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WEINBERG v. LEAR FAN CORP.

February 5, 1986

RICHARD A. WEINBERG, MACIEJ KOPACZ, JAEWOOK KIM, as Partners of WEINBERG, KOPACZ & KIM; E. RONN HEINER, ALAN PIERROT, DONALD HUENE, BARBARA NOYES, as Partners of HEINER & PERIRROT; RAYMOND SCHWARTZ, RICHARD WHEATLEY, SATHAPORN VATHAYANON, as Partners of SCHWARTZ, WHEATLEY & VATHAYANON, Plaintiff,
v.
LEAR FAN CORPORATION, (a Nevada Corporation); LEAR AVIA CORPORATION (a Delaware Corporation); LEAR FAN LTD. (an English Limited Company); LEAR FAN CORPORATION (US) (a Delaware Corporation); OPPENHEIMER & CO., INC. (a Delaware Corporation); ZOYSIA CORPORATION, N.Y. (a Netherlands Antilles Corporation); FAN HOLDINGS, INC. (a Delaware Corporation); SAMUEL H. AULD; WILLIAM W. SURBEY; MOYA OLSEN LEAR; and BOB BURCH, Defendants



The opinion of the court was delivered by: WEINFELD

EDWARD WEINFELD, D.J.

This is a motion, upon notice to all members of the proposed class, for approval of a settlement pursuant to Fed. R. Civ. P. 23(e) and for the allowance of attorneys' fees to plaintiffs counsel.

Plaintiffs, nine medical doctors and one Ph.D., commenced this action in October 1983 in the United States District Court for the Eastern District of California on behalf of themselves and a class of approximately 200 purchasers of limited partnership interests in the Lear Fan Research Limited Partnership ("LFRLP" or "the Partnership"). The Partnership was formed in 1980 to finance research and development for a proposed lightweight business aircraft, the Lear Fan 2100. In March 1984, the action was transferred to this Court, where plaintiffs filed an amended complaint.

 The defendants, Lear Fan Corp. (a Nevada corporation), Lear Fan Ltd. (an English Limited Company), Lear Fan Corp. (US) (a Delaware corporation), LearAvia Corp. (a Delaware corporation) (collectively referred to as "the Lear Fan defendants"), Oppenheimer & Co., Inc. (a Delaware corporation), Zoysia Corp., N.V. (a Netherlands Antilles corporation), Fan Holdings, Inc. (a Delaware corporation), Samuel H. Auld, Moya Olsen Lear, William W. Surbey, and Bob Burch, moved to dismiss several of the claims alleged in the amended complaint and opposed class certification. In March 1985, this Court dismissed four counts of the amended complaint and granted plaintiffs motion for leave to file a second amended complaint. After the Court's dispositions of the parties' motions rendered plaintiffs' motion for class certification moot, the parties agreed that plaintiff would have until January 15, 1986 to move for class certification under the second amended complaint.

 The litigation arose from the sale in 1980 of limited partnership interests in the Partnership to provide $30 million for research and development of the Lear Fan 2100. Having spent $16.5 million between 1978 and 1980 for research and development and in need of additional funds to complete the project, LearAvia Corp. retained Oppenheimer & Co., Inc. to raise money from private investors. The Lear defendants *fn1" and Oppenheimer sold partnership units of $150,000 each through a Preliminary Private Placement Memorandum dated April 25, 1980. Prospective investors were required to complete a subscription agreement in which they represented, among other things, that they were able to bear the economic risks of the investment.

 LearAvia assigned the rights to all the technology developed with respect to the Lear Fan 2100 to the Partnership; the latter granted Lear Fan Ltd. an option to acquire an exclusive license of manufacturing and selling the aircraft. In return, Lear Fan Ltd. agreed to pay the Partnership royalties for each Lear Fan 2100 sold during the 25-year period following shipment of the first plane sold, with no monetary cap on total royalty payments.

 By the summer of 1982, no aircraft had been developed or sold and additional funds were needed. The Partnership's general partners, Lear Fan Corp. (Nevada) and Lear Fan Corp. (US), entered into a reorganization agreement whereby certain undisclosed investors agreed to contribute $60 million to the project through a shell corporation, Zoysia Corp., N.V. ("Zoysia"). Under the reorganization, Lear Fan Ltd. exercised its option to acquire the exclusive license to the Lear Fan 2100 technology. Lear Fan Ltd. was then acquired by the entity created for the purpose of implementing the refinancing agreements, Fan Holdings, Inc. Zoysia owned 85% of the stock of Fan Holdings, Inc. The Partnership acquired 6% of the stock, the Partnership's royalty rights were restructed according to a formula based on the number of aircraft sold, and royalties were capped at $71,250,000.

 Plaintiffs second amended complaint alleges violations of section 10(b) of the Securities Exchange Act of 1934 *fn2" and various common law claims with respect to the 1980 private placement and the 1982 reorganization. In particular, counts one and six allege that the Lear defendants, Oppenheimer, and the individual defendants (except Burch) committed common law fraud and violated section 10(b) by making material misstatements and omissions in connection with the 1980 offering of Partnership interests. counts two, three and four allege that all of the defendants violated section 10(b), breached the Partnership agreement and breached fiduciary duties owed to the Partnership and the limited partners during the 1982 reorganization. Finally, count five alleges that Zoysia, Fan Holdings, Inc. and Burch tortiously interfered with the royalty agreement between the Partnership and Lear Fan Ltd.

 A relevant postscript to the commencement of this litigation is that during 1985 all four of the Lear defendants filed petitions under Chapter 11 of the Bankruptcy Code: LearAvia and Lear Fan Corp. filed in the District of Colorado and Lear Fan Ltd. *fn3" and Lear Fan Corp. (US) filed in the District of Nevada. To date, although $200 million has been expended on the Project, *fn4" no aircraft have been produced or sold and research and development has been suspended.

 THE SETTLEMENT

 The parties to the action, the Trustee and Receiver for Lear Fan Ltd., and the Department of Economic Development of Her Majesty's Government of the United Kingdom of Great Britain and Northern Ireland (the "DED") engaged in extensive negotiations to reach a settlement intended to resolve the parties disputes and continue the project. Under the proposed settlement, a new corporation will be formed -- Lear Fan Technology, Inc. -- to which the parties and the DED will assign their rights to the Lear Fan 2100, its technology and its profits and royalties, in exchange for stock in the newly formed corporation and the right to appoint its directors. The following table illustrates the share of Lear Fan Technology each party will receive in exchange for its right to the royalties, profits and technology of the project:

 
Percentage of LFT Stock Number of Amount Contributed Party Received Directors to Lear Fan Project LFRLP 47.00% 3 $30 million LEAR FAN LTD. 20.00% 1 $40 million (approx.) (for its creditors) ZOYSIA 14.25% 1 60 million DED 14.25% 1 $70 million LEAR AVIA 4.50% 1 $16.5 million
 
Lear Fan Technology will own 92.8% of the stock of Fan Holdings, Inc. (the owner of all of Lear Fan Ltd.s stock) and the Partnership will retain its 6% share of Fan Holdings, Inc. All parties and the DED will execute a mutual release with respect to all claims arising out of the sale of the partnership units and the 1982 refinancing.
 
Pursuant to the stipulation of settlement, the parties have agreed that counts one and six of the second amended complaint will be dismissed without prejudice, the action otherwise certified as a class action for settlement purposes pursuant to Rule 23(b)(1), and counts two through five dismissed with prejudice. After notice was sent by first-class mail to each of the purchasers of ...

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