Zimmerman v. Bell

• Decision Date: 08 September 1986
• Docket Number: No. 85-2027,85-2027
• Parties: Fed. Sec. L. Rep. P 92,909 Ilse ZIMMERMAN and Irma Bildstein and Belle M. Cohen and Richard Ash, individually and derivatively on behalf of Martin Marietta Corporation, Appellees, and Charlotte Horowitz, on behalf of herself and all others similarly situated as to Counts I and II, and in the right of Martin Marietta Corporation as to Counts III and IV, Appellant, v. Griffin B. BELL, Frank X. Bradley, John J. Byrne, A. James Clark, James L. Everett, III, Frank M. Ewing, William W. Hagerty, John L. Hanigan, Charles E. Hugel, Melvin R. Laird, Thomas G. Pownall, J. Donald Rauth, David C. Scott, Eugene M. Zuckert, John Doe, I, John Doe, II, John Doe, III, John Doe, IV, John Doe, V, John Doe, VI, John Doe, VII, John Doe, IX, John Doe, X, John Doe, XI, John Doe, XII, John Doe, XIII, John Doe, XIV, John Doe, XV, John Doe, XVI, John Doe, XVII, John Doe, XVIII, John Doe, XIX, John Doe, XX, John Doe, XXI, John Doe, XXII, John Doe, XXIII, John Doe, XXIV, John Doe, XXV, John Doe, XXVI, John Doe, XXVII, John Doe, XXVIII, Martin Marietta Corporation, Anne Schwartz, Jean Braun, Laurence J. Adams, Charles H. Leithauser, and David S. Levine, Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 386

800 F.2d 386

Fed. Sec. L. Rep. P 92,909

Ilse ZIMMERMAN and Irma Bildstein and Belle M. Cohen and Richard Ash, individually and derivatively on behalf of Martin Marietta Corporation, Appellees and Charlotte Horowitz, on behalf of herself and all others similarly situated as to Counts I and II, and in the right of Martin Marietta Corporation as to Counts III and IV, Appellant, v. Griffin B. BELL, Frank X. Bradley, John J. Byrne, A. James Clark, James L. Everett, III, Frank M. Ewing, William W Hagerty, John L. Hanigan, Charles E. Hugel, Melvin R. Laird Thomas G. Pownall, J. Donald Rauth, David C. Scott, Eugene M. Zuckert, John Doe, I, John Doe, II, John Doe, III, John Doe, IV, John Doe, V, John Doe, VI, John Doe, VII, John Doe IX, John Doe, X, John Doe, XI, John Doe, XII, John Doe, XIII, John Doe, XIV, John Doe, XV, John Doe, XVI, John Doe, XVII, John Doe, XVIII, John Doe, XIX, John Doe, XX, John Doe, XXI, John Doe, XXII, John Doe, XXIII, John Doe, XXIV, John Doe, XXV, John Doe, XXVI, John Doe, XXVII, John Doe, XXVIII, Martin Marietta Corporation, Anne Schwartz, Jean Braun, Laurence J. Adams, Charles H. Leithauser, and David S. Levine, Appellees.

No. 85-2027.

United States Court of Appeals, Fourth Circuit.

Argued April 9, 1986.

Decided Sept. 8, 1986.

Kurt Hunciker, Sheldon D. Camhy, Allan R. Tessler, Shea & Gould, Jules Brody, Stull, Stull & Brody, New York City, J. Michael McWilliams, William C. Sammons, John B. Isbister (Tydings & Rosenberg, Baltimore, Md., on brief), for appellant.

Robert C. Myers, Dewey, Ballantine, Bushby, Palmer & Wood, New York City, George Beall (Miles & Stockbridge, Baltimore, Md., on brief), for appellees the Directors Martin Marietta Corp.

Irving Bizar, Bizar, D'Alessandro, Shustak & Martin, Bruce E. Gerstein, Garwin, Bronzzaft & Gerstein, New York City (Wartzman, Rombro, Rudd & Omansky, P.A., Baltimore, Md., on brief), for appellees Ilse Zimmerman, et al.

Karen M. Barry, Frank H. Menaker, Jr., Bethesda, Md., Vice President and Gen. Counsel (Martin Marietta Corp., on brief), for appellee Martin Marietta Corporation.

Before WIDENER, ERVIN and WILKINSON, Circuit Judges.

WILKINSON, Circuit Judge:

This appeal arises out of Bendix Corporation's 1982 attempt to take over Martin Marietta Corporation. Charlotte Horowitz alleging securities fraud, filed a class action against the directors of Martin Marietta on behalf of herself and other shareholders of that corporation. The district court denied Horowitz' motion for class certification. The directors of Martin Marietta offered judgment to Horowitz in the amount of $3,281.25 plus costs, the maximum amount of damages claimed by Horowitz individually in her answers to interrogatories. Horowitz rejected the offer, and the district court granted defendants' motion to dismiss the individual claims because there was no longer a case or controversy. In a related case, the district court approved a proposed settlement of shareholder derivative actions brought by Ilse Zimmerman and Belle Cohen.

Horowitz now appeals the denial of class certification, the dismissal of her individual claims, and the approval of the settlement. We affirm all three rulings of the district court.

I.

The background of this litigation is complex and lengthy; it has been set out in some detail in Martin Marietta Corp. v. Bendix Corp., 547 F.Supp. 533 (D.Md.1982) and Martin Marietta Corp. v. Bendix Corp., 549 F.Supp. 623 (D.Md.1982). Briefly, Bendix made a tender offer for Martin Marietta's stock. Martin Marietta responded with a tender offer for Bendix' stock. Allied Corporation and Bendix agreed to a merger, and Allied, Bendix, and Martin Marietta negotiated their way to an accord. Martin Marietta and Bendix each agreed to refrain from acquiring control of the other. Allied bought the Bendix stock owned by Martin Marietta, and sold most of the Martin Marietta stock acquired by Bendix to Martin Marietta, although Allied ended up with approximately 39% of the outstanding Martin Marietta stock. A "Standstill Agreement" provided, among other things, that Allied would vote its Martin Marietta shares as the Martin Marietta board recommended.

All of this activity produced a flurry of lawsuits, including a number of shareholder derivative suits and the class action brought by Horowitz. Specifically, the shareholders alleged that the Martin Marietta directors had run up a gigantic debt of $900 million to finance the counter offer; that they had made misrepresentations to shareholders in the recommendation that they not tender their shares to Bendix; and that the agreement with Allied shortchanged the shareholders while ensuring that the directors would remain in control.

Horowitz originally brought both a shareholder derivative suit and a class action. The district court found that the assertion of both claims created an impermissible conflict of interest for Horowitz. If Horowitz proved that the directors and officers had acted illegally, the proposed class would compete with Martin Marietta for recovery of damages. Therefore, the district court required Horowitz to choose between the class action and the derivative suit. Horowitz elected to pursue the class action.

II.

Horowitz' first contention is that the district court erred in denying her motion for class certification. Horowitz sought certification of a class consisting of all common shareholders of Martin Marietta at any time on or after August 25, 1982 (the date of the public announcement of the tender offer by Bendix), who had not sold their stock before September 24, 1982 (the date of the public announcement of the Standstill Agreement). Horowitz alleged that the failure of the directors to disclose material facts caused class members to keep their Martin Marietta stock and refuse to tender to Bendix, to their economic disadvantage.

Preliminarily, as the district court noted, there are problems with the class as Horowitz has defined it, in part because of the specific wrongdoings she alleges. Horowitz alleges that the defendants wrongfully converted to themselves both a September 23, 1982 offer by Allied to acquire remaining Martin Marietta stock and a September 21, 1982 offer by Bendix. In addition, Horowitz contends that defendants omitted material facts from the Schedule 14D-9, the solicitation registration statement issued August 31, 1982.

A finding on each of these claims depends on an individual showing of ownership on specific dates. Horowitz' proposed class consists of anyone who owned stock in Martin Marietta on September 24, 1982. To be injured by defendants' failure to accept Allied's offer, the shareholder must have owned stock on September 23. Likewise, only a shareholder who owned stock on September 21 could be injured by the alleged conversion of the Bendix offer. Since the tender offer expired on September 20, only those people who owned stock before that date could have been injured by the alleged omissions in the Schedule 14D-9. The course of corporate activity in August and September 1982 was a frenetic one, and there may be significant numbers of shareholders in Horowitz' purported class who simply were not injured by the misdeeds she recites. Finally, the definition of the class excludes a group of people who might have been injured--those who had sold their shares by September 24, but owned them before September 20, or on September 21 or 23. Again, the class as Horowitz defines it overlaps only partially with the group of people who were actually injured if her allegations are correct. The various actions of which Horowitz complains--and the pace of activity during the period of which she complains--raise doubt as to whether questions common to the purported class exist. Fed.R.Civ.P. 23(a)(2).

In addition to noting the problems with the definition of the class, the district court denied certification for failure to satisfy the prerequisites of Fed.R.Civ.P. 23(b). "A court has broad discretion in deciding whether to allow the maintenance of a class action.... The determination of a district court that an action does not meet the requirement of a class action will not be disturbed unless it is clearly erroneous." Roman v. ESB, Inc., 550 F.2d 1343, 1348-49 (4th Cir.1976). See also Lewis v. Bloomsburg Mills, Inc., 773 F.2d 561, 563-64 (4th Cir.1985). We believe the district court did not abuse that discretion in refusing to certify this proposed class.

An action may be brought as a class action under Rule 23(b)(1) if individual adjudication of the controversy would prejudice either the party opposing the class, (b)(1)(A), or the class members themselves, (b)(1)(B). Crasto v. Estate of Kaskel, 63 F.R.D. 18, 21 (S.D.N.Y.1974). Defendants do not contend they would be prejudiced if the class were not certified. The danger of imposing "incompatible standards of conduct" on the party opposing the class is also not normally posed by a request for money damages. Green v. Occidental Petroleum Corp., 541 F.2d 1335, 1340 n. 10 (9th Cir.1976). Nor are we persuaded that prejudice to absent class members would result under Rule 23(b)(1)(B). The damages sought by plaintiff as an individual shareholder are small. Their recovery would hardly exhaust the amounts available to other injured parties. Nor would plaintiff's failure to recover preclude unnamed class members from bringing their own actions, especially those which, as the district court noted, "might rest on individual claims of reliance and injury not suffered by this plaintiff." The trial court properly observed that numerous courts have held that actions under the securities laws are not appropriate for class action treatment under Rule 23(b)(1). See, e.g., Crasto v. Kaskel, 63 F.R.D. 18; Berley v. Dreyfus & Co., 43 F.R.D. 397 (S.D.N.Y.1967).

Nor can Horowitz rely on Rule 23(b)(2), which requires that "the party opposing the class has acted or refused to act on grounds generally applicable to the class." The Advisory...