Seigal v. Merrick, s. 141
| Decision Date | 14 December 1978 |
| Docket Number | 235,D,Nos. 141,s. 141 |
| Parties | David SEIGAL and Ethel Seigal, Plaintiffs-Appellants, v. David MERRICK, Defendant, and William T. Gossett, William R. Hearst, Jr., Warren Hellman, H. Blackmer Johnson, John H. Johnson, William C. Keefe, Ralph F. Lewis, Malcolm A. MacIntyre, Harry McIntyre, John T. Pollock, Dennis C. Stanfill, Gordon Stulberg, Gerald Trautman, John L. Vogelstein, Defendants-Appellants, and Twentieth Century-Fox Film Corporation, Defendant, and Muriel Koby, George Rosen and Sandra Sachs, Intervenors-Objectors-Appellees. Harry GEHLER, Plaintiff-Appellant, v. William R. HEARST, Jr., H. Blackmer Johnson, John J. Johnson, William C. Keefe, Malcolm A. MacIntyre, John T. Pollock, Ralph Lewis, Dennis C. Stanfill, Gordon Stulberg, Gerald A. Trautman, William T. Gossett, Defendants-Appellants, and David Merrick, Defendant, and Twentieth Century-Fox Film Corporation, Defendant, and Muriel Koby, George Rosen and Sandra Sachs, Intervenors-Objectors-Appellees. ockets 77-7566, 77-7576. |
| Court | U.S. Court of Appeals — Second Circuit |
Edwin E. McAmis and Peggy L. Kerr, New York City (Samuel Kadet, Skadden, Arps, Slate, Meagher & Flom, New York City, of counsel), for defendants-appellants.
Martin R. Gold, New York City (Gold, Farrell & Marks, New York City, of counsel), for plaintiffs-appellants.
Norman Annenberg, New York City, for intervenors-objectors-appellees.
Kaufman, Taylor, Kimmel & Miller, New York City (Stanley L. Kaufman, Irving Malchman and Roger W. Kirby, New York City, of counsel), for amicus Stockholders Louis Weiss and Eileen Weiss.
Before LUMBARD, MOORE and GURFEIN, Circuit Judges.
Both the plaintiffs and the defendant-directors in two stockholder derivative actions brought on behalf of Twentieth Century-Fox Film Corp. ("Fox") appeal from an order of the District Court (Hon. Constance Baker Motley, Judge ) Refusing approval of a stipulation of settlement under F.R.Civ.P. 23.1. The settlement that was disapproved by Judge Motley involved the granting of options, which were restricted in certain ways, to defendant-directors at a certain striking price, a consideration being paid for the options. The objectors attacked the settlement as illusory and unfair to Fox.
Fox and objectors to the settlement have moved to dismiss the appeal on the ground that the order of the District Court refusing to approve the settlement is not an appealable order. Fox contends that appellants, by the terms of the stipulation, have waived their right to appeal. The objectors add that the order, even without regard to the stipulation, is not a final order.28 U.S.C. § 1291. We hold that the refusal of the District Court to approve a settlement in a stockholder derivative action is not appealable under § 1291.
The question is one of first impression in this circuit. On its face the order is clearly not a final order within the literal meaning of 28 U.S.C. § 1291, for the order did not result in a judgment that would terminate the proceeding. Catlin v. United States, 324 U.S. 229, 65 S.Ct. 631, 89 L.Ed. 911 (1945). Nor did appellants seek an order from the District Court under 28 U.S.C. § 1292(b) certifying that the non-appealable order involves a controlling question of law.
The only ground upon which appealability may conceivably be premised is the collateral order doctrine of Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). In that well-known case, the question was whether a federal court, having jurisdiction of a stockholder derivative action through diversity of citizenship, must apply a statute of the forum state which made plaintiffs post security for costs and certain expenses as a condition to suit. The District Court had decided that the state statute was not applicable to an action in the federal court. 7 F.R.D. 352 (D.N.J.1947). The Court of Appeals thought otherwise and reversed. 170 F.2d 44 (3d Cir. 1948).
The Supreme Court held the decision appealable because it
appears to fall in that small class which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated. . . .
We hold this order appealable because it is a final disposition of a claimed right which is not an ingredient of the cause of action and does not require consideration with it.
337 U.S. at 546-47, 69 S.Ct. at 1225-26.
Significantly, the Court added:
But we do not mean that every order fixing security is subject to appeal. Here it is the right to security that presents a serious and unsettled question. If the right were admitted or clear and the order involved only an exercise of discretion as to the amount of security, a matter the statute makes subject to reconsideration from time to time, appealability would present a different question.
337 U.S. at 547, 69 S.Ct. at 1226.
Thus, Cohen decided an important categorical question of federalism which, because it could arise only at the threshold of litigation, had to be reviewed before final judgment if an appellate decision was to have any meaning.
Cohen v. Beneficial, as might have been expected, has spawned a host of legitimate and illegitimate progeny. As we have had occasion to note, "Cohen must be kept within narrow bounds, lest this exception swallow the salutary 'final judgment' rule." Weight Watchers of Philadelphia v. Weight Watchers International, 455 F.2d 770, 773 (2d Cir. 1972) (citations omitted). We had earlier declared that the gist of the Cohen doctrine "revolved about issues concerning the Power of the district court to render its decision, as distinct from the propriety of its exercise of discretion." Bancroft Navigation Co. v. Chadade Steamship Co., 349 F.2d 527, 529 (2d Cir. 1965) (emphasis in original). And while we, like other circuits, have probably not been entirely consistent in our application of the collateral order doctrine, we have tended to adhere to our disinclination to erode the finality doctrine by indirection.
The Supreme Court has recently given an even firmer direction to this trend. In Coopers and Lybrand v. Livesay, 437 U.S. 463, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978), the Court held that a determination that an action may Not be maintained as a class action is not appealable as a matter of right, even though it may spell the "death knell" of the action. The Court there noted that to be appealable the "order must conclusively determine the disputed question . . . ." Id. at 2458. That test cannot be met for an order disapproving a settlement. Such an order is based, in part, upon an assessment of the merit of the positions of the respective parties, and permits the parties to proceed with the litigation or to propose a different settlement.
A settlement in an ordinary civil litigation is normally the sole concern of the parties. In stockholder derivative actions, on the other hand, because of the vicarious representation involved, the court has a duty to perform before an action can be "settled." The court must "approve" the settlement under F.R.Civ.P. 23.1. 1 This approval cannot be a rubber stamp adoption of what the parties alone agree is fair and equitable. The test is more rigorous. 2
The Court also declared in Livesay that 98 S.Ct. at 2462 & n.29.
The latest word from the Supreme Court serves as a guide to our decision. The requirement of court approval for compromises, as we know, is found in the Federal Rules of Civil Procedure. That code applies to District Courts alone. F.R.Civ.P. 1. There is no provision for the substitution of an appellate opinion save when the settlement decree is final, in which case appellate review is still subject to severe limitations.
The determination of whether to approve a Rule 23.1 settlement is peculiarly an amalgam of fact and law. Most derivative actions probably are settled rather than litigated to final judgment. This course of settlement, however, is not a deviation from the main path of the litigating process. It is a step on that path directly leading to final judgment. An approval of a compromise, after appropriate notice, becomes a final judgment. Smith v. Alleghany Corp., 394 F.2d 381, 391 (2d Cir.), Cert. denied, 393 U.S. 939, 89 S.Ct. 300, 21 L.Ed.2d 276 (1968). So, a Disapproval of a compromise that would have resulted in a final judgment if it had been approved is not...
To continue reading
Request your trial
-
General Motors Corp. Engine Interchange Litigation, In re
...Ninth Circuits and refused to review a trial court's refusal to approve a settlement of a shareholders derivative action. Seigal v. Merrick, 590 F.2d 35 (2d Cir. 1978). Because this appeal challenges the trial court's approval of a settlement, we need not align this court on one side of thi......
-
Donovan v. Occupational Safety and Health Review Com'n, 911
...a narrow one and must continue to be read that way " 'lest this exception swallow the salutary "final judgment" rule,' " Seigal v. Merrick, 590 F.2d 35, 37 (2d Cir.1978) (quoting Weight Watchers of Philadelphia v. Weight Watchers Int'l, 455 F.2d 770, 773 (2d Cir.1972)). Accord New York v. D......
-
U.S. v. City of Alexandria
...57 L.Ed.2d 351 (1978), Gardner v. Westinghouse Broadcasting Co., 437 U.S. 478, 98 S.Ct. 2451, 57 L.Ed.2d 364 (1978), and Seigal v. Merrick, 590 F.2d 35 (2d Cir. 1978), all of which relate to class actions or shareholder derivative suits, in resolving the question of appealability of orders ......
-
Wellman v. Dickinson
...However, court "approval cannot be a rubber stamp adoption of what the parties alone agree is fair and equitable." Seigal v. Merrick, 590 F.2d 35, 37-38 (2d Cir. 1978). Fairness, reasonableness and adequacy are determined by measuring the strength of the class case against what is being off......