Lewis v. Curtis
| Decision Date | 03 March 1982 |
| Docket Number | No. 81-2055,81-2055 |
| Citation | 671 F.2d 779 |
| Parties | Harry LEWIS, Appellant, v. Henry CURTIS, Albert F. Duval, Roger S. Ahlbrandt, Fred Herbolzheimer, Jr., Bernard S. Kubale, William G. Kuhns, Louis H. Roddis, Jr., Charles M. Williams, and Hammermill Paper Company, Appellees. |
| Court | U.S. Court of Appeals — Third Circuit |
Michael P. Malakoff (argued), Richard A. Finberg, Berger, Kapetan, Malakoff & Meyers, P. C., Pittsburgh, Pa., Abraham I. Markowitz, New York City, for appellant.
J. Tomlinson Fort (argued), Michael J. Betts, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for appellees Curtis, Duval, Ahlbrandt, Herbolzheimer, Kubale, Kuhns, Roddis, Williams.
John M. Wolford, MacDonald, Illig, Jones & Britton, Erie, Pa., William P. Frank, Robert E. Zimet, Skadden, Arps, Slate, Meagher & Flom, New York City, for appellee Hammermill.
Before SEITZ, Chief Judge, and ALDISERT and ROSENN, Circuit Judges.
Plaintiff Harry Lewis appeals from a final order of the district court dismissing his complaint and denying his motion for leave to amend. This court has jurisdiction under 28 U.S.C. § 1291 (1976).
It is undisputed that, in 1980, Carl C. Icahn sought by a proxy contest to obtain a seat on the board of directors of Hammermill Paper Company, a Pennsylvania corporation. Icahn abandoned his contest on July 29 after entering into a settlement agreement with Hammermill ending all the pending litigation between them; Hammermill agreed to pay Icahn $750,000 to cover his expenses in the proxy contest. On July 30, The Wall Street Journal, in a concise, two-column article, reported the settlement between Hammermill and Icahn. On August 1, Lewis verified the complaint in the present action, charging that the directors had violated their fiduciary duty to Hammermill because the payment to Icahn was a "waste and spoliation of Hammermill's assets" and demanding that the individual defendants be required to pay to Hammermill $750,000 for the damages sustained by it. The complaint was filed on August 4.
In December 1980, counsel for defendants deposed Lewis. Lewis testified that he read about the settlement agreement in The Wall Street Journal on July 30. He then called his attorney, Abraham Markowitz, and left the investigation of this matter entirely to him. Later during the deposition, however, Lewis testified that he verified the complaint only after Markowitz apprised him of the results of the investigation. Counsel for Hammermill asked questions concerning the facts upon which Lewis based his verification and, in each case, Markowitz instructed Lewis not to answer on the ground of the attorney-work-product protection. For example, the original complaint states that the president of Hammermill completely dominates the selection process of the board of directors. When asked the basis for verifying this allegation, Lewis testified only that he made the allegation upon "information given to me by my attorney" and, on Markowitz' advice, refused to disclose that information. At the deposition of Markowitz, he, too, refused to describe any facts developed in the course of investigation.
Defendants filed various motions, including a motion to dismiss the complaint on the ground that it failed to comply with rule 23.1 of the Federal Rules of Civil Procedure because: (1) the complaint failed to state with particularity the efforts, if any, Lewis made to require that the $750,000 be repaid to Hammermill, and the reasons for failing to obtain such action or for not making the effort; (2) Lewis does not fairly and adequately represent the interests of the Hammermill shareholders; and (3) Lewis' failure to investigate personally the underlying facts makes his verification of the complaint a sham. With these motions before it, the district court stayed all proceedings and ordered a preliminary hearing. Before the preliminary hearing, Lewis filed a motion to amend his complaint. The amended complaint attempts to set forth additional grounds why it would have been futile to request the board of directors to correct the alleged wrong in this case.
At the hearing, Lewis' local counsel, Michael Malakoff, asked: "Your Honor, may we have an offer of proof as to the purpose of this unusual proceeding?" The district court replied:
This is a court proceeding to see whether rule 23 has been (complied with) by counsel in this case.... I want to see what the facts of the situation were at the time it was drawn and when the information came to him and all that sort of thing and what was imparted to him. Fact, now. I'm not talking about any question here about privilege. So just sit down, will you?
Markowitz was called to the stand and examined by defendants' counsel. Markowitz accepted full responsibility for the investigation of the facts, but repeated the position he had taken at Lewis' deposition that he was not required to provide any information concerning his investigation. The district court did not consider the attorney-work-product protection applicable:
(O)n the face of this complaint and the way it was executed, lack of verification ..., it raises certainly a suspicion that the complaint may be just a strike complaint. It's subject to investigation by the Court, by me. I'm not going to let the thing go forward unless I'm satisfied that some investigation has been made.
The court subsequently asked Markowitz what documents he used to prepare the complaint.
The Court: What documents are you willing to submit, your file? You don't want to submit your file, do you?
Markowitz: That would be in violation of my refusal to answer.
Malakoff: May I ask the witness certain questions?
The Court: No. I'm examining him....
Markowitz: May I consult with Counsel, please, for just two minutes?
The Court: An experienced lawyer like you? Tell me the truth of the matter. Did you consult any document or didn't you?
Markowitz: I certainly did, your Honor.
The Court: Tell me what one.
Markowitz: The documents are all on that table.
The Court: Bring them up and hand them to me. One by one we will look at them. Do you want to bring them up?
Malakoff: May I consult with my client, your Honor?
The Court: What is this, a charade? This is a hearing here in the Federal Court. If you want to carry on that way, I'm willing to grant the motion to dismiss.
The district court then announced that he would give Lewis and Markowitz ten minutes to review their position and said: "If you're not prepared to relate to this Court your investigation with particularity as to what you found out and testify about it, we'll conclude the hearing."
After the recess, Malakoff indicated that Markowitz was prepared to identify each of the documents he reviewed and the persons he consulted from July 30 to August 1 in preparing the complaint: Markowitz produced his presuit investigatory file and testified that, between July 30 and August 1, 1980, he examined Icahn & Company's 13-D form, and amendments thereto, on file with the Securities and Exchange Commission; Hammermill's 10-K for 1979; the proxy statements of Icahn and Hammermill; the complaints filed in connection with the proxy contest; and the files of a similar case in which Lewis was involved. He would not, however, testify about "what investigation he made."
The Court: If he (Markowitz) isn't going the full way, we might as well stop, too, because he can't make the rules here and you can't, what I'm to learn.
Malakoff: I believe the Supreme Court has made the rules.
Markowitz also testified, however, that:
The Court: You based your judgment, then, on the Wall Street article?
Markowitz: On forty years of experience, your Honor, please.
The Court: You had a great suspicion, didn't you?
Markowitz: I didn't have any suspicion.
The Court: So you brought another strike suit, didn't you?
In view of Markowitz' refusal to explain the relevance of some of the documents, the district court refused to permit some of them to be admitted into evidence: The district court announced orally the same day that it intended to dismiss this action with prejudice.
Lewis makes two principal arguments in support of his contention that the district court's order is error: (1) the original complaint complied with the requirements of rule 23.1, and thus the district court should not have dismissed it; and (2) the district court erred in refusing to allow Lewis to file an amended complaint. Because it was error for the district court not to permit Lewis to file his amended complaint, we will not consider whether the original complaint complied with rule 23.1. We thus proceed to discuss the district court's refusal to permit amendment.
Rule 15(a) of the Federal Rules of Civil Procedure directs that leave to amend "shall be freely given when justice so requires." Whether to grant or to deny leave to amend, however, is within the discretion of the district court, and the district court's decision to deny leave to amend is thus subject to reversal only for abuse of that discretion. See Cornell & Co. v. OSHRC, 573 F.2d 820, 823 (3d Cir. 1978). In denying Lewis' motion to file an amended complaint, the district court stated: "(T)he amended complaint as submitted is conclusory and lacks particularity and demand and is not supported by any investigative facts whatsoever." Assuming that a court may deny leave to amend if the proposed complaint is...
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