Haberman v. Tobin, 1125
| Citation | 626 F.2d 1101 |
| Decision Date | 08 July 1980 |
| Docket Number | No. 1125,D,1125 |
| Parties | Simon V. HABERMAN, Plaintiff-Appellant, v. John E. TOBIN, Fred M. Kirby, Allan P. Kirby, Jr., each in his own capacity as director of Alleghany Corporation, and as attorneys for and guardians of the property of Allan P. Kirby, Sr., John J. Burns, Jr., Defendants-Appellees, Ralph K. Gottshall, Richard R. Hough, William G. Rabe, Clifford H. Ramsdell, and Carlos J. Routh, as directors of Alleghany Corporation, Defendants, and Alleghany Corporation, Defendant-Appellee. ockets 79-7783, 80-7043. |
| Court | U.S. Court of Appeals — Second Circuit |
Thomas Bress, New York City (Greenfield, Lipsky & Bress, New York City; Eleazar Lipsky, New York City, of counsel), for plaintiff-appellant.
William E. Hegarty, New York City (Cahill, Gordon & Reindel, New York City; H. Richard Schumacher, John A. Shutkin, New York City, of counsel), for defendant-appellee Alleghany Corp.
Debevoise, Plimpton, Lyons & Gates, New York City, Robert J. Geniesse, John G. Koeltl, New York City, on brief, for defendants-appellees John E. Tobin, Fred M. Kirby, Allan P. Kirby, Jr., and John J. Burns, Jr.
Before OAKES and MESKILL, Circuit Judges, and BONSAL, District Judge. *
On December 30, 1974, Randolph Phillips instituted this derivative action against Alleghany Corporation ("Alleghany") and certain of its directors, alleging violations of the federal securities laws, the Investment Company Act, the Interstate Commerce Act, and state laws relating to fiduciary duties of directors. The district court dismissed certain of the claims, but left outstanding two claims under the federal securities laws and one state claim alleging a breach of fiduciary duties. It further held that Phillips could represent Alleghany pro se. Phillips v. Tobin, 403 F.Supp. 89 (S.D.N.Y.1975). This holding was appealed and we held that Phillips, acting pro se, could not properly represent Alleghany in a derivative action because he was not an attorney. Phillips v. Tobin, 548 F.2d 408 (2d Cir. 1976). Thereafter, Judge Sweet granted Phillips' motion to substitute the present plaintiff, Simon V. Haberman, holder of 10 shares of Alleghany stock, as derivative plaintiff. On November 13, 1978, Alleghany moved for an order requiring Haberman to post security for costs pursuant to Rule 2 of the Civil Rules for the Southern and Eastern Districts of New York ("Local Rule 2") and Section 627 of the New York Business Corporation Law ("Section 627").
By order filed April 17, 1979 ("the April 17 order"), Judge Sweet directed Haberman to post security in the amount of $100,000 and directed Alleghany to furnish Haberman with a shareholders' list "for the sole purpose of enabling plaintiff to seek to join as additional plaintiffs other Alleghany shareholders so as to avoid the necessity of posting security pursuant to (section 627) and this Order." The order further provided that Haberman's failure within 60 days to post security in the amount of $100,000 or to move for intervention of shareholders to meet the requirements of Section 627 "shall constitute good cause for the involuntary dismissal of this action."
Within the 60 days, but more than four years after the action was instituted, Haberman acquired shares of Alleghany stock having a market value in excess of $50,000, that being the amount specified in Section 627. 1 Because of this acquisition, Haberman moved to be relieved from the April 17 order directing him to post security in the amount of $100,000. Alleghany cross-moved for an order dismissing the action for Haberman's failure to comply with the April 17 order.
By opinion dated September 27, 1979, Judge Sweet held that Haberman's purchase of Alleghany stock after the action was instituted did not meet the requirements of Section 627 and the April 17 order. Haberman v. Tobin, 480 F.Supp. 425 (S.D.N.Y.1979). Judge Sweet dismissed the state claim and required that an appropriate notice be sent to the holders of Alleghany stock. Thereafter, Haberman moved for reargument, which motion was denied.
Judge Sweet, by order filed October 19, 1979 ("the October 19 order"), directed Haberman to post a bond pursuant to Local Rule 2 in the amount of $10,000 within 15 days as a condition of his prosecuting the federal claims. The order stated that his failure to do so "shall constitute good cause for the involuntary dismissal, with prejudice, of this action." Haberman failed to post the $10,000 bond.
On October 26, 1979, Haberman applied for an order permitting him to deposit $100,000 in United States Government obligations to serve as security with regard to both the federal and state claims. By order dated November 8, 1979 ("the November 8 order"), Judge Sweet directed that "Upon deposit by plaintiff of $100,000 with the clerk of the court by November 15, 1979, plaintiff's state claims will be reinstated, and the deposit shall be deemed good and sufficient security to meet all of this court's requirements under Rule 2 and section 627 with respect to both Federal and state claims alleged in the amended complaint herein."
Haberman failed to post the security by November 15, 1979. At a hearing held on November 16, his counsel informed Judge Sweet that Haberman would not post the security.
By order filed December 13, 1979 ("the December 13 order"), Judge Sweet dismissed the derivative action as to Haberman pursuant to Fed.R.Civ.P. 41(b) and directed that notice be sent to Alleghany stockholders advising them of the dismissal and their right to intervene in the action within 30 days to preserve their rights. 2 In addition, Judge Sweet awarded attorneys' fees and disbursements in the amount of $1900 to Alleghany and $250 to the individual defendants, on the ground that Haberman had "acted vexatiously in connection with the October 26 application."
Haberman appeals from the April 17, October 19, November 8 and December 13, 1979 orders.
Haberman contends that his acquisition of Alleghany stock having a market value in excess of $50,000 met the requirements of Section 627 with respect to the state claim.
The New York cases are in conflict as to whether the acquisition of stock after the action is commenced meets the requirements of Section 627. See Richman v. Felmus, 8 A.D.2d 985, 190 N.Y.S.2d 920 (1959); Tyler v. Gas Consumers Association, 34 Misc.2d 947, 229 N.Y.S.2d 169 (Sup.Ct.), reargument denied, 35 Misc.2d 801, 231 N.Y.S.2d 15 (1962); Purdy v. Humphrey, 187 Misc. 40, 60 N.Y.S.2d 535 (Sup.Ct.1946); Noel Associates, Inc. v. Merrill, 184 Misc. 646, 53 N.Y.S.2d 143 (Sup.Ct.1944). Tyler, the most recent case, holds that it does not. We believe that, under the facts of this case, where the stock was purchased more than four years after the action was instituted and where Haberman repeatedly disregarded Judge Sweet's orders, the requirements of Section 627 were not met.
Judge Sweet acted within his discretion in imposing a $10,000 security requirement pursuant to Local Rule 2 with respect to the federal claim. 3 During Haberman's deposition, he testified that, Haberman v. Tobin, 466 F.Supp. 447, 451 & n.10 (S.D.N.Y.1979). In view of Haberman's statement and the substantial costs that could be incurred by the defendants, Judge Sweet's action was appropriate. See Leighton v. One William Street Fund, Inc., 343 F.2d 565, 567 (2d Cir. 1965); Leighton v. Paramount Pictures Corp., 340 F.2d 859, 861 (2d Cir. 1965); Miller v. Town of Suffield, 249 F.2d 16 (2d Cir. 1957).
In view of the repeated disregard by Haberman of Judge Sweet's orders, Judge Sweet acted within his discretion in dismissing this derivative action insofar as Haberman as plaintiff is concerned. See Link v. Wabash R. R., 370 U.S. 626, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962); Browning v. Debenture Holders' Committee v. DASA Corp., 560 F.2d 1078, 1083 (2d Cir. 1977); Theilmann v. Rutland Hospital, Inc., 455 F.2d 853, 855 (2d Cir. 1972); Michelsen v. Moore-McCormack Lines, Inc., 429 F.2d 394, 395 (2d Cir. 1970); Redac Project 6426, Inc. v. Allstate Insurance Company, 412 F.2d 1043, 1046 (2d Cir. 1969); First Iowa Hydro Electric Cooperative v. Iowa-Illinois Gas and Electric Co., 245 F.2d 613, 628 (8th Cir. 1957). Haberman was warned by the April 17 and October 19 orders that his failure to comply would constitute good cause for involuntary dismissal. Finally, after being granted permission to deposit $100,000 in United States government obligations to satisfy the security requirements, he failed to do so.
Haberman objects to the allowance of attorneys' fees totalling $2,150. Based on this record, we do not find these fees unreasonable. See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 258-59, 95 S.Ct. 1612, 1622, 44 L.Ed.2d 141 (1975); F. D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 129, 94 S.Ct. 2157, 2165, 40 L.Ed.2d 703 (1974); Hall v. Cole, 412 U.S. 1, 4-5, 93 S.Ct. 1943, 1945-46, 36 L.Ed.2d 702 (1973).
Affirmed.
Judge Sweet's first order on the subject of security, pursuant to a motion by defendants, required Haberman to post $100,000 in security under both N.Y.Bus.Corp.Law § 627 and Local Civil Rule 2. Haberman responded by purchasing $50,000 in Alleghany stock, which he contended relieved him from the obligation to post security as to the state claims under the provisions of § 627. Judge Sweet disagreed that Haberman could avoid the New York security provision by a...
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