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April 29, 1993


The opinion of the court was delivered by: MARY JOHNSON LOWE



 Before this Court is defendants' motion for summary judgment on the two remaining claims of plaintiff's Second Amended Complaint. This Court has issued five previous opinions in this case an will therefore limit a recital of the facts to those relevant to the decision herein. *fn1"

 In March 1978 Archon Enterprises Inc. and its wholly owned subsidiary Halcon International, Inc. merged. Each share of Archon Class A stock was exchanged for a share of Class C stock in the new entity which retained the name Halcon International, Inc. ("Halcon"). As part of the merger, the board of directors adopted a restructuring plan. Part of the plan included a tender offer for the purchase of the newly issued Class C shares at $ 100 per share. *fn2" An Executive Compensation Plan ("Compensation Plan") was also adopted in connection with the tender offer. *fn3" The Compensation Plan provided that all holders of Class C shares who accepted the tender offer would receive a number of "participation units" equal to the number of Class C shares purchased. Compensation Plan participants were to receive annual cash distributions at least equal to the amount of cash dividends they would have received had they retained their Class C stock.

 Plaintiff, an employee-stockholder whose Class A shares were exchanged for Class C shares, did not accept the tender offer and therefore was not a participant in the Compensation Plan. Shareholders who did not accept the tender offer were informed:

In the event of the liquidation, dissolution or winding up of the company, the holders of [Class C] Common Stock are entitled to share ratably in the assets of the Company legally available for distribution to stockholders of the Company. *fn4"

 In June 1980, Halcon sold its interest in a company known as the Oxirane Group for $ 286 million. Halcon informed its shareholders in April 1981 that for tax purposes Halcon would be liquidated prior to June 1981. *fn5" Prior to Halcon's liquidation, the board of directors approved payment of approximately 38.5 million in bonuses to certain key executives. *fn6" After payment of these bonuses, the liquidating Trust paid to each Class C shareholder $ 237.05 per share. The shareholders also received pro rata joint ownership interests in the remaining businesses of Halcon, which were reorganized into new entities: The Halcon SD Group, Inc. ("Halcon SD") (a new corporation into which six former wholly owned subsidiaries were merged); Halcon Research and Development Partnership ("Halcon R&D"); Oxiteno Partnership; and a liquidating trust required by Delaware law.

 In August 1982 two of the new entities -- Halcon SD and Halcon R&D -- were sold for over $ 43 million. The board of directors again approved the payment of bonuses and distributed the balance, pro rata, to the shareholders, including plaintiff.

 Claim Four of plaintiff's complaint alleges, in connection with the August 1982 sale, that the distribution of bonuses to key executives deprived plaintiff of a ratable distribution. Plaintiff alleges that because the remaining companies are closely held legal entities, he has no adequate means of determining valuation. He requests a judgment ordering a ratable distribution of those assets in the form as they existed prior to their creation. *fn7"

 In an Opinion and Order dated August 9, 1989, this Court denied plaintiff's motion for summary judgment on Claims Three and Four. After a more detailed analysis of plaintiff's complaint, this Court at the conclusion of an Opinion and Order dated April 24, 1991 invited defendants to renew their motion for summary judgment. Defendants complied. Plaintiff declined to respond and instead submitted a document entitled "plaintiff's Response to Defendants' 'Renewal, After Discovery of the Motion to Dismiss Plaintiff's Third and Fourth Claims.'" Plaintiff also submitted a "Suggestion of Recusal" directed at this Court. The Court will not address in this Opinion and Order the Suggestion of Recusal, except to say that the suggestion is declined for the reasons stated in defendants' Reply Memorandum and Supplemental Appendix in Opposition, which the Court hereby adopts.


 Claims Three and Four are brought under the diversity jurisdiction of this Court. Archon and Halcon were incorporated in the State of Delaware. Plaintiff's claims are alleged as direct, not derivative, actions against Halcon and its former directors.

 A. Applicable Law and Derivative versus Direct Actions

 In order to decide the law applicable to the claims alleged, this Court must first apply the choice of law rules of the forum state to determine what laws govern the instant action. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941); Galef v. Alexander, 615 F.2d 51 (2d Cir. 1980). New York courts would look to the laws of the state of incorporation, Delaware, not only to determine the right of plaintiff to bring the instant claims but also as the source of law concerning the governance of the corporations' internal affairs. Galef, 615 F.2d at 58.

 Delaware courts look not to a plaintiff's characterization of the wrong alleged but to the substance of the claim to determine the nature of the action. Lipton v. News Int'l PLC, 514 A.2d 1075 (Del. 1986). The Delaware Supreme Court held in Bokat v. Getty Oil Co., 262 A.2d 246 (Del. 1970) that when an action alleges injury to the value of corporate stock such that the injury falls equally upon all stockholders, an individual stockholder may not seek recovery for his personal loss but must sue derivatively on behalf of the corporation. The court in Kramer v. Western Pac. Indus., 546 A.2d 348 (Del. 1988), quoting Bokat, explained:

A claim of mismanagement resulting in corporate waste, if proven, represents a direct wrong to the corporation that is indirectly experienced by all shareholders. Any devaluation of stock is shared collectively by all the shareholders, rather than independently by the plaintiff or any other individual shareholder. Thus, the wrong alleged is entirely derivative in nature.

 Id. at 353 (quoting Bokat, 262 A.2d at 249) (citations omitted).

 Plaintiff pleads in Claim Three that after the board of directors sold certain assets of the corporation, the distribution of the cash proceeds was not made ratably to all stockholders, in that persons who were not stockholders received a portion of the proceeds. Second Am. Compl. P 44. The distribution to those other than stockholders or creditors, plaintiff complains, resulted in a reduction of the amount to which plaintiff as a stockholder was entitled. Second Am. Compl. P 46. In the Fourth Claim plaintiff makes the identical allegation of injury as to different former corporate assets. Second Am. Compl. P 50. This Court finds that each of these claims alleges a diminution in value of all Class C stock because of corporate mismanagement. This is precisely the type of claim ...

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