# Amicus Curiae Brief — California Public Employees' Retirement System v. Felzen

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0175%3A15

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1998
- **Citation:** 524 U.S. 980

## Text

(E) FILED
NOV 10 iSys

No. 97-1732

OFFICE OF THE CLERK
——[—SEPREMECOURT, U.S.
IN THE
Supreme Court of the United States

OCTOBER TERM, 1998

CALIFORNIA PUBLIC EMPLOYEES RETIREMENT
SYSTEM AND FLORIDA STATE BOARD OF

ADMINISTRATION,
Petitioners,

V.

PAUL FELZEN, ET AL..,
Respondents.

On Writ of Certiorari to the United States Court of
Appeals for the Seventh Circuit

BRIEF OF PROFESSORS LAWRENCE A.
HAMERMESH AND MARY BRIGID McMANAMON
AS AMICI CURIAE SUPPORTING PETITIONERS

Professor Lawrence A. Hamermesh*

Professor Mary Brigid McManamon

Widener University School of Law

4601 Concord Pike

Wilmington, Delaware 19803
(302) 477-2100

DATE: November 10, 1998 *Counsel of Record
x0

(i)
TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF THE AMIC/

SUMMARY OF ARGUMENT

ARGUMENT

IN DERIVATIVE ACTIONS ASSERTING
CLAIMS ARISING UNDER STATE LAW,

_ STATE LAW RULES REGARDING THE

CONDUCT OF DERIVATIVE ACTIONS
AND THE PROSECUTION OF APPEALS
IN SUCH ACTIONS SHOULD GOVERN
DERIVATIVE ACTIONS IN-~ THE
FEDERAL COURTS.

THE COURT BELOW
UNDERESTIMATED THE SIGNIFICANCE
OF THE OBJECTORS’ INTEREST IN
THE DERIVATIVE ACTION AS A
MATTER OF SUBSTANTIVE LAW.

UNSUCCESSFUL OBJECTORS IN THE
DELAWARE COURTS MAY APPEAL
SETTLEMENT APPROVALS IN
DERIVATIVE ACTIONS WITHOUT
FORMAL INTERVENTION.

CONCLUSION

(ii)
TABLE OF AUTHORITIES
Cases
Bangor Punta Operations, Inc. v. Bangor & Aroostook
RR. AT USB. TERS. wwe een een ee 5
Bell Atl. Corp. v. Bolger, 2 F.3d 1304 (3d Cir. 1983)
8

Braun v. Fleming-Hall Tobacco Co., Inc., 92 A.2d 302
Gal: CEHRD . k on Se EOS eee eee 21, 22
Burghart v. Landau, 821 F. Supp. 173 (S.D.N.Y.
TOBE. 2 nn eek ih 6 Ee ee eee eee 6
Byrd v. Blue Ridge Rural Electric Cooperative, Inc.,
366 U.B. GRR COREE. 6 c+ bee ete eee 13, 14
Cohan v. Loucks, 1993 WL 121855 (Del. Ch. 1993) _.

23
Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 535
(T1O6R) . 5 0 e.6 kc We ool eee eee 5
Cohen v. Young, 127 F.2d 721 (6th Cir. 1942) ... 7
Daily Income Fund, Inc. v. Fox, 464 U.S. 523 (1984) .

16
Erie Railroad v. Tompkins, 304 U.S. 64 (1938) . . . 3
Gallup v. Caldwell, 120 F.2d 90 (3d Cir. 1941) ... 4
Gasperini v. Center for Humanities, Inc., 518 U.S. 415
We re ee 7
Geller v. Tabas, 462 A.2d 1078 (Del. 1983)... .. 23
Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975)... . 7

Gladstone v. Bennett, 153 A.2d 577 (Del. 1959) . .23
Goodman v. Futrovsky, 213 A.2d 899 (Del. 1965) .. .

Greenspun v. Bogan, 492 F.2d 375 (1st Cir. 1974) . 7
Grimes v. Donald, 673 A.2d 1207 (Del. 1996). . . .16
Hanna v. Plumer, 380 U.S. 460 (1965)... .. 14, 15

as

(iii)
Hawes v. Oakland, 104 U.S. 450, 26 L. ed. 827 (1881)

3,4
Heineman v. Datapoint Corp., 611 A.2d 950 (Del.
Me MMe Bes . 6 6k bee 8 6 6 17, 18
HFG Co. v. Pioneer Pubi’g Co., 162 F.2d 536 (7th Cir.
ee ek sw aoe eee 5
Hoffmann v. Dann, 205 A.2d 343 (Del. 1964). . . .23
In re Pittsburgh & Lake Erie R.R. Sec. & Antitrust Litig.,
543 F.2d 1058 (3d Cir. 1976) ............ 6
In re Resorts Int'l Shareholder Litigation Appeals, 570
a ae 24

In re Storage Tech. Corp. Sec. Litig., 804 F. _—_
ago. becca bs bo 0 «
Jones v. Nuclear Pharmacy, Inc., 741 F.2d 322 ‘on
kg ot a 7
Kahn v. Sullivan, 594 A.2d 48 (Del. 1991)... ... 24
Kamen v. Kemper Fin. Servs., inc., 500 U.S. 90 (1991)
5

Kaplan v. Wyatt, 499 A.2d 1184 (Del. 1985)... . . 18
Krinsky v. Helfand, 156 A.2d 90 (Del. 1959). . . . . 23
Levine v. Smith, 1987 Del. Ch. LEXIS 524 (Del. Ch.
1987), affd, 591 A.2d 194 (Del. 1991)... ... 18, 19
Lewis v. Chiles, 719 F.2d 1044 (9th Cir. 1983) ... 6
Lewis v. Fuqua Industries, inc., 1982 WL 8783 (Del.
ESSE a a 23
Lewis v. Hirsch, 1995 Del. LEXIS 62 (Del. Ch. 1995) .
20

Manacher v. Reynolds, 165 A.2d 741 (Del. Ch. 1960)
23
Marino v. Ortiz, 484 U.S. 301(1988)......... 10
Masterson v. Pergament, 203 F.2d 315 (6th Cir. 1953)
7

Matsushita Elec. indus. Ltd. v. Epstein, 516 U.S. 367
Se RN 25

(iv)
Moses v. Pickens, 1982 WL 17825 (Del. Ch. 1982) . .

23
Nathan v. Rowan, 651 F.2d 1223 (6th Cir. 1981) . 10,

11
Neponsit Investment Co. v. Abramson, 405 A.2d 97
GO, We boa ia GS? Ke ade ee ca 23
Neuwirth v. Allen, 338 F.2d 2 (2c Cir. 1964)... .. 7
Norton v. National Research Found., 141 F.R.D. 510
ee de eh ie 6
Osbom v. Bank of the United States, 22 U.S. (9
We WEED: ,. és 6 6 nA ee ao ee 9, 10
Pianta v. H.M. Reich Co., 77 F.2d 888 (2d Cir. 1935) .

11
Pogostin v. Rice, 480 A.2d 619 (Del. 1984)... .. 16
Polk v. Good, 506 A.2d 531 (Del. 1986)... . . 23, 24

Prezant v. DeAngelis, 636 A.2d 915 (Del. 1994). . .24
Ragan v. Merchants Transfer & Warehouse Co., 337

FN Ore aS ae 12
Rales v. Blasband, 634 A.2d 927 (Del. 1993). . . .16
RCM Sec. Fund, inc. v. Stanton, 928 F.2d 1318 (2d
Gi ME so = ecerech a es oe 2 oo 6
Rome v. Archer, 197 A.2d 49 (Del. 1964). ..... 23
Rosenbaum v. MacAllister, 32 F.3d 1439 (10th Cir.
GUD. c7s + wo ch % a EWS cls 4 Sdn t =

Rutman v.Kaminsky, 226 A.2d 122 (Del. 1967) .

S.A. Healy Co. v. Mwautee Meropoian Sewerage
Dist., 60 F.3d 305 (7th Cir. 1995) ..........
Salve Regina College v. Russell, 499 U.S. aiiien

7
Saminsky v. Abbott, 194 A.2d 549 (Del. Ch. 1963) . .
23
Shults v. Champion int'l Corp., 35 F.3d 1056 (6th Cir.
Gs & k when We ois Re ON ee oe 8

Spiegel v. Buntrock, 571 A.2d 767 (Del. 1990). . . 16

(v)

Stepak v. Ross, 1985 WL 21137 (Del. Ch. 1985) . .23
Torres v. Oakland Scavenger Co., 487 U.S. 312
Sr . 4 ce eee eee rs Ss Cec Ce hee 14
Tryforos v. Spanos, 518 F.2d 1258 (7th Cir. the
cert. denied, 423 U.S. 1091(1976) .........

United Founders Life ins. Co. v. EES

Ins. Co., 447 F.2d 647 (7th Cir. 1971). ....... 7
United States ex rel. Louisiana v. Jack, 244 U.S. 397
FOUND: & .

22

stockholder derivative action sought to dismiss an
objecting stockholders appeal of the trial court's
approval of the settlement on the ground, among others,
that the objector “had not obtained an order granting him
leave to intervene as a party.” /d. at 307. The Delaware
Supreme Court at first acknowledged that such
intervention had been “the practice” of persons objecting
to settlements. /d. at 308. Despite that recognition,
however, the court found the nonintervening objector
entitied to appeal approval of the settlement, reasoning:

[The objector] was under a rule to appear before
the Court of Chancery if he considered his
interests in jeopardy; and it was pursuant to that
rule that his counsel filed written objections to the
settlement and made oral argument against the
approval thereof. Nobody objected to either of
these activities in the trial court. What took
place, therefore, amounted to actual intervention,
even though it was without express leave of court.
If counsel for [the objector] had asked to
intervene, an order granting leave would
undoubtedly have been entered. /n these
circumstances, therefore, we do not regard the
failure to ask permission to intervene as any more
than the oversight of a formality.

ld. (emphasis added).

In the half century or so since Braun was decided,
what the court described as “the oversight of a formality”
has become common practice: objectors almost
invariably assert their position without intervening
formally, and the Delaware Supreme Court has never

23

once questioned the ruling in Braun that this approach
does not preclude appeal by an unsuccessful objector."®
To the contrary, that court has repeatedly entertained,
on the merits, appeals by objectors to settlements of
derivative actions, despite their not having intervened as
parties. Gladstone v. Bennett, 153 A.2d 577 (Del.
1959); Krinsky v. Helfand, 156 A.2d 90 (Del. 1959);
Rome v. Archer, 197 A.2d 49 (Del. 1964); Hoffmann v.
Dann, 205 A.2d 343 (Del. 1964); Goodman v. Futrovsky,
213 A.2d 899 (Del. 1965); Rutman v.Kaminsky, 226 A.2d
122 (Del. 1967); Neponsit Investment Co. v. Abramson,
405 A.2d 97 (Del. 1979); Geller v. Tabas, 462 A.2d 1078
(Del. 1983) (noting that objectors who had brought
separate suit in another State had made no attempt to
intervene in the Delaware action, but ruling on the merits
of objectors’ appeal from approval of the settlement);
Polk v. Good, 506 A.2d 531 (Del. 1986) (at time of
approving the settlement, the Court of Chancery had
denied objectors’ motions to intervene, and appellate
review addressed the merits of the objections without
comment on the intervention ruling).

'® Similarly, stockholders routinely submit
objections to proposed settlements in the Court of
Chancery without seeking formal leave to intervene as
a party. E.g., Cohan v. Loucks, 1993 WL 121855 (Del.
Ch. 1993); Stepak v. Ross, 1985 WL 21137 (Del. Ch.
1985); Moses v. Pickens, 1982 WL 17825 (Del. Ch.
1982); Lewis v. Fuqua Industries, Inc., 1982 WL 8783
(Del. Ch. 1982); Saminsky v. Abbott, 194 A.2d 549 (Del.
Ch. 1963); Manacher v. Reynolds, 165 A.2d 741 (Del.
Ch. 1960).

24

This Delaware practice of allowing appeals by
nonintervening objecting stockholders in derivative
actions has continued unabated after this Court's
decision in Marino. \n In re Resorts Int'l Shareholder
Litigation Appeals, 570 A.2d 259 (Del. 1990), one of
several objectors to the settlement of a class and
derivative action filed separate suit, shortly after filing of
the settlement agreement, but none of the objectors
sought to intervene in the action in which the settlement
was submitted. The Delaware Supreme Court
proceeded to rule on the merits of the appeal,
notwithstanding that failure to intervene. Similarly, in
Kahn v. Sullivan, 594 A.2d 48 (Del. 1991), California
Public Employees Retirement System (CalPERS, one of
the appellants in this case) had intervened in an action
challenging conduct of Armand Hammer, the chief
executive officer of Occidental Petroleum Corporation,
a Delaware corporation, in relation to the funding of a
museum to house Mr. Hammer's extensive art collection.
In a separate derivative action (the Sullivan action) in
the Delaware Court of Chancery addressing the same
alleged misconduct, the parties agreed to a settlement
and presented it for approval at a hearing on notice to
the other Occidental stockholders, including CalPERS.
Without having intervened in -the Sullivan action,
CalPERS submitted objections to the settlement, and
appealed the approval of the settlement to the Delaware
Supreme Court. That court entertained the appeal
without any suggestion that CalPERS should have
intervened in the action in which the settlement was

25
approved. "*
CONCLUSION

For the reasons set forth above, we respectfully
submit that the decision of the court below, denying the
right of appeal to a stockholder who duly objects to a
proposed settlement of a stockholder derivative action,
is inconsistent with pertinent state law and practice. In
order to give effect to the underlying substantive law of
the state of incorporation, here Delaware, this Court
should determine that the petitioners, who duly objected
to a proposed settlement of a stockholder derivative
action arising under and governed by Delaware law, are
entitied to appeal the trial court's approval of the
settlement, notwithstanding any failure to intervene as
parties under Federal Rule of Civil Procedure 24.

'* Kahn v. Sullivan is thus similar to Prezant v.
DeAngelis, 636 A.2d 915 (Del. 1994), a case noted
extensively by this Court in Matsushita Elec. Indus. Ltd.
v. Epstein, 516 U.S. 367 (1996). In Prezant—a class
action—the objector had filed a separate action, but
submitted objections to a settlement without intervening
in the case in which the settlement was approved. After
approval of the settlement, the objector appealed—
successfully—to the Delaware Supreme Court, again
without any suggestion that intervention was necessary
to the appeal.

Respectfully submitted,

LAWRENCE A. HAMERMESH

Counsel of Record
MARY BRIGID MCMANAMON
Widener University School of Law
4601 Concord Pike

, Delaware 19803
(302) 477-2100
Amici Curiae

DATED: November 10, 1998

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0175%3A15. Public record. Not legal advice.