UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK
April 18, 1979
Robert NEMEROFF, D. D. S., Plaintiff,
Alan ABELSON, Meyer Berman, Robert Bleiberg, Cumberland Associates, Dow Jones& Company, Inc., Walter Mintz, Robert Wilson, Robert Wilson Associates, Defendants
The opinion of the court was delivered by: CARTER
The Nature of the Motion and the Issues Involved
This litigation commenced on March 25, 1977, with the filing of a complaint against Alan Abelson, Meyer Berman, Lawrence and Robert Bleiberg, Boxwood and Cumberland Associates, Marc Howard, Marc Howard Associates, Walter Mintz, Robert Wilson, Robert Wilson Associates, and Dow Jones & Co., Inc., alleging violations of §§ 9(a) and 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78i(a) and 78j(b). Abelson, Robert Bleiberg, and Dow Jones ("publishing defendants") are respectively: the author of Up and Down Wall Street, a column regularly published in Barron's analyzing stock traded on the various exchanges; the editor of Barron's National Business and Financial Weekly ("Barron's"), a weekly journal covering financial news; and corporate owner-publisher of Barron's and other publications. The other defendants will be called the short sellers. The complaint alleged that the short sellers engaged in a conspiracy with the publishing defendants pursuant to which the publishing defendants would advise the short sellers of the forthcoming publication in Barron's of unfavorable or disparaging news about Technicare Corporation ("Technicare"). The articles were allegedly intended to depress the price of Technicare stock, enabling the short sellers to take a short position on Technicare and, after the articles were published, to cover their purchases at a lower price.
Shortly after the commencement of the litigation, plaintiff discontinued with prejudice the action against Lawrence Bleiberg, Boxwood Associates, Marc Howard and Marc Howard Associates. On January 6, 1978, an amended complaint with materially altered allegations was filed against the remaining defendants. The short sellers were now alleged to have solicited the publishing defendants to write and publish negative and disparaging news about Technicare, and the Barron's publications containing the negative articles were cited as those dated May 3, June 14, July 19, August 16, and October 11 in 1976 and January 10, January 17, and February 14 in 1977.
On May 3, 1978, a stipulation and order of dismissal with prejudice of the entire action was filed. It provided that the dismissal would be effective on June 15, 1978, unless prior to that date defendants moved for an order seeking costs, reasonable expenses and attorneys' fees, in which case the dismissal would be effective on the date the court issued its order determining the motion. The defendants filed the instant motion seeking costs, expenses and attorneys' fees on June 14 and oral argument was heard on the motion in September. Additional documents and memoranda were filed thereafter,
and the defendants have filed affidavits detailing the fees and expenses which they seek to recover as follows: Berman $ 12,210 in fees and $ 2,149.26 in disbursements; the publishing defendants $ 194,629 in fees (of which $ 53,058 constitutes costs in connection with their fee application) and $ 6,163.37 in disbursements; Cumberland Associates and Mintz $ 32,428.75 in fees and $ 2,781.85 in disbursements for defense of the action and $ 4,413.25 in fees and $ 175.18 in disbursements in connection with the fee application; Robert Wilson and Robert Wilson Associates $ 43,744 in fees and $ 4,132.33 in disbursements in defense of the action and $ 9,434 in fees in connection with this motion.
Defendants contend that this suit was instituted without any basis for the damaging allegations made herein. They argue that the claims are frivolous and that the plaintiff's real purpose in bringing this action was attempted use of the judicial process to silence the publishing defendants. Defendants further allege that plaintiff was guilty of dilatory and wasteful tactics during the course of the litigation causing defendants needless expense,
and that the circumstances of this case conclusively demonstrate the bad faith of plaintiff and his counsel in instituting the lawsuit. Defendants urge that they are entitled to an award of attorneys' fees and expenses pursuant to Rules 11 and 54(d), F.R.Civ.P., § 9(e) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78i(e) and the inherent equitable power of the court.
Plaintiff maintains that the action was based on a legitimate perception of a manipulative scheme by defendants and was commenced in good faith to redress injuries to him and to other Technicare shareholders. He argues that any reliance on the First Amendment is misconceived since the press is not protected if it engages in illegal activities.
Three threshold points should be made. First, while this is not a First Amendment case, it is not inappropriate for the publishing defendants to argue that the court should not allow a party to misuse judicial processes as a vehicle for restricting the exercise of defendants' First Amendment rights. Second, although the basic issue in this case is whether plaintiff had any colorable good faith basis for instituting this action in March, 1977, when the lawsuit was commenced, the defendants' motion must fail if plaintiff had such a colorable claim at any point during the life of this litigation. Finally, the showing of a lack of an adequate foundation for bringing defendants into court is not in and of itself sufficient to warrant taxing the plaintiff and his counsel with expenses and attorneys' fees.
The Genesis of this Litigation
In an article published in May, 1976, Alan Abelson questioned whether Technicare's high priced medical technology could continue to be marketed successfully enough to warrant future growth in the value of the company's stock. Thereafter Abelson's articles contained additional negative comments on Technicare's capacity for accretion. Herbert Stein, a client of Hale & Dorr, counsel for plaintiff in this action, held a large position in Centronics Data Computer Corporation ("Centronics"), another company about which Abelson was beginning to write negatively. Stein, in the belief that Centronics was being manipulated by Abelson and various short sellers, sought advice from Hale & Dorr on how to put a stop to this. Gordon Walker, the member of the firm handling this litigation, undertook an investigation of that matter sometime in January, 1977, and in the course of that investigation met Howard Roth, a broker at Prescott, Ball & Turbin. Roth and several of his clients including plaintiff had substantial holdings in Technicare. The stock had risen spectacularly at first and then had begun to level off. Roth was convinced that Abelson's negative comments published in Barron's in 1976 (and subsequently in 1977) were not honest appraisals but part of a conspiracy to depress Technicare's stock. Plaintiff shared this conviction, and Roth and Nemeroff consulted Edward Costikyan of Paul, Weiss, Rifkind, Wharton & Garrison in December, 1976, to discuss the possibility of litigation. Costikyan would not take the suit.
Stein suggested Hale & Dorr as an alternative, and Roth suggested Nemeroff to Walker as a possible plaintiff in whose name class action litigation could be instituted. Walker and the plaintiff talked by telephone but never met face to face prior to March 25, 1977, the date this complaint was filed.
Plaintiff alleges that although "virtually every knowledgeable person with whom counsel spoke believed Technicare to have strong "fundamentals,' . . . the stock was being besieged, without objective reason" by both Abelson's negative articles and "an extraordinary program of short selling in Technicare stock." (Pl.Mem. p. 7). As a justifiable basis for instituting this litigation, Walker points to an ongoing investigation by the New York Stock Exchange ("N.Y.S.E.") and the Securities & Exchange Commission ("Commission") in 1977. He states that he was told by an official of the N.Y.S.E. that there was no doubt of the relationship between Abelson and the short sellers and that N.Y.S.E. had charted Wilson's sales against Abelson's columns from which one could conclude some correlation.
"In addition to the above, plaintiff's counsel interviewed or spoke to numerous Technicare investors, Technicare officials, knowledgeable journalists, and attorneys for and investors in companies other than Technicare which had experienced the same "bear raid' by the same funds and short sellers and which had experienced the same negative treatment in Mr. Abelson's column." (Pl.Mem. p. 11).
The Walker Affidavit
In his affidavit, Walker states that his involvement began on January 14, 1977, at the behest of Herbert Stein. Stein had been told that Wilson had solicited Abelson to write a number of negative articles on Technicare in 1976 and that Wilson and others had established short positions in Technicare. At the time, Wilson had also established a substantial short position in Centronics. The affidavit goes on to say that Walker and his partner, Norman Asher, called the N.Y.S.E. and the Commission, and each agency advised them that Abelson's relation to Wilson and other short sellers was being investigated. Stein indicated that Gale Donovan and Roth had a great deal of information on Technicare. When Walker spoke to Donovan and Roth, they confirmed the belief of a working relationship between the short sellers and Abelson and stated that they had complained to the N.Y.S.E. and the Commission. Donovan stated that she had knowledge that Lawrence Bleiberg, managing partner at Boxwood Associates and brother to the editor of Barron's, had sold Technicare short through Boxwood, and had covered Boxwood's position at a profit after Abelson's negative column appeared.
Walker then called Robert Bleiberg at Barron's and said that he had information that a forthcoming issue of Barron's was going to contain negative comments on Centronics and asked that such adverse comment be deleted. Bleiberg was abusive and referred him to the firm that is his counsel in this litigation. Walker then spoke to Robert Potter, a member of the firm who, Walker says, refused to take any action. Potter indicates that he asked Walker to meet with him to discuss the matter, but Walker never acted on this invitation.
In January, Walker talked to Richard S. Grimm, President of Technicare, and subsequently to Allan Somer, Technicare counsel. On February 3, 1977, he spoke to Jeffrey Haas of N.Y.S.E. who told him that N.Y.S.E. had prepared a chart correlating the relationship between Abelson's columns and the build up of the positions by the short sellers. Haas is said to have told Walker in that conversation that there was no doubt of the relationship between the short sellers and Abelson, and that Wilson's trading and Abelson's columns were correlated. On February 8, 1977, Walker met with Haas and other N.Y.S.E. personnel engaged in investigating the allegations against the defendants. At this meeting, the N.Y.S.E. official in charge of the investigation stated that he was satisfied that no manipulation of Technicare had occurred. Walker also conferred with officials of the Commission on February 8, 1977, and they informed him that an investigation by the Commission was underway.
Walker met with Roth on several other occasions, and the latter advised him of various negative rumors that Roth said were being circulated by short sellers to depress the price of Technicare stock. Walker went over the draft of the complaint with Roth who made a number of suggestions which were adopted.
Walker met with persons interested in a company called International Systems and Controls ("ISC") and was told that a Howard Sirota had written a negative analysis of ISC in 1974 which had been distributed to Robert Wilson and Marc Howard among others, and that Wilson and Howard had thereafter taken short positions on ISC; that Dow Jones carried negative, inaccurate and misleading information on ISC. Walker states that he considered this information as corroborating Barron's relationship to a small group of short sellers. He obtained copies of recommendations of many major New York firms on Technicare and the "almost universal consensus was that the company was sound fundamentally and had a substantial technological lead over its competitors." The one exception was Lawrence Rader of Loeb, Rhoades & Co., a friend of Robert Wilson.
Walker's Conversation with Grimm
On March 14, 1977, two weeks before the suit was filed, Walker had a conversation with Grimm, President of Technicare. Apparently, Walker did not know the conversation was being recorded. In the course of that conversation, Grimm indicated that he did not wish to get involved in a lawsuit without proof to back it up, for fear of damaging Technicare's credibility. Walker assured Grimm that he would not institute suit if he were not satisfied beyond a reasonable doubt that the defendants were guilty of the activity alleged. In that conversation Walker acknowledged the potential damages to the publishing defendants in charging them with a manipulation of Technicare stock to aid various short sellers in making a profit.
The Litigation Commences
On the day suit was filed, Jack Egan, a newspaper reporter, telephoned Barron's to speak to Abelson, and the call was referred to Bleiberg since Abelson was out for the day. Bleiberg returned the call between noon and 2:00 P.M. and was told that Egan had a copy of the complaint and wanted to talk about it. Bleiberg then sent an office assistant to the courthouse to obtain a copy of the complaint. The assistant reported that he had made several visits to the courthouse to be told that no such complaint had been filed. Later, he obtained a copy and the clerk's notation indicates that the complaint was filed at 3:38 P.M.
This lawsuit was instituted based on very strong convictions of wrongdoing, but it was a conviction colored by greed. Those with large positions in Technicare were certain that Abelson's negative columns and the apparent successful maneuvering of the short selling defendants constituted a conspiratorial combination. Walker, however, is a lawyer. In his conversation with Grimm he acknowledged a professional responsibility to have a factual and legally supportable basis for instituting litigation which charges the publishing defendants with printing biased and dishonest reports, and he recognized the potential for harm to these parties in disseminating such charges.
There is a strong, indeed, an all but irrebuttable presumption, based on the facts leading to the institution of this action, that the filing of this lawsuit without being certain that the charges could be proved and the wide dissemination of the damaging allegations were done with conscious deliberation. The evident purpose was to secure maximum publicity harmful to the publishing defendants. Under the circumstances, plaintiff's and Walker's good faith becomes critical.
Counsel's client, Herbert Stein, along with Roth, Donovan and plaintiff, were convinced that Abelson's adverse comments were a deliberate attempt to depress the price of Technicare stock to enable the short selling defendants to manipulate the stock at a profit. These were the assessments of parties who stood to lose if Technicare or Centronics stock declined. Before this litigation commenced, however, neither the plaintiff, his counsel, Roth, nor Stein had one iota of proof in the sense that term is defined in a court of law that Abelson was leaking any information to the short selling defendants. Walker points to ongoing N.Y.S.E. and S.E.C. investigations as providing disinterested support for the allegations in the complaint, but these inquiries were generated by the same partisans who had been the initial source of his belief that the defendants were conspiring to manipulate Technicare stock. Moreover, some weeks prior to the date the complaint was filed, the N.Y.S.E. had concluded that the charges lacked substance, and Walker was informed of a tentative conclusion to that effect as early as February 8.
The decisions to file the lawsuit solely on the basis of unsupported gossip and inadmissible hearsay and to supply copies of the pleadings to the press even before the complaint was actually filed severely compromise Walker's assertions of good faith. While it seems clear enough that the plaintiff, Roth, and others believed that Abelson was guilty of the wrongdoing charged, Walker knew that the allegations had to be supportable to stand up in court.
Moreover, a few days before the lawsuit was filed, plaintiff's counsel was asked by Robert Sack, a member of the firm representing the publishing defendants, to share with him any evidence Walker uncovered about leaks from Barron's to investors. While there was no obligation to meet with Sack, Walker, as a competent attorney, must have realized the weakness of the "facts" he had to back up his claims, and a discussion with defendants' counsel might have afforded him a sufficiently feasible basis to resist Roth's and Stein's insistence that this suit be filed. At any rate, prudent, ethical counsel would not have begun this litigation with the meagre facts Walker possessed in March, 1977.
The suit was filed either with the knowledge that counsel had no adequate factual basis to sustain the allegations or in reckless disregard of the fact that proof of the charges was not available. In either circumstance, plaintiff and his counsel knowingly proceeded with litigation that lacked foundation. Clearly, the purpose could not have been to litigate on the merits. Indeed, the only rational inference to be drawn is that plaintiff's and his counsel's real objective was the public airing of the damaging allegations against the publishing defendants an objective achieved with the filing of the complaint. While Walker alleges that he investigated the matter prior to bringing the action at the time the complaint was filed, he had on hand neither documentary proof of the allegations nor testimony admissible in a trial record to prove the "facts" alleged.
Walker states that in his conversation with Haas on February 3, Haas told him that there was no doubt of Abelson's relationship to the short sellers and that a N.Y.S.E. chart evidenced that correlation. Haas denies the statement, and the charts fail to show the suggested correlation. In a subsequent affidavit, Haas states that while he does not recall making several of the statements attributed to him, "in the context of the entire discussion I can understand how (Walker) could come away from the conversation with a good faith impression that I had made such statements." Haas' supplemental affidavit suggests that the totality of his conversation with Walker might have given the latter the good faith, albeit mistaken, impression that N.Y.S.E. had found data supporting the allegations. I accept that possibility, but whatever impression Haas may have imparted to Walker on February 3 is immaterial.
Walker was advised on February 8 by the N.Y.S.E. official responsible for investigating the charges filed with N.Y.S.E. against the defendants (which track those alleged in the complaint filed here) that the N.Y.S.E. investigation thus far did not support any charges of manipulation. It is noteworthy in this connection that Walker refers to no further contact or communication with the N.Y.S.E. after February 8, even though the complaint was not filed until March 25. Assuming that he did not understand the N.Y.S.E. February 8 message that the charges against defendants had not been substantiated, had he thereafter been in touch with N.Y.S.E. officials, he would have been advised that the investigation had been concluded with the finding that there was no basis for the allegations of conspiratorial manipulation, and that the N.Y.S.E."s chart comparing short seller activity and Abelson's articles had failed to show the existence of the alleged nexus between the two. Since Walker seeks support from what the N.Y.S.E. had told him, his failure to discuss the matter with them after February 8 undermines further this assertion of good faith. The gravity of the course Walker planned made caution essential.
The ultimate question concerning taxing of attorneys' fees and expenses as costs against plaintiff and/or his counsel under Rule 11, F.R.Civ.P., § 9(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78i(e) or the court's equitable power is whether the plaintiff and/or counsel instituted the action "in bad faith, vexatiously, wantonly or for oppressive reasons." Browning Debenture Holders' Committee v. DASA Corp., 560 F.2d 1078, 1087 (2d Cir. 1977); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210, n. 30, 96 S. Ct. 1375, 47 L. Ed. 2d 668 (1976).
The publishing defendants occupy a unique position. Their business cannot survive without a reputation for independence, honesty, integrity, good faith and fair reporting in respect of the financial analyses published under their imprimatur. Plaintiff's counsel was conscious of the fact that unsupported allegations that these defendants were biased and had deliberately misinformed the public, was an attack on Abelson's, Bleiberg's and Barron's integrity and credibility for objective financial analysis, and as such had the potential to destroy Abelson's and Bleiberg's professional reputations and do damage to Barron's as a successful commercial enterprise. Nonetheless, this action supported only by gossip and hearsay was commenced, and its very purpose appears to have been to injure the publishing defendants. While Walker's yardstick of proof beyond a reasonable doubt, stated in his March 14 conversation with Grimm, is a more rigid standard than is required, that conversation convinces the court that counsel knowingly and with malice began this baseless lawsuit.
The insubstantial character of the evidence relied upon can be gleaned from the passages from Walker's affidavit set forth in the margin.
In that lengthy affidavit and its supplement the only conceivably admissible items of evidence cited are: (1) the log entries of a Mr. Lau showing trading by short sellers in advance of Abelson's column on ISC, provided these entries were deemed admissible as showing the short selling activities of the defendants in stock other than Technicare and as a basis for introducing Abelson's columns concerning ISC; (2) copies of numerous buy recommendations relating to Technicare; (3) testimony showing that John Berry had authored articles in Business Week relating to the manipulation of the stock of American Agronomics, that the article had been thoroughly researched, and that the quoted statements from the article were accurate (but objection to this testimony on grounds of relevance would probably be sustained), (4) Marc Howard's corroboration of the existence of the Concept and First Thursday Clubs and identifying the various defendants belonging to these groups; (5) written materials from the McGraw-Hill/Dow Jones litigation and, excerpts from the deposition of Alan Abelson; (6) Sirota's statement that he had written the negative analysis on ISC and supplied Robert Wilson with a copy.
Only two of these items would be clearly admissible in this case the buy recommendations and Howard's statement of the existence and membership of the Concept and First Thursday Clubs. There are other pieces of arguably admissible evidence in Walker's affidavit: the statement of Robert Wilson in the Wall Street Journal, Abelson's statement in Business Week, and testimony concerning Walker's conversation with Robert Sack and Bleiberg. None of these, however, appears to be very helpful in substantiating the claims made, and none is a sufficient foundation on which to base this litigation or to establish plaintiff's and counsel's bona fides in bringing this action.
Walker knew or should have known that the gossip which he recites in his affidavit is not evidentiary proof. He understood that the damage to the reputation and credibility of the publishing defendants could have been devastating, if those who read Barron's and Abelson's articles believed the allegations.
Because public access to the courts is a paramount priority, a litigant must be given a great deal of leeway, lest legitimate claimants become unduly timid in airing their complaints in a judicial forum. On the other hand, it is not a legitimate use of the court process to institute baseless litigation to silence or discredit the press.
This litigation was surely commenced against the publishing defendants with malice. To make and disseminate allegations such as those made here without the slightest assurance that plaintiff's burden of proof could be met, when it is known or should have been known that no hard facts but only rumor and gossip support the charges, constitutes the essence of bad faith. Accordingly, I find that plaintiff and his counsel in instituting this action against the publishing defendants "acted in bad faith, vexatiously, wantonly or for oppressive reasons." Browning Debenture Holders' Committee v. DASA Corp., supra, 560 F.2d at 1087.
The law is clear that attorneys' fees may be assessed against the losing party when action is instituted in malice and bad faith. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 258-59, 95 S. Ct. 1612, 44 L. Ed. 2d 141 (1975); F. D. Rich Co. Inc. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 129-30, 94 S. Ct. 2157, 40 L. Ed. 2d 703 (1974); Browning Debenture Holders' Committee v. DASA Corp., supra, Jackson v. Oppenheim, 533 F.2d 826 (2d Cir. 1976); Lichtenstein v. Lichtenstein, 481 F.2d 682 (3d Cir. 1973); Kinnear-Weed Corp. v. Humble Oil & Refining Co., 441 F.2d 631 (5th Cir. 1971). Only on such a showing is an award of attorneys' fees appropriate under Section 9(e) of the Securities Exchange Act of 1934. See Colonial Realty Corp. v. Brunswick Corp., 337 F. Supp. 546, 553 (S.D.N.Y.1971) (Palmieri, J.), and cases cited. That same yardstick applies when the equitable power of the court is invoked.
Rule 11, F.R.Civ.P. requires an attorney who signs a pleading to represent that good ground exists to support the claim. Peter Kiewit Sons Co. v. Summit Construction Co., 422 F.2d 242, 271 (8th Cir. 1969). To paraphrase Judge Pollack in Lewis v. Varnes, 368 F. Supp. 45, 47 (S.D.N.Y.), Aff'd, 505 F.2d 785 (2d Cir. 1974), the office of a claim of corruption, unlawful conspiracy and unfair dealing is to seek to redress a wrong, not to find one, and since such allegations have serious repercussions in the business world, they should not be cavalierly made for their presumed In terrorem effect. As Judge Gurfein has indicated, the accountability Rule 11 imposes on counsel merely adds an "ethical responsibility to the conception that a claim that is baseless should not survive." Levy v. Seaton, 358 F. Supp. 1, 6 (S.D.N.Y.1973). The law of this circuit is that relief under Rule 11 is discretionary and requires a showing of a claim not simply lacking in merit, but bordering on frivolity. Katz v. Amos Treat & Co., 411 F.2d 1046, 1056 (2d Cir. 1969). Accordingly, the yardstick is the same whether Rule 11, the equitable power of the court or Section 9(e) of the Securities Exchange Act of 1934 is relied upon.
The potential damage to the publishing defendants has been emphasized by defendants as a whole on this motion and throughout the course of this litigation, and it is clear to me that they are entitled to prevail on this motion. Yet their success is not necessarily transferable to the other defendants. Since the standard involved is akin to that of malicious prosecution, there must be a showing that each party in whose favor expenses and attorneys' fees are being sought has been sued in "bad faith, vexatiously, wantonly, or for oppressive reasons." Browning Debenture Holders' Committee v. DASA Corp., supra.
It is, of course, true that the lawsuit against the short selling defendants was as baseless as it has been found to have been in respect of the publishing defendants, and the former, as well as the latter, were required to spend funds unnecessarily in defense of charges that should never have been brought. However, the requisite malice and bad faith motivation spawning the litigation against the short selling defendants have not been established. As indicated at the outset, mere baseless or misguided litigation does not suffice as a premise for taxing a plaintiff with a defendant's attorneys' fees and expenses. This litigation does not appear to me to have any destructive potential to the business and reputations of the short selling defendants. While the allegations charge these defendants with an illegal conspiracy and sharp dealings, unless the contentions were given credence by the N.Y.S.E. or the Commission in instituting formal action against them on the charges alleged in the complaint, the potential for harm to the short selling defendants, aside from the need to expend time and funds on defense as already discussed, is not evident to me. Since these defendants apparently have developed a profitable specialty in correctly predicting the future downslide of various stocks, allegations such as those made here must be the commonplace reaction of those persons who have invested heavily in a security in the expectation of its future growth. Indeed, these allegations may even enhance defendants' reputations as discerning and skillful speculators. In any event, no propensity for harm to them has been shown. As movants on the motion, the short selling defendants have the burden of proof and of persuasion, United States v. De La Fuente, 548 F.2d 528 (5th Cir. 1977); United States v. Gardner, 537 F.2d 861 (6th Cir. 1976); Jefferson School of Social Science v. Subversive Control Board, 118 U.S.App.D.C. 2, 331 F.2d 76 (1962); United Pacific Insurance Co. v. United States ex rel. Mississippi Valley Equipment Co., 296 F.2d 160 (8th Cir. 1961); Terukuni Kaiun Kaisha, Ltd. v. C. R. Rittenberry and Associates, Inc., 454 F. Supp. 418 (S.D.N.Y.1978) (Carter, J.), and that responsibility they failed to meet. Accordingly, the motion of the short selling defendants for attorneys' fees and expenses is denied.
Under the standard discussed ante, attorneys' fees are awarded to the prevailing party. The remaining issue is whether the publishing defendants can be classified as prevailing in this action since the case did not proceed to a determination on the merits. The decided cases appear to be in conflict. A prevailing party has been described as one in whose favor a judgment on the merits is entered. Pearson v. Western Electric Co., 542 F.2d 1150 (10th Cir. 1976); Mobile Power Enterprises, Inc. v. Power Vac, Inc., 496 F.2d 1311, 1312 (10th Cir. 1974); Vermont Low Income Advocacy Council v. Dunlop, 71 F.R.D. 343, 345-46 (D.Vt.1976) Aff'd, 546 F.2d 509 (2d Cir. 1976). On the other hand, it has been held that because a defendant has been put to the burden of defending a charge until it was abandoned, it was the prevailing party as to the charge. Ellipse Corp. v. Ford Motor Co., 452 F.2d 163 (7th Cir. 1971), Cert. denied, 406 U.S. 948, 92 S. Ct. 2041, 32 L. Ed. 2d 337 (1972). In Parker v. Matthews, 411 F. Supp. 1059 (D.D.C.1976), the court held that the prevailing party is not limited to one securing a favorable judgment after trial; that under the totality of the circumstances, the prevailing party is determined by focusing on the necessity of the action and determining who is the successful party with respect to the central issues of the litigation. In those courts adopting the less restrictive definition of the prevailing party, attorneys' fees may be allowed without the necessity of the litigation going to judgment. Mezo v. International Union, United Steel Workers of America, 558 F.2d 1280 (7th Cir. 1977); Kerr v. Screen Extras Guild, Inc., 466 F.2d 1267 (9th Cir. 1972), Cert. denied, 412 U.S. 918, 93 S. Ct. 2730, 37 L. Ed. 2d 144 (1973); Yablonski v. United Mine Workers of America, 151 U.S.App.D.C. 253, 260, 466 F.2d 424, 431 (1972), Cert. denied, 412 U.S. 918, 93 S. Ct. 2729, 37 L. Ed. 2d 144 (1973); Ellipse Corp. v. Ford Motor Co., supra; Parker v. Matthews, supra.
In Kopet v. Esquire Realty Co., 523 F.2d 1005, 1008 (2d Cir. 1975), the Court of Appeals stated "(t)here is no question, however, that federal courts may award counsel fees based on benefits resulting from litigation efforts even where adjudication on the merits is never reached, e.g., after a settlement . . . (citations omitted)." While this case is not directly on point, it does stand squarely for the proposition that a final judgment is not a prerequisite for an award of attorney fees.
In Vermont Low Income Advocacy Council v. Dunlop, supra, the court takes the restrictive view that the prevailing party is one in whose favor judgment is entered. Whatever the merits of that view in the abstract, I decline to follow it in this case.
Plaintiff had no cause of action from the outset. After litigation was instituted, plaintiff made very feeble efforts to effectuate discovery, and, indeed, did not even obtain sufficient data from Technicare to be able to meet the requirement of numerosity requisite to enable the action to be maintained as a class action under Rule 23, F.R.Civ.P. Under these circumstances a stipulation of discontinuance with prejudice, with knowledge that defendants reserved the right to continue the action until a determination was made on their motion for costs, expenses and attorney fees, constitutes a complete collapse of plaintiff's case, making defendants the successful parties on the central issue of this litigation, i. e., that plaintiff could not carry the burden of proof to establish the conspiracy among the defendants and the nexus between Abelson's articles and the short selling defendants. Accordingly, defendants are the prevailing parties and are entitled to an award of attorneys' fees.
The publishing defendants have shown expenditures in excess of $ 100,000 in attorneys' fees and expenses in defense of the action. However, an award of part of these expenditures seems to me sufficient. Accordingly, judgment of $ 50,000 in attorneys' fees and expenses is awarded to the publishing defendants.
The final question is against whom should the cost for attorneys fees be taxed. Both plaintiff and his counsel are culpable. Plaintiff and his broker, among others, pressured counsel into filing this baseless lawsuit, even though they and counsel knew or should have known that the allegations were not susceptible of proof sufficient in a court of law. Counsel, however, was under a professional obligation to resist his client's insistence that this lawsuit be brought, but did not. Therefore the cost of attorneys' fees will be taxed against plaintiff and his counsel, Hale & Dorr.
Rule 54(d), F.R.Civ.P. provides that costs shall be awarded to the prevailing party. I have already indicated my reason for concluding that the publishing defendants are the prevailing parties. For similar reasons, the short selling defendants are also prevailing parties and should be allowed to recover the costs of the action.
In sum, the publishing defendants are awarded $ 50,000 in attorneys' fees and expenses to be taxed against plaintiff and his counsel. All defendants are to recover their costs taxed against plaintiff, and pursuant to the parties' stipulation, the action is dismissed with prejudice.