Opinion ID: 423534
Heading Depth: 1
Heading Rank: 2

Heading: the texas settlement.

Text: 49 Meanwhile, in the Texas action, on May 27, 1980, Zapata's motion for summary judgment was also denied by Judge Black. The denial was based upon Vice Chancellor Hartnett's March 1980 ruling in the Delaware action. Maher v. Zapata Corporation, 490 F.Supp. 348, 351-53 (S.D.Tex.1980). No appeal by Zapata was taken from this ruling. Thereafter, additional discovery was pursued in the Texas action, including the depositions of Israel (outside director) and Wall (Zapata's chief financial officer). Before the Supreme Court of Delaware rendered its decision respecting the business judgment rule, but after Judge Black had denied Zapata's motion thereon in the Texas action, the parties to the Texas action entered into settlement negotiations, which resulted in a Stipulation and Agreement of Compromise and Settlement on September 15, 1980. Notice of the settlement was given all Zapata's shareholders pursuant to Fed.R.Civ.P. 23.1, and Judge Black held a hearing where Maldonado appeared individually as an objector and presented his objection to the settlement agreement, the principal basis of which was the potential res judicata effect of the settlement on the claims respecting the July 1974 modifications to the stock option plan pending in his Delaware action. 23 50 Judge Black, however, held that the potential preclusive effect of the settlement was not a determining factor. He found that there were no signs of bad faith or collusion between the parties, and that the settlement was fair, reasonable, and in the best interest of Zapata. The settlement agreement was approved on June 12, 1981, and Maldonado alone then brought this appeal.J. THE SECOND CIRCUIT. 51 While the events described above were taking place in Delaware and in Texas, the Second Circuit was considering Maldonado's appeal from Judge Weinfeld's January 1980 dismissal of the New York action based on the Investigation Committee's recommendation. After the Texas action was dismissed with prejudice by Judge Black pursuant to his approval of the settlement agreement, Zapata, as Maldonado feared, argued to the Second Circuit that the continuation of the New York action was barred by the judgment in the Texas action. In its February 1982 decision, the Second Circuit, however, after noting the approval of the settlement agreement by Judge Black and the Supreme Court of Delaware's decision respecting the business judgment rule, remanded the case to Judge Weinfeld to address the res judicata effect of the Texas settlement judgment and, to the extent it did not have preclusive effect, to determine in his business judgment whether Zapata's motion to terminate the case should be granted. It specifically affirmed Judge Weinfeld's findings (see note 21, supra ) that the Investigation Committee acted truly independently and in good faith in recommending termination. Maldonado v. Flynn, 671 F.2d 729 (2d Cir.1982). Apart from res judicata, all that remains for Judge Weinfeld on remand will be the second step in the Delaware two-step process (see note 22, supra ), namely, application of his own independent business judgment to whether the Committee's recommendation should be granted. The first step in that two-step process, establishing the Committee's independence, good faith, and reasonable investigation and bases for its conclusions, has already been satisfied. 24 52 K. POSTURE OF THE ACTIONS. 53 The present posture of the several actions is accordingly as follows. When the instant appeal is decided, Judge Weinfeld, in accordance with the Second Circuit's remand, will proceed to determine first, whether any, all, or part of the New York action is precluded by the Texas settlement judgment, providing it is upheld by this Court, and then, if necessary, whether, in his own independent business judgment, it is in the best interest of the Corporation to grant Zapata's motion for summary judgment based on the Investigation Committee's recommendation (already established to have been independent and appropriately arrived at in good faith) that the New York action be terminated. 54 If the New York action is dismissed, then the Vice Chancellor will dismiss the Delaware action on the basis of res judicata. If, however, the New York action is not dismissed, then the Vice Chancellor, in accordance with the Supreme Court of Delaware's remand, will determine whether Zapata's motion for summary judgment, based on the Investigation Committee's recommendation that the Delaware action be terminated, should be granted or denied. 55 With the actions in this setting, we now turn to consider whether the judgment approving the settlement of the Texas action should be affirmed.