Piccard v. Sperry Corporation
| Decision Date | 31 January 1941 |
| Citation | 36 F. Supp. 1006 |
| Parties | PICCARD v. SPERRY CORPORATION et al. |
| Court | U.S. District Court — Southern District of New York |
A. Joseph Geist, of New York City (George E. Netter, Theodore Kadin, and Charles Greenbaum, all of New York City, of counsel), for plaintiff.
Chadbourne, Wallace, Parke & Whiteside, of New York City (Horace G. Hitchcock, of New York City, of counsel), for defendants Morgan, Sanderson, Doe, Royce, and Sperry Corporation.
Humes, Buck, Smith & Stowell, of New York City (William H. Hall, of New York City, of counsel), for defendant Armsby.
Chadbourne, Hunt, Jaeckel & Brown, of New York City (William H. Hall, of New York City, of counsel), for Standard Capital Co. and Cowdin.
Eisman, Lee, Corn & Lewine, of New York City (Louis F. Lee, of New York City, of counsel), for Margolin, petitioning intervenor.
Frederick W. Scholem, of New York City, pro se.
Bijur & Herts, of New York City (Harry Bijur, of New York City, of counsel), for Scholem, petitioning intervenor.
Weinstein & Levinson, of New York City (Frank Weinstein and Samuel J. Levinson, both of New York City, of counsel), for Consolidated Investing Corporation, petitioning intervenor.
Charles J. Tanenbaum and Morton Pepper, both of New York City, for objecting stockholders.
John F. Kavanagh, of New York City, for objecting stockholder.
Aaron Rosenthal, of New York City, pro se.
Herbert M. Greenberger, of New York City (Samuel Schaeffer, of New York City, of counsel), for objecting stockholder.
Stewart Lynch, of Wilmington, Del. (Conrad H. Ratner, of New York City, of counsel), for objecting stockholder.
Morris J. Levy, of New York City for objecting stockholder.
Maurice J. Dix, of New York City, pro se.
Emanuel Rackman, of Hempstead, N. Y., for objecting stockholder.
Paul E. Rapp, of New York City, pro se and for objecting stockholder.
John J. Gilbert, pro se.
Skutch, Meyer & Burton, of New York City, for defendant Pierce.
This is an application by the plaintiff for an order approving the proposed compromise of this action, and for an appropriate judgment and decree providing for the acceptance of said compromise according to its terms and the consummation of a settlement thereby contemplated, which has been offered by certain of the defendants in full and final settlement of all matters in the complaint.
Upon the return day of this motion, many stockholders of the Sperry Corporation appeared in court, and voiced opposition to the proposed settlement.
This action is a stockholder's suit brought on behalf of plaintiff for the benefit of the Sperry Corporation, and all other stockholders of the Sperry Corporation who may be similarly situated, against the Sperry Corporation, its officers, and directors, and against certain other defendants and corporations to recover for certain alleged wrongs done to the corporation.
Generally the complaint alleges (1) that the directors, with knowledge of a future increase in the market value of Curtiss-Wright stock, conspired to sell Sperry Corporation's holding of such stock, in order to purchase it for their own account; (2) that the ownership of such a large block of Curtiss-Wright stock by Sperry Corporation was a valuable asset, in that Sperry Corporation had a position of dominance and control over the Curtiss-Wright corporation, and thus the sale constituted negligent waste on the part of the directors of Sperry Corporation; and (3) that the option contract between Sperry Corporation and Field Glore & Company providing for the sale of the Curtiss-Wright stock was illegal and void by reason of the fact that Standard Capital Company had an agreement with Field Glore & Company to share in its profits, and two of the directors and voting trustees of Sperry Corporation were directors and voting trustees of Standard Capital Company.
The defendants have answered, denying the allegations, and generally contend that none of the directors of Sperry Corporation, or any of the other defendants, knew that Curtiss-Wright stock was going to advance in price; that they sold such stock at a time when they thought it best for Sperry Corporation; and that they did not purchase any of such stock for their own accounts. Further they contend that ownership of the Curtiss-Wright stock did not give Sperry Corporation domination and control over that company, and that the contract between Sperry Corporation and Field Glore & Company was fair and reasonable and in the best interests of Sperry Corporation; that at the time said contract was submitted to the board of directors of Sperry Corporation, one of the directors informed the board that a company in which he was interested would receive a portion of Field Glore's profits; that neither he nor another director voted for the approval of this contract, and that when the other directors learned that Standard Capital Company was to receive fifty per cent of the profits of Field Glore, they remonstrated with this director, who took the position that Standard Capital Company was entitled to receive and retain such profits; that in the course of this dispute, a proposed settlement was entered into between the directors on behalf of Sperry Corporation, and this director on behalf of Standard Capital Company, which provided for the payment by Standard of the sum of $101,407.05 out of its profits to Sperry Corporation, and which proposed settlement was submitted to Hon. Clarence Shearn as sole arbitrator upon an agreed statement of facts. This settlement was approved by the arbitrator, and the sum paid.
The objecting stockholders claim that despite the prior settlement between Standard Capital Company and Sperry Corporation, there is more liability than was determined on the arbitration. They also contend that with respect to this proposed settlement all the facts concerning this action have not been brought out, and therefore all the material facts are not before the court, and that until examinations and depositions of certain directors and others are taken, it is impossible to ascertain whether or not this settlement is a fair settlement and one that should be approved by the court.
It is not the court's intention to discuss the merits or demerits of plaintiff's claim, except to point out that there is a question as to whether all the facts concerning the option contract between Sperry Corporation and Field Glore & Company have been revealed. Nor can the affidavits of the directors, submitted on this motion, suffice in place of a full disclosure which would be obtained from an examination of the directors. I realize that the President of Sperry Corporation has been examined, at least partially, but I do not consider his examination sufficient to base an approval of this proposed settlement. Nor can I base my approval on the approval of the prior settlement in this same matter by Judge Shearn, acting as arbitrator, since his decision on the prior settlement rested solely upon an agreed set of facts; which agreed set of facts may not have been complete.
The defendants herein have urged that the financial statements of Curtiss-Wright corporation fully substantiate the wisdom of their action, but this is not controlling on the question of liability of the directors, if from facts which may later be found, liability can be established which would be out of proportion to the proposed settlement. A court, in passing on a proposed settlement of a stockholder's action, should not attempt to pass on the business judgment of directors, but merely ascertain if there is any merit to a stockholder's claim, and if the amount offered justifies the discontinuance of the action. The court should ascertain the possible increment to the corporation if the suit is continued to a successful conclusion in relation to the amount offered in settlement. In other words, the test is what is in the best interests of the corporation. In the instant case, until all the facts are ascertained, the court cannot determine the merit of plaintiff's claim in its relation to the amount offered in settlement.
I do not attempt, by my comment herein, to condemn the...
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