Wells v. Shearson Lehman/American Exp., Inc.
| Decision Date | 07 June 1988 |
| Citation | 530 N.Y.S.2d 517,72 N.Y.2d 11,526 N.E.2d 8 |
| Parties | , 526 N.E.2d 8 Rosalind S. WELLS, Respondent, v. SHEARSON LEHMAN/AMERICAN EXPRESS, INC., et al., Appellants. |
| Court | New York Court of Appeals Court of Appeals |
An action against financial advisors who rendered opinions on the financial fairness to shareholders of a proposed leveraged buyout is barred by a release in settlement of a prior Delaware class action challenging the buyout. While the financial advisors were not parties to the Delaware class action, we conclude that, applying the law of Delaware or the law of New York, the release discharging the named defendants, their "agents * * * representatives * * * or anyone else", unambiguously precluded the pending action.
Plaintiff, Rosalind Wells, brings this action against Shearson Lehman/American Express, Inc. and Bear Stearns & Co., alleging that their opinions as to the financial fairness of the consideration offered Wells and other shareholders of Metromedia, Inc. in a management buyout were wrong and negligently or recklessly rendered. She contends that the consideration was grossly inadequate and that the board and shareholders approved the transaction in reliance on defendants' opinions. The question whether these claims are precluded by the settlement of a prior class action is best considered against the background of the buyout and prior litigation.
On December 6, 1983, four senior officers of Metromedia proposed a leveraged buyout in which the company would be taken private through a merger with JWK Acquisition Corp. The officers would own approximately 96% of the stock of the merged company. The offer would have converted each share of Metromedia common stock into a combination of cash and subordinated debentures worth approximately $40. The total purchase price of $1.1 billion was to be obtained through loans secured by Metromedia's assets.
Plaintiff and other Metromedia stockholders immediately began lawsuits in Delaware Chancery Court challenging the proposed transaction; by December 30, nine suits had been filed. An amended class action complaint, consolidating those separate actions, was served and filed naming as defendants Metromedia, its directors and Boston Ventures Ltd., and attacking the amount to be paid to public shareholders as grossly inadequate. The following extract from the complaint is illustrative:
Four Metromedia directors who, though named in the complaint, were not part of the buying group, were appointed to a special directors committee to represent the interests of the common stockholders. The directors committee retained defendant financial advisors to render opinions on the financial fairness of the buyout to public stockholders. On January 31, 1984, defendants informed the committee that, based on facts then known, the offered price per share was fair, and the transaction was thereafter approved. It is these opinions that plaintiff now challenges.
The accuracy of defendants' opinions was the subject of significant attention in the Delaware class action.
Eleven law firms represented the plaintiff class. Discovery proceeded during the spring of 1984--including the depositions of partners of both financial advisors--and negotiations culminated in settlement. Defendants increased the consideration offered to shareholders by $16,500,000 (or approximately 69 cents a share) and agreed to pay the plaintiffs' attorneys' fees of close to $1 million.
A stipulation of settlement (the release) dated May 15, 1984 recited the underlying allegations of the complaint, and represented that plaintiffs' attorneys had made a "thorough and intensive" investigation into those claims and determined that the proposed settlement was fair and reasonable. The release provided that: "all claims * * * that have been or could have been asserted by plaintiffs herein or any members of the Class against any defendant, or against any of the officers, directors, agents, attorneys, representatives, affiliates and general and limited partners of any defendant, or against anyone else in connection with or that arise now or hereafter out of the Action, the Settlement (except for compliance with the Settlement), or any matters, transactions or occurrences referred to in the complaint or the Stipulation, including the recitals herein (the 'Settled Claims') shall be compromised, settled, released and dismissed with prejudice". At two separate points, the release referred to the intention to put plaintiffs' claims regarding the buyout finally to rest.
To obtain court approval, plaintiffs' attorneys submitted a memorandum in support of the settlement and their fee application. In this memorandum, they represented that they had undertaken an extensive review of documents relating to Metromedia's financial position and asset values, including confidential materials, and had conducted several depositions from which they derived a complete picture of all the parties' positions. They discovered, and revealed, "facts that cast doubt on the 'independence' of (including the fee arrangement); the weaknesses in both opinions indicating that they had undervalued Metromedia's assets; and the lender's determination that Metromedia's broadcast assets alone were sufficient to justify the loan for the buyout, indicating that the company's other assets were undervalued. Counsel concluded, however, that there was a risk the future profitability might not materialize, and plaintiffs might not be able to meet their burden of proof if the suit continued to trial.
A notice of pendency dated May 21, 1984 was distributed to the class together with the proposed release and the statement prepared by Metromedia in connection with the required shareholder vote on the merger. The proxy statement, reviewed by plaintiffs' counsel in draft and modified form, included the written opinions of both defendants that the price offered the shareholders "approximated the estimated per share value of Metromedia which might be realized from the sale of its various businesses as going concerns, including estimated costs and risks associated with such liquidation." The proxy statement also outlined the relationships and financial arrangements between Metromedia and the financial advisors, including the fact that both would receive substantial fees if the merger went forward. The stockholders approved the merger and it became effective on June 21, 1984.
On that same date the Delaware court entered final judgment approving the settlement as "fair, reasonable and adequate," dismissing the action on the merits with prejudice, and providing: "All plaintiffs and all members of the certified class are hereby permanently barred and enjoined from instituting or prosecuting, either directly or representatively, or in any other capacity, any other action asserting claims against anyone which could have been asserted in the Action or which arise now or hereafter out of the Action, the Settlement * * * or any matters, transactions or occurrences referred to in the pleadings in the Action or the Stipulation".
In May 1985, Metromedia made an agreement to sell seven of its television stations for $2 billion. The remaining businesses then were sold in accordance with a plan of liquidation adopted in February 1986 for an additional $2.5 billion, the total consideration far exceeding the $1.1 billion value established as fair by defendants.
Immediately, plaintiff instituted the present action seeking damages and other relief against the financial advisors on behalf of a class of Metromedia stockholders whose shares were exchanged in the merger. The complaint repeats the Delaware allegations, and charges that defendants violated their duty to the shareholders, knowing that the opinions would be relied on by the shareholders and that the merger would not otherwise proceed. In response to defendants' motion to dismiss on several grounds, including the prior release and failure to state a cause of action, plaintiff submitted an affidavit stating: "It was never my intention to release from any liability for professional malpractice in the issuance of their opinions, nor did I even suspect that such malpractice had occurred or would occur."
Supreme Court granted defendants' motion to dismiss the complaint, holding that the action was barred by the release, which expressed the parties' clear intention to foreclose any action arising out of the buyout. The court further held that the complaint failed to state a cause of action because plaintiff could not establish reliance on defendants' opinions, and that any claim for losses arising out of reliance on the reports is an issue for the Delaware court that approved the settlement. The Appellate Division reversed, reasoning that under both Delaware and New York law the intent of the parties to a general release that purports to discharge "anyone else" must be examined to determine whether particular individuals were meant to be included. The court additionally held that, because the investment bankers were retained to advise the shareholders, allegations that the shareholders relied on their opinions to their detriment stated a cause of action. We now reverse.
The effect of the release is central to this appeal. If language...
To continue reading
Request your trial
-
Ja Apparel Corp. v. Abboud
...prohibited, however, from considering the parties' "[u]ncommu-nicated subjective intent." Wells v. Shear-son Lehman/Am. Express, Inc., 72 N.Y.2d 11, 24, 530 N.Y.S.2d 517, 524, 526 N.E.2d 8 (1988); see also First Montauk Secs. Corp. v. Menter, 26 F.Supp.2d 688, 689 (S.D.N.Y. 1998) ("[I]t is ......
-
Berman v. Parco, 96 CIV. 375(KMW).
...in a written agreement which is complete and clear and unambiguous upon its face.'"); Wells v. Shearson Lehman/American Express, Inc., 72 N.Y.2d at 19, 530 N.Y.S.2d at 521, 526 N.E.2d at 11-12. Further, whether a contract is clear and unambiguous, or ambiguous, is a question of law to be re......
-
Chesapeake Energy Corp. v. Bank of N.Y. Mellon Trust Co.
...intention to raise an ambiguity. See, e.g., Klos v. Lotnicze, 133 F.3d 164, 168 (2d Cir.1997); Wells v. Shearson Lehman/Am. Express, 72 N.Y.2d 11, 24, 530 N.Y.S.2d 517, 526 N.E.2d 8 (1988); First Montauk Sec. Corp. v. Menter, 26 F.Supp.2d 688, 689 (S.D.N.Y.1998). Similarly, where a contract......
-
In re Rickel & Associates, Inc.
...Benefit Guar. Corp. (In re Ionosphere Clubs, Inc.), 147 B.R. 855, 863 (Bankr.S.D.N.Y.1992); Wells v. Shearson Lehman/Am. Express, Inc., 72 N.Y.2d 11, 530 N.Y.S.2d 517, 526 N.E.2d 8, 15-16 (1988). Nevertheless, a "release may not be read to cover matters which the parties did not desire or i......