Court Opinion

ID: 9450117
Source: CourtListenerOpinion
Date Created: 2023-08-04 16:35:46.99003+00
Date Added: 2024-06-11T17:32:09.411913
License: Public Domain

KAUFMAN, Circuit Judge
(concurring) :
As my brother MOORE has amply demonstrated in his able opinion, the New York State judgment which we are here asked to overturn was rendered only after extensive hearings, exhaustive* arguments of counsel, and protracted negotiations. Unlike the situation which prevailed at the time of the exchange transaction itself, moreover, the Zenn settlement proceedings did not involve a body of silent and quiescent shareholders,, meekly trusting their directors to act in the best interests of the company. Rather, it is reasonable to infer from the nature of the controversy that at the time of the Zenn hearings the shareholder-plaintiffs and their experienced and zealous, attorneys recognized Kirby and his co-defendants as bitter antagonists, whose interests in the settlement negotiations were diametrically opposed to those of' Alleghany. Under these circumstances,, therefore, while I find it unnecessary to determine whether the director-defendants were under any greater obligations, than those customarily borne by an adverse party in a lawsuit, I agree with. Judge MOORE that Alleghany has failed! to establish that we should take the extraordinary step of setting aside a final and binding state judgment in a wholly collateral action.
In light of my brother FRIENDLY’S-considered dissenting opinion, however, a few additional remarks would, seem to be in order. Thus, although the case was argued — both in the District Court and. on appeal — primarily if not exclusively on the theory that Kirby’s failure to* produce certain documents constituted fraud sufficient to vitiate the state judgment, the dissenting opinion appears to see the case in a somewhat different light. Conceding that personal dereliction on *337Kirby’s part was not established, it appears to suggest that this is irrelevant, and that the withholding of material documents from the eyes of the referee in Zenn justify setting aside the judgment, even if this nondisclosure was the work of Young and Purcell, and not that of Kirby, The underlying premise of this line of reasoning seems to be that Kirby ought not be permitted to claim the benefit of a favorable settlement if that settlement was procured by fraudulent mea^s — even if he was not a party to the fraud.
This approach to the ease — which focuses on the activities of Young and Purcell, rather than that of Kirby — has much to commend it at first blush. In terms of its reliability as a fair and genuine adjudication of the adequacy of the settlement, the referee’s approval would seem to stand on no firmer grounds merely because the fraud which kept material documents from the attention of the Zenn plaintiffs may not be directly imputed to Kirby. But if I am thus willing to concede the validity of this sort of analysis as a general proposition, I am unable to agree that the conduct of Purcell and Young was such as to warrant overturning the judgment as against Kirby.
As I understand it, the crucial document which Purcell and Young are alleged to have withheld is Exhibit 365 for identification, a comparison of actual 1949 earnings, with actual and projected figures for 1950.1 Since the actual figures were before the Zenn referee, the key item here is, of course, the projected outlook for 1950. And it is the failure of Purcell and Young to come forward with this projection which forms the basis of the claim of fraud.
But the majority opinion has quite properly noted that the particular pieces of paper which comprise Exhibit 365 could not have been seen by anyone at the time of the exchange transaction — let alone by Kirby. Since the document eontains actual figures for 1950, it could not possibly have been compiled before May, 1950, when the exchange transaction was consummated. Further, as both majority and dissenting opinions observe, the essential information conveyed by Exhibit 365 was before the Zenn referee, and was spotlighted by the vigorous arguments of counsel. Thus, the spectacular improvement in the earnings of the IDS mortgage department, almost wholly responsible for tlle larSe increase in IDS total earnings, was predicted in Purcell’s letter to Young and Kirby, which was, in turn, introduced in Zenn. Indeed, the primary difference between Exhibit 365, 'which’ which was, ^turns on the fact that the former álso indicated that the substantial (^was not introduced, and the Purcell letter,’» ^"gains in the mortgage operations would not be nullified by losses of other IDS divisions.
In short, the Zenn referee was informed of the projected vast increases in the earnings of the mortgage department; he was not told that the other IDS divisions were not expected to lose money. But even if his failure to learn of this last piece of information may be attributed to the nondisclosure of Purcell and Young, I cannot find this sufficient to warrant upsetting the New York judgment as against Kirby.
In so deciding, I agree with Judge MOORE that the relevant standard cannot be that provided by our decision in United States v. Consolidated Laundries Corp., 291 F.2d 563 (2d Cir. 1961), or whether there is any fair basis for thinking that the undisclosed documents “might have” changed the result. Consolidated Laundries, a criminal prosecution, involved the negligent failure of the government to produce information rele*338vant to the defense; our result was derived from our continuing duty to supervise the administration of criminal justice in the federal courts. Here, on the other hand, we are asked to set aside a state judgment in a civil action because of fraud which was allegedly committed by parties other than the present defendant. In such a situation, considerations of res judicata and comity must be taken into account; institutional imperatives and the necessity of finality in litigation are of far greater significance. In short, even if the obligations of a court passing on the settlement of a derivative suit may be analogized to those of a criminal court, my reply is that we are neither in the position of passing on the settlement or reviewing a criminal conviction. By its action in Zenn, the Supreme Court of New York passed on the settlement of this derivative suit; in the present proceeding, we are asked to set that judgment aside. Since we are hardly entrusted with the obligation of ensuring that the states do perfect justice in the civil litigation properly before them, we have absolutely no warrant in considering this settlement as if it were now being presented for our approval as an original matter.
I agree with my brother MOORE that Alleghany has failed to establish that the New York judgment should be set aside.

. I do not take it as suggested that either Young or Pureell acted “fraudulently” in failing to produce the handwritten Pureell-Young note. Whatever the duty to be imposed on defendant-directors or their “confederates,” I would hardly think that it encompasses production of this sort of informal memorandum. Since the note is prominently mentioned in the dissenting opinion, however, I would add that Purcell seemed to consider “not too helpful” the spread between actual 1949 earnings of $1,515,401, and actual 1950 earnings of $8,600,444, figures which were before the Zenn referee, rather than projected 1950 earnings of $5,992,168.