Court Opinion

ID: 9652893
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:34:29.460541+00
Date Added: 2024-06-11T18:12:54.832236
License: Public Domain

On Petitions for Rehearing
PER CURIAM.
1. In their petitions for rehearing, the individual defendants state that “the theory of liability and the measure of damages adopted by this court was neither briefed nor argued in this Gourt or below by any of the counsel in the case.” But the fact is that, in the court below, counsel for appellants argued that these defendants were liable “on the theory of conversion,” and in his brief here cited cases based on that theory. Counsel for plaintiff-appellee in his brief filed in this court, describing appellants’ argument, said, “Basis for such rule of damage was stated to be ‘on the theory of conversion,’ ” and then proceeded for several pages to discuss decisions relating to “conversion of stock.”
2. These defendants also object that in our opinion we said that they acquired the Majestic shares from Automatic; all the Majestic shares bought by these defendants, they now assert, were bought by them directly. Our version of. the facts was based on the record as interpreted by and with the Acquiescence of these defendants.
The record consists of (a) plaintiff’s amended complaint, (b) a. notice of the proposed settlement, (c) the proposed settlement, (d) affidavits, filed below, with attached exhibits, and (e) oral statements of counsel in the hearing.in the district court, which preceded that court’s order. That complaint, which is verified, explicitly states that Automatic had acquired the shares and sold them to these defendants; *613plaintiff’s counsel so stated in an affidavit filed below. In a colloquy in the district court hearing, he made the following statement of the facts on which the settlement offers were based:
“Mr. Marcus: Thereafter the transaction occurred which is the subject of complaint in this first transaction and that is, Automatic was caused to purchase these securities and option from DuMont. jfi % iff » ,
“The Court: I see. The transaction did go through?”
“Mr. Marcus: It did go through but apparently not entirely for the benefit of Automatic. * * * ”
“The Court: That money was paid by Automatic ?”
“Mr. Marcus: That money was paid by Automatic. And that occurred somewhere about the end of April or the beginning of May, 1943. The 194,000 shares were taken in and the defendants Otis and Franklin and their Co-directors allotted 102,500 shares out of that 194,000 shares to themselves, their wives and associates. So that the 102,500 shares were diverted from Automatic to these individuals. * * * ”
“The Court: At which point did the diversion take place? Before or after the consummation of the transaction ?”
“Mr. Marcus : The transaction with Du-Mont was consummated and I believe it was simultaneously that these shares were allotted to the individuals by Automatic.”
In his brief in this court, counsel for plaintiff-appellee repeated the allegation of the complaint and, in explaining the amounts offered in settlement, said, “Since stocks acquired by the defendants from others than Automatic were also sold by them, the calculation was based on the price of all the stocks sold by the defendants during the period there involved,” which plainly meant that the shares in question here were acquired by the defendants from Automatic.
In their brief filed in this court, these defendants did not challenge the statements of counsel for plaintiff-appellee, nor did they suggest that the allegation of the complaint, as to their purchases from Automatic, was incorrect.1
Thus this appeal was argued with the record facts interpreted by the parties to mean that Automatic bought 192,909 Majestic shares,2 and simultaneously sold to the individual defendants 102,500 of the shares thus acquired. The fact that, as stated by plaintiff’s counsel to the court below, the transactions were simultaneous, explains the fact, indicated by exhibits in the record,3 that stock certificates for 102,-500 Majestic shares were transferred directly into the names of these defendants and their designees. Of course, if Automatic bought these shares, and sold them 'to the defendants, it - is immaterial .that there were no formal transfers of the certificates into the name of Automatic; sales of shares are often made without such formal transfers.
In support of their contention, made in their petitions for rehearing, that these defendants acquired no Majestic shares from Automatic, they now stress an exhibit containing an extract from the minutes of a meeting of the Automatic ’ Board of Directors held April 20, 1943,, which stated that the company “had been given the opportunity to acquire, as part of a group,” from DuMont, the 192,909 shares and that those shares “had been subscribed for by the undermentioned persons for payment on or before November 30, 1943”; there follows a list of “Subscriptions For Shares” which shows “subscriptions” for 102,500 shares by these defendants, 25,000 shares by Automatic, and other shares by *614Allied and B. T. I. Defendants now contend that this exhibit demonstrates that Automatic acquired merely 25,000 shares, and that the individual defendants acquired their Majestic shares directly, borrowing the needed funds from Automatic. But another extract from the- minutes of the same meeting states the following: "The stock acquired by this corporation from the DuMont interests is subject to an option to E. A. Tracey to purchase 20,000 shares at $2 per share, and 20,000 shares at $2.50 per share.”4 Obviously, if Automatic itself acquired only 25,000 shares, that acquisition was not subject to options on 40,-000 shares. The explanation of these minutes would seem to- be that given by plaintiff-appellee’s counsel in the district court, i.e., the acquisition by Automatic and the resales by it to these defendants occurred simultaneously.
3. We have not decided this appeal as if it were from a judgment on the merits. We have merely considered whether, on the facts presented to the court below, when it was asked to approve the settlement, there was sufficient doubt, in the light of the pertinent legal rules, about the liability and amount of damages to justify its approval order. In the district court, plaintiff and the defendants may now offer further proof in support of the settlement and then again ask for approval; or they may tender a different settlement for approval. In the alternative, they may seek judgment on the merits; any resulting decision will, of course, then turn on the correct legal rules applicable to the facts thus established.5
If they should seek approval in the district court of the present offers, or some others, they should have this in mind: (1) A record consisting in considerable part of colloquies between counsel and the judge is never satisfactory,6 as we have several times advised the bar.7 Indeed, on that ground alone we might have refused to affirm here. (2) Where court approval is asked of settlement of a suit by beneficiaries against fiduciaries, far more than a slight indication of doubt as to the likelihood of successful recovery in full against them is required; for equity closely scrutinizes settlements between fiduciaries and cestuis,8 and, were the suit to go to trial, the fiduciaries would usually bear a heavy burden of proof as to all crucial issues.9 To justify judicial sanction of such a set*615tlement, the fiduciaries must make a fairly detailed disclosure of the evidence which, on a trial, they would use defensively.10
Petitions for rehearing denied.

 Although these defendants now tell us, in their rehearing petitions, that that allegation was erroneous in that it deviated from that contained in the complaint in the S. E. O. action (not in the record), counsel for these defendants, referring to plaintiff’s complaint, had told the district . court, ,!It is a copy of the S. E. C. complaint,” and in their brief here said the allegations of the two complaints were “substantially the same.”

 100,000 of these shares were acquired through the exercise of an option which was bought from DuMont as part of the transaction.

 We have, of course, disregarded non-record matter contained in affidavits filed in this court in connection with the rehearing petitions.

 Cf. Cohen v. Young, 6 Cir., 127 F.2d 721; Winkelman v. General Motors Corp., D.C., 48 F.Supp. 490, 496.

 Emphasis added.

 A letter to this court from the Solicitor of the S. E. C. states that B. T. I., at the time of the transactions in question, was registered as an investment company under the Investment Company Act. But, as that fact is not in the record, we cannot consider what, if proved, its legal effect would be.

 To illustrate: Here the alleged fact that DuMont insisted on the release of Tracey’s option as a condition precedent to the sale rests on statements by counsel in the district court and a statement in the notice of settlement. We note in passing that even those statements are ambiguous, being open to the construction that DuMont insisted on the release only as a condition precedent to the sale of the 40,000 shares under option to Tracey, not to the sale of the balance.

 In re Syracuse Stutz Co., Inc., 2 Cir., 55 F.2d 914, 917; In re National Public Service Corp., 2 Cir., 68 F.2d 859, 861; In re Adolf Gobel, Inc., 2 Cir., 80 F.2d 849, 853; Syracuse Engineering Co. v. Haight, 2 Cir., 97 F.2d 573, 575; Royal Petroleum Corp. v. Smith, 2 Cir., 127 F.2d 841, 843.
in Re Syracuse Stutz Co., supra [55 F. 2d 917], we said: “In conclusion we wish • to express our thorough disapproval of the manner in which this record on appeal is made up. Fully one-third of it embraces so-called ‘Minutes,’ apparently a stenographic report of the colloquy between court and counsel at the hearing. Such a colloquy has no place in an equity record.”
In Royal Petroleum Corp. v. Smith, supra [127 F.2d 843], we said: “If in the rambling discussion anything ‘essential’ had appeared, it should have been selected and put in such form as to be comprehensible. We cannot undertake to grope our way through a heap of rubbish on the odd chance of picking up a bit of sound metal here and there.”

 Cf. Adams v. Cowen, 177 U.S. 471, 484, 20 S.Ct. 668, 44 L.Ed. 851; Ingram v. Lewis, 10 Cir., 37 F.2d 259, 263, 70 A. L.R. 702; Comstock v. Herron, 6 Cir., 55 F. 803, 810.

 Thus, if we assume that, in connection with a renewed effort to procure approval of the settlements, it should satisfactorily be shown below that the individual defendants bought no Majestic shares from *615Automatic, then an issue as to lost business opportunity would arise. These defendants assert that in the district court enough has already been shown to raise ample doubt in their favor on that issue. We do not agree. All that was there shown was that Automatic and its affiliates already owned a very considerable block of Majestic stock. Defendants, in their petitions for rehearing, add a reference to Gluck v. Otis, 265 App.Div. 244, 38 N.Y.S.2d 541; in the opinion in that case it appears that B. T. I. and affiliates in 1937 to 1939 bad invested in securities, including some Majestic shares, and that these investments as a whole had been unprofitable; but the opinion does not disclose to what extent the Majestic shares shrank in value, and states that, by 1940, the investments had become profitable. Such facts alone we regard as insufficient to raise the needed doubt.