138 F. Supp. 747 | S.D.N.Y. | 1956
This is a stockholders’ derivative action against members of the Board of Directors of the Alleghany Corporation and certain other individuals. It is one of several similar suits in this Court and in the New York State Supreme Court arising principally out of the activities of the individual defendants in their successful campaign for control of the New York Central Railroad in 1954.
Clarence W. Bailey, a Holder of record of 30,000 shares of common stock of defendant, Alleghany Corporation, the market value of which exceeds $250,000, has moved, pursuant to Rule 24(a) (2) and Rule 24(b) (2) Fed.Rules Civ.Proc., 28 U.S.C.A., for leave to intervene. The exhaustive and learned opinion of Judge Walsh
Judge Walsh enjoined the defendants “from using as a defense in this action, any judgment which may be entered upon a stipulation of settlement [in the State Court] not negotiated with the present plaintiffs or their representatives.” “In this way * * he stated, “these defendants are precluded from taking inequitable advantage of their unconscionable conduct in attempting to bind their adversaries by a settlement to which they were not' parties.” 135 F.Supp. at page 405.
Judge McGohey’s order,
Shorn of all legalistic conceptualism, the motivation behind the proposed intervenor’s application is a desire to have the case progress to a disposition on the merits and the defendants’ opposition, an effort to frustrate that objective.
Plaintiffs assert that they are unable to satisfy Judge McGohey’s order in any manner other than by joinder of additional stockholders. Defendants’ arguments in opposition, logically extended, would preclude intervention by any stockholder. Denial of the present application, therefore, would effectively, albeit obliquely, achieve the very result Judge Walsh indicated was undesirable. “It is highly important”, said he, “that the defendants not have the power to choose among the counsel representing the stockholders the one with whom they will deal. Neither should they have power to halt the progress of a case which is moving rapidly and constructively in one court by compelling the concentration of attention upon a settlement submitted in another where that settlement is not negotiated with the active parties to that case.” 135 F.Supp. at page 405.
With the vast expansion of business units in corporate form and the anomalous lack of substantial identity between management and ownership thereof, stockholders’ derivative actions serve a vital need and have great value, both public and private. See Brendle v. Smith, D.C.S.D.N.Y.1942, 46 F.Supp. 522; Carson, Current Phases of Derivative Actions Against Directors, 40 Mich.L.Rev. 1125, 1127 (1942); Simpson, Fifty Years of American Equity, 50 Harv.L.Rev. 171, 191 (1936); Zlinkoff, The American Investor and the Constitutionality of Section 61-B of the New York General Corporation Law, 54 Yale L. J. 352 (1944). “This remedy born of stockholder helplessness was long the chief regulator of corporate management and has afforded no small incentive to avoid at least grosser forms of betrayal of stockholders’ interests. It is argued, and not without reason, that without it there would be little practical check on such abuses.” Cohen v. Beneficial Indus. Loan Corp., 1949, 337 U.S. 541, 548, 69 S.Ct. 1221, 1226, 93 L.Ed. 1528.
Section 61-b of the New York General Corporation Law was enacted to curb so-called “strike suits”
Defendants construe Judge Walsh’s opinion as contemplating that only the plaintiffs who initiated the instant suit are entitled to the benefits of the injunction order. They argue, in effect, that he intended to create a limited, privileged group of stockholders whom he vested with special rights available to them alone to the exclusion of all other stockholders. In so urging, defendants overlook that if a recovery is had in this action it will not be in favor of the stock
The defendants have pointed to the opinions of two of my brethren in support of their general contentions. Neither can be said to sustain their position. In one, rendered November 1, 1955 which was prior to the order requiring plaintiffs to post security, Judge Clancy denied an application by a stockholder for leave to intervene. He was not faced, as is the Court upon the instant application, with the alternative of permitting intervention or pronouncing a sentence of death on the suit. In the other, Judge Sugarman denied intervention in a separate suit in which there was a total absence of the problems presented herein.
Defendants’ contention that intervention in this suit by any stockholder is precluded, is not sound. The issue then remains whether stockholder Bailey’s application should be granted either as a matter of right or of discretion.
Defendants have moved to examine Bailey in this jurisdiction concerning the circumstances surrounding the making of his application. In their brief they urge that if the Court is not prepared to deny the motion forthwith the decision thereon should be stayed pending completion of the examination. The nature of the information sought to be elicited, in the main, is of a character which demonstrates that the examination is unnecessary for the purpose of the motion sub judice. It would seem that the defendants’ principal objective is to demonstrate to Bailey the futility of the litigation under certain circumstances, even if successful, and that if he becomes a party plaintiff, he may incur liability for costs. It ill becomes an accused wrongdoer to constitute himself the guardian and counsel of his accuser and to attempt to dissuade him from proceeding with his effort to redress an al
Motion for leave to intervene granted. Cross motion for examination of proposed intervenor denied.
. Breswick & Co. v. Briggs, D.C.S.D.N.Y.1955, 135 F.Supp. 397.
. This order was made on defendants’ application for security for costs in the sum of $160,000 and for a stay of all proceedings, particularly examinations of the defendants Young, Kirby and Alleghany Corporation, until a bond in that sum was posted. Not by way of criticism, “but merely to point up the real issue here”, Judge MeGohey observed “ * * * it is clear that the defendants want a stay of the examinations much more than they want security for their costs in defending the action.” Breswick & Co. v. Briggs, D.C., 136 F.Supp. 301, 302.
. A much abused and maligned appellation frequently employed by defendants in stockholders’ suits.
. Sec Public Papers of Governor Dewey (1944) page 255.
. See ibid at 256. The Governor stated: “Even if the stockholder owns only a tiny percentage or only $5 worth of stock, it should be simple to bring an action without putting up security. If his action has any merit at all, it should be easy enough to interest others who do hold at least 5 per cent, or stock valued at $50,000.”
. Zenn v. Anzalone, D.C., Civil No. 92-205, January 5, 1956.
. In view of the Court’s disposition of this application it is not necessary to consider whether the applicant for intervention can validly claim intervention as of right.