“The corporation’s interest in achieving a favorable settlement does not cease because derivative litigation has begun[.]”
How later courts described this case
- “The corporation’s interest in achieving a favorable settlement does not cease because derivative litigation has begun[.]”
- “A new derivative suit against management for fraud or waste in releasing corporate claims for inadequate payment can redress improper settlements even without setting them aside.”
- new derivative action for fraud or waste provides remedy against directors who compromise corporate claims
- “commencement of a derivative suit provides a handle for judicial supervision”
Written by the judges who cited it.
The opinion
WATERMAN, Circuit Judge
(concurring) :
Reluctantly persuaded by the convincing language of my brother FRIENDLY, I concur in the result my colleagues here reach. I am of the belief that it would have been better judicial administration for the learned judge below to have granted a preliminary injunction restraining the corporation from settling, compromising, or issuing releases. Thereby there would have been preserved for all the parties the situation plaintiff was complaining of until final resolution of plaintiff’s claims on their merits. Nevertheless, I am persuaded that the unwillingness of the district court to employ the resources available to it within well recognized equity jurisdiction principles is not unreasonable in view of the likelihood that any releases the corporation may have issued will be suspect, the beneficiaries of the compromises made with the corporation will probably remain solvent and will themselves, in the event plaintiff finally substantiates her case, be subject to account to the corporation in whose interest plaintiff has commenced her action.
Moreover, I agree that the language of Rule 23(c), the Rule upon which plaintiff bottomed her motion, does not specifically direct that the trial judge grant the preserving injunction plaintiff requested.