Court Opinion

ID: 2984227
Source: CourtListenerOpinion
Date Created: 2015-09-22 21:58:11.263078+00
Date Added: 2024-06-11T08:40:48.847887
License: Public Domain

Dismissed and Plurality, Concurring, and Dissenting Opinions filed April 22,
2014.

                                        In The

                   Fourteenth Court of Appeals

                             NO. 14-12-00158-CV

                        YUVAL LAPINER, Appellant
                                         V.

  JACKOB MAIMON, MAX PRIDGEON, MICHELLE R. CINNAMON-
 FLORES, HAIM TSUFF, GOODRICH GLOBAL LTD., ISRAMCO, INC.,
   JEFFREY GOLDSTEIN, AND THEODORE STEINBERG, Appellees

                   On Appeal from the 55th District Court
                           Harris County, Texas
                     Trial Court Cause No. 2009-34535

                    PLURALITY OPINION

      Appellees   Jeffrey   Goldstein     and    Theodore   Steinberg   (collectively
“plaintiffs”) each initiated a shareholder derivative suit on behalf of nominal
defendant Isramco, Inc. against appellees Jackob Maimon, Max Pridgeon, Michelle
R. Cinnamon-Flores, and Haim Tsuff (collectively “individual defendants”), as
well as Goodrich Global Ltd. Following consolidation of the two cases and two
years of informal discovery, the plaintiffs and defendants negotiated a settlement
that the trial court preliminarily approved. Appellant Yuval Lapiner received a
notice of the proposed settlement and filed an objection as well as a petition in
intervention.   Following a hearing, the trial court struck Lapiner’s petition in
intervention and denied his objection. The court also signed a final judgment
approving the settlement, and it later denied Lapiner’s motion for attorney’s fees
and expenses.

      Lapiner appeals, contending the trial court abused its discretion when it
approved the settlement and denied his motion for fees and expenses. Appellees
moved to dismiss, arguing that Lapiner lacks the requisite standing to appeal. We
grant the motion, and dismiss.

                                   BACKGROUND

A.    Plaintiffs file their shareholder derivative suits, alleging breaches of
      fiduciary duty.
      Plaintiffs filed their separate shareholder derivative lawsuits on behalf of
Isramco in June 2009.      Both suits alleged that the individual defendants had
violated their fiduciary duties as members of Isramco’s board of directors when
they voted to approve a consulting agreement with Goodrich. Plaintiffs alleged the
consulting agreement benefited Tsuff, Isramco’s chief executive officer, chairman
of the board, and controlling shareholder.     The two lawsuits were eventually
consolidated in the 55th District Court of Harris County.

      In April 2010, Yuval Ran filed a shareholder derivative lawsuit on behalf of
Isramco. While Ran’s lawsuit alleged claims similar to those initially raised by
plaintiffs, he also alleged additional claims and named additional defendants.
Ran’s lawsuit was eventually transferred to the 55th District Court and
consolidated with plaintiffs’ lawsuits.

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B.      Lapiner files a Delaware derivative suit that is dismissed in favor of the
        Texas action.
        In July 2010, Lapiner filed a shareholder derivative action in Delaware,
making many of the same claims involved in plaintiffs’ ongoing Texas derivative
lawsuit.    In October 2010, the Delaware court dismissed Lapiner’s action in
deference to the previously filed Texas action.

        Approximately one month later, Lapiner served a demand for investigation
of his claims on Isramco’s board of directors. In response to the demand, Isramco
formed a Special Committee of the Board comprised of its independent directors.
The Special Committee then investigated Lapiner’s complaints. At the conclusion
of the investigation, the Special Committee notified Lapiner that it had determined:
(a) Lapiner’s claims were identical to the claims pending in the Texas litigation;
(b) the parties to the Texas litigation had reached a tentative settlement of the
claims asserted in that litigation; (c) Lapiner’s claims had been thoroughly
investigated both by Isramco and lead counsel for plaintiffs in the Texas litigation,
and therefore no further investigation was necessary; and (d) any further
investigation into Lapiner’s claims would not be in the best interest of Isramco or
its shareholders.   Lapiner continued his efforts to negotiate a settlement with
Isramco, but Isramco refused and referred him to the Texas plaintiffs’ lead counsel.

C.      The parties settle the Texas derivative suit.
        Ultimately, in April 2011, the parties to the Texas suit memorialized their
settlement agreement in a Memorandum of Understanding.             The parties then
executed a Stipulation of Settlement setting forth the settlement terms in August
2011.

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      Soon after the parties executed the Stipulation of Settlement, plaintiffs filed
a motion seeking the trial court’s preliminary approval of the proposed derivative
suit settlement. The trial court preliminarily approved the proposed settlement
subject to further consideration at a final settlement hearing. In its order, the trial
court set a deadline and established procedures for objecting to the Stipulation of
Settlement. Finally, the trial court ordered Isramco to file a notice of the proposed
settlement with the Securities and Exchange Commission and to publish the notice
in Investor’s Business Daily.

D.    Lapiner objects to the settlement, attempts to intervene, and
      participates in the final hearing.
      On the last day permitted for filing objections to the proposed settlement,
Lapiner filed a petition in intervention and an objection to the proposed settlement
of the derivative lawsuit. Lapiner primarily objected that the settlement was not
fair, reasonable, or adequate because there was evidence to support allegations that
Isramco had suffered “hundreds of millions of dollars” worth of damages as a
result of the sale of its participation units in Isramco Negev. Lapiner contended
that the settlement recovered none of these alleged damages for Isramco, but
instead cost Isramco $1 million in attorney’s fees and costs.

      Subsequently, Lapiner filed a supplemental objection to the settlement and
attached a “Summary Report of Legal Compliance Deficiencies in Isramco, Inc.
(ISRL) and Affiliates” prepared by Dennis Holifield, a former general counsel of
Isramco. Holifield’s allegations differed from those tentatively settled in plaintiffs’
derivative lawsuit. Nonetheless, lead counsel for plaintiffs, whom Holifield had
also contacted with his allegations, moved to continue the final hearing on the
proposed settlement to allow her to depose Holifield and, if necessary, conduct any
other discovery necessary to explore Holifield’s allegations.         The trial court

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granted the motion and ordered the deposition of Holifield. Holifield’s deposition
took place in camera under the direct supervision of the trial judge. Following
Holifield’s deposition, lead counsel for plaintiffs reset the hearing on the final
approval of the settlement.

      Plaintiffs, Isramco, and defendants collectively moved to strike Lapiner’s
petition in intervention on numerous grounds, including that Lapiner had no
justiciable interest in the pending derivative lawsuit because he did not own
Isramco stock at the time of the acts complained of in the amended consolidated
petition. Lapiner responded to the motion to strike and, as part of his response,
submitted confidential materials for in camera review by the trial court. Plaintiffs
and defendants filed responses to Lapiner’s objection and also submitted
confidential materials for in camera review.

      Following Holifield’s deposition, plaintiffs, Isramco, and defendants entered
into an Addendum to Stipulation of Settlement. This addendum supplemented the
definition of “Released Claims” found in the Stipulation of Settlement by
excluding “any claim based on allegations contained in the document titled
‘Summary Report of Legal/Compliance Deficiencies in Isramco, Inc. (ISRL) and
Affiliates,’ authored and submitted by Dennis Holifield to the U.S. Securities and
Exchange Commission on or about September 22, 2011 and not otherwise
expressly adjudicated in this case.”

      In December 2011, the trial court conducted an oral hearing on the pending
derivative suit settlement. The trial court first considered the motions to strike
Lapiner’s intervention and granted that motion. The trial court then turned its
attention to the proposed settlement, which it approved as fair, reasonable, and
adequate. The trial court signed a “Final Order and Judgment” approving the
settlement on December 12, 2011.

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E.    Lapiner requests attorney’s fees, files a motion for new trial, and then
      appeals.
      Ten days after the trial court signed the final judgment approving the
settlement, Lapiner filed a motion seeking attorney’s fees and expenses.
According to Lapiner, the filing of his objection to the settlement had “conferred a
substantial benefit to Isramco.” The trial court signed an order denying Lapiner’s
request for attorney’s fees and expenses on January 11, 2012. Lapiner filed a
motion for new trial the same day his fee request was denied, and that motion was
overruled by operation of law. Lapiner then filed his notice of appeal on February
12, 2012.

                                MOTIONS TO DISMISS

      Before we address the issues Lapiner raises in his appeal, we must consider
the motions to dismiss filed by both sets of appellees that challenge our
jurisdiction. First, all appellees argue we must dismiss Lapiner’s appeal because
he did not timely file his notice of appeal. Specifically, they argue Lapiner could
not extend the time for filing his notice of appeal by filing a motion for new trial
because he was a nonparty; as such, his notice of appeal filed more than thirty days
following the final judgment was untimely. Second, the defendants seek dismissal
of Lapiner’s appeal on the further basis that because Lapiner did not own Isramco
stock at the time of the events at issue in the derivative lawsuit, he did not have
standing to initiate a shareholder derivative action and, therefore, does not have
standing to appeal the trial court’s approval of the derivative suit settlement.

      We begin the analysis with the timeliness of Lapiner’s appeal.               It is
undisputed that the trial court entered judgment in this cause on December 12,
2011. It is further undisputed that Lapiner filed his notice of appeal of this action
on February 12, 2012, more than thirty days after the trial court entered judgment.

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Under the general rule, Lapiner’s notice of appeal was due thirty days after the
judgment. See Tex. R. App. P. 26.1 (“The notice of appeal must be filed within 30
days after the judgment is signed, except as follows . . . ).

      Rule 26.1 extends the time to appeal to ninety days if “any party” timely
files a motion for new trial, a motion to modify the judgment, a motion to reinstate,
or a request for finding of fact or conclusions of law. See Tex. R. App. P. 26.1.
Appellees do not dispute that Lapiner filed a motion for new trial on January 11,
2012. Rather, they urge that Lapiner’s January 11 motion for new trial was
ineffective to extend the appellate timetable because he was not a party below.

      It is a general rule in Texas that only named parties may appeal the trial
court’s judgment. City of San Benito v. Rio Grande Valley Gas Co., 109 S.W.3d
750, 754 (Tex. 2003); see Tex. R. App. P. 25.1 (“The filing of a notice of appeal
by any party invokes the appellate court’s jurisdiction over all parties to the trial
court’s judgment or order appealed from.”). Lapiner is a nonparty. Lapiner filed a
petition in intervention in the action. Defendants moved to strike the intervention.
The trial court granted defendants’ motion and struck Lapiner’s intervention.
Lapiner does not appeal the trial court’s order striking his intervention. Therefore,
Lapiner is not an intervenor and not a named party in this Texas derivative action.
See, e.g., Johnson v. Crook, 93 S.W.3d 263, 268 (Tex. App.—Houston [14th Dist.]
2002, pet. denied) (“[A]n intervenor is a party for purposes of appeal only if
(1) she timely files a pleading, and (2) the trial court does not strike the pleading
before the entry of a final judgment.”). And where, as here, a nonparty has the
right to appeal a decision of the trial court granting a motion to strike, such
nonparty nonetheless cannot extend the appellate timetable by assailing the final
judgment with a motion for new trial. Cf., e.g., Cent. Mut. Ins. Co. v. Dunker, 799
S.W.2d 334, 336 Tex. App.—Houston [14th Dist.] 1999, writ denied) (holding

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that, because appellant did not become a party by intervention before judgment
was rendered, appellant may not extend the time to appeal by filing a motion for
new trial); State v. Cnty. Mut. Fire Ins. Co. v. Kelly, 915 S.W.2d 224, 227 (Tex.
App.—Austin 1996, no pet.) (holding that a nonparty’s motion for new trial and
petition for intervention filed after the trial court signed a final judgment did not
extend the court’s plenary jurisdiction).

      However, Texas recognizes that one may be a “deemed party” under the
doctrine of virtual representation. City of San Benito, 109 S.W.3d at 754–55. To
be a deemed party, (1) the appellant must be bound by the judgment; (2) its privity
of estate, title, or interest must appear from the record; and (3) there must be an
identity of interest between the appellant and a party to the judgment. Id. at 755
(citing Motor Vehicle Bd. of the Tex. Dep’t of Transp. v. El Paso Indep. Auto.
Dealers Ass’n, 1 S.W.3d 108, 110 (Tex. 1999)). Thus, under the doctrine of virtual
representation, the Texas Supreme Court recognizes unnamed, objecting class
members as deemed parties for purposes of appeal. Id.

      Lapiner does not cite, we do not find, and our dissenting colleague does not
mention any case applying the “deemed party” analysis to Texas Rule of Appellate
Procedure 26.1 for purposes of extending the appellate timetable. As such, without
regard to whether Lapiner must intervene in order to have standing to appeal, the
plain language of Rule 26.1 deprives Lapiner—a nonparty—of the right to extend
the time for filing a notice of appeal. Nevertheless, under the unique facts of this
case, we determine that even if the doctrine of virtual representation may be used
to extend the Texas appellate timetable, Lapiner does not qualify as a deemed party
under the doctrine.

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       Under Texas law, Lapiner cannot satisfy any of the elements of the doctrine
of virtual representation. Lapiner is not bound by the underlying judgment—
Isramco is bound. The claims adjudicated in this shareholder derivative action are
for injury to the corporation, as distinguished from injury to its shareholders. See
Swank v. Cunningham, 258 S.W.3d 647, 661–62 (Tex. App.—Eastland 2008, pet.
denied); see also Redmon v. Griffith, 202 S.W.3d 225, 233 (Tex. App.— Tyler
2006, pet. denied).       Our analysis is not altered even though the shareholder
derivative action judgment may “bring about reduced earnings, salaries, or
bonuses.” See BJVSD Bird Family P’ship, L.P. v. Star Elec., L.L.C., 413 S.W.3d
780, 785–86 (Tex. App.—Houston [1st Dist.] 2013, no pet.) (holding that the
appellant’s interest as a stakeholder in an entity did not satisfy the privity element
of the virtual representation doctrine).

       Finally, there is no identity of interest between Lapiner and the plaintiffs.
The plaintiffs are, as they must be to have standing, shareholders who owned stock
in the corporation at the time of the transactions at issue. See Tex. Bus. Orgs.
Code Ann. § 21.552 (providing that a shareholder “may not institute or maintain a
derivate proceeding unless” the shareholder owned stock in the corporation at the
time of the complained of acts or omissions). Lapiner, on the other hand, did not
own stock at the time of the transactions and, therefore, could not have brought this
lawsuit as a plaintiff.

       Because we determine that Lapiner did not timely file his notice of appeal,
we sustain the first ground for dismissal.      Because we sustain appellees first
ground for dismissal, we need not address the second ground and determine
whether Lapiner would have had standing, as an objector, to appeal the final
judgment approving the shareholder derivative action. See Tex. R. App. P. 47.1.

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                                   CONCLUSION

      Having sustained appellees’ first issue in their motion to dismiss, we dismiss
this appeal.

                                       /s/    Sharon McCally
                                              Justice

Panel consists of Chief Justice Frost and Justices McCally and Busby. (Frost, C.J.,
concurring) (Busby, J., dissenting).

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