Zients v. LaMorte, 599

• Decision Date: 18 April 1972
• Docket Number: No. 599,Docket 71-2174.,599
• Citation: 459 F.2d 628
• Parties: Alan ZIENTS et al., Plaintiffs, v. Willard J. LaMORTE et al., Defendants, Gertrude Aranow et al., Claimants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

459 F.2d 628 (1972)

Alan ZIENTS et al., Plaintiffs, v. Willard J. LaMORTE et al., Defendants, Gertrude Aranow et al., Claimants-Appellants.

No. 599, Docket 71-2174.

United States Court of Appeals, Second Circuit.

Submitted April 4, 1972.

Decided April 18, 1972.

Joseph Aranow, Brooklyn, N. Y. (Aranow & Koppelman, Brooklyn, N. Y., of counsel), for claimants-appellants.

Alan Palwick, New York City (Burns, Van Kirk Jube & Kafer, New York City, of counsel), for defendant-appellee Shattuck Denn Mining Corp.

Before CLARK, Associate Justice,^* and LUMBARD and KAUFMAN, Circuit Judges.

IRVING R. KAUFMAN, Circuit Judge:

Guidelines for the supervision of class action suits under F.R.Civ.P. Rule 23 have been slow in evolving and scant direction has been forthcoming from appellate courts. We now must decide whether a district judge supervising the distribution of a trust fund created pursuant to a settlement of a class action should have allowed untimely claims of five class members. These claimants concededly failed to receive any notice of the institution of the class action or notice of hearing on the settlement and their claims were made before the distribution of the fund and prior to the scheduled hearing to determine the validity of claims. We are of the view that such claims should be accepted and therefore reverse the order of the court below.

This appeal springs from two consolidated representative class actions brought by stockholders of Shattuck Denn Mining Corporation ("Shattuck") against Shattuck, its directors and some of its officers. The complaint alleged violations of the securities laws and state common law and asserted that the defendants manipulated the market price of Shattuck stock during the period December 20, 1966, to May 10, 1967, by issuing false and misleading statements to the public. The represented class consisted of those who purchased Shattuck stock during that period at an artificially inflated price and suffered a loss on subsequent sale. After lengthy negotiations, the parties executed a Stipulation and Agreement of Compromise and Settlement ("Stipulation") dated February 5, 1971.¹ On February 11, 1971, the District Court entered an order requiring Shattuck to notify the members of the class by February 17 of a hearing to be held on March 23 to determine whether the proposed settlement was "proper, fair, reasonable and adequate and should be approved by the Court and such claims dismissed on the merits and with prejudice . . . ." The order stated that the Stipulation would become operative if approved at the March 23 hearing, but made no reference to a "Proof of Claim" form or a deadline for its filing. In addition to notice of the hearing and a copy of the Stipulation, Shattuck mailed to each shareholder of record during the relevant period a Proof of Claim form. The Stipulation provided that these forms must be returned within 45 days of the mailing— in this case, by April 3, 1971. The Stipulation ultimately was approved by a judgment entered April 6, 1971.²

Appellants here are five claimants named Gertrude Aranow, Rose Fried, Jacob and Judith Reiner and James Cowin whose claims were rejected on the sole ground that they were filed after April 3, 1971. Each complied with paragraph 12(e) of the Stipulation, which provided that those whose claims have been rejected may indicate an intention to contest the rejection by serving notice upon Shattuck and the Court within ten days after the rejection and by requesting a hearing thereon.³ The requisite hearing was held on August 10 at which time the court received affidavits and heard arguments.

The five claimants-appellants contended that neither they nor their broker, E. F. Hutton, who held all their stock in street name, received notice of the settlement hearing or the deadline for filing claims. Aranow's experience is illustrative of appellants' dilemma. She discovered the pendency of the settlement proceedings only because she again had become a Shattuck shareholder and received its Annual Report on April 12 which made reference to the settlement. She immediately wrote to Shattuck, telling it that she had received no notice of the settlement or other proceedings until she received the Annual Report. Shattuck answered her by return mail, enclosing a Proof of Claim form. The letter by James Galgano, Shattuck's Treasurer, indicated that the time to file a claim had expired, but that her late claim would be considered.⁴ Accordingly, she filed her claim. But this was not the end of the correspondence. On April 21, 1971, she received a letter from Donald C. Hain, an attorney for Shattuck, in which he stated:

Your claim has not been rejected. While we cannot pay it without permission of the Court, we propose urging on the Court that late claims (at least until the time we make application, and this would include yours) be paid if there is a reasonable excuse for the lateness.

In addition to her letter to...