Kopet v. Esquire Realty Co.

• Decision Date: 29 September 1975
• Docket Number: D,No. 42,42
• Citation: 523 F.2d 1005
• Parties: Blue Sky L. Rep. P 71,243 Samuel KOPET, Appellant, v. ESQUIRE REALTY COMPANY et al., Appellees. ocket 75-7047.
• Court: U.S. Court of Appeals — Second Circuit

Page 1005

523 F.2d 1005

Blue Sky L. Rep. P 71,243

Samuel KOPET, Appellant, v. ESQUIRE REALTY COMPANY et al., Appellees.

No. 42, Docket 75-7047.

United States Court of Appeals Second Circuit.

Argued Sept. 2, 1975.

Decided Sept. 29, 1975.

Robert S. Churchill, New York City (Kass, Goodkind, Wechsler & Gerstein and David M. Gerstein, New York City, on the brief), for appellant.

Herman Odell, New York City (John F. Zulack and Nathaniel M. Sokolski, New York City, on the brief), for appellees.

Before KAUFMAN, Chief Judge, and LUMBARD and ANDERSON, Circuit Judges.

ROBERT P. ANDERSON, Circuit Judge:

In 1962, the appellant, Samuel Kopet, became a limited partner of appellee, Esquire Realty Company (Esquire), a limited partnership engaged in the business of owning real estate. On November 1, 1971, Esquire wrote to each of its 350 limited partners offering them the opportunity to invest additional funds for the purpose of refinancing a mortgage on one of Esquire's properties. No registration statement for this offer was filed with the Securities and Exchange Commission, nor was a prospectus filed with the New York State Department of Law. Pursuant to the offer, appellant and 185 other limited partners bought additional partnership interests in the aggregate amount of $131,250.

Appellant brought suit against Esquire and three general partners thereof, also appellees here, alleging, Inter alia, violation of §§ 5 and 12 of the Securities Act of 1933 and of § 352e of the New York General Business Law, for failure to file the required registration statement and prospectus, respectively, in connection with the 1971 offer. This appeal is from the district court's denial of appellant's application for an award of counsel fees for services rendered by his attorneys in that action.

With respect to the above-mentioned claims relating to the lack of required filings, appellees admitted liability below, and the district court granted summary judgment in favor of appellant. The court also ordered that the action on these claims be maintained on behalf of the class of all limited partners who purchased additional interests in response to the 1971 offer. Appellant's complaint also contained two other counts ¹ based upon appellees' alleged failure to provide annual certified financial statements to the limited partners, as required by the original 1962 partnership agreement, and to account for the profits of Esquire, as required by the New York Partnership Law. In the course of defending these claims, which were ultimately dismissed for lack of pendent jurisdiction, the appellees produced financial statements which revealed, for the first time, that two of the general partners, Benjamin Kaufman and Nathan P. Jacobs, had borrowed sums totaling hundreds of thousands of dollars from Esquire and that the general partners had contracted to sell Esquire's principal asset. Moreover, it appears that during the course of this litigation, the appellees sent certified financial statements to the limited partners for the first time since Esquire was created. As a result of these revelations, limited partners of Esquire have instituted suit in the New York State courts alleging that Kaufman, Jacobs and Esquire have breached both their common law and statutory fiduciary duties.

After the lower court had disposed of the parties' motions for summary judgment and dismissal as related above, appellant asked for counsel fees in the amount of $25,000, plus disbursements of $331.41, to be paid by the individual appellees, Benjamin Kaufman and Nathan P. Jacobs, or, in the alternative, appellee, Esquire Realty Company. The district court denied the motion. ² We reverse on the issue of awarding counsel fees against Esquire. ³

To establish his claim for counsel fees, appellant contended that the favorable summary judgment on the securities law claims benefited Esquire by "causing Esquire's management to conduct its future affairs in conformity with legal requirements" and the policy of full disclosure regarding securities offerings. He further argued that the litigation concerning the claims which were eventually dismissed benefited Esquire by resulting in the release of important information about the management of the partnership, which may among other things enable the limited partners to win a recovery in the state court from some or all of the general partners, and in the distribution to the limited partners of certified financial statements in accordance with the partnership agreement.

As for the first of the above claims, the district court saw no benefit accruing to the partnership as a whole, as distinguished from individual purchasers who would be entitled to obtain rescission or damages. But as the Supreme Court has developed the "common fund" rationale for awarding attorney fees, assessment of such fees to a group of beneficiaries may be predicated on the conferral of benefits which are neither monetary in nature nor explicitly sought on behalf of the entire group. Hall v. Cole, 412 U.S. 1, 93 S.Ct. 1943, 36 L.Ed.2d 702 (1973); Mills v. Electric Auto-Lite Co.,396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Sprague v. Ticonic National Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939). In Mills, which involved proxy violations under the 1934 Act, the Court found that "the stress placed by Congress on the importance of fair and informed corporate suffrage leads to the conclusion that, in vindicating the statutory policy, petitioners have rendered a substantial service to the corporation and its shareholders." 396 U.S. at 396, 90 S.Ct. at 627. Here, similarly, it appears that appellant rendered a service to the partnership by vindicating the statutory policy against unregistered offerings. Esquire benefited from appellant's action both in arresting an existing...