Dann v. Chrysler Corp.

• Decision Date: 31 December 1963
• Docket Number: 1585,Nos. 1330,s. 1330
• Citation: 198 A.2d 185,41 Del.Ch. 438
• Parties: Sol A. DANN et al., Plaintiffs, v. CHRYSLER CORPORATION, a corporation of the State of Delaware, et al., Defendants. Mary L. GALLO and A. James Gallo, Plaintiffs, v. Paul C. ACKERMAN et al., Defendants. Civ. A.
• Court: Court of Chancery of Delaware

Page 185

198 A.2d 185

41 Del.Ch. 438

Sol A. DANN et al., Plaintiffs, v. CHRYSLER CORPORATION, a corporation of the State of

Delaware, et al., Defendants.

Mary L. GALLO and A. James Gallo, Plaintiffs, v. Paul C. ACKERMAN et al., Defendants.

Civ. A. Nos. 1330, 1585.

Court of Chancery of Delaware, New Castle County.

Dec. 31, 1963.

Motions for Reargument Denied Feb. 7, 1964.

Daniel O. Hastings, Clarence W. Taylor and Russell J. Willard, Jr., of Hastings, Taylor & Willard, Wilmington; Lewis M. Dabney, Jr., and Herbert Robinson, New York City; and Frank Rosenbaum of Dann, Rosenbaum, Bloom & Kaufman of Detroit, Michigan, for plaintiffs in Civil Action No. 1330, Sol. A. Dann and others.

William E. Taylor, Jr., of Wilmington; Norman S. Nemser and Stanley Nemser, of Nemser & Nemser, New York City; and Irving Steinman, New York City, for plaintiffs in Civil Action No. 1585, Mary L. Gallo and James A. Gallo.

Aaron Finger and Robert H. Richards, Jr., of Richards, Layton & Finger, Wilmington, and Milton Pollack, New York City for defendant, Chrysler Corporation in Civil Actions Nos. 1330 and 1585.

Richard F. Corroon, of Berl, Potter & Anderson, Wilmington; David W. Peck and Howard T. Milman, of Sullivan & Cromwell, New York City, for defendants, Jones, Brady, Dodge, Love, McCollum, McElroy, McNeill, Page, Trippe and Warren in Civil Action No. 1330 and defendants, Van Bomel, Coleman, Love, McNeill, Dodge and Estate of W. A. Jones in Civil Action No. 1585.

Daniel L. Herrmann, of Herrmann, Bayard, Brill & Russell, Wilmington and Robert Ehrenbard, of Kelley, Drye, Newhall, Maginnes & Warren, New York City, for defendants Ackerman, Bright and Laughna in Civil Action No. 1330 and defendants, Ackerman and Bright in Civil Action No. 1585.

S. Samuel Arsht, of Morris, Nichols, Arsht & Tunnell, Wilmington, and Robert Ehrenbard and Francis S. Bensel, of Kelley, Drye, Newhall, Maginnes & Warren, New York City, for defendants, Colbert, Jacobson, Leary, Misch, Quinn, Row, Townsend and Woolson in Civil Action No. 1330 and defendants, Colbert, Leary, Misch, Quinn, Townsend, Woolson and Zeder in Civil Action No. 1585.

Clyde M. England, Jr., of Killoran & VanBrunt, Wilmington, for defendant, K. T. Keller in Civil Actions Nos. 1330 and 1585.

John J. Morris, Jr., of Morris, James, Hitchens & Williams, Wilmington, for defendant, NAFI Corp.

Albert W. James and Arthur J. Sullivan, of Morris, James, Hitchens & Williams, Wilmington, for defendant, Jack W. Minor in Civil Actions Nos. 1330 and 1585.

Howard M. Handelman, Wilmington, and Norman Annenberg, New York City, for objector, Erwin H. Ezzes.

Irving Morris and Joseph A. Rosenthal, of Cohen & Morris, Wilmington, for objectants, Judson, Cassady and Seeman, Executrices, and objectant, Sandler.

Frank J. Miller, of Walker, Miller & Wakefield, Wilmington, for intervenor, Herman Koenigsberg.

I. Walton Bader, of Bader & Bader, New York City for objector, Arthur Hoffman.

Aubrey B. Lank, of Theisen & Lank, Wilmington, amicus curiae.

SEITZ, Chancellor:

This is the decision after hearing on the fairness of a proposed settlement of two derivative actions.

The first action was commenced by one Sol A. Dann and other stockholders against Chrysler Corporation ('Chrysler'), various directors and officers as well as certain suppliers of Chrysler. This action will be referred to as the 'Dann action'.

The Dann action was commenced in August 1960, and involved some twelve causes of action. After certain pleading skirmishes (See Dann v. Chrysler Corp., Del. Ch., 166 A.2d 431, 174 A.2d 696), a consolidated amended complaint was filed consisting of some 109 pages embracing fifteen causes of action and about sixty separate claims. Certain of the defendants thereafter served their renewed motions to dismiss or in the alternative for a more definite statement. The so-called Keller defendants served their motion to dismiss or for summary judgment. The defendant John W. Minor and the defendant NAFI Corporation (the only appearing supplier) filed answers denying the charges asserted against them. The defendant Robert P. Laughna filed a motion to strike and to dismiss parts of the complaint.

All the motions to dismiss were based largely on the contention that the plaintiffs could not amend their complaint so as to assert new causes of action as to those non-resident defendants who had appeared generally following the sequestration of their property. Certain motions also questioned whether the allegations were set forth with sufficient particularity. The Keller defendants raised the defense of statute of limitations.

In February 1962, Mary and James Gallo filed a derivative action against Chrysler and the then directors and certain past officers of Chrysler charging many of the same acts, omissions, and 'frauds' as were alleged in the Dann complaint.

In June 1962, this court entered an order consolidating the Dann and Gallo actions solely for the purpose of discussing a possible settlement. The time fixed was subsequently extended at the request of the parties.

In the meantime (between 1960 and March 1963), four stockholder actions were commenced outside the State of Delaware embracing some of the same causes of action--two in the New York Supreme Court, one in the Federal District Court for the Southern District of New York and one in the Federal District Court for the Eastern District of Michigan. Also, Chrysler commenced a libel action against Dann in the Delaware Superior Court.

On March 6, 1963, a stipulation of settlement was filed. To facilitate the settlement a final amendment was filed by the Dann plaintiffs adding two additional causes of action which, it is suggested, incorporate the additional charges found in the New York and Michigan actions. The stipulation of settlement provides, inter alia, that all the derivative actions shall be dismissed with prejudice against all the defendants except the defendant W. C. Newberg. As to Newberg the dismissal will be without prejudice. Such fees and disbursements as the court may allow to plaintiffs shall be paid by Chrysler.

Under the terms of the stipulation of settlement, if approved, each of the individual defendants who is a party to the stipulation and all past or present directors of Chrysler, except the defendant Newberg, will receive a release discharging each of them from any and all claims arising out of the matters alleged in the complaint and all amendments thereto both in the actions brought in this court and the 'companion' actions in the New York state and federal courts. Also, the individual defendants who are parties to the stipulation will seek indemnity for their attorneys' fees incurred in connection with these actions.

On March 6, 1963, a court-approved notice of hearing on the stipulation of settlement was mailed to all stockholders. A proxy statement was simultaneously transmitted to the stockholders proposing the adoption of a modification in Chrysler's incentive compensation plan. The following language is contained therein:

'Since the modification of the formula for computing the total provision that may be made for incentive compensation awards is a principal term of settlement and is necessary if the settlement is to be put into effect, a vote in favor of amending the 1956 stockholders' resolution to change the incentive compensation formula will, in effect, be a vote in favor of the settlement.'

At a special meeting of the stockholders held on April 16, 1963, out of a total of 9,083,502 shares outstanding and entitled to vote, 6,699,016 shares were voted in favor of and 144,240 against the proposed modification.

The court also appointed an amicus to report, inter alia on 'What appear to be the issues relevant to the hearing on the proposed settlement and the proof which might be of assistance to the court'. This elaborate and helpful report was filed and was made available to all interested parties before the hearing. In particular, it discussed and analyzed the evidence of record relevant to the various issues and suggested other areas which might need elaboration.

Several stockholders filed objections, and the matter was tried at some length. The objecting stockholders are identified collectively herein as 'objectors', unless more particular identification is desirable.

This is the decision on the 'fairness of the settlement' after hearing and elaborate briefing.

Before the specific issues are considered, a little background is in order. Chrysler, a Delaware corporation, employs directly or through its subsidiaries in the United States approximately 77,000 people. It manufactures and sells passenger automobiles and commercial cars and trucks both here and abroad. It is the third largest manufacturer of such vehicles in the United States. It also manufactures assorted products of some substance including defense materials.

I turn now to the terms of the settlement and their relationship to the causes asserted.

The 'consideration' offered in exchange for the releases and dismissal of the causes of action is a modification of Chrysler's present incentive compensation plan for its employees. The details of the present plan and the proposed changes are discussed more fully later herein. The Dann plaintiffs' attorneys also urge that the changes in Chrysler's management personnel (referred to later herein as a 'change in management') which occurred both prior to and during the pendency of these suits, are attributable to the activities of the plaintiffs or their attorneys. They contend that such changes effectuated one of the principal purposes of the litigation and that they provide in and of themselves a sufficient basis for approving the settlement.

The proponents agreed that the stipulation of settlement and the proposed modification of the present incentive compensation plan should not become operative until the modification was approved by Chrysler's board and by its stockholders and final approval...