Leighton v. One William Street Fund, Inc., 335

• Decision Date: 05 April 1965
• Docket Number: Docket 29227.,No. 335,335
• Citation: 343 F.2d 565
• Court: U.S. Court of Appeals — Second Circuit
• Parties: William LEIGHTON, a stockholder of The One William Street Fund, Inc., for himself and all stockholders of The One William Street Fund, Inc. similarly situated and for and on behalf of The One William Street Fund, Inc., Appellant-Plaintiff, v. The ONE WILLIAM STREET FUND, INC., Lehman Brothers, a partnership, Simpson Thacher & Bartlett, a partnership, and Allan B. Hunter, Paul E. Manheim, Paul M. Mazur, Francis C. Reed et al., Appellees-Defendants.

343 F.2d 565 (1965)

William LEIGHTON, a stockholder of The One William Street Fund, Inc., for himself and all stockholders of The One William Street Fund, Inc. similarly situated and for and on behalf of The One William Street Fund, Inc., Appellant-Plaintiff, v. The ONE WILLIAM STREET FUND, INC., Lehman Brothers, a partnership, Simpson Thacher & Bartlett, a partnership, and Allan B. Hunter, Paul E. Manheim, Paul M. Mazur, Francis C. Reed et al., Appellees-Defendants.

No. 335, Docket 29227.

United States Court of Appeals Second Circuit.

Argued March 8, 1965.

Decided April 5, 1965.

William Leighton, New York City, appellant, pro se.

Whitney North Seymour, Jr., New York City (Arthur W. Murphy, New York City, on the brief), for appellee The One William Street Fund.

Simpson, Thacher & Bartlett, New York City, for appellees Hunter, Manheim, Mazur and Lehman Brothers, and appearing pro se.

Hughes, Hubbard, Blair & Reed, New York City, for appellee Reed.

Benjamin C. Milner, III, and Powell Pierpoint, New York City, of counsel, for appellees.

Before SMITH and MARSHALL, Circuit Judges, and METZNER, District Judge.^*

SMITH, Circuit Judge:

William Leighton, a stockholder of record of the One William Street Fund, Inc. (the "Fund"), appeals from three separate orders of the United States District Court for the Southern District of New York, Wilfred Feinberg, Harold R. Tyler, Jr. and Irving Ben Cooper, District Judges, respectively, requiring plaintiff to post $1,000 as security for costs in his derivative suit and denying plaintiff's motions for: (1) a preliminary injunction restraining Lehman Brothers from acting as broker for the Fund; (2) the appointment of a receiver for the Fund; (3) an injunction against the voting of proxies solicited by means of a certain July 31, 1964 proxy statement; and (4) an injunction to prevent the Fund from delivering an instrument in the nature of a release in settlement of the Fund's suit against the Transitron Electronic Corporation. Leighton, the owner of ten shares of the Fund out of a total of 17,000,000, instituted this derivative stockholders suit against the Fund, Lehman Brothers (the Fund's investment adviser), and four individual directors of the Fund, three of whom are partners in Lehman Brothers.

Leighton contends on appeal that requiring him to post security for costs constitutes an abuse of discretion and that the denials of the injunctions and of the motion for the appointment of a receiver are similarly improper, in particular because the court in each instance did not specify the grounds upon which the motion was being denied. We find that the $1,000 bond is reasonable under the circumstances, that the failure to make findings of fact and conclusions of law in ruling on the motions was harmless error, and that Leighton as a matter of law was not entitled to any of the relief requested by him. Judge Tyler's order denying the injunction to prevent the voting of the proxies is now moot; the remaining orders are affirmed.

I.

The granting of appellees' motion for security was proper under Rule 2, Civil Rules of the United States District Courts for the Southern and Eastern Districts of New York.¹ We recently held in Leighton v. Paramount Pictures Corp., 340 F.2d 859; (Jan. 12, 1965), that Rule 2 empowers the District Court to compel security for costs in a derivative suit where such security is appropriate. Where, as here, the risk of abuse is manifest (Leighton purchased his ten shares only one month before he commenced his efforts to take part in shareholder litigation), requiring that bond, reasonable in amount, be posted as a condition to the continued prosecution of the derivative action, is justified. There is no claim here of inability to post the $1,000 bond set, and it has in fact been posted. We hold the amount reasonable.

II.

Judge Tyler, in apparent non-compliance with Rule 52(a) of the Federal Rules of Civil Procedure which requires the court to find the facts specially and state separately its conclusions of law, rejected plaintiff's motion rather summarily by simply saying, "for the reasons stated in open court and upon the record, said motion is in all respects denied." Judge Cooper elaborated somewhat more on the grounds for denying the motion before him, but his concise opinion hardly satisfied the requirements of the Rule. The purpose of Rule 52(a), as it is applied to a non-jury case, is usually stated to be three-fold: (1) to aid the appellate court by affording it a clear understanding of the ground or the basis of the decision of the trial court; (2) to make definite just what is decided by the case to enable the application of res judicata and estoppel principles to subsequent decisions; and (3) to evoke care on the part of the trial judge in ascertaining the facts. Barron and Holtzoff, Federal Practice and Procedure, § 1121 (1961), 5 Moore, Federal Practice, ¶52.062 (2d ed. 1951). Of course, the general intent of Rule 52(a) is that of avoiding possible prejudice to any of the parties in the prosecution or defense of the controversy. Thus, where the court's failure to make the required findings does not have the effect of prejudicing a party's position the error may be merely harmless. See 28 U.S.C. § 2111, the "harmless error" statute; Rossiter v. Vogel, 148 F.2d 292 (2 Cir. 1945); Jockmus v. United States, 335 F.2d 23 (2 Cir. 1964). Under analogous circumstances, in a case involving Rule 51, this court held that failure to comply with that Rule does not...