Nemeroff v. Abelson, s. 229-232

Citation620 F.2d 339
Decision Date17 March 1980
Docket NumberNos. 229-232,D,s. 229-232
PartiesFed. Sec. L. Rep. P 97,317, 6 Media L. Rep. 1075 Robert B. NEMEROFF, D. D. S., Plaintiff-Appellant-Cross-Appellee, Hale and Dorr, Appellant-Cross-Appellee, v. Alan ABELSON, Robert Bleiberg, and Dow Jones & Company, Inc., Defendants- Appellees, Meyer Berman, Cumberland Associates, Walter Mintz, Robert Wilson and Robert Wilson Associates, Defendants-Appellees-Cross-Appellants. ockets 79-7366, 79-7410, 79-7412, 79-7423.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Simon H. Rifkind, New York City (Jay Greenfield, Robert S. Smith, Adele R. Wailand, Paul B. Kertman, and Paul, Weiss, Rifkind, Wharton & Garrison, New York City, on the brief), for plaintiff-appellant-cross-appellee Robert B. Nemeroff and appellant-cross-appellee Hale and Dorr.

Rudolph W. Giuliani, New York City (Renee L. Cohen and Patterson, Belknap, Webb & Tyler, New York City, on the brief), for defendants-appellees Alan Abelson, Robert M. Bleiberg and Dow Jones & Company, Inc.

Andrew C. Freedman, New York City (Steven G. Storch, and Reavis & McGrath, New York City, on the brief), for defendants-appellees-cross-appellants Robert Wilson and Robert Wilson Associates.

Jack David, New York City (Steven Finell, and David & Finell, New York City, on the brief), for appellees-cross-appellants Cumberland Associates and Walter Mintz.

Julius Berman, New York City (Kaye, Scholer, Fierman, Hays & Handler, New York City, on the brief), for defendant-appellee-cross-appellant Meyer Berman.

Before SMITH * and TIMBERS, Circuit Judges, and SAND, ** District Judge.

PER CURIAM:

This is an appeal from a judgment entered in the Southern District of New York, Robert L. Carter, District Judge, 469 F.Supp. 630, assessing $50,000 in attorneys' fees and expenses against plaintiff-appellant

Robert B. Nemeroff and his law firm, Hale and Dorr, on the ground that they commenced an action under the federal securities laws in bad faith. The district court awarded the fees to Alan Abelson, Robert Bleiberg, and Dow Jones & Company, three of the defendants in the action. The remaining defendants cross-appeal from the judgment below on the ground that they too should have been awarded attorneys' fees. For the reasons below, we affirm in part, reverse in part, and remand for further proceedings.

I.

Robert B. Nemeroff, a practicing dentist in New York City, was a shareholder of Technicare Corporation ("Technicare"), a manufacturer of medical equipment. Represented by the well known Boston law firm of Hale and Dorr, and in particular by Gordon T. Walker, Esq., a member of the firm, Nemeroff commenced a two-count class action on March 25, 1977 in the Southern District of New York against twelve defendants, including all of the defendants-appellees. The defendants-appellees consist of three "publishing defendants" and five "short seller or investor defendants". The publishing defendants are Alan Abelson, author of a column entitled "Up & Down Wall Street", which appears in the financial weekly Barron's, of which he is a managing editor; Robert M. Bleiberg, the editor of Barron's ; and Dow Jones & Company, Inc., the publisher of various financial publications and services, including Barron's and The Wall Street Journal. The short seller or investor defendants are Meyer Berman; the hedge fund Cumberland Associates and its managing partner, Walter Mintz; and the hedge fund Robert Wilson Associates and its managing partner, Robert Wilson.

The first count of the complaint alleged that all the defendants had conspired to violate § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1976), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (1975). This count alleged that the publishing defendants deliberately leaked non-public information about forthcoming Abelson columns to the investor defendants, and in particular that the publishing defendants gave advance warning to the investor defendants that Abelson would make negative comments about Technicare; that the comments caused or tended to cause a decline in the price of Technicare stock; that the publishing defendants did this in order to enable the investor defendants to trade at a profit; and that the investor defendants profited from the information by selling Technicare short prior to publication and making covering purchases at a depressed price after publication.

The second count named the investor defendants only. It alleged that they engaged in a manipulative scheme to depress the price of Technicare stock through a pattern of massive short selling in violation of §§ 10(b) and 9(a)(2) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78i(a) (1976). 1

On January 6, 1978 an amended complaint was filed. Nemeroff abandoned his In May 1978, pursuant to plaintiff's voluntary stipulation to dismiss the action, an order was filed dismissing the action with prejudice. 2 The stipulation explicitly reserved defendants' right to move for costs and reasonable expenses, including attorneys' fees, but without plaintiff's conceding that defendants were entitled to them.

allegation that the publishing defendants deliberately had leaked information about the Abelson columns to the investor defendants but alleged in his amended complaint that the investor defendants deliberately had solicited negative Abelson columns in an attempt to drive down the price of Technicare stock.

In June 1978 defendants moved for costs, disbursements and attorneys' fees on the ground that the action had been commenced and prosecuted in bad faith. 3 Defendants requested that the award of attorneys' fees be "assessed against plaintiff and/or his counsel." Oral argument on defendants' motions was heard in September 1978. Thereafter additional documents were filed by both sides.

On April 18, 1979 the district court filed a comprehensive, reasoned opinion. 469 F.Supp. 630. The court held that the action had been commenced in bad faith against the publishing defendants and awarded them $50,000 in attorneys' fees and expenses to be taxed against Nemeroff and Hale and Dorr. The court held that the action had not been commenced in bad faith against the investor defendants and accordingly denied their motions for attorneys' On May 10, 1979 a final judgment was entered in accordance with the court's opinion. From that judgment, the instant appeal and cross-appeals have been taken as stated above.

fees and expenses. The court held that defendants were the prevailing parties and granted their motions for costs to be taxed against plaintiff pursuant to Fed.R.Civ.P. 54(d). Pursuant to the parties' stipulation, the court ordered that the action be dismissed with prejudice.

II.

In January 1977 Gordon T. Walker and Hale and Dorr first became involved in the discussions which led to the commencement of this action. At that time Walker met with a client of Hale and Dorr, Herbert Stein, who was a shareholder of Centronics Data Computer Corporation ("Centronics"). 4 By then Barron's already had carried several Abelson columns critical of Technicare. 5 Stein told Walker that he was concerned that Abelson also would criticize Centronics in a forthcoming column. Stein said he had been informed that Abelson had criticized Technicare at the instance of several investors, including Robert Wilson, who had established large short positions in Technicare. Stein said that the same investors had established short positions in Centronics. Stein also mentioned that the Technicare trading was being investigated by the New York Stock Exchange ("NYSE") and the Securities and Exchange Commission ("SEC"). He gave Walker the names of two brokers who had voiced suspicions about the Technicare trading.

During the period between the meeting with Stein in January and the commencement of the action in March, Walker and his firm investigated the allegations regarding Technicare and Centronics. Walker called the NYSE and the SEC and received confirmation that they were investigating complaints about Technicare. Walker spoke to Howard Roth, one of the brokers mentioned by Stein, who reiterated his suspicions about the trading in Technicare. He stated that Nemeroff, his client, was considering commencing an action against Dow Jones and the investors holding short positions in Technicare. He added that Nemeroff would be represented by Paul, Weiss, Rifkind, Wharton & Garrison in the action. Later, Roth informed Walker that Nemeroff would not be represented by Paul, Weiss at that time for reasons not relevant here and that he had recommended to Nemeroff that he retain Hale and Dorr. Nemeroff later decided that he wanted Hale and Dorr to commence an action on his behalf. On March 20 an associate of Hale and Dorr discussed a draft complaint with Nemeroff. The complaint was filed on March 25.

In the remainder of this section of our opinion, we shall summarize only those facts believed to be necessary to an understanding of our rulings on the legal questions presented. The essential facts are those which led Walker to believe that there were adequate grounds for the commencement of Nemeroff's action against defendants. These facts fall generally into two categories: 6 first, the nuts and bolts of

the alleged conspiracy, including Abelson's columns, Abelson's relationship with the investor defendants, and the pattern of trading in Technicare; and second, Walker's contacts with the NYSE attorneys.

THE COLUMNS

Barron's carried a series of articles beginning in May 1976 which mentioned Technicare or the CAT scanner market. All but one were written by Abelson. To the extent that these columns were negative, and not all of them were, 7 they stated that the market for CAT scanners was going to level out because of various factors, including their high cost and the increasing concern over the rising cost of medical care, increased competition, and state regulation of hospital expenditures. The columns...

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    ...because a claim is colorable for purposes of a bad faith analysis when it has "some legal and factual support." Nemeroff v. Abelson, 620 F.2d 339, 348 (2d Cir.1980) (per curiam) (emphasis added). "The question is whether a reasonable attorney could have concluded that facts supporting the c......
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    ...the claim might be established, not whether such facts had been established. (Emphasis in original.) Id., quoting Nemeroff v. Abelson, 620 F.2d 339, 348 (2d Cir.1980). To determine whether the bad faith exception applies, the court must assess whether there has been substantive bad faith as......
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2 provisions
  • Fed. R. Civ. P. 11 Signing Pleadings, Motions, and Other Papers; Representations to the Court; Sanctions
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    ...good-faith formula and thus it is expected that a greater range of circumstances will trigger its violation. See Nemeroff v. Abelson, 620 F.2d 339 (2d Cir. 1980).The rule is not intended to chill an attorney's enthusiasm or creativity in pursuing factual or legal theories. The court is expe......
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    ...good-faith formula and thus it is expected that a greater range of circumstances will trigger its violation. See Nemeroff v. Abelson, 620 F.2d 339 (2d Cir. 1980).The rule is not intended to chill an attorney's enthusiasm or creativity in pursuing factual or legal theories. The court is expe......

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