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PAPILSKY v. BERNDT

November 17, 1971

Paulette PAPILSKY, Plaintiff,
v.
Alvin H. BERNDT et al., Defendants


Wyatt, District Judge.


The opinion of the court was delivered by: WYATT

WYATT, District Judge.

This is a motion by three of the named defendants -- Lord, Abbett & Co., Alvin H. Berndt and Robert S. Driscoll -- for summary judgment in their favor. Fed. R. Civ. P. 56(c).

 The action was commenced on June 7, 1971. Plaintiff brings the action as the owner of stock of defendant Affiliated Fund, Inc. (Fund), a Delaware corporation, and the action is a derivative one to enforce a right of Fund. Fed. R. Civ. P. 23.1

 Fund is an open-end diversified investment company, said to be registered under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 and following). Lord, Abbett & Co. (Lord) is a partnership. Berndt and Driscoll are partners of Lord and are officers and directors of Fund. Lord is employed by Fund as investment manager of Fund under an agreement.

 The claim asserted in the case at bar is that Lord, in connection with transactions for Fund, uses "reciprocal brokerage, give-ups and interpositioning" and has received additional compensation by so doing. It is moreover charged that Lord, by its use of such techniques, has paid dealers which sell shares of Fund to the public and that Lord has been thus relieved of the necessity to compensate such dealers.

 Fund, it is claimed, has been damaged because the use of reciprocal brokerage, give-ups and interpositioning has resulted in excessive compensation to Lord. Demand is made that Lord and the individual defendants pay $6,000,000 in damages to Fund.

 On January 10, 1967, Vera G. White commenced an action in this Court (67 Civ. 98) against all the defendants in the case at bar and other defendants not named in the case at bar.

 On March 28, 1968, Anne Bernstein commenced an action in this Court (68 Civ. 1252) against all the defendants in the case at bar and other defendants not named in the case at bar.

 By order filed August 30, 1968, the White and Bernstein actions were consolidated. Plaintiffs thereafter served a "consolidated complaint" which was filed on September 26, 1968. The consolidated action will be referred to as the "White action".

 Fund was a defendant in the White action but was the nominal defendant for whose benefit the action was brought. Fund was represented by separate counsel who represented only Fund in the White action.

 It is undisputed that the claims in the White action are the same as those now asserted in the case at bar.

 By order in the White action filed on January 14, 1969, plaintiffs were directed to answer certain interrogatories served by defendants. Plaintiffs White and Bernstein did not answer the interrogatories.

 In the White action and on February 3, 1971, defendants Lord, Driscoll and Trevor obtained an order that "the plaintiffs show cause" (emphasis supplied) why the action should not be dismissed for failure to answer the interrogatories. The order to show cause was returnable on February 11, 1971, and it is assumed that a copy of the order was served on counsel for Fund.

 In the White action, defendants Johnston, Knobloch, and James H. Potter by notice of motion brought on a motion to dismiss the action for the same reason, failure of plaintiffs to answer the interrogatories. The notice of ...


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