Pergament v. Frazer

Decision Date11 August 1950
Docket NumberCiv. A. No. 7354.
Citation93 F. Supp. 13
PartiesPERGAMENT et al. v. FRAZER et al.
CourtU.S. District Court — Western District of Michigan



Samuel L. Chess, New York City, Perlman, Goodman, Hecht & Chesler, Chicago, Ill., and Fischer & Fischer, Detroit, Mich., for proponents-plaintiffs.

Willkie, Owen, Farr, Gallagher & Walton, New York City, and Butzel, Eaman, Long, Gust & Kennedy, Detroit, Mich., of counsel for proponents-defendants.

George E. Brand and George E. Brand, Jr., Detroit, Mich., and Gordon Johnson, San Francisco, Cal., for defendant Kaiser Aluminum & Chemical Corporation, formerly the Permanente Metals Corporation.

Simpson, Thacher & Bartlett, New York City, for defendant Graham Paige Motors Corporation.

Garey & Garey, New York City, for defendant Joseph W. Frazer.

Miller & Hornbeck, Cleveland, Ohio, and Clair John Killoran, Wilmington, Del., for objecting stockholder, Otis & Co.

Lewis M. Dabney, Jr., Anderson & Carew, and Gale, Bernays, Falk & Eisner, New York City, for objecting stockholder Michael Stella.

Clair J. Killoran, Wilmington, Del., Samuel Marion, New York City, and Ernest P. LaJoie, Detroit, Mich., for objecting stockholder Eva Lefker.

Lemuel B. Schofield, Marvin Comisky, G. Fred DiBona, Philadelphia, Pa., and David V. Martin, Detroit, Mich., for objecting stockholder James F. Masterson.

Griffiths, Williams & Griffiths and Marcus, Kelman & Loria, Detroit, Mich., Norman Amenberg and Held, Rawick & Schnur, New York City, for other objecting stockholders.

Mortimer Shapiro, New York City, for Graham Paige Bondholders Protective Committee.

PICARD, District Judge.

In order to fully understand the many issues involved in this matter, we deem it advisable to set forth chronologically certain facts concerning the several stockholders' derivative actions affected by our decision of the main question before this court.

On February 9, 1948, James F. Masterson of Philadelphia, Pa., started a stockholders' derivative suit in the Circuit Court for Wayne County, Michigan, against Kaiser-Frazer Corporation and Otis & Co., et al., including certain of their officers and directors. Otis & Co. was made a defendant because plaintiff sought to enjoin carrying out of a proposed sale of 1,500,000 shares of Kaiser-Frazer stock that Otis & Co. was supposed to take over that very day. Plaintiff also sought an accounting from certain defendants. The case was removed to this court May 21, 1948 and the complaint was twice amended to cover many of the same issues set forth in the other actions.

Mr. Masterson owns 300 shares of Kaiser-Frazer stock.

On February 13, 1948, Kaiser-Frazer Corporation commenced suit against Otis & Co. in the Southern District of New York, seeking damages based on the alleged breach of contract by Otis & Co. in refusing to fulfill the above agreement.

On May 10, 1948 Michael Stella began a stockholders' derivative suit in New York against Kaiser-Frazer Corporation and its directors and officers charging illegal manipulation of its stock. Stella owns 20 shares of Kaiser-Frazer.

May 14, 1948, the Pergament and London action was started in this court against Kaiser-Frazer, et al. Originally it involved only the Graham-Paige and stabilization features, but was later amended to include the Trentwood plant (Permanente) and other transactions. Pregament has 300 shares and Dr. London 8 shares.

June 30, 1948 Eva Lefker (25 shares) began a stockholders' derivative suit against Kaiser-Frazer, et al., including officers and directors, in a Delaware U. S. District Court, based chiefly on transfer of the letter of intent by Kaiser-Frazer to Permanente covering the Trentwood, Washington, aluminum plant.

July 2, 1948 Otis & Co. a Cleveland brokerage house, started a similar action in Delaware against Kaiser-Frazer Corporation and certain officers and directors thereof. Otis & Co. owns or controls 10,763 shares of Kaiser-Frazer stock.

Another suit was started against most of these defendants July 9, 1948 in the state court of California by Hazel C. Fleming, who held 40 shares (amended August 6, 1948 to include Joseph W. Piantanida who owns 80 shares). It attacked the stabilization and Permanente transactions.

All suits, in general, charge breach of trust, fraud, collusion, etc., against these defendants.

On or about September 21, or 25, 1949, Pergament and London, plaintiffs in this action, began conferences with defendants through their attorneys, having as their objective settlement of this and all derivative suits begun by stockholders. A settlement agreement was arrived at October 25, 1949.

That proposed compromise is now before this court and if approved will serve to dismiss not only the Pergament-London action but will eliminate all other stockholders' derivative suits heretofore started. It does not affect the Kaiser-Frazer Corp. v. Otis & Co. suit in New York. 8 F.R.D. 364.

Notices to Stockholders.

The first question presented relates to the sufficiency, legality and fairness of the notices sent to stockholders of Kaiser-Frazer informing them of the hearings on the proposed settlement agreement and the requested approval thereof by this court under Rule 23 (c) of the Rules of Civil Procedure for the District Court of the United States, 28 U.S.C.A.

The notice was in the form of an order to show cause why the agreed settlement should not be approved, and set forth in better than general terms conditions of the agreement. The hearing was fixed by this court for the 6th day of December, 1949 at ten o'clock in the forenoon.

The order was signed by us November 9, 1949 and the two weeks between December 6th and December 20th were devoted chiefly to clarifying the issues and recording opening statements of the several parties present. The hearing was then adjourned to January 17, 1950 at ten o'clock in the forenoon.

Because of the contentions, both factual and legal, advanced by those who appeared on behalf of certain stockholders objecting to the proposed settlement and who urged that the original notice of November 9, 1949 was misleading, untrue and legally ineffective, this court sought consent of all parties to the wording of a new notice aimed at eliminating claimed error in the original.

During those two weeks of argument this court also considered the advisibility of appointing counsel of its own but after having had an opportunity to evaluate the opposition, as demonstrated by counsel for objecting stockholders Lefker, Stella, Masterson and Otis & Co., this court was convinced that any and all pertinent facts that could possibly be ferreted out, and all possible reasons legal or factual, pro and con, that could eventually be placed before this or any court, would be available to us. We were certain that the interests of the stockholders would not be jeopardized nor the battle lost "for want of a horseshoe nail".

In short the court was completely satisfied that any objections that might be advanced against the advisibility of approving this agreement would have a complete airing since the very talented battery of attorneys for objecting stockholders proved to us early in the hearings that they were able, resourceful, efficient, experienced and devoted to their clients' respective claims, to such an extent as to be almost enthusiastically hostile to any person or thing that might at any time have come under the influence of Henry Kaiser or any of the "Kaiser Empire".

As for proponents, they had also secured counsel of equal ability and integrity.

No testimony was taken during the December hearings and by December 20, 1949 our efforts to have all parties join in an amended notice to the stockholders had failed. In fact, it appeared to this court that certain objecting stockholders, through their counsel, were satisfied and anxious to prevent curing of any error there might have been in the original notice.

However, over their objection but having in mind the object of Rule 23(c) we prepared a new notice and caused the same to be sent to all stockholders of defendant Kaiser-Frazer. We did not by such action intend to imply that any second notice was necessary or that there existed any defect or error in the original information given stockholders on the order to show cause. It was simply our intention to clarify what the objecting stockholders had criticized, to-wit, that the original notice was inadequate, unfair, fraudulent, misleading and had lulled stockholders into a feeling of security by asserting that the agreement covered certain considerations which objecting stockholders maintained it did not. Mullane, Special Guardian v. Central Hanover Bank & Trust Co., Trustee, 339 U.S. 306, 70 S.Ct. 652; In re Hansen's Guardianship, 229 Iowa 914, 295 N.W. 429.

The court believes that not only was the original notice ample, complete, sufficient and fair, but that if there was any defect or error in that notice it was cured through the second notice wherein the stockholders were informed by overemphasis on the matters challenged by the objectors.

Validity of Conferences, etc., by Which the Settlement Agreement Was Reached.

Another issue which we must necessarily settle before proceeding is objecting stockholders' contention that the proposed settlement agreement should not be approved because, first, it is not the valid act of Kaiser-Frazer or anybody competent to act for Kaiser-Frazer; second, it was not arrived at by arms-length bargaining in good faith; third, failure to include attorneys for objecting stockholders; and, fourth, there was collusion.

This agreement is the result of several conferences between attorneys for certain plaintiffs, Pergament, et al., and defendants, either personally or by their attorneys. Quite naturally we believe defendants were trying to get as favorable an agreement as they could. On the other hand the plaintiffs were trying to drive as good a bargain as they thought they coul...

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