59 F.R.D. 525 | S.D.N.Y. | 1973
OPINION
This is a motion pursuant to Rule 23.1 of the Federal Rules of Civil Procedure for approval of a settlement agreement in a derivative action brought on behalf of Howard Stores Corporation against present and former directors of the corporation and the executors of the estate of a former employee.
THE PLEADINGS
The complaint charges the defendants with violations of the Securities Exchange Act of 1934, section 10(b),
All the defendants deny the material allegations of the complaint and the charges of wrongdoing, and assert affirmative defenses, including that the transaction was a matter of business judgment and when entered into was fair and advantageous to the corporation.
PRETRIAL PROCEEDINGS
Plaintiff propounded interrogatories to all the individual defendants and made requests for document production to them and to Howard, and appropriate responses were made. Plaintiff also deposed defendants Arthur Singer and David Shivitz, references to which is made hereafter. The parties also engaged in several pretrial conferences under the supervision of a magistrate. This Court is satisfied that sufficient discovery has been conducted for both the parties and the Court to evaluate the relative strengths and weaknesses of plaintiff’s claims and the defenses thereto.
TERMS OF THE PROPOSED SETTLEMENT
The proposed compromise provides that the director defendants are to pay Howard $45,000, and the Hausman executors will consent to a $65,000 reduction in the balance due on the purchase of Hausman’s shares. If the settlement is approved, all claims asserted or based upon allegations in the complaint will be dismissed with prejudice.
EVALUATION OF THE SETTLEMENT
The Court’s function on this motion is not to try out or attempt to decide the merits of the action.
It must be recognized that stockholder litigation is notably difficult and notoriously uncertain.
Plaintiff’s counsel recognized that the answers of the directors to the interrogatories undermined the theory of the charges set forth in the complaint. He thereupon decided to take the oral depositions of the two “independent” directors, defendants Arthur Singer and Dav
The settlement in effect will reduce the purchase price of the shares acquired by the corporation by $110,000, less the allowance to be made to plaintiff’s counsel and less such other expenses the corporation may incur in connection with this suit. Viewed as against the initial recovery sought, admittedly the amount is slight; but the real gain of the corporation is the termination of an expensive and time-consuming litigation. Taking into account all the circumstances of the case, particularly the unlikelihood that plaintiff will prevail upon the basis of the evidence disclosed under the discovery procedure, the settlement falls within that “range of reasonableness” which warrants its approval, and it is hereby approved.
We next consider the application made by plaintiff’s counsel for an award of $27,500 in fees and expenses. The criteria to be considered in passing upon the requested allowance are well known and need not be repeated in extenso here.
Taking into account the alleged benefit to the corporation, as well as other significant factors, the Court allows the sum of $15,000.
Judgment may be entered in accordance with the foregoing.
. During the pendency of the action the former employee died; the executors were then substituted as defendants.
. 15 U.S.C. § 78i(b).
- The complaint does not specify a particular section of the Act,, but it is obvious § 10(b) was intended.
. See Saylor v. Lindsley, 456 F.2d 896, 901 (2d Cir. 1972).
. See In re Prudence Co., 98 F.2d 559, 560 (2d Cir. 1938), cert. denied, 306 U.S. 636, 59 S.Ct. 485, 83 L.Ed. 1037 (1939); Milstein v. Werner, 57 F.R.D. 515, 524 (S.D.N.Y.1972); Schleiff v. Chesapeake & O. Ry., 43 F.R.D. 175, 178 (S.D.N.Y. 1967).
.Protective Comm. v. Anderson, 390 U.S. 414, 424-425, 88 S.Ct. 1157, 1163, 20 L.Ed.2d 1 (1968). Accord, Newman v. Stein, 464 F.2d 689, 692 (2d Cir.), cert. denied, 409 U.S. 1039, 93 S.Ct. 521, 34 L.Ed.2d 488 (1972); Saylor v. Lindsley, 456 F.2d 896, 904 (2d Cir. 1972).
. See West Virginia v. Chas. Pfizer & Co., 314 F.Supp. 710, 740 (S.D.N.Y.1970), aff’d, 440 F.2d 1079 (2d Cir.), cert. denied, 404 U.S. 871, 92 S.Ct. 81, 30 L.Ed. 2d 115 (1971); Zerkle v. Cleveland-Cliffs Iron Co., 52 F.R.D. 151, 159 (S.D.N.Y. 1971); Glicken v. Bradford, 35 F.R.D. 144, 146 (S.D.N.Y.1964).
. gee Zerkle v. Cleveland-Cliffs Iron Co., 52 F.R.D. 151, 159 (S.D.N.Y.1971).
. Cf. Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971).
. The financial reports available at the time the agreement was approved by the Board of Directors did not indicate that a substantial decline in revenues was in the offing. The Chairman’s comments to the 1969 Annual Report for Howard stated:
“Although our Company achieved record sales volume in 1969, unfavorable economic conditions during the last months of the year adversely affected our earnings. . . . [The] downturn in our earnings occurred after three straight years of progressively higher earnings. After a favorable Spring season, our expectations for the Fall season failed to materialize as progressively higher inflationary costs affected all aspects of our business, particularly labor costs, bank interest and new store start-up costs.”
Defendants also asserted that the decline in sales was in part due to an unseasonably warm Fall that year and an unpredictable change in fashion tastes.
. As a general rule the courts are reluctant to interfere in the internal affairs of a corporation or with business decisions made by its directors, gee Evans v. Armour & Co., 241 F.Supp. 705, 712 (E.D. Pa.1965); Fielding v. Allen, 99 F.Supp. 137, 142 (S.D.N.Y.1951); Blaustein v. Pan Am. Petroleum & Transp. Co., 293 N.Y. 281, 303-304, 56 N.E.2d 705 (1944); Everett v. Phillips, 288 N.Y. 227, 232, 43 N.E.2d 18 (1942); Greenbaum v. American Metal Climax, Inc., 27 A.D.2d 225, 278 N.Y.S.2d 123, 128 (1st Dep’t 1967).
. The contract price was $32 per share; on the over-the-counter market, on the date of the agreement, Howard stock was quoted at 35% bid, 36 asked.
. It should be noted that permission to effect the purchase was granted by several banks which had entered into a revolving credit agreement with the corporation.
. See generally Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 at 1019 (2d Cir., 1973).
. See Newman v. Stein, 464 F.2d 689 (2d Cir.), cert. denied, 409 U.S. 1039, 93 S.Ct. 521, 34 L.Ed.2d 488 (1972).
. Angoff v. Goldfine, 270 F.2d 185, 189 (1st Cir. 1959); Pergament v. Kaiser-Frazer Corp., 224 F.2d 80, 83 (6tli Cir. 1955); Derdiarian v. Futterman Corp., 254 F.Supp. 617 (S.D.N.Y.1966).
. N.Y.Bus.Corp.Law §§ 721-727 (McKinney’s Consol.Laws, c. 4, 1963), as amended (Supp.1972).