Van Gemert v. Boeing Co.

• Decision Date: 29 June 1984
• Docket Number: 1077 and 1078,Nos. 866,D,s. 866
• Parties: , Fed. Sec. L. Rep. P 91,583 William R. VAN GEMERT, et al., Plaintiffs-Appellants, v. The BOEING COMPANY, Defendant-Appellee. ockets 83-7843, 83-7851 and 83-7853.
• Court: U.S. Court of Appeals — Second Circuit

Page 730

739 F.2d 730

39 Fed.R.Serv.2d 984, Fed. Sec. L. Rep. P 91,583

William R. VAN GEMERT, et al., Plaintiffs-Appellants, v. The BOEING COMPANY, Defendant-Appellee.

Nos. 866, 1077 and 1078, Dockets 83-7843, 83-7851 and 83-7853.

United States Court of Appeals, Second Circuit.

Argued April 9, 1984.

Decided June 29, 1984.

Norman Winer, Joseph Sternberg, New York City (Kass, Goodkind, Wechsler & Labaton, New York City on the brief), for plaintiffs-appellants.

Henry L. King, New York City (Carolyn Curtis, and Davis, Polk & Wardwell, New York City on the brief), for defendant-appellee.

Allan E. Kirstein, Asst. Atty. Gen. of the State of New York, New York City (Robert Abrams, Atty. Gen., Daniel L. Kurtz, Asst. Atty. Gen. In Charge Charities, Trusts and Estates Bureau, and Jonathan J. Silbermann, Asst. Atty. Gen., New York City, on the brief), for State of New York, proposed intervenor-appellant, amicus curiae.

Before TIMBERS and PRATT, Circuit Judges, and METZNER, Senior District Judge, Southern District of New York, sitting by designation.

TIMBERS, Circuit Judge:

Appellants class members and proposed intervenor, the State of New York, appeal from an order entered September 12, 1983 in the Southern District of New York, Irving Ben Cooper, District Judge, distributing to defendant, The Boeing Company, the unclaimed portion of a class action judgment fund, subject to the conditions that Boeing publish notice of the availability of the fund in its annual report and that Boeing stand ready to pay valid claims against the fund in perpetuity.

For the reasons stated below, we affirm.

I.

This is the latest, and probably not the last, of numerous appeals during the course of the eighteen years of this extensive litigation. We assume familiarity with the prior opinions and decisions referred to below--of the Supreme Court, of our Court, and of the District Court. We shall briefly summarize only those facts and prior proceedings believed necessary to an understanding of our ruling on the narrow question presented on the instant appeal.

In March 1966, Boeing called for redemption of certain convertible debentures. Boeing announced the call by mailing notices to those investors who had registered their debentures. Pursuant to the terms of the Indenture Agreement, Boeing published in two national newspapers notices of its intention to call. In the notices, March 29, 1966 was set as the deadline for the debenture holders to exercise their conversion rights. After this deadline, holders of debentures with a face value of $1,544,300 (7.2% of the total) had not converted and were left only with the less attractive right to redeem. The debenture holders thus were faced with two choices: either deliver the debentures for conversion by March 29 and receive two shares of Boeing common stock worth a total $316.25 for each $100 principal amount or deliver the debentures for redemption at any time and receive $103.25 for each $100 principal amount. Rational investors, aware of this choice, presumably would have opted for conversion and the $216.25 conversion premium rather than redemption and the corresponding $3.25 call premium. Under the judgment of the district court filed July 6, 1977, there are two categories of class members: first, those who have neither converted nor redeemed their debentures, and, second, those who redeemed.

Van Gemert and several other nonconverting debenture holders commenced a class action in the district court, contending that Boeing had violated the federal securities laws as well as state law, by failing to give the class members adequate and reasonable notice of its decision to redeem. The court dismissed the complaint, holding that Boeing had given the notice required by the Indenture Agreement. On appeal, we held that under state law Boeing had an implied duty to provide reasonable notice of its intention to redeem the debentures; that that duty had not been satisfied by the notice actually given; and accordingly that Boeing was liable despite its compliance with the notice provisions of the Indenture Agreement. We remanded the case for determination of damages. Van Gemert v. Boeing Co., 520 F.2d 1373 (2 Cir.) (Van Gemert I ), cert. denied, 423 U.S. 947 (1975).

On remand pursuant to Van Gemert I, the court calculated damages based on the difference between the redemption price and the market value of the shares of common stock that would have resulted from conversion on March 29, 1966. The total dollar amount was $3,289,359. The court, however, declined to award prejudgment interest. On appeal, we affirmed the damage calculation, but held that plaintiffs were entitled to prejudgment interest. Van Gemert v. Boeing Co., 553 F.2d 812 (2 Cir.1977) (Van Gemert II ). We also held that the plaintiff class members should not share in the unclaimed portion of the judgment fund, since that would constitute a form of fluid class recovery in contravention of Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2 Cir.1973), vacated and remanded on other grounds, 417 U.S. 156 (1974). Since Boeing could have a right to the unclaimed money, we rejected the proposal that the claiming class members use the unclaimed portion to defray their legal expenses, for such a proposal might shift fees to the losing party in violation of the American rule.

On remand pursuant to Van Gemert II, the court entered judgment on July 6, 1977, assessing damages, as it had before, in amount of $3,289,359, but this time adding prejudgment interest from March 29, 1966, the date of the breach. The court ordered Boeing to deposit in a bank account the total amount plus accrued postjudgment interest. The court further ordered that each individual debenture holder who recovered should bear his proportionate share of the fees, expenses, and disbursements. The court appointed a Special Master to administer the judgment and to pass on the validity of individual claims.

Boeing appealed from the judgment of July 6, 1977, claiming that under Van Gemert II the attorneys for the class members should be paid only from the claimed portion of the judgment fund. A panel of our Court agreed in substance. We reversed and remanded, holding that class members could not be treated collectively; since non-claiming class members had not received any benefit from the attorneys' services, they should not be required to pay. Van Gemert v. Boeing Co., 573 F.2d 733 (2 Cir.) (Van Gemert III ), rev'd en banc, 590 F.2d 433 (2 Cir.1978) (Van Gemert IV ). In our en banc opinion, we affirmed the judgment of the district court, holding that non-claiming class members had received a benefit within the meaning of the common fund doctrine. Van Gemert v. Boeing Co., 590 F.2d 433 (2 Cir.1978) (Van Gemert IV ). The Supreme Court affirmed Van Gemert IV. Boeing Co. v. Van Gemert, 444 U.S. 472 (1980). For an illuminating discussion of the common fund doctrine in the context of the instant case, see Note, Attorney's Fees, Unclaimed Funds, and Class Actions: Application of the Common Fund Doctrine, 48 Fordham L.Rev. 370 (1979).

Since the entry of the district court's judgment of July 6, 1977 on remand from Van Gemert II, the Special Master has attempted to locate non-claiming class members entitled to payments from the fund. The amount of the fund has been decreased by the payment of fees to plaintiffs' attorneys, administrative expenses of managing the fund, and payments to class members who have filed valid claims. For example, in July 1981, $3,348,545.71 was paid to plaintiffs' attorneys; and, in June 1982, payments totalling $3,916,197.12, including interest, were made to the majority of claiming class members. On the other hand, the fund has been increased by interest resulting from investment of the fund.

On September 22, 1982, Boeing moved for an order releasing the unclaimed funds to Boeing. In an order dated October 7, 1982, the court relieved the first Special Master and appointed a second Special Master to recommend how to deal with the unclaimed funds. The states of New York and Illinois filed motions to intervene and stated their positions to the second Special Master. On July 20, 1983, the Special Master recommended that Boeing's motion be granted upon certain conditions, and that the motions of New York and Illinois to intervene be denied but with leave to file briefs as amicus curiae.

On September 12, 1983, the court confirmed the Special Master's report and recommendations. Specifically, the court denied the motions of New York and Illinois to intervene, but ordered that their briefs and papers be considered on an amicus curiae basis. The court further ordered that the undisbursed balance of the judgment fund be returned to Boeing, subject to the conditions that Boeing publish notice of the availability of the fund in its annual report for the next ten years and that Boeing pay in perpetuity any valid future claims by debenture holders who had not yet received payment.

The Special Master reported that, of the 7.2% of debentures outstanding after the March 29, 1966 conversion deadline, 59.4% had been paid. In a letter to this Court dated April 9, 1984, counsel for Boeing advised that the amount remaining in the judgment fund returned to Boeing was $2,710,272. From this fund, the remaining class members are entitled to $1,317,948 in damages, plus prejudgment interest at the statutory rate and legal interest from the date of judgment to the date of payment.

The question before us on the instant appeal is whether the district court's distribution plan for the unclaimed portion of the fund is proper. On previous appeals, we did not express any views as to how to disburse the unclaimed portion of the fund. Van Gemert III, supra, 573 F.2d at 737; Van Gemert IV, supra, 590 F.2d at 440 n. 17. Likewise, the Supreme Court declined to express any opinion on the matter. Boeing Co. v. Van Gemert, supra, 444 U.S. at 482 n. 8. For the reasons stated below, we hold...