Alleghany Corporation v. Kirby

• Decision Date: 28 May 1963
• Citation: 218 F. Supp. 164
• Parties: ALLEGHANY CORPORATION, Plaintiff, v. Allan P. KIRBY, Randolph Phillips, Charles T. Ireland, Jr., and Fred M. Kirby, Defendants.
• Court: U.S. District Court — Southern District of New York

218 F. Supp. 164

ALLEGHANY CORPORATION, Plaintiff, v. Allan P. KIRBY, Randolph Phillips, Charles T. Ireland, Jr., and Fred M. Kirby, Defendants.

United States District Court S. D. New York.

May 28, 1963.

COPYRIGHT MATERIAL OMITTED

Townley, Updike, Carter & Rodgers, New York City, for plaintiff, Stuart N. Updike, J. Howard Carter, Lee W. Meyer, New York City, of counsel.

Donovan, Leisure, Newton & Irvine, New York City, for defendants Allan P. Kirby and Fred M. Kirby, Granville Whittlesey, Jr., Roy W. McDonald, Robert M. Loeffler, Walter L. Stratton, Robert V. Dunn, John J. McCann, New York City, of counsel.

Randolph Phillips, defendant pro se.

Kissam & Halpin, New York City, for Charles T. Ireland, Jr., Leo T. Kissam, Anthony J. Genovese, Edmund K. Leach, New York City, of counsel.

DAWSON, District Judge.

The Nature of the Action

This action represents another chapter in the checkered career of Alleghany Corporation. Although brought as a suit in equity, it appears to be but another skirmish in the battle of tycoons (the Murchison Brothers of Texas on one side, and Allan P. Kirby of New Jersey on the other) for control of a rich plum— Alleghany Corporation. With the advantage of greath wealth on both sides, and the logistical support of battalions of lawyers and squads of publicity men, the parties have ranged around the country using to the full the broad discovery processes of the Federal Rules. Over 20,000 pages of pre-trial depositions were taken. Now the action has been tried.

The action was originally commenced on September 8, 1960 as a derivative stockholders' action brought by John D. Murchison and Clint W. Murchison, Jr. and Gerard S. Fossland, as stockholders of Alleghany Corporation, against Allan P. Kirby, Randolph Phillips, Fred M. Kirby, Charles T. Ireland, Jr. and five other defendants. The suit was brought as one on behalf of Alleghany Corporation, which was named as a nominal defendant. It contained two causes of action.

It is interesting that the action was started almost coincidentally with the institution of a proxy fight by the Messrs. Murchison against Mr. Kirby for control of Alleghany Corporation, and the filing of the suit was hailed with a great flurry of publicity apparently intended to affect the voting in the proxy contest for control of the corporation. The proxy fight was successful and the Murchisons apparently came into control of Alleghany Corporation. As a result the complaint was amended on June 27, 1962 to substitute Alleghany Corporation as party plaintiff in place of the original plaintiffs and the action dismissed as to all defendants other than Allan P. Kirby, Randolph Phillips, Fred M. Kirby and Charles T. Ireland, Jr.

A number of pre-trial conferences were held to try to define the issues in the action. On December 18, 1962, with the approval of the Court, an amended and supplemental complaint was filed. This complaint dropped the allegations of the second count of the original complaint. It continued the first count of the original complaint which alleged in substance that Allan P. Kirby, Ireland and Phillips had committed a fraud upon this Court in obtaining this Court's order of December 24, 1959 vacating as to Kirby this Court's prior injunctive order of October 27, 1955 entered in the action of Breswick v. Briggs, D.C., 135 F.Supp. 397, hereinafter described. The amended and supplemental complaint also contained allegations charging that Kirby had committed a fraud upon the New York State Supreme Court by failing to adduce before that court, in connection with hearings held therein in the action of Zenn v. Anzalone, facts as to Kirby's liability on claims asserted therein based upon the so-called 1950 Exchange Transaction between Alleghany Corporation and Kirby and certain other officers of that corporation (hereinafter described).

The amended and supplemental complaint seeks the following relief:

1. That the Court declare null and void a certain stipulation of settlement, dated December 24, 1959, in Zenn v. Anzalone, and declare null and void so much of its order of December 24, 1959 vacating its injunctive order of October 27, 1955 and approving the separate Kirby settlement in Breswick v. Briggs, or, in the alternative, enter an order enjoining Kirby from pleading such order or judgment as res judicata or collateral estoppel.

2. That the Court declare null and void so much of the order approving the separate Kirby settlement which was entered by the New York Supreme Court in Zenn v. Anzalone, 17 Misc.2d 897, 191 N.Y.S.2d 840; or, in the alternative, enter an order enjoining Kirby from pleading any such order or judgment as res judicata or collateral estoppel.

3. That the Court declare null and void so much of the judgments of the New York Supreme Court entered on February 4, 1960 and June 21, 1960 as dismissed the complaint in Zenn v. Anzalone on the merits with respect to Kirby; or, in the alternative, enter an order enjoining Kirby from pleading any such judgments as res judicata or collateral estoppel.

4. That the Court declare null and void, and rescind any and all releases on behalf of Alleghany delivered to Kirby in either the Breswick or Zenn actions.

5. That in the event the Court grants the relief hereinbefore sought, the Court rescind the 1950 Exchange Transaction hereinafter described, or award against Kirby and in favor of Alleghany Corporation damages measured by the value of a rescission of the said Exchange Transaction; or, in the alternative, order the filing of an amended complaint in this action based upon the 1950 Exchange Transaction and direct a prompt trial thereof.

6. That the Court direct Kirby, Phillips and Ireland to account to Alleghany for all moneys, profits and benefits received by them as a result of the secret agreement and conspiracy alleged in the complaint.

7. That the Court direct Kirby, Ireland and Fred M. Kirby to reimburse Alleghany for legal fees and expenses incurred by it in actively defending this action from September 8, 1960 to June 14, 1961, and with respect to attorneys' fees incurred on its behalf prior to the filing of the amended and supplemental complaint.

8. That the Court award to Alleghany Corporation the costs and disbursements of the action.

Further pre-trial conferences were held. Plaintiff was directed to submit a proposed statement of the issues. The first issue submitted in the proposed Statement of Issues states substantially the principal contentions of the plaintiff. This section of the statement reads as follows:

"1. Did Kirby procure by fraud an order of this Court dated December 24, 1959, vacating insofar as Kirby was concerned, an order of this Court dated October 27, 1955; an order of the New York County Supreme Court dated December 28, 1959; a judgment of the New York County Supreme Court dated February 4, 1960; and releases from plaintiff subsequent thereto by means of:

"(a) A corrupt agreement with Ireland and Phillips whereby Kirby was enabled to settle his liabilities to Alleghany Corporation which had been asserted in derivative actions in this Court and the New York County Supreme Court for an amount far less than he would have had to pay but for such agreement, and Phillips and Ireland personally benefited from such agreement; or,

"(b) A failure by Kirby to adduce or cause to be adduced before the State Court or its Referee or this Court or its Special Master in the Zenn (State) and Breswick litigations facts material to an evaluation of Kirby's liability on claims arising out of the 1950 Exchange Transaction and the fairness and adequacy of Kirby's proposed settlement in connection therewith?"

Statement 4 of the Statement of Issues sets out plaintiff's contentions with reference to the relief sought. This statement reads as follows:

"4. May this Court grant relief from such a fraud:

"(a) By setting aside the judgment of the New York County Supreme Court entered in Zenn v. Anzalone with respect to Kirby and the releases obtained by Kirby in connection therewith; or,

"(b) By enjoining Kirby from pleading such judgments and releases in bar of a separate trial in this action on the merits of the 1950 Exchange Transaction; or,

"(c) By granting money damages to the corporation measured by the difference between the amount Kirby paid in settlement and the fair settlement value of the claim against Mr. Kirby in the absence of his fraud?"

A trial was held commencing on April 1, 1963, and continuing until April 19, 1963. Two thousand four hundred seventy-four pages of testimony were taken. Two hundred twenty-two exhibits were introduced. A full opportunity has been given to the parties to explore thoroughly by discovery all the facts necessary for a determination of the issues and a full and complete trial was had thereon. The Court now renders its opinion, findings of fact and conclusions of law as follows:

The Jurisdiction of the Court

The action is one, essentially, to set aside as to Kirby a settlement of a previous derivative stockholders' suit which had been brought against Kirby and others in a New York State Court on the basis that the settlement of Kirby's liability to Alleghany Corporation had been accomplished by fraud in that (1) Kirby had made a secret, corrupt agreement with a person in a controlling position in the stockholders' litigation to give that person a benefit, kept secret from the Court, if the derivative litigation were settled favorably to Kirby, and (2) that Kirby had failed to adduce before the State Court and its Referee facts known to him which were necessary to any evaluation of his liability in the derivative stockholders' litigation.

It is interesting that although the Murchisons, who were also defendants in the derivative stockholders' litigation in the New York Court, succeeded in securing a settlement of their liability, no attempt has been made to upset the settlement insofar as it relates to them.

Defendants urge that ...