Denicke v. Anglo California Nat. Bank

• Citation: 141 F.2d 285
• Decision Date: 07 April 1944
• Docket Number: No. 10329.,10329.
• Parties: DENICKE et al. v. ANGLO CALIFORNIA NAT. BANK OF SAN FRANCISCO et al.
• Court: U.S. Court of Appeals — Ninth Circuit

141 F.2d 285 (1944)

DENICKE et al. v. ANGLO CALIFORNIA NAT. BANK OF SAN FRANCISCO et al.

No. 10329.

Circuit Court of Appeals, Ninth Circuit.

March 1, 1944.

Rehearing Denied April 7, 1944.

Aaron M. Sargent, of San Francisco, Cal., for appellant.

Frederick M. Fisk, Donald Y. Lamont, Chickering & Gregory, all of San Francisco, Cal., for appellee Anglo California Nat. Bank.

Brobeck, Phleger & Harrison, of San Francisco, Cal., for appellee R. S. Dollar.

Edwin V. McKenzie and J. H. Sapiro, both of San Francisco, Cal., for appellee Victor Klinker.

Theo. J. Roche and Sullivan, Roche, Johnson & Farraher, all of San Francisco, Cal., for appellees Mortimer Fleishhacker and Mortimer Fleishhacker, Jr.,

Felix T. Smith, Francis R. Kirkham, Pillsbury, Madison & Sutro, all of San Francisco, Cal., for appellee Irene L. Heyes.

Before MATHEWS, STEPHENS, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

This appeal is from a judgment in a derivative suit (entered pursuant to Rule 23(c) of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c) approving a compromise and directing a dismissal. An appeal was taken also from an order denying a motion to vacate the judgment.

The record comprises almost 2,000 printed pages and the briefs are very long, but the questions presented are relatively simple. The suit was filed in November 1938 by appellant Denicke,¹ a stockholder of appellee Anglo California National Bank (herein for brevity called the Bank.) At the time of the hearing on the petition for compromise in March of 1942 there was on file a second amended complaint containing eight counts,² the first of which concerned alleged derelictions of appellees Mortimer Fleishhacker and Herbert Fleishhacker, former directors and chief executive officers of the Bank. The second count was against the same defendants and several other parties with whom it was alleged the Fleishhackers had conspired to cause the making of illegal or fraudulent Bank loans. The remaining counts set up claims against other directors based on the transactions covered by the first two counts and asserting that these directors had substantially abdicated their functions in favor of the Fleishhackers, to the consequent loss of the Bank. The total recovery sought against the several defendants was in excess of five million dollars. As the reason for the institution of the stockholder's suit it was alleged that the Bank directorate was dominated by adverse interests to the extent that it was impossible to obtain appropriate action to enforce the claims sued upon. Federal jurisdiction was predicated on 12 U.S.C.A. §§ 93 and 503, imposing personal liability upon officers and directors where loss is sustained through violation of the national banking laws.³

The Bank itself did not plead to the complaint. Some months after the suit was filed (on April 1, 1939, to be specific) the management underwent a change, so that individuals unconnected with the litigation were brought into active charge of the institution's affairs.⁴ There is evidence that the new management carried on an extensive investigation of the claims asserted in the suit, and there were negotiations both with appellant Denicke and with the defendants looking toward a compromise of the litigation. Another derivative suit brought by Denicke on the Bank's behalf, apparently against the same parties, was pending before Judge Roche, the instant case being on the calendar of Judge St. Sure. Denicke was represented in both suits by the same attorney. The Bank received written offers from the defendants in the two suits to pay the sum of $350,000 in full settlement of the claims, and on July 1, 1941, it presented a petition under Rule 23(c) to obtain court approval of the settlement proposed to be made for that sum. The offers in question had previously been submitted to and unanimously approved by the Bank's executive committee and by its board of directors; and at a special meeting of the shareholders, called for that purpose and held July 7, 1941, the action of the board in accepting the compromise offer was ratified by a vote of more than 95% of the total outstanding stock.⁵

Following this action the two trial judges jointly heard the petition to compromise. The hearing extended over a period of nine days, during which time numerous witnesses were examined and a large amount of documentary evidence was introduced. Among those testifying were the Bank's president, its first vice president, and Mr. Mortimer Fleishhacker. In January 1942 the judges denied the petition "without prejudice to the filing by said Bank, if so advised, of separate offers of compromise in each of the actions." Thereafter separate offers, in the amount of $200,000 in each suit, were received by the Bank. In the companion action pending before Judge Roche this offer was accepted by the Bank, had court approval, and there was no appeal.

In the case before us, after notice to all stockholders, a hearing, eventuating in the judgment appealed from, was had on March 31, 1942, on the Bank's petition to compromise and terminate the litigation. Written objections of appellants had previously been filed, and a pretrial conference had been held. It was stipulated that the record and proceedings had in the hearing on the previous petition be considered as evidence in the matter along with the oral arguments and briefs then before the court. Little additional evidence was offered at the hearing, and that in support of the petition. Upon being asked if he was "through," counsel for appellants moved for a nonsuit or denial of the petition. The purpose of this motion, as stated in appellants' brief here, was "to avoid the necessity of offering further proof." The motion was not ruled on, and the court continued the matter to a later time on the assumption that the case on the petition had been submitted. It is contended that the only matter presented for decision was the motion for nonsuit, and that the case as predicated on the Bank's petition was not finally submitted at this hearing. In substance, the argument appears to be that appellants were not given the opportunity of making a full showing in opposition to the compromise proposal.

However, no proffered evidence was rejected by the court. As already noted, there had been a very extensive hearing the previous July. A great mass of evidence had been assembled by appellants' attorney and was before the court or available for submission. Numerous interrogatories had been propounded and answered. And in the period of three and a half years elapsing since the commencement of the suit there had been ample time in which to make use of the various forms of discovery available under the Rules of Civil Procedure. Discovery proceedings had been freely resorted to and no requests for discovery had been denied by the court. The answers of the various defendants were on file, and the main case had long been at issue. It is true that in the course of his argument on the motion for nonsuit appellants' counsel...