Case Name: Simon V. HABERMAN, Plaintiff-Appellant, v. John E. TOBIN, Fred M. Kirby, Allan P. Kirby, Jr., each in his own capacity as director of Alleghany Corporation, and as attorneys for and guardians of the property of Allan P. Kirby, Sr., John J. Burns, Jr., Defendants-Appellees, Ralph K. Gottshall, Richard R. Hough, William G. Rabe, Clifford H. Ramsdell, and Carlos J. Routh, as directors of Alleghany Corporation, Defendants, and Alleghany Corporation, Defendant-Appellee
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 1980-07-08
Citations: 626 F.2d 1101
Docket Number: No. 1125, Dockets 79-7783, 80-7043
Parties: Simon V. HABERMAN, Plaintiff-Appellant, v. John E. TOBIN, Fred M. Kirby, Allan P. Kirby, Jr., each in his own capacity as director of Alleghany Corporation, and as attorneys for and guardians of the property of Allan P. Kirby, Sr., John J. Burns, Jr., Defendants-Appellees, Ralph K. Gottshall, Richard R. Hough, William G. Rabe, Clifford H. Ramsdell, and Carlos J. Routh, as directors of Alleghany Corporation, Defendants, and Alleghany Corporation, Defendant-Appellee.
Judges: Before OAKES and MESKILL, Circuit Judges, and BONSAL, District Judge.
Reporter: Federal Reporter 2d Series
Volume: 626
Pages: 1101–1107

Head Matter:
Simon V. HABERMAN, Plaintiff-Appellant, v. John E. TOBIN, Fred M. Kirby, Allan P. Kirby, Jr., each in his own capacity as director of Alleghany Corporation, and as attorneys for and guardians of the property of Allan P. Kirby, Sr., John J. Burns, Jr., Defendants-Appellees, Ralph K. Gottshall, Richard R. Hough, William G. Rabe, Clifford H. Ramsdell, and Carlos J. Routh, as directors of Alleghany Corporation, Defendants, and Alleghany Corporation, Defendant-Appellee.
No. 1125, Dockets 79-7783, 80-7043.
United States Court of Appeals, Second Circuit.
Argued May 19, 1980.
Decided July 8, 1980.
Thomas Bress, New York City (Greenfield, Lipsky & Bress, New York City; Eleazar Lipsky, New York City, of counsel), for plaintiff-appellant.
William E. Hegarty, New York City (Ca-hill, Gordon & Reindel, New York City; H. Richard Schumacher, John A. Shutkin, New York City, of counsel), for defendant-appellee Alleghany Corp.
Debevoise, Plimpton, Lyons & Gates, New York City, Robert J. Geniesse, John G. Koeltl, New York City, on brief, for defendants-appellees John E. Tobin, Fred M. Kirby, Allan P. Kirby, Jr., and John J. Burns, Jr.
Before OAKES and MESKILL, Circuit Judges, and BONSAL, District Judge.
Of the United States District Court for the Southern District of New York, sitting by designation.

Opinion:
BONSAL, District Judge:
On December 30, 1974, Randolph Phillips instituted this derivative action against Alleghany Corporation ("Alleghany") and certain of its directors, alleging violations of the federal securities laws, the Investment Company Act, the Interstate Commerce Act, and state laws relating to fiduciary duties of directors. The district court dismissed certain of the claims, but left outstanding two claims under the federal securities laws and one state claim alleging a breach of fiduciary duties. It further held that Phillips could represent Alleghany pro se. Phillips v. Tobin, 403 F.Supp. 89 (S.D.N.Y.1975). This holding was appealed and we held that Phillips, acting pro se, could not properly represent Alleghany in a derivative action because he was not an attorney. Phillips v. Tobin, 548 F.2d 408 (2d Cir. 1976). Thereafter, Judge Sweet granted Phillips' motion to substitute the present plaintiff, Simon V. Haberman, holder of 10 shares of Alleghany stock, as derivative plaintiff. On November 13, 1978, Alleghany moved for an order requiring Haberman to post security for costs pursuant to Rule 2 of the Civil Rules for the Southern and Eastern Districts of New York ("Local Rule 2") and Section 627 of the New York Business Corporation Law ("Section 627").
By order filed April 17, 1979 ("the April 17 order"), Judge Sweet directed Haberman to post security in the amount of $100,000 and directed Alleghany to furnish Haber-man with a shareholders' list "for the sole purpose of enabling plaintiff to seek to join as additional plaintiffs other Alleghany shareholders so as to avoid the necessity of posting security pursuant to [section 627] and this Order." The order further provided that Haberman's failure within 60 days to post security in the amount of $100,000 or to move for intervention of shareholders to meet the requirements of Section 627 "shall constitute good cause for the involuntary dismissal of this action."
Within the 60 days, but more than four years after the action was instituted, Haberman acquired shares of Alleghany stock having a market value in excess of $50,000, that being the amount specified in Section 627. Because of this acquisition, Haber-man moved to be relieved from the April 17 order directing him to post security in the amount of $100,000. Alleghany cross-moved for an order dismissing the action for Haberman's failure to comply with the April 17 order.
By opinion dated September 27, 1979, Judge Sweet held that Haberman's purchase of Alleghany stock after the action was instituted did not meet the requirements of Section 627 and the April 17 order. Haberman v. Tobin, 480 F.Supp. 425 (S.D.N.Y.1979). Judge Sweet dismissed the state claim and required that an appropriate notice be sent to the holders of Alleghany stock. Thereafter, Haberman moved for reargument, which motion was denied.
Judge Sweet, by order filed October 19, 1979 ("the October 19 order"), directed Haberman to post a bond pursuant to Local Rule 2 in the amount of $10,000 within 15 days as a condition of his prosecuting the federal claims. The order stated that his failure to do so "shall constitute good cause for the involuntary dismissal, with prejudice, of this action." Haberman failed to post the $10,000 bond.
On October 26, 1979, Haberman applied for an order permitting him to deposit $100,000 in United States Government obligations to serve as security with regard to both the federal and state claims. By order dated November 8, 1979 ("the November 8 order"), Judge Sweet directed that
"Upon deposit by plaintiff of $100,000 with the clerk of the court by November 15, 1979, plaintiff's state claims will be reinstated, and the deposit shall be deemed good and sufficient security to meet all of this court's requirements under Rule 2 and section 627 with respect to both Federal and state claims alleged in the amended complaint herein."
The order further provided that
"plaintiff shall pay defendants the reasonable attorney's fees and court costs incurred by defendants in filing and litigating the July 2 motions to dismiss, in preparing the order entered by this court on October 19,1979, and in responding to plaintiff's application to set aside the dismissal of the action."
Haberman failed to post the security by November 15, 1979. At a hearing held on November 16, his counsel informed Judge Sweet that Haberman would not post the security.
By order filed December 13, 1979 ("the December 13 order"), Judge Sweet dismissed the derivative action as to Haber-man pursuant to Fed.R.Civ.P. 41(b) and directed that notice be sent to Alleghany stockholders advising them of the dismissal and their right to intervene in the action within 30 days to preserve their rights. In addition, Judge Sweet awarded attorneys' fees and disbursements in the amount of $1900 to Alleghany and $250 to the individual defendants, on the ground that Haber-man had "acted vexatiously in connection with the October 26 application."
Haberman appeals from the April 17, October 19, November 8 and December 13, 1979 orders.
Haberman contends that his acquisition of Alleghany stock having a market value in excess of $50,000 met the requirements of Section 627 with respect to the state claim.
The New York cases are in conflict as to whether the acquisition of stock after the action is commenced meets the requirements of Section 627. See Richman v. Felmus, 8 A.D.2d 985, 190 N.Y.S.2d 920 (1959); Tyler v. Gas Consumers Association, 34 Misc.2d 947, 229 N.Y.S.2d 169 (Sup.Ct.), reargument denied, 35 Misc.2d 801, 231 N.Y.S.2d 15 (1962); Purdy v. Humphrey, 187 Misc. 40, 60 N.Y.S.2d 535 (Sup.Ct.1946); Noel Associates, Inc. v. Merrill, 184 Misc. 646, 53 N.Y.S.2d 143 (Sup.Ct.1944). Tyler, the most recent case, holds that it does not. We believe that, under the facts of this case, where the stock was purchased more than four years after the action was instituted and where Haberman repeatedly disregarded Judge Sweet's orders, the requirements of Section 627 were not met.
Judge Sweet acted within his discretion in imposing a $10,000 security requirement pursuant to Local Rule 2 with respect to the federal claim. During Haberman's deposition, he testified that, "I would assume if it [the costs] goes over $5000 I would lose interest. Or at least I would reassess my position." Haberman v. Tobin, 466 F.Supp. 447, 451 & n.10 (S.D.N.Y.1979). In view of Haberman's statement and the substantial costs that could be incurred by the defendants, Judge Sweet's action was appropriate. See Leighton v. One William Street Fund, Inc., 343 F.2d 565, 567 (2d Cir. 1965); Leighton v. Paramount Pictures Corp., 340 F.2d 859, 861 (2d Cir. 1965); Miller v. Town of Suffield, 249 F.2d 16 (2d Cir. 1957).
In view of the repeated disregard by Haberman of Judge Sweet's orders, Judge Sweet acted within his discretion in dismissing this derivative action insofar as Haber-man as plaintiff is concerned. See Link v. Wabash R. R., 370 U.S. 626, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962); Browning v. Debenture Holders' Committee v. DASA Corp., 560 F.2d 1078, 1083 (2d Cir. 1977); Theilmann v. Rutland Hospital, Inc., 455 F.2d 853, 855 (2d Cir. 1972); Michelsen v. Moore-McCormack Lines, Inc., 429 F.2d 394, 395 (2d Cir. 1970); Redac Project 6426, Inc. v. Allstate Insurance Company, 412 F.2d 1043, 1046 (2d Cir. 1969); First Iowa Hydro Electric Cooperative v. Iowa-Illinois Gas and Electric Co., 245 F.2d 613, 628 (8th Cir. 1957). Haberman was warned by the April 17 and October 19 orders that his failure to comply would constitute good cause for involuntary dismissal. Finally, after being granted permission to deposit $100,000 in United States government obligations to satisfy the security requirements, he failed to do so.
Haberman objects to the allowance of attorneys' fees totalling $2,150. Based on this record, we do not find these fees unreasonable. See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 258-59, 95 S.Ct. 1612, 1622, 44 L.Ed.2d 141 (1975); F. D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 129, 94 S.Ct. 2157, 2165, 40 L.Ed.2d 703 (1974); Hall v. Cole, 412 U.S. 1, 4-5, 93 S.Ct. 1943, 1945-46, 36 L.Ed.2d 702 (1973).
Affirmed.
. Section 627 provides:
"Security for expenses in shareholders' derivative action brought in the right of the corporation to procure a judgment in its favor.
In any action specified in section 626 (Shareholders' derivative action brought in the right of the corporation to procure a judgment in its favor), unless the plaintiff or plaintiffs hold five percent or more of any class of the outstanding shares or hold voting trust certificates or a beneficial interest in shares representing five percent or more of any class of such shares, or the shares, voting trust certificates and beneficial interest of such plaintiff or plaintiffs have a fair value in excess of fifty thousand dollars, the corporation in whose right such action is brought shall be entitled at any stage of the proceedings before final judgment to require the plaintiff or plaintiffs to give security for the reasonable expenses, including attorney's fees, which may be incurred by it in connection with such action and by the other parties defendant in connection therewith for which the corporation may become liable under this chapter, under any contract or otherwise under law, to which the corporation shall have recourse in such amount as the court having jurisdiction of such action shall determine upon the termination of such action. The amount of such security may thereafter from time to time be increased or decreased in the discretion of the court having jurisdiction of such action upon showing that the security provided has or may become inadequate or excessive."
. The December 13 order directed that the notices to stockholders be mailed within 20 days after the final resolution of any appeal taken from the order.
. Local Rule 2 provides:
"Security for Costs
"The court, on motion or on its own initiative, may order any party to file an original bond for costs or additional security for costs in such an amount and so conditioned as it may designate. For failure to comply with the order the court may make such orders in regard to non-compliance as are just, and among others the following: an order striking out pleadings or staying further proceedings until the bond is filed or dismissing the action or rendering a judgment by default against the non-complying party."