RULING ON DEFENDANT’S MOTION TO DISMISS AS A CLASS ACTION; PLAINTIFF’S MOTION TO IMPOSE COSTS ON DEFENDANT ; PLAINTIFF’S MOTION FOR LEAVE TO SUPPLEMENT THE COMPLAINT; and PLAINTIFF’S MOTION TO DISMISS CERTAIN PERSONS FROM THE CLASS
This is an attempted class action brought under Rule 23, F.R.Civ.Proc. Jurisdiction is premised upon diverse citizenship and a claim in excess of $10,-000. 28 U.S.C. § 1332. Plaintiff seeks declaratory and injunctive relief, plus damages.
Rucker Pharmacal Company, Inc., (Rucker) sold stock to a number of its employees subject to a stock transfer restriction giving Rucker the right to reacquire the stock at market price or book value, whichever was higher, in the event the employee-stockholder left its employ. Each employee purchasing such stock executed a contract effecting this. The contract provided that each stock certificate be inscribed with this restriction :
“The transferability of the shares represented by this certificate are restricted in accordance with an agreement between the registered owner hereof and Rucker Pharmacal Company, Inc., providing for the non-transferability and for the resale to Rucker Pharmacal Company, Inc., at the sales price in the event owner should leave the employ of Rucker prior to the happening of certain events. A copy of said agreement is on file at the office of Rucker Pharmacal Company, Inc., 6540 Line Avenue, Shreveport, Louisiana, available for inspection.”
March 9, 1972, Rucker made its stock available for purchase on the public market. One of the requirements made by underwriters for Rucker to “go public” was the sale of one-fourth of the stock owned by each of Rucker’s employee-stockholders. To this end, Moreland and the other employee-stockholders executed a power of attorney in favor of Johnny B. Rucker, President of Rucker, or his wife, Cornelia A. Rucker, also an officer of Rucker, and delivered to Rucker the certificates evidencing ownership of their stock. A short time following Rucker’s public offering, Moreland and several other employees left Rucker’s employ. Rucker sought to purchase More-land’s remaining stock pursuant to the
Moreland alleges that Rucker represented to him, as well as all other employees purchasing stock, that the stock restriction agreement no longer would be effective after the Company “went public.” He further contends, in the alternative, that the agreement was unreasonable and unlawful and, consequently, wholly ineffective.
Moreland filed this as a purported class action, asserting he represented a class consisting of all employees or former employees of Rucker who owned its common stock on March 9, 1972. It is upon this stock that Rucker claims a right of first refusal, or option to purchase, either by withholding delivery of the stock certificates, or by delivering the stock certificates imprinted with the legend restricting its transfer. Rucker timely filed a motion to dismiss this as a class action, which we now consider.
When the complaint was filed, More-land alleged that the “class” consisted of between seventy-five and one hundred persons. But, since the suit was filed July 19, 1972, several incidents have reduced the size of the would-be class to a maximum of twenty-six persons, including plaintiff.
December 19, 1972, Rucker lifted the stock-transfer restriction on all shares owned by then company employees, thereby terminating all interests of those persons in this litigation. Clearly, they cannot be considered now as part of a class represented by plaintiff since they have no claim at all against Rucker. Then, December 17, 1973, the United States Supreme Court, by its ruling in Zahn v. International Paper Company,
The supplemental complaint contends that plaintiff is entitled to a larger number of shares than originally issued to him due to a three-for-two stock split in February of 1973; and, further, that such shares have increased in value since the original complaint was filed, consequently increasing the amount in controversy. Even if we accept as true these allegations of the supplemental complaint, still, as noted, only twenty-six persons owning stock subject to the restriction, including plaintiff, have claims in excess of $10,000.
Rucker attempts further to reduce the size of plaintiff’s alleged class by asserting that all members of the class must be of citizenship diverse from that of defendant. Although we doubt the validity
Plaintiff further has moved to impose costs and attorney’s fees upon Rucker because of its lifting of the stock restriction upon shares of its then employees on December 19, 1972, after the class action was filed. His contention in this regard is that (1) prior to a determination by the Court under 23(c)(1), an action filed as a class action must be treated as such for purposes of dismissal or compromise, and (2) Rucker’s surrender of the stock restriction constituted a “settlement” of claims of members of the class without Court approval, as required by Rule 23(e), thereby making Rucker liable to plaintiff for attorney’s fees and costs since it has deprived Moreland of a fund from which to assess and collect such fees for actions which have benefited those members of the alleged class.
We agree with plaintiff that this would-be Rule 23 action should be treated as a class action for purposes of a dismissal or compromise until we have determined ¡that the action may not so proceed. Moore’s Federal Practice, Volume 3B, ¶[ 23.50, page 23-1103; Wright and Miller, Federal Practice and Procedure, § 1797, page 236 (1971); Kahan v. Ro-senstiel,
“A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.”
There was no bargaining with alleged class members to relinquish their claims, nor was there contact of any sort in this respect made by Rucker. Instead, it merely did what it always had the right to do, i. e., release whatever rights it had to repurchase its employees’ stock. Surely the mere fact that plaintiff has filed this action, attempting to name Rucker’s employees as members of the class which he represents, should not deprive Rucker of this clear contractual right.
Even where actual settlements are involved, the Second Circuit, in Weight Watchers of Philadelphia, Inc., v. Weight Watchers International, Inc.,
“ . . . Its maximum effect, and this is wholly speculative, would be to*615 cause settlements by so - many franchisees—a course long favored by the law, cf. Williams v. First Nat’l Bank,216 U.S. 582 , 595,30 S.Ct. 441 ,54 L. Ed. 625 (1910)—as to eliminate the numerosity which F.R.Civ.P. 23(a)(1) makes a prerequisite to a class action, leaving plaintiff nonetheless free to prosecute its own individual claim, as two other franchisees were already doing.
“ . . . Plaintiff’s attempt to escape this conclusion by asserting that once a plaintiff brings a suit on behalf of a class, the court may never permit communications between the defendant and other members, even when, as here, both desire this, is in conflict not only with Suggested Local Rule No. 7 and Sample Pretrial Order 15, but with elementary considerations of common sense—and possibly, although we need not decide this, with a command of higher authority as well. Indeed, we are unable to perceive any legal theory that would endow a plaintiff who has brought what would have been a ‘spurious’ class action under former Rule 23 with a right to prevent negotiation of settlements between the defendant and other potential members of the class who are of a mind to do this; it is only the settlement of the class action itself without court approval that F.R.Civ.P. 23(e) prohibits. Cf. Webster Eisenlohr, Inc., v. Kalodner,145 F.2d 316 , 320 (3 Cir. 1944) (Goodrich, J.) cert. denied,325 U.S. 867 ,65 S.Ct. 1404 ,89 L.Ed. 1986 (1944).
“ . . . Here, even if defendant should succeed in settling with so many franchisees that the court will be forced to deny class action status, plaintiff’s complaint will remain untouched. As we have, in essence, already noted, plaintiff has no legally protected right to sue on behalf of other franchisees who prefer to settle; F.R.Civ.P. 23(e), requiring court approval of the dismissal or compromise of a class action, does not bar non-approved settlements with individual members which have no effect upon the rights of - others. Cf. Webster Eisenlohr, Inc. v. Kalodner, supra.” 455 F.2d at pp. 773 and 775 (footnote omitted).
Moreover, the purpose of Rule 23(e) is to protect non-party members of a class—not persons such as plaintiff— from unjust or unfair settlements affecting their rights by representatives who lose interest or are able to secure satisfaction of their individual claims by compromise. Wright and Miller, Federal Practice and Procedure, § 1797, p. 226 (1971); Norman v. McKee,
Further, Rule 23(e) makes no provision for awarding ■ attorney’s fees or - costs. It merely provides judicial control of settlements in class actions. After a lengthy evidentiary hearing which we held we are convinced that removal of this restriction was not engendered by this litigation, but instead was done in the normal course of events for the sole purpose of motivating current employees in creating good will toward the Company. The only authority which plaintiff cites to support his position is Kahan v. Rosenstiel,
We hold, therefore, that defendant’s motion to dismiss as a class action hereby is granted, and plaintiff’s motion to assess attorney’s fees and costs to defendant is denied.
Our ruling renders it unnecessary to pass upon plaintiff’s motion to dismiss certain persons from the class. More-land, of course, remains as the sole plaintiff herein.
Notes
. Rule 15(d), F.R.Civ.P.:
“Upon motion of a party tlie court may, upon reasonable notice and upon such terms as are just, permit him to serve a supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented. . . . ”
Wright and Miller, Federal Practice and Procedure, § 1504, p. 542 (1971) :
“ . . . An application for leave to file a supplemental pleading is addressed to the discretion of the court and should be freely granted when doing so will promote the economic and speedy disposition of the entire controversy between the parties, will not cause undue delay or trial inconvenience, and will not prejudice the rights of any of the other parties to the action. . . . ”
(Footnotes omitted.)
. Answers to interrogatories by Rucker dated February 9, 1973, show that of the thirty-four employee-shareholders whose stock was not freed of the restriction by Rucker December 19, 1972, twenty-six, including plaintiff, owned 234 or more shares and nine owned less than 200 shares March 9, 1972. According to the supplemental complaint, those persons owning 200 shares, would now own 300 shares after the stock split in February, 1973, and, based upon allegations of a market value of $33.50 per share, would have a claim of $10,050.