Hornreich v. Plant Industries, Inc.

• Decision Date: 21 May 1976
• Docket Number: No. 74-2269,74-2269
• Citation: 535 F.2d 550
• Parties: Fed. Sec. L. Rep. P 95,603 Harold HORNREICH, on behalf of himself and all other shareholders of Plant Industries, Inc., a Delaware corporation, Appellant, v. PLANT INDUSTRIES, INC., a Delaware corporation, et al., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 550

535 F.2d 550

Fed. Sec. L. Rep. P 95,603

Harold HORNREICH, on behalf of himself and all other shareholders of Plant Industries, Inc., a Delaware corporation, Appellant, v. PLANT INDUSTRIES, INC., a Delaware corporation, et al., Appellees.

No. 74-2269.

United States Court of Appeals, Ninth Circuit.

May 21, 1976.

Harvey F. Grant (argued), of Caditz & Grant, Beverly Hills, Cal., for appellant.

Louis A. Craco (argued), of Willkie, Farr & Gallagher, New York City, for appellees.

OPINION

Before CHAMBERS, DUNIWAY and KILKENNY, Circuit Judges.

KILKENNY, Circuit Judge:

This is an appeal from a judgment denying appellant relief in a class action prosecuted under the provisions of Rule 23.1 F.R.Civ.P., on the ground that under the facts as presented he could not fairly and adequately represent other shareholders of Plant Industries, Inc. (Plant).

PROCEDURAL BACKGROUND

After the filing of appellant's complaint under the mentioned rule, the appellees filed a motion for judgment on the pleading, attaching documentary evidence in support of their theory. Appellant responded by filing a brief in opposition and an affidavit. Appellees filed additional affidavits and memoranda on March 15, 1974. Pending at the time of the final hearing on March 18th was appellant's motion to file an amended pleading which would remedy an admitted defect in the original complaint. It is clear that at the time of the hearing everyone understood they were presenting for decision the issue of whether on the record as made up of the pleadings, the affidavits, the letters, the motion to amend and other material presented, the appellant could fairly and adequately represent the other shareholders of Plant. Although no live witnesses were called at the hearing, the record makes it obvious that the parties intended to and did try out that issue on the then pending motions. Briefly summarized, the court had before it at the time of its ruling the following material: (1) the fact that appellant had resigned from Plant Board and had been fired as a result of a dispute, (2) the fact that at the time the motion was heard appellant was engaged in two pending actions against Plant, (3) an uncontested affidavit by counsel for appellees that fifteen months before the suit was filed, appellant had threatened a law suit against Plant for leverage on his other claims, (4) a claim in the same affidavit that three offers of omnibus settlement were made "which appear" to include a settlement of this case, and (5) a letter by appellant to a member of Plant's Board in regard to the two other cases, suggesting that a settlement would mean no more legal fees and would avoid the probability of a substantial future judgment.

BASIC FACTS

In 1968, appellant and his brother sold Sunaid, an independent corporation, to Plant in exchange for shares of the latter's capital stock. He then became a member of Plant's Board. Additionally, and as part of the same transaction, an employment contract was agreed to under which Plant hired appellant in exchange for covenants not to compete. At all pertinent times since that date, appellant has been a substantial shareholder in Plant.

The relationship between the parties remained amiable until 1971 when a dispute arose between Plant management and appellant, as a result of which the latter was fired.

In August, 1971, appellant brought an action on the contracts relating to the 1968 sale and his employment by Plant. During the litigation, appellant indicated to Plant's counsel that if settlement were not reached, he would file suit concerning the acquisition which is the subject of the present litigation. The 1971 case was bifurcated and the issue of liability was tried in 1973. Plant was released from the covenant not to compete. At the time the...