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Hausman v. Buckley

February 13, 1962

NATHAN HAUSMAN, IN HIS OWN BEHALF AS A STOCKHOLDER OF DEFENDANT PANTEPEC OIL COMPANY, C.A., AND IN BEHALF OF ALL OTHER SUCH STOCKHOLDERS SIMILARLY SITUATED, PLAINTIFF-APPELLANT, AND JOSEPH APPLEBAUM, THE APPLEBAUM FOUNDATION, INC., ALFRED N. BARNETT, JULIE A. BUCKLEY, AS REMAINING TRUSTEE U/W OF DANIEL BUCKLEY, DECEASED, PETER FUNDARO, HAROLD MALTZ, NORVIN H. RIESER, FRED WEIBERT AND REGINA WEIBERT AND L.H. LUCKETT, INTERVENOR-PLAINTIFFS-APPELLANTS
v.
JOHN W. BUCKLEY, THE CATAWBA CORPORATION AND PANTEPEC OIL COMPANY C.A., DEFENDANTS-APPELLEES, AND JOHN S. BAILEY, EDUARDO LOPEZ DE CEBALLOS, GEORGE S. MONTGOMERY, JR., JOSE MELICH ORSINI, SANTIAGO SEGOVIA, JOHN T. SINCLAIR, JR., GUY K. STEWART, R RAMIREZ U., CECILLIO VELASCO, G.J. VAN WAGENINGEN, PHILLIPS PETROLEUM COMPANY, DEFENDANTS



Author: Kaufman

Before WATERMAN, KAUFMAN and MARSHALL, Circuit Judges.

KAUFMAN, Circuit Judge.

This is a stockholders' derivative action brought on behalf of the Pantepec Oil Company, C.A. (Pantepec), a corporation organized under the laws of Venezuela. Jurisdiction is based on diversity of citizenship, 28 U.S.C. ยง 1332.

In the stage of this protracted litigation*fn1 which concerns us on this appeal, the third amended complaint contained three counts:

(1) Count 1 alleged that a certain contract between Pantepec and defendant Phillips Petroleum Company (Phillips) constituted an unlawful sale of Pantepec's assets under Venezuelan law. It demanded rescission and damages;

(2) Count 2 charged the individual defendants, officers and directors of Pantepec,*fn2 with responsibility for the Phillips contract, and sought damages for a breach of fiduciary duty to the corporation;

(3) Count 3 alleged that individual defendant Buckley, and a company dominated by him, The Catawba Corporation (Catawba), caused Pantepec to enter into an unlawful management services contract with Catawba; it demanded cancellation of that agreement, and damages for corporate waste.

On November 24, 1959, Judge MacMahon*fn3 denied a motion made by the plaintiffs pursuant to Rule 12(f), Fed. R. Civ. P., 28 U.S.C. to strike from the answers of Pantepec, Buckley, and Catawba, defenses alleging lack of jurisdiction over Pantepec's person. Subsequently, the defendants moved for a separate and prior trial*fn4 of another defense which challenged the right of the plaintiffs, under Venezuelan law, to maintain an action on behalf of Pantepec. This motion was granted. Judge MacMahon agreed with the defendants' assertion that Venezuelan law, applicable under controlling New York conflict of laws principles, would determine the right of the plaintiffs to enforce a corporate claim; and that the content of this foreign law raised a question of "fact" which should be resolved before further proceedings on the merits of the issues raised by the complaint.

However, on April 17, 1961, the day set for the separate trial on the question of Venezuelan law, the plaintiffs moved, pursuant to Rules 12(f) and (h), Fed.R. Civ.P., to strike the defenses of Buckley, Catawba, and Phillips which contested their right to bring the action; and for the same purpose, moved to strike Pantepec's answer and an appearance entered on its behalf by certain attorneys. These motions were promptly denied, and the preliminary trial was held before Judge MacMahon, sitting without a jury.

On June 8, 1961, Judge MacMahon filed his findings of fact and conclusions of law. He held: (a) that Venezuelan law governed the merits of plaintiffs' claims; (b) that under Venezuelan law the complaint failed to state a claim entitling plaintiffs to relief on the first count (against Phillips); and (c) that under this law plaintiffs had no right to maintain an action in behalf of Pantepec on the remaining courts.*fn5 Judgment for defendants was entered accordingly on June 29, 1961.

Plaintiffs appeal from so much of this judgment dismissing counts 2 and 3 of their complaint on the grounds that they had no right to maintain an action on behalf of Pantepec, and also ask review of interlocutory orders entered November 24, 1959 and April 17, 1961, denying their motions to strike certain defenses in Pantepec's answer and the appearance of certain attorneys on its behalf.

We hold that no error was committed by the trial court below, and that the judgment for defendants must be affirmed.

A.

Appellants' first contention is that their various motions were improperly denied. However, insofar as the denial of the motion made on November 24, 1959 is concerned, it is unnecessary to determine if there was any error. Although the motion was unsuccessful in its attempt to strike defenses which contested the court's jurisdiction over the person of Pantepec, Judge MacMahon subsequently held that the court had jurisdiction over all the parties. Thus, the question raised by his denial of the motion is rendered moot.

On the other hand, the trial court's denial of appellants; motions to strike (a) Pantepec's answer, (b) the appearance on its behalf of certain attorneys, and (c) defenses raised by Buckley, Catawba, and Phillips, requires discussion. By these motions appellants sought to prevent the defendants from contesting their right to bring the instant action on behalf of Pantepec.

The first two motions, (a) and (b), are based on the allegation that Pantepec was deprived of the benefit of independent counsel because its attorneys, until September 29, 1960, also represented the adversary defendant Buckley. Appellants contend that as a consequence, the answer to the third amended complaint (filed on September 18, 1959) which raises the defense challenging their right to bring this action, does not necessarily represent the position which Pantepec might have taken on this issue if it had availed itself of other legal counsel. In support of their argument that Pantepec may have suffered from the "conflicting" interests of counsel, appellants bring to our attention Opinion No. 842, Committee on Professional Ethics, of the Association of the Bar of the City of New York (January 4, 1960). In that Opinion, a majority of the Committee decided that an attorney's representation of both the corporation and adversary defendants in stockholders' derivative actions may be unethical. Putting aside the question as to whether such a ruling by a Committee of a Bar Association would warrant striking an answer and defenses for a violation of ethical standards, we believe that the trial court did not commit error in denying the motion to strike ...


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