Dann v. Chrysler Corp.

• Citation: 174 A.2d 696,40 Del.Ch. 103
• Parties: Sol A. DANN, Karl S. Horvath, Samuel S. Schwartzberg, Julius R. Reiver, Iona P. Reiver, Ann Gelbard and Robert Markewich, Plaintiffs, v. CHRYSLER CORPORATION, a corporation of the State of Delaware, et al., Defendants.
• Decision Date: 03 October 1961
• Court: Court of Chancery of Delaware

Page 696

174 A.2d 696

40 Del.Ch. 103

Sol A. DANN, Karl S. Horvath, Samuel S. Schwartzberg, Julius

R. Reiver, Iona P. Reiver, Ann Gelbard and Robert

Markewich, Plaintiffs, v. CHRYSLER CORPORATION, a corporation of the State of

Delaware, et al., Defendants.

Court of Chancery of Delaware, New Castle County.

Oct. 3, 1961.

Daniel O. Hastings, Clarence W. Taylor, and Russell J. Willard, Jr., of Hastings, Taylor & Willard, Wilmington, Lewis M. Dabney, Jr., New York City, and Dann, Rosenbaum & Bloom, Detroit, Mich., for plaintiffs.

Richard F. Corroon, of Berl, Potter & Anderson, Wilmington, for defendants Brady, Dodge, Jones, Love, McCollum, McElroy, McNeill, Page, Trippe and Warren.

James M. Tunnell, Jr., and S. Samuel Arsht, of Morris, Nichols, Arsht & Tunnell, Wilmington, for defendants Colbert, Jacobson, Leary, Misch, Quinn, Row, Townsend, and Woolson.

Daniel L. Herrmann, of Herrmann, Bayard, Brill & Gallagher, Wilmington, for defendants Ackerman, Bright and Laughna.

Aaron Finger and Robert H. Richards, Jr., of Richards, Layton & Finger, Wilmington, for defendant Chrysler Corp.

Clair John Killoran and Clyde England, of Killoran & VanBrunt, Wilmington, for defendants K. T. Keller and Robert Keller.

Albert W. James, of Morris, James, Hitchens & Williams, Wilmington, for defendant Minor.

William Prickett, Jr., of Prickett & Prickett, Wilmington, for defendant W. C. Newberg.

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

The other defendants are not subject to this court's jurisdiction.

SEITZ, Chancellor.

This is a derivative action brought on behalf of Chrysler Corporation, a Delaware corporation, by certain of its shareholders. There are at present ninety-seven defendants some of whom were or are directors, officers, officials, or employees of the corporation. The balance of the defendants are firms supplying goods or services to Chrysler and certain persons connected with these companies who are accused of participating in frauds against the corporation.

Twenty-three of the defendants now move for a dismissal of the complaint or in the alternative for a more definite statement. One of these defendants, R. P. Laughna, has raised supplemental grounds for dismissing parts of the complaint as to him. Two other defendants, Robert T. Keller and K. T. Keller, in addition to moving separately for dismissal or in the alternative for a more definite statement, have moved for summary judgment. Defendants, Minor and Nafi, are not involved in any of the motions.

Before reaching its present form, the original complaint was amended three times. The complaint sets forth in eighteen numbered paragraphs general allegations of fraud and gross negligence on the part of 'certain directors, officers, and officials' and participation therein by 'certain suppliers of Chrysler and other persons or corporations'. Under Paragraph 7 'all claims and allegations made * * * against individuals are made also against the members of the families, agents and business associates of such individuals.' Plaintiffs have not specified which of the defendants fall within any of these respective categories. The wrongs complained of are alleged to have begun in 1941.

Plaintiffs' general allegations contained in the numbered paragraphs are followed by twenty-seven lettered claims A to Z and AA) which purport to particularize the wrongs with which defendants are charged. (There are also numerous sub-claims.) While defendants' objections to the numbered paragraphs challenge the complaint as a whole, specific attack is also made on ten of these lettered claims.

I first turn to the motions to dismiss and for more definite statement raised by all the moving defendants. It can fairly be said that defendants do not challenge the complaint on the grounds that plaintiffs have failed to indicate legal principles upon which they might recover. Defendants instead attack the alleged lack of specificity in the complaint. In particular they contend that plaintiffs should be required to designate which of the defendants are chargeable with each of the alleged wrongs and to detail their acts of participation. Defendants also rely on Rule 9(b) which requires that the circumstances constituting fraud be particularized.

I shall first deal with certain other contentions made by defendants. Defendants urge that the court should here adopt the 'Big Case' theory of pleading. As I understand it, plaintiffs would thereby be required to plead with more particularity than is otherwise required by the rules. Compare Baim & Blank, Inc. v. Warren-Connelly Co., D.C.S.D.N.Y., 19 F.R.D. 108. Defendants have not cited any Delaware authority for such an approach. Indeed, in the Second Circuit where this practice had previously found some favor the Court of Appeals subsequently rejected it. Nagler v. Admiral Corp., 2 Cir., 248 F.2d 319.

I conclude that the nature of this case does not call for a different pleading requirement.

Defendants also urge that Rule 10(b) requires that the claims be separately stated and numbered so that the particular wrong with which each defendant is charged will clearly appear. The fact is that the claims are separately stated and numbered. Actually defendants are complaining that the statement of each claim is not stated with sufficient particularity as to each defendant. That is another issue. There is no violation here of the requirements of Rule 10(b).

Defendants say that the complaint does not allege, as required by our statute and Rule 23(b), that plaintiffs were stockholders of Chrysler at the time of the transactions of which they complain. Plaintiffs allege that 'A plaintiff herein has been a stockholder of Chrysler at all times during the wrongs complained of in this complaint.' Defendants point out that under the language of the complaint it is possible that none of the plaintiffs has been a stockholder continuously since 1941 when the first wrong is alleged to have occurred. This is true. What is the consequence? Neither the statute (8 Del.C. § 327) nor the rule literally requires that the stockholder bringing a derivative action must allege that he owns the same stock which he owned at the time of the transaction of which he complains. Thus, there is no basis for defendants' objection at this stage.

I do think it implicit in the statute and rule that a stockholder-plaintiff must at the time he files his complaint have been the continuous owner of some of the stock held at the time of the alleged wrongful transaction. Compare Saks v. Gamble, 35 Del.Ch. 378, 118 A.2d 793, affirmed, 35 Del.Ch. 503, 122 A.2d 120. I do not understand that plaintiffs argue to the contrary. But such information need not appear in the complaint under the present wording of the statute and rule. Of course, such information can be obtained by discovery and used.

Defendants next contend that the complaint does not properly allege plaintiffs' efforts to secure from the directors of Chrysler such action as plaintiffs desire or plaintiffs' reasons for not making such effort. Rule 23(b) provided in pertinent part that:

'The complaint shall also set forth with particularity the efforts of the plaintiff to secure from the managing directors or trustees * * * such action as he desires, and the reasons for his failure to obtain such action or the reasons for not making such effort'.

Plaintiffs allege as follows:

'13. Demand by plaintiffs that the Board of Directors of Chrysler bring this action was futile because such directors have either approved or ratified the fraudulent schemes, acts and transactions herein complained of, or have participated in the fraudulent acts, or have acquiesced in the said acts, or have shared profits as a result of the said acts. For those reasons it would be useless to request defendants, or any of them, to bring this action for the relief herein sought.'

Without prolonging the matter, I conclude that plaintiffs have at least alleged reasons for not making an effort to secure or demand action from the board. Plaintiffs charge all the board with being active or passive parties to the various alleged fraudulent schemes, etc. It is not normally to be expected that those charged with fraud or gross negligence would be amenable to a request that they take action against themselves.

I conclude that the motion to dismiss on the basis of Rule 23(b) should be denied.

I next consider defendants' attack on the sufficiency and definiteness of the complaint. Defendants contend that the complaint, to the extent it is based on fraud, fails to allege the 'circumstances' with particularity as required by Chancery Rule 9(b). Plaintiffs point out that they rely on 'constructive fraud' which they say is 'found from the relationship of the parties and the transactions which occurred'. I do not think the use of the word 'constructive' rather than 'actual' fraud alters the rule requirement that the 'circumstances' be stated with particularity.

The principal objection raised by defendants is the lack of definiteness as to claims based on gross negligence and lack of particularity as to those based on fraud. Defendants say the plaintiffs should be required to set forth more specifically the periods of time involved in the particular claims and identify as best they can the particular defendants involved therein. Where fraud is the basis of the claim, the claims must have particularity sufficient to advise the charged defendant of the basis of the claim. Using the word 'fraud' or its equivalent in any form is just not a substitute for the statement of sufficient facts to make the basis of the charge reasonably apparent.

The claims here, almost without exception, are lacking reasonable definiteness as to the parties...