The opinion of the court was delivered by: CANNELLA
Joint application for approval of a proposed consolidated settlement of all four of these shareholder derivative cases is denied, without prejudice to renewal upon supplementation of the record as provided herein. Fed.R.Civ.P. 23.1.
Petitions for attorneys' fees shall await the Court's decision on the proposed settlement.
Presently before the Court is a stipulation of settlement of four consolidated shareholder derivative actions brought on behalf of Dreyfus Liquid Assets, Inc. ("the Fund"), as well as related petitions for attorneys' fees. Since the procedural history of these cases is rather unusual, a brief description of it is in order.
The first action was brought by Walter Untermeyer, Jr., on January 14, 1976, alleging that the Fund violated section 22 of the Investment Company Act of 1940, 15 U.S.C. § 80a-22, by valuing its portfolio at below fair market value. This action was initially assigned to Judge Goettel. The second and third actions, filed later that year by Ruth Krasner and Meyer and Karen Gross, respectively, allege that the compensation paid by the Fund to its investment adviser, The Dreyfus Corporation ("the Corporation"), was and is excessive, and therefore, in violation of section 36(b) of the Act, 15 U.S.C. § 80a-35(b). These actions were assigned to this Court.
On July 28, 1977, the parties in the Krasner and Gross cases entered into a stipulation of settlement, which they thereupon submitted to the Court for approval pursuant to Fed.R.Civ.P. 23.1. The Court conducted a hearing on September 19, 1977, on the proposed settlement, at which time Walter Untermeyer, Jr., objected, primarily on the ground that the proposed settlement permitted the defendants to continue charging allegedly excessive management fees. In a Memorandum Decision and Order dated June 30, 1978, the Court approved the settlement over the objections of Untermeyer and other shareholders,
and also approved a fee request of $ 270,000 by counsel for Krasner and Gross.
Untermeyer then appealed this Court's approval of the settlement and award of attorneys' fees. While this appeal was pending, Untermeyer moved to amend his complaint, which was pending before Judge Goettel, to add claims of excessive management fees. Judge Goettel denied this motion, and Untermeyer thereafter filed a new complaint alleging such claims on November 21, 1978, which was assigned to Judge Griesa.
The Court of Appeals for the Second Circuit heard oral argument on Untermeyer's appeal from the approval of the settlement in the Krasner and Gross cases on March 29, 1979. Then, on May 11, 1979, while the appeal was sub judice, Untermeyer's attorney informed the Court of Appeals by letter that:
Subsequent to the argument, on behalf of my client an agreement was reached with the attorneys for the investment advisor and the Fund. The new agreement, in my opinion, meets the . . . objections and renders the controversy before this Court moot. The new agreement will, pursuant to Rule 23.1 of the Federal Rules of Civil Procedure, be placed before the district court for approval, and notice of the new agreement will promptly be given to all shareholders. In view of the agreement reached, all parties to the appeal consent to have the appeal withdrawn without costs.
The letter enclosed an executed stipulation for withdrawal of the appeal, without costs.
On May 17, 1979, the Second Circuit granted the joint application to withdraw the appeal, stating in part:
On May 11, 1979, the court received a letter from counsel for the objecting stockholder stating that his objections had been removed, by a new agreement, whose terms were not disclosed, which would be placed before the district court for approval on notice to all shareholders . . . .
Before receiving this communication the court had concluded that the reasons given by the district court for approving the settlement were inadequate and that more detailed findings were demanded. In cases like these the interests of all stockholders and not simply those of the appealing stockholder must be taken into account. In dismissing the appeal without costs, as we do by this order, we wish to make clear that the district court should not deem its previous action a sufficient basis for approving the new settlement. We take no position on the merits, save in one respect. If the revised settlement involves payment over a term of years, we would be much concerned with any provision similar to that in the settlement here before us requiring the Fund to use its best efforts to require any new entity that might be chosen as manager to assume the obligations of The Dreyfus Corporation for unpaid installments. Prima facie such a provision appears inconsistent with the purpose of the final paragraph of § 15(c) of the Investment Company Act.
Gross v. The Dreyfus Corporation, 607 F.2d 995 (2d Cir. 1979).
At the suggestion of the parties, this Court then accepted transfer of the two Untermeyer cases from Judges Goettel and Griesa. As to the Krasner and Gross cases, counsel for all parties voiced the opinion that, since the Second Circuit had neither remanded nor retained jurisdiction over them, this Court's judgment approving the settlement had in all respects become final. This Court disagreed, construing the Second Circuit's action instead as a dismissal on condition that "the suits then pending before the Court of Appeals be resettled before the district court." Memorandum and Order at 7 (dated June 27, 1979; filed June 28, 1979) (citing Fed.R.App.P. 42(b)).
The Court then took "the extraordinary step" of bringing on its own motion to vacate the judgment. Id. at 6. After hearing the parties on July 5, 1979, the Court vacated its judgment in the Krasner and Gross cases, and afforded counsel an opportunity to submit a consolidated proposed settlement of all four actions, providing for new notice to shareholders. See Memorandum and Order (dated July 12, 1979).
The parties eventually did arrive at a comprehensive settlement, which they then submitted to the Court along with requests for awards of attorneys' fees. Upon notice to all shareholders, the Court conducted a hearing on the proposed settlement and attorneys' fees petitions on June 12, 1980. No shareholder objected to the proposed settlement, although two shareholders objected to the attorneys' ...