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June 22, 1981;

TBK PARTNERS, LTD. and Julius Garfield, individually, on behalf of shareholders of the Gold and Stock Telegraph Company similarly situated, and derivatively in the right of and for the benefit of the Gold and Stock Telegraph Company, Plaintiffs,
WESTERN UNION CORPORATION, the Western Union Telegraph Company, the Gold and Stock Telegraph Company, Walter E. Girardin, Calvin E. Darrin and Richard C. Hostetler, Defendants

The opinion of the court was delivered by: POLLACK

The parties to this consolidated class and derivative action have negotiated and submitted to the Court a proposed settlement for approval pursuant to Rules 23(e) and 23.1 Fed.R.Civ.P. Notice by mail and by publication has been given to all interested parties and a hearing has been held on the subject of the settlement's fairness, reasonableness and adequacy. Certain objectors who, in later commenced suits, have asserted claims and issues in State Court, duplicative of those before this Court, appeared on the hearing herein and advanced objections directed principally against the sufficiency of the consideration of the settlement proposed and the alleged conflict of the settlement with rights of appraisal that the objectors allegedly could assert under New York's merger laws in State Court.

For the reasons appearing hereafter, the objections are overruled and the settlement as proposed will be approved in all respects as fair, reasonable and adequate and ordered to be consummated.


 This Court has jurisdiction over the Consolidated Amended and Supplemental Complaint under Section 44 of the Investment Company Act of 1940, as amended, 15 U.S.C. § 80a-43 and Section 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa, as to the federal claims asserted; and under principles of pendent jurisdiction as to the state-law claims asserted.


 Effective January 1, 1882, the Gold and Stock Telegraph Company ("G&S") leased to The Western Union Telegraph Company ("WUT") for a period of 99 years all of its telegraph lines and business "now owned, operated or controlled by "G&S' ... including franchises, easements, stocks in other Telegraph or Telephone Companies, inventions, patents, and patent rights, and interest in inventions and patents of every kind and nature whatsoever owned, used or enjoyed by G&S" ... (The operating assets so transferred long ago outlived their usefulness and are no longer possessed, operated or suitable for use).

 Under the lease, Western Union was granted "full right and authority to use, operate and enjoy the same ... as fully as (G&S) might have done...." All the earnings and revenues derived from the property of G&S were expressly reserved for WUT. In return WUT was obligated to pay during the entire term of the lease, $ 6 per year per share to G&S shareholders in quarterly installments (these have been paid except for the last quarter, 1980, mentioned below).

 The lease, as indicated, expired on December 31, 1980. Long prior thereto, G& S became a non-operating "paper company" having no operating assets, operating revenues or employees. The lease did not obligate Western Union, either expressly or by implication, to enhance, improve or develop the assets or business of Gold and Stock; nor did the lease express or contemplate any reversionary obligation payable by WUT to G&S on termination of the lease.

 By 1980, WUT had acquired and owned 95.3% of the total outstanding capital stock of G&S (47,629 out of the total 50,000 shares). Both companies were incorporated in New York. Under Section 905 of the New York Business Corporation Law the so-called "short-form merger" statute WUT was entitled to and decided to effect a merger into WUT under Section 905 prior to the expiration of the lease. Under the law no action of the Board of Directors or stockholders of G&S was required. After an investigation by outside counsel in conjunction with WUT to uncover any assets unknown or other circumstances bearing on the value of the assets of G&S, the Board of Directors of WUT determined that the fair value per share payable in the merger for the 2,371 shares of G&S remaining outstanding was $ 256.97 per share. This was made up of three items: 1) plant and equipment transferred to WUT under the lease, which has been valued since 1943 at $ 423,203.39, representing the aggregate amount at which such assets were listed and valued on the G&S inventory attached to the lease; 2) the net proceeds of $ 12,200,245.59, derived from the disposition by WUT of the stock assets of G&S, the last transaction having been made in 1953; and 3) the value of the stocks of G&S not disposed of, estimated since 1954 at $ 150,000. To the per share amount derived from these items, WUT added $ 1.50 per share representing the final, fourth quarter amount to be paid on account of the $ 6.00 per year payment due G&S shareholders under the lease.

 The market price of G&S shares has apparently never traded in excess of $ 225 per share and this was also considered by WUT's Board of Directors.

 The merger was duly effected. On October 15, 1980 WUT applied for the consent of the New York Public Service Commission with respect to the merger. Prior thereto, this suit had been commenced and plaintiffs, by their counsel herein, opposed the application, requesting a hearing thereon and raised objections to the merger, including claims related to G&S' reversionary interest under the lease. On December 30, 1980 the Commission granted WUT's petition. The merger became effective that same day upon the filing of the Certificate of Merger by the Secretary of State.

 The Prior Proceedings Herein

 This suit was commenced on July 3, 1980 by plaintiff TBK Partners, Ltd. as a class action. The complaint was asserted on behalf of G&S minority shareholders and alleged that G&S was and had been an investment company under the Federal Investment Company Act of 1940 without compliance with certain provisions thereof; and that the defendants had breached their fiduciary duties to the class under state law, in that the defendants allegedly, among other things, had wrongfully commingled G&S' assets transferred under the lease with the assets of WUT, and failed to maintain and report to G&S stockholders or to maintain adequate records reflecting separately the assets of G&S and dispositions thereof. The complaint requested, among other things, that WUT be enjoined "from entering into any merger or other business combination" involving G&S, and included extensive allegations and claims relating to WUT's obligations under the lease.

 On October 24, 1980 the defendants mailed to G&S shareholders a notice of plan of merger and information statement. Within two weeks, plaintiff TBK requested temporary injunctive relief against the merger and an extension of the 20-day period under Section 623(c) of the New York Business Corporation Law during which shareholders who elected to exercise appraisal rights were required to file notices of election to dissent. That request was denied by the Court. Plaintiff thereupon requested leave to assert additional claims relating directly to the merger and to WUT's alleged obligations to G&S upon expiration of the lease. In response the Court stated that no formal amended pleading would be required and that the additional claims could be set forth in plaintiff's proposed findings and conclusions which the Court directed be promptly prepared and served to facilitate an early trial. Preliminary injunctive relief was refused by the Court and an early trial date was indicated by the Court.

 In connection with the continued preparation of the action for an early trial a form of Notice of Pendency of Class Action was prepared to be sent by TBK to the G&S minority shareholders under Rule 23 Fed.R.Civ.P. In this, TBK set forth its claims to be litigated in the action. The Notice of Pendency was approved as to form and on December 2, 1980 the action was certified as a class suit under Rules 23(a), 23(b)(1)(A), 23(b)(1)(B) and 23(b)(2). Plaintiff TBK was appointed as the class representative and its attorneys were appointed as class counsel. Just prior to those proceedings, on November 10, 1980, counsel for the objectors herein commenced an action in Supreme Court New York County, referred to hereafter as the Spier suit. The state court complaint was couched in the form of a class suit for the same G&S minority shareholders and the causes of action were also asserted derivatively on behalf of G&S. It alleged precisely the same claims already at issue in this Court, viz.: WUT's obligations upon expiration of the lease and the legality of the merger. The Spier complaint also prayed for the same relief as that sought in this Court: an injunction against the merger, an accounting for G&S' assets and property held by WUT during the 99 year lease term and a return of G&S' business, or the value thereof, to G&S or its shareholders.

 Spier on November 10, 1980 had sought a temporary restraining order in state court and had moved for a preliminary injunction against the merger. However, a temporary restraining order against the merger was denied and his motion for a preliminary injunction was argued on November 12th; it was ultimately denied.

 On December 3, 1980, the day following the certification of the federal suit as a class action, the Spier counsel at a conference with this Court requested certain changes in the proposed Notice of Pendency mentioned above. These were found to be acceptable and accordingly the form was modified by the Court, on consent, and it was mailed thereafter. Spier counsel did not object to the certification of the federal suit as a class action, nor do they now. At the same conference Spier counsel requested that they be appointed as co-lead counsel for the class herein. However, this request was rejected by the Court as unnecessary and uncalled for in the circumstances. Spier counsel then indicated that they might seek leave to intervene herein but they did not act to obtain such leave thereafter.

 On December 15, 1980 WUT and the other defendants in the Spier action moved to dismiss or stay the state court suit under New York CPLR Rule 3211(a)(4) and Section 2201; the motion was based upon the prior pendency of this federal suit. The motion was opposed on various grounds including charges that the proceedings in this federal suit had been "postured" by WUT and were the result of some sort of "collaboration". WUT's motion to stay the Spier action based on the prior pendency of this federal suit was granted by the state court on April 28, 1981. The state court held that the federal action raised "all the state law claims made by plaintiffs" and that a disposition of this federal suit would preclude further litigation of ...

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