The opinion of the court was delivered by: LASKER
This is an application under Rule 23 of the Federal Rules of Civil Procedure for approval of the settlement of a stockholder's derivative suit. By court order, and on notice mailed to all stockholders setting forth the terms of settlement, a hearing was held April 10, 1970, at which counsel for the parties and for one objectant were heard.
The suit alleges violations of § 10(b) of the Securities Exchange Act of 1934 (the "Act") and, as pendent matters, violation of state law. The plaintiff is a stockholder of Curtiss-Wright Corporation ("Curtiss"), in whose behalf the action is brought. Defendant Berner was president, chairman and a director of Curtiss at the time of the transactions complained of, and the other individual defendants were all directors. Two claims are made. The first alleges that, threatened by a take-over of Curtiss, some of the directors falsely informed the other directors that the takeover would be adverse to Curtiss' interests, and that as a result the directors caused Curtiss, through a tender offer, to waste its assets by purchasing 1,000,113 of its own shares at a price per share of $10 above market. The second attacks the granting to defendants Berner, Morris and others of the right, pursuant to Curtiss' Restricted Stock Purchase Plan, to buy 40,000 and 8,000 shares of Curtiss, respectively, at a price of $6.34 per share, at a time when the market price was $25.30. It is claimed that the grant of this right -- when added to the salaries paid the recipients -- constituted excessive compensation and a waste of Curtiss' assets.
In answer to the complaint all the defendants entered a general denial. Defendant White also asserted the affirmative defense that his decisions as a director were made in good faith for the benefit of Curtiss.
The action was instituted in July 1966. In December 1965, another Curtiss stockholder had commenced suit against the same defendants on the same state of facts in the Supreme Court of the State of New York (Rosenfeld v. Bull, Index No. 12873/1969), claiming a breach of the directors' fiduciary duties. In order to prevent duplication of effort and expense to all parties and undue burden on defense witnesses, the attorneys for defendants here and in the state case cooperated in a joint prosecution of the actions. As a result, most of the discovery -- depositions and exhibits -- justifying the proposed settlement in both courts emanates from the state court proceeding.
The stipulation of settlement provides, as would be expected, that the settlement of each of the cases -- state and federal -- is contingent on the settlement of the other. Pursuant to state procedure, Mr. Justice Brust on September 5, 1969, appointed a referee to conduct a hearing and report as to the fairness, reasonableness and adequacy of the settlement. That hearing was held, and on February 4, 1970, the referee submitted his report recommending approval. Thereafter, Mr. Justice Brust entered an order approving the settlement of the state action.
We review independently below the propriety of the settlement here, the objections to it, and the answers to the objections. Before doing so, however, the terms of the settlement must be described.
The stipulation provides that the case be terminated on the following basis:
I. As to the Restricted Stock Purchase Plan
A. The balance of the shares available under the Plan are not to be issued at less than 40% of the market value on the date the option is granted.
B. Neither Berner nor Morris shall be permitted to acquire any further shares under the Plan.
C. Curtiss shall not finance any purchases under the Plan.
II. Neither Berner nor Morris shall receive any stock options under any other Curtiss plan.
III. Neither Berner nor Morris shall hereafter receive cash compensation in any form from Curtiss exceeding by more than 6% his compensation from Curtiss for the prior year, except that increases less than 6% in a given year may be offset (to the ...