inherently fluid and the eventual outcome is shrouded in uncertainty. Disclosure may in fact be more misleading than secrecy so far as investment decisions are concerned. We are not confronted here with a failure to disclose hard facts which definitely affect a company’s financial prospects. Rather, we deal with complex bargaining between two (and often more) parties which may fail as well as succeed, or may succeed on terms which vary greatly from those under consideration at the suggested time of disclosure.

711 F.2d at 14. The concern was that requiring disclosure during preliminary negotiations greatly increased the chances of 10b-5 litigation because the uncertainty of both the success and the terms of the deal. For example, if the negotiations were disclosed at the preliminary stage, the value of stock in the target company would increase. If the deal fell through, then shareholders who bought when the price was high because of the merger rumors would sue, claiming the disclosure was misleading. If the terms of the deal were substantially different than when it was first announced, shareholders could sue because of the misleading nature of the disclosure itself. In order to prevent against litigation under almost every merger scenario, the Greenfield and Reiss courts approved the prophylactic rule that there was no duty to disclose preliminary negotiations.

Under the facts of this case, however, the uncertainty is of a much different kind. In a merger situation, a company may be affected (if the merger goes through) or it may not be (if the deal falls through). Release of the information at the preliminary negotiation stage promotes buying and selling action over what may turn out to be no change at all. Here, however, a reasonable shareholder would conclude that the Compromise signalled a highly probable (one might even say relatively certain) change in the banking industry because it removed the impediment to cross-county banking (the opposition of the IBAI). Thus, the uncertainty was not whether some change in a stock’s value would occur, but rather how much of a change. It is certainly true that at the time of the August 1984 sale the final details of the banking law were not yet finalized, and that the ABTSummcorp merger was not completed. However, the impending changes in the banking industry heralded by the Compromise were enough to make the Compromise material to a reasonable investor.

The defendants attempt to argue that, even if the information concerning the Compromise was material, they had no duty to disclose it because it was in the public domain. They point to the June 12 issues of the Indianapolis News and Indianapolis Star, which carried stories announcing the Compromise, and take the position that once a story or fact is distributed by the media, it is in the public domain because it is available to the public. Once in the public domain, the defendants conclude, there is no duty to disclose a material fact.

The defendants support their argument by examples. The heaviest emphasis is on Johnson v. Wiggs, 443 F.2d 803 (5th Cir. 1971). In that case, Wiggs offered to buy Johnson’s shares in Western Reserve Corp. and the corresponding right to receive Continental Fidelity Insurance Co. stock, the primary asset of Western Reserve. Wigg made several offers over the course of two months, the last offer being for 79