Opposition Brief — Abrahams v. Shulman ex rel. Central Jersey Industries, Inc.

Supreme Court, U.S,

FILED

SEP 25 BS?

No. 87-319

JR,

~ CLERK

SUPREME COURT OF THE UNITED STATES

October Term, 1987

DALE ABRAHAMS, et al., Objectors,

Petitioners,

V.

LOUIS SHULMAN, Derivatively on Behalf of CENTRAL

JERSEY INDUSTRIES, INC., and TRIANGLE INDUSTRIES,

INC.,

and CENTRAL JERSEY INDUSTRIES, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

BRIEF FOR RESPONDENT TRIANGLE INDUSTRIES,

INC. IN OPPOSITION

JAY TOPKIS

PAUL, WEISS, RIFKIND,

WHARTON & GARRISON

Of Counsel: 1285 Avenue of the Americas

DONALD A. ROBINSON New York, New York 10019

ROBINSON, WAYNE, LEVIN, = (212) 373-3000

RICCIO & LaSALA

ROBERT L. LAUFER Counsel for Respondent

PAMELA M. PARKER Triangle Industries, Inc.

QUESTION PRESENTED

Whether the Court of Appeals erred in affirming by judg-

ment order the decision of the District Court approving --

after careful review of an extensive, fully developed factual

record -- the arm’s-length, negotiated settlement of a share-

holders’ derivative action, when a more detailed written opin-

ion by the Court of Appeals would have no precedential value,

when no error of law appears, and when the decision of the

case does not turn on the interpretation of any Federal Rule of

Civil Procedure or Rule of Evidence.

ii

TABLE OF CONTENTS

Question Presented .....cccccccccvcecs

Counter-Statement of the Case .........

ASM rOnNMOAw>

Preliminary Statement .......

Wee PR ok os teesa cee

The Rowe Transaction .......

The Terms of the Acquisition .

The Derivative Action .......

Tee SORE kkk ceases

The Benefits of the Settlement

The POQOMETE sinc csi ecndss

The Settlement Hearing ......

The Post-Hearing Procedures ..

‘3O AQOOM 6545 c055550n eee

Reasons for Denying the Writ .........

The Petition Presents No Issue Worthy

Of Review . oo. 05 4c0e eee

A. The Petition Raises No

Substantial Question

Worthy Of Review ........

B. This Court Should Not Grant

Certiorari To Review The

Sufficiency Of The Evidence

ili

Page

C. The Lack Of Written Opinions

From The Courts Below Raises

No Issue Of A Denial Of Due

Process Or A Departure From

Accepted Judicial Procedures ............... 21

1. The Orders Entered Below

Are Consistent With The

Decisions Of This Court

And OF The Third Circuit ............. 21

2. The Judgment Order Of

The Third Circuit Is

Entirely Consistent With

That Court’s Internal

gr an x ak we ab 4 RK A 24

ca weawavsbetaavdeuse 27

iV

TABLE OF AUTHORITIES

Cases Page

Asarco v. M.R.H. Holmes a Court, 611 F. Supp.

GREE Re na eres a 26

City of Detroit v. Grinnell Corp., 495 F.2d

Ree ee ee a 21

Cotton v. Hinton, 559 F.2d 1326 (Sth Cir. 1977) ........ 22

Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975).... 21, 23, 24

Grunin v. International House of Pancakes,

513 F.2d 114 (8th Cir.), cert. denied,

Ce ie I TD ik one oe ale de kn es dad ea sa>- 23

In re Flight Transportation Securities Litigation,

730 F.2d 1128 (8th Cir. 1984), cert.

GUE, Se Se. CET CE obi oe shee ees 23

Layne & Bowler Corp. v. Western Well Works, Inc.,

ee ee ae ee se rs ok oo en eas en 18

Patterson v. Newspaper and Mail Deliverers’

Union, 384 F. Supp. 585 (S.D.N.Y. 1974),

affd, 514 F.2d 767 (2d Cir. 1975), __..

cart. Ga. GET UI. Fil CASTS) ow ss oe ees ss. 25

Plummer vy. Chemical Bank, 668 F.2d 654

ee og cw ee alae alae ee we ee ks 22

Protective Committee for Independent Stockholders of

TMT Trailer Ferry, Inc. v. Anderson,

cok 8 | RE ree tee ee eee nore 22, 24

Page

Rice v. Sioux City Cemetery, 349 U.S. 70 (1955) ........ 18

Shlensky v. Dorsey, 574 F.2d 131 (3d Cir. 1978) ..... 23, 24

Taylor v. McKeithen, 407 U.S. 191 (1972) .......... ae, 23

United States v. Johnston, 268 U.S. 220 (1925) ......... 19

Statutes

New Jersey Business Corporation Act

N.J.S.A. § 14A:7-2 (West 1969 & Supp. 1986). 16, 17,

26

Rules

Federal Rule of Civil Procedure 52(a).......... 21, 26

Internal Operating Procedures of the United States

Court of Appeals for the Third Circuit,

Chapter 6, Section A{I) ..........s.0ess002: 24, 25

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1987

No. 87-319

DALE ABRAHAMS, et ai/., Objectors,

Petitioners,

Vv.

LOUIS SHULMAN, Derivatively on Behalf of CENTRAL

JERSEY INDUSTRIES, INC., and TRIANGLE INDUSTRIES,

INC.,

and CENTRAL JERSEY INDUSTRIES, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

BRIEF FOR RESPONDENT TRIANGLE INDUSTRIES,

INC. IN OPPOSITION

COUNTER-STATEMENT OF THE CASE

A. Preliminary Statement

This case involves simply the decision of a District

Court approving, after careful review of an extensive factual

record, the arm’s-length, negotiated settlement of a share-

holders’ derivative suit, and the subsequent unanimous ruling

of the Third Circuit Court of Appeals affirming by judgment

order the District Court’s decision. The courts below did not

decide any issue of law that warrants further review. Indeed,

the decisions rendered in this case turn upon the facts alone,

and affect primarily the interests of the litigants alone.

Petitioners’ lengthy arguments boil down to a few

simple issues: Whether the lower courts were required to

write detailed opinions. whether the District Court’s decision

was supported by the record and whether there was an error

in the interpretation of state law or of local court procedures.

Not one of these issues presents a question of such

importance as to warrant the granting of a writ of certiorari.

First, the only questions of law petitioners have raised involve

the interpretation either of state law or of internal court proce-

dure. These questions do not rise to a level of general impor-

tance. In any event, petitioners are simply wrong in their inter-

pretation and application of the relevant law and procedure.

Moreover, petitioners are wrong on the facts. Not

only have they distorted and misstated the facts of this case

-- as they consistently did in the courts below -- but they

simply have chosen to ignore the vast quantity of evidence the

District Court had before it when it considered whether or not

to approve the settlement in question.

When one cuts through petitioners’ dramatic (but

ultimately baseless) protestations of abuse of judicial power

and denial of due process, one sees petitioners’ case for what

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CE

it really is: an attempt to have this Court review the record

developed below to determine whether the District Court had

before it all relevant facts enabling it to make an informed,

objective determination about the fairness, reasonableness

and adequacy of the proposed settlement of the derivative ac-

tion. However, that is certainly not a proper reason to grant

certiorari.

B. The Parties

Respondents Triangle Industries, Inc. (“Triangle”)

and Central Jersey Industries, Inc. (“CJI”) are both Delaware

corporations. Petitioners’ statement that CJI is a New Jersey

corporation (petition at 9) is incorrect. CJI became a Dela-

ware corporation in July of 1986. Petitioners are stockholders

of CJI who together own only a small percentage of the out-

standing common stock of that company.

C. The Rowe Transaction

In the latter part of 1984, Triangle purchased from

certain shareholders of CJI approximately 22% of the out-

standing capital stock of CJI. Following the purchase, in early

April 1985, Triangle recommended that CJI acquire from Tri-

angle all of the capital stock of Rowe International, Inc.

(“Rowe”), a Triangle subsidiary, for the stated purpose of

providing CJI with a much-needed operating company whose

a

business complimented that of CJI. (291a-97a, 301a,

328a-30a, 411a-12a, 767a-68a, 1082a, 1086a) *

In their petition, as in the courts below, petitioners

state that Triangle “caused” CJI to purchase Rowe. Petition at

11-12. In so describing the Rowe transaction, petitioners once

again have deliberately ignored the record, which shows that,

in light of Triangle’s 22% ownership of CJI’s common stock,

special care was taken and special procedures were followed

in connection with this transaction, including the following:

(1) the appointment of a special committee of

the CJI board to consider the proposal, consisting of the two

members of the CJI board who had no relationship to Trian-

gle;

(2) the retention of an experienced, well-re-

garded outside law firm to act as specia! counsel to the special

committee; and

(3) the engagement by the special committee of

an equally well-known and respected investment banking

firm, L.F. Rothschiid, Unterberg, Towbin (“Rothschild”), to

evaluate the proposed transaction. (27a-28a, 768a-70a,

1086a)

7 References are to the joint appendix and supplement to joint ap-

pendix filed in the Third Circuit.

Petitioners assert, as they did below, that

“Rothschild was in a fundamental conflict of interest with

CJI.” Petition at 15. The record shows otherwise. Although

Rothschild previously had acted as one of a number of market

makers in. Triangle securities and had performed banking

services for Triangle from time to time (24a, 51a, 304-05a),

neither Rothschild nor the committee considered that firm’s

familiarity with Triangle to be an impairment to its ability to

fulfill its responsibilities in connection with the Rowe transac-

tion. Quite the contrary, it was believed by all concerned that

Rothschild’s e:.,erience with Triangle/Rowe was of real bene-

fit to CJI. (304a-05a, 412a-14a, 724a-25a) In any event, the

extent of the relationship with CJI was fully disclosed to the

CJI board. (24a, 304a)

After their retention, special counsel to the commit-

tee, along with its members, negotiated with representatives of

Triangle and its counsel regarding the terms of the proposed

transaction including the ultimate price to be paid by CJI for

Rowe, and Rothschild did its “due diligence.” (32a-33a,

332a-38a, 416a et seg., 1142a-65a) After a detailed analysis

of the proposed transaction, the committee opined that the CJI

board of directors should approve the transaction. Thereupon,

based on the recommendation of the committee, the board of

CJI unanimously approved the acquisition of Rowe. (51a-52a,

53a-57a, 1142a)

D. The Terms of the Acquisition

As a result of its board’s action, CJI, on June 3,

1985, purchased all of the capital stock of Rowe for a price of

$68.5 million (652a, 1147a).* The purchase price was paid by

CJI in the form of (a) 625,000 shares of cumulative convert-

ible preferred stock, valued at $20 million (the “Series A pre-

ferred stock”) and (b) a 15% note in the principal amount of

$48.5 million, payable in one year, on June 3, 1986, or earlier

upon the completion of a contemplated financing by CJI, and

bearing an interest rate of 18% after maturity (the “note”).

The Series A preferred stock paid dividends at a rate below

the then-prevailing market rate for a company of CJI’s credit

standing, was convertible into CJI common stock on a share-

for-share basis, and was entitled to vote with the outstanding

common stock on a share-for-share basis. When added to its

common stock holdings, the Series A preferred stock gave Tri-

angle approximately 44.8% of the combined voting power of

CJI’s capital stock. Being equity, not debt, the Series A pre-

ferred stock also enhanced the balance sheet of CII.

(S3a-57a, 772a, 1086a, 1087a-92a, 1142a et seq.)

E. The Derivative Action

On June 25, 1985, shortly after the consummation

of the Rowe acquisition, respondent Shulman, the plaintiff be-

low and a shareholder of CJI, filed this derivative action on

behalf of CJI against Triangle. The complaint alleged that

CJi’s purchase of Rowe from Triangle was a waste of CJI’s

corporate assets for the benefit of Triangle and constituted a

' Petitioners erroneously state -- once again —- that the purchase

price of Rowe was $73.5 million. They also claim that the price paid for

Rowe was 73.5 times Rowe’s earnings. Petition at 12. The evidence sub-

mitted to the District Court showed this contention to be wildly inaccu-

rate. (652a-53a, 657a)

breach by Triangle and its representatives on CJI’s board of

fiduciary duties allegedly owed to CJI shareholders. The main

relief sought by Shulman was rescission of the Rowe transac-

tion. (13a-14a) Triangle filed an answer denying the material

allegations of the complaint, and pretrial discovery then en-

sued. (584a-87a, 773a, 795a-96a)

In November 1985, counsel for the parties in that

action commenced discussions regarding a possible settlement

of the action. During those discussions, counsel for Triangle

advised Shulman’s counsel that CJI management then had un-

der consideration a recapitalization (the “recapitalization”)

which was intended, among other things, to improve CJI’s

cash flow. (587a-88a, 773a) Thereafter, counsel for Shul-

man, along with its retained expert,* participated with the

representatives and counsel for CJI and Triangle in the nego-

tiation of the specific terms of the recapitalization, in the hope

that a basis for the settlement of the action might be found.

(S75a-76a, 587a-88a, 773a)

F. The Settlement

The result was a settlement in principle (the “settle-

ment”) that was publicly announced in a press release issued

Petitioners assert in their petition, as they did below, that plaintiff

“retained” another “expert.” Petition at 17. As was pointed out to the

District Court, this is not true. (737a-38a, 942a-43a) In any event, the

alleged “report” of that supposed expert, relied upon by the petitioners,

was shown before the District Court to be entirely inaccurate. (650a-57a)

by CJI on November 29, 1985. As set forth in the press re-

lease, the settlement was “subject to the completion of certain

pretrial discovery proceedings and to the negotiation and exe-

cution of a definitive settlement agreement, and [was] also

subject to the approval of the settlement by the New Jersey

District Court.” (1257a)

Thereafter, Shulman completed his pretrial discov-

ery, including review of additional documents and the taking

of depositions. (774a) On February 13, 1986, a definitive

settlement agreement was executed by the parties. (511a)

Pursuant to an order of the District Court dated February 25,

1986, a notice of the settlement was mailed to CJI sharehold-

ers on March 3, 1986, advising them that a hearing on the

settlement would be held on April 14, 1986 (subsequently ad-

journed to April 28, 1986). (S33a, 760a) Prior to the hearing,

the board of directors of CJI reviewed the terms of the settle-

ment and, by the unanimous vote of its three non-Triangle

members, approved the settlement “as being ir the best inter-

ests of CJI and its shareholders.” (608-09a)

Pursuant to the terms of the settlement, Triangle

exchanged the shares of CJI common stock which it had pur-

chased in 1984, and all of the Series A preferred stock ob-

tained on the Rowe transaction, in return for 320,000 shares

of a new Class C common stock of CJI (“Class C common

stock”), 1,250,000 shares of a new Class B preferred stock

(“Class B preferred stock”), warrants to purchase 625,000

shares of CJI common stock at $40 per share and warrants to

purchase 500,000 shares of CJI common stock at $32 per

share. The Class C common stock carried three votes per

share. The Class B preferred stock did not have voting rights,

was not convertible into CJI common stock and was redeem-

able at any time by CJI at a price equal to its liquidation pref-

erence. (74a-80a, 774a-75a, 110Sa et seq.)

Also, as part of the settlement, the terms of the

note received from CJI in connection with the Rowe transac-

tion were renegotiated by counsel for plaintiff to extend the

maturity date for almost five years, and to reduce the interest

payable subsequent to June 3, 1986, with an added limitation

on payment of interest in the later years should CJI not meet

certain minimum income levels. (524a-31a, 1224a, 1258a)

G. The Benefits of the Settlement

In connection with the hearing on the settlement, it

was pointed out to the District Court that the settlement re-

sulted in a number of significant benefits to CJI (as well as a

number of corresponding disadvantages to the defendant, Tri-

angle), including the following:

z The exchange of CJI securities by Triangle

and the modification of the note resulted in a substantial dimi-

nution of the annual dividend and interest obligations of CJI,

thereby improving CJI’s cash flow. (575a-80a, 659a,

775a-76a, 807a-08a, 1224a-25a)

Z. Also, the record below reflected that, as a re-

sult of the arm’s-length negotiations with plaintiff's counsel,

10

Triangle’s share of both the vote and the earnings and equity

potential of CJI actually decreased. (668a, 726a-27a, 776a,

1114a)

2 The evidence at the settlement hearing also

revealed that, as a result of the recapitalization negotiated by

plaintiff’s counsel, between 5%-10% of the total consideration

Triangle initially received from CJI for Rowe was shifted from

dividend-paying preferred stock of CJI to warrants to acquire

-- at $32 and $40 per share -- CJI common stock, then sell-

ing in the $22 range. (713a, 718a-19a, 777a, 806a)

4. The recapitalization further provided that, if

Triangle exercised its warrants, CJI would not issue common

stock but, instead, would pay the difference between the exer-

cise price of the warrant and market price of the common

stock in cash. Thus, any potential for Triangle to increase its

percentage ownership of voting control of CJI as a result of

the recapitalization was eliminated. (665a, 716a-17a, 730a,

777a, 1110a-11a) If the warrants were in the hands of and

exercised by a party other than Triangle or any of its affili-

ates, the payment terms provided for in those circumstances

assured that Triangle’s position in CJI would be diluted by

each such exercise of the warrants and Triangle would not be

in a position to cause CJI to pay out’ needed cash. (66Sa,

718a-19a, 730a-31a, 777a-78a, 1110a, 1134a-35a)

Based solely on these and other direct financial

benefits of the settlement, plaintiff's expert advised the Dis-

trict Court that the settlement had “a present value to CJ] in

excess of $10 million.” (580a)

11

H. The Petitioners

On April 2, 1986, certain objectors (the “petition-

ers”)* filed a “Notice of Intention to Object to Proposed Set-

tlement,” listing some 23 “objections” to the settlement.

(S59a) Three weeks later, on April 22, 1986, only four busi-

ness days before the scheduled hearing on the settlement, pe-

titioners, without first seeking permission of the District

Court, served a 62-page “first” set of interrogatories and

“first” request for production of documents, demanding ex-

tensive (and largely irrelevant) information and materials

from both Shulman and Triangle. (1726a, 1729a)

Shulman’s counsel sought to provide petitioners

with responses to the interrogatories and, referring to the

document demand, reminded their attorney that he had previ-

ously, in early March 1986, been given access to Shulman’s

litigation file and to all of the documents produced by Trian-

gle during the discovery stage of the action. Counsel for pe-

titioners conceded that he had not at that point reviewed the

available discovery record nor any of the papers submitted to

the District Court in support of the settiement. (1792a-95a)

I. The Settlement Hearing

Perhaps as a result, at the hearing on the settlement

on April 28, 1986, petitioners did not attempt to conduct an

‘ Not all of the persons who filed objections in the District Court

participated in the subsequent appeal. For simplicity’s sake, however,

the objectors shall be referred to as “petitioners” herein.

12

evidentiary hearing, although they clearly had an opportunity

to do so. (610a-34a) They did not seek to produce or exam- .

ine any fact witnesses. Nor did they examine Shulman’s ex-

pert (who was present at the hearing) or offer any expert testi-

mony to rebut the affidavit of that expert on the subject of the

value of the settlement to CJI. (631a)

Instead, petitioners did no more than advise the

District Court that “[w]e require some prehearing procedures

here.” (613a) In response, the District Court informed peti-

tioners that it would not, “at this stage of the proceeding,”

permit “shopping list” type of discovery. (625a) Quite rea-

sonably, we submit, the District Court stated that “I am not

inclined to embark upon massive discovery in this case unless

I’m first persuaded there is a reason to.” (621a)

Petitioners’ assertion that the District Court denied

them pretrial discovery and an evidentiary hearing, and “sum-

marily” approved the settlement (petition at 18) is thus pat-

ently false and is contradicted by the record below. Indeed, in

order to afford petitioners full opportunity to persuade it of

the reasonableness of their position, the District Court, at the

April 28 hearing, did the following:

First, it directed the parties immediately to turn

over to petitioners “everything” —- i.e., all documents that had

been produced or obtained by the parties during the litigation

and settlement stages of the case. (629a, 630a)

Second, the Court granted counsel for petitioners

two weeks, as the Court put it, to “show us there is some

13

good-faith basis to believe that the proposed settlement is im-

provident or improper or in some way tramples the rights of

the people who are objecting.” (621a)

Prior to the April 28 hearing, the District Court had

received affidavits and memoranda from Shulman and Trian-

gle, supporting the fairness and reasonableness of the settle-

ment and rebutting, point-by-point, petitioners’ list of “ob-

jections.” (559a, 573a, 575a, 583a, 594a-606a, 607a, 763a,

789a, 836a) Based upon his review of these previously sub-

mitted papers, the District Court, at the hearing, stated that

“[M]y tentative feeling was that the settlement was appropri-

ate. I was going to confirm it.” (631a) However, the Court

immediately went on to say the following:

On the other hand, I don’t want to bring down the

curtain completely without giving these people [peti-

tioners] a chance to be heard. If they show me

enough to make me -- to move me, then I’m going to

have to reconsider the whole thing, including opening

up the discovery ... . (631a-32a)

It was for this reason —- in order to give petitioners the oppor-

tunity to show that the settlement was inappropriate or that

further discovery was in order -- that the District Court

granted petitioners additional time to present their case.

J. The Post-Hearing Proceedings

Thereafter, all parties, including petitioners, sub-

mitted additional affidavits and extensive memoranda of law.

In their papers, Shulman and Triangle rebutted each and

os

every claim made in opposition to the settlement on behalf of

petitioners.

As a result, the District Court, in passing upon the

settlement, had before it a substantial record -- both “fac-

tual” in the form of affidavits, and “legal” in the form of

memoranda -- compiled by all parties, including petitioners.

(646a, 650a, 658a, 710a, 784a, 862a, 923a) Based upon this

record -- of which 1,852 pages later was submitted as the

Appendix in the Third Circuit -- the District Court, on June

3, 1986, issued an order and judgment which, among other

things, approved the settlement as “fair, reasonable and ade-

quate” and authorized the parties to consummate the settle-

ment. Petition at AS-A9. It is from this order and judgment

that petitioners appealed to the Court of Appeals for the Third

Circuit. (758a)

In connection with that appeal, however, petitioners

did not seek a stay, from either the District Court or the Court

of Appeals, of any steps in connection with the settlement.

Nor did they request an expedited appeal in the Court of Ap-

peals. Consequently, following the District Court’s decision,

the parties took steps in fulfillment of the terms of the settle-

ment. (1590a, 1797a, 1813a) Among ‘other things, CJI pro-

ceeded with a public financing intended to raise funds.to pay

off the note and for other purposes.

On August 1, 1986, CJI sold to the public a total of

$100 million of convertible preferred stock and $287.5 million

of subordinated debentures. (1583a, 1655a) The purchasers

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15

of these securities, of course, bought preferred stock and/or

debentures in CJI which included Rowe, and a portion of the

proceeds of the public offerings was, in fact, used by CJI to

pay off the note which was issued to Triangle in connection

with the Rowe transaction and which was modified by the set-

tlement. Moreover, in connection with the issuance of the se-

curities on the public offerings, CJI and Triangle agreed to a

further exchange of the securities issued to Triangle in con-

nection with the recapitalization in order to reduce the annual

dividends payable on CJI’s preferred stock. (1609a, 1679a)

As of today, therefore, the settlement has been con-

summated, Rowe is an integral part of CJI, the securities is-

sued to Triangle in connection with the settlement have been

exchanged for other CJI securities, and hundreds of public

investors have, since the District Court’s approval of the set-

tlement, purchased new securities of CJI in reliance on the

completion of the Rowe transaction and the settlement of this

action.

K. The Appeal

In the Court of Appeals, petitioners argued, first,

that they were denied an evidentiary hearing on the fairness of

the settlement, and second, that the District Court erred in

failing to issue a written opinion detailing the reasons for its

approval of the settlement.

In so arguing, petitioners once again misstated the

facts in blatant disregard of the record that had been devel-

oped below. For this reason, Triangle, CJI, and Shulman sup-

plemented the three-volume appendix submitted by petition-

ers with an additional three volumes of exhibits -- all for the

purpose of demonstrating to the Third Circuit that the District

Court had based its decision on a fully developed record.

It was in the Court of Appeals that petitioners also

raised for the first time the question of whether the new

Class C common stock issued by CJI as part of the

recapitalization violated the New Jersey Business Corporation

Act, by granting holders of that new class of stock three votes

per share, while holders of other common stock had one vote

per share.

On May 27, 1987, a panel of the Court of Appeals

unanimously affirmed the District Court’s order by means of

a judgment order. Petition at Al. A petition for panel rehear-

ing and rehearing en banc was denied on June 24, 1987. Peti-

tion at A3.

REASONS FOR DENYING THE WRIT

The Petition Presents No

Issue Worthy Of Review

The petition for writ of certiorari should be denied

for the following reasons:

1. It raises no issue of sufficient importance

warranting review by this Court.

ns

2. The rulings below turn upon the facts of this

particular case and are fully supported by the record devel-

oped below.

3. The decision of the courts below to rule with-

Out issuing written opinions detailing their findings and con-

clusions is entirely consistent with the decisions of this Court,

of the Third Circuit and of other courts.

4. The Court of Appeals’ ruling by judgment or-

der in this case was authorized by that Court’s own internal

procedures, because (a) a detailed opinion would have no

precedential value, (b) no error of law appeared in the Dis-

trict Court’s decision, and (c) this is a civil diversity case, the

decision of which does not turn upon the interpretation of the

Federal Rules of Civil Procedure or any Rules of Evidence.

A. The Petition Raises No

Substantial Question

Worthy Of Review

The petition here, stripped of its lofty constitutional rheto-

ric, essentially involves only a few simple complaints:

- that the District Court’s decision was not sup-

ported by the record;

- that the issuance of a new class of common stock

as part of the settlement in issue violated New Jer-

sey’s Business Corporation Act, Section 14A:7-2;

18

- that the District Court failed to set forth in detail

the reasons for its decision; and

- that the Third Circuit Court of Appeal’s failure to

write a lengthy opinion violated that Court’s internal

operating procedures.

On their face, none of these issues presents a ques-

tion of significant general importance warranting review by

this Court. The question of the importance of the issues in-

volved in a case is of particular significance in the decision

whether to grant a writ of certiorari. However, as this Court

has noted previously, the concept of importance means “ot

importance to the public as distinguished from that of the par-

ties.” Layne & Bowler Corp. vy. Western Well Works, Inc., 261

U.S. 387, 393 (1923). See also Rice v. Sioux City Cemetery, 349

U.S. 70, 74 (1955) (this Court does not “sit for the benefit of

the particular litigants,” and the problem presented to it must

reach “beyond the academic or the episodic”).

The issues presented by petitioners here do not sat-

isfy any of these requirements. First, the interests involved in

this case are those of the litigants alone.* Second, the deci-

sions below turn solely on the facts of this particular case.

Finaliy, to the extent petitioners have raised legal questions,

. Arguably, the interests of the investors who participated in the

public offering after the settlement was approved would be implicated at

this stage of the litigation, but only in the event of a reversal and ultimate

disapproval of the settlement.

19

those issues are limited to matters of state law and internal

court procedure. Again, the resolution of these issues is of

real importance only to the litigants in this case. In short,

there simply are no issues presented here which are so

unique, complex or universally significant as to warrant this

Court’s review.

B. This Court Should Not

Grant Certiorari To Review

The Sufficiency Of The Evidence

The ruling of the District Court was a factual deter-

mination of the fairness, reasonableness and adequacy of the

terms of the settlement of the shareholders’ derivative suit. No

legal question was raised by petitioners before that Court. The

recital above demonstrates that there was abundant evidence

supporting the Court’s approval of the settlement.

Petitioners now essentially ask this Court to over-

turn the District Court’s factual assessment of the record by

ruling that there was insufficient evidence in that record sup-

porting the Court’s decision, and by requiring that the now-

consummated settlement be undone and additional evidentiary

hearings be held. However, this Court has held that this is not

a proper reason to grant certiorari: “We do not grant a cer-

tiorari to review evidence and discuss specific facts.” United

States v. Johnston, 268 U.S. 220, 227 (1925).

Indeed, this is a particularly inappropriate case in

which to grant certiorari because, as we have demonstrated,

the petition frequently makes assertions contrary to the re-

20

cord. This is therefore not a case in which the Court may rely

On petitioners to present a clear, concise and accurate picture

of the evidence and issues below.

Inasmuch as petitioners cannot hope to have this

Court review the factual assessment of the evidence, they

wrap their argument in the cloak of a “legal” theory, namely,

an alleged denial of due process resulting from the lower

court’s supposed refusal to order additional evidentiary hear-

ings on the fairness of the settlement. But this is a theory

having no application here. Once again, the record speaks for

itself. Not only were petitioners given access to documents

and other materials obtained during discovery in the share-

holders’ derivative litigation, but the District Court also

granted petitioners additional time in which to develop the

record further after the initial settlement hearing was held.

Petitioners therefore had ample opportunity to develop evi-

dence in opposition to the*settlement, and in fact, a good deal

of such evidence was before the Court.

Thus, the District Court, prior to making its deci-

sion, had before it all the information and arguments neces-

sary to weigh carefully the relevant factors from both respon-

dents’ perspective and petitioners’ perspective, and to reach

an informed conclusion regarding the fairness of the settle-

ment. Petitioners were granted all process which was their

due.

21

C. The Lack Of Written Opinions From The Courts Below

Raises No Issue Of A Denial Of Due Process Or A

Departure From Accepted Judicial Procedures

a The Orders Entered Below Are

Consistent With The Decisions Of

This Court And Of The Third Circuit

The fact that neither the District Court nor the

Court of Appeals issued a written opinion detailing its respec-

tive findings of fact and conclusions of law poses no issue

requiring review by this Court. On this point, petitioners sim-

ply are wrong on the law. The entry of orders below without

Opinions was entirely consistent with the decisions of this

Court and of the Third Circuit.

First, petitioners’ reliance on Rule 52(a) of the Fed-

eral Rules of Civil Procedure is misplaced. On its face, that

rule applies only when actions are tried upon the facts without

a jury, or when the court grants or refuses an interlocutory

injunction. That is not the situation here. There was no ulti-

mate determination here of the controverted, factual issues in

this case. On the contrary, as we noted below, district courts

are not expected or required to make ultimate determinations

on issues of fact and law in approving settlements of deriva-

tive actions. See, e.g., Girsh v. Jepson, 521 F.2d 153, 160 (3d

Cir. 1975); City of Detroit v. Grinnell Corp., 495 F.2d 448, 462

(2d Cir. 1974). Each of the appellate court cases cited by peti-

tioners on pages 27 and 28 of their petition involved either an

action tried on the merits or an injunction. Neither of those

situations is before this Court in the instant case.

22

®

Second, although some appellate courts have re-

quired district courts to issue opinions detailing the basis for

their rulings on proposed settlements, see, e.g., Plummer v.

Chemical Bank, 668 F.2d 654, 659 (2d Cir. 1982); Cotton v.

Hinton, 559 F.2d 1326, 1331 (Sth Cir. 1977), this Court has

previously indicated that the lack of a detailed opinion will not

be fatal to the lower court’s ruling so long as the record below

was sufficiently developed to enable the reviewing court to

determine that the lower court had before it all facts essential

to its decision, and the record contained sufficient evidence

supporting the court’s decision. In Protective Committee for In-

dependent Stockholders of TMT Trailer Ferry, Inc. v. Anderson,

3°0 U.S. 414, 437 (1968), this Court stated:

If, indeed, the record contained adequate facts to sup-

port the decision of the trial court to approve the pro-

posed compromises, a reviewing court would be prop-

erly reluctant to attack that action solely because the

court failed adequately to set forth its reasons or the

evidence on which they were based.

Petitioners also rely on Taylor v. McKeithen, 407

U.S. 191 (1972). In that case, this Court did vacate the judg-

ment below and remand for further proceedings, but the

Court’s decision was not based solely on the lack of an opin-

ion by the court of appeals. Rather, the Court in that case

specifically noted, consistent with the Protective Committee

case, that “this record does not fully inform us of the precise

nature of the litigation,” 407 U.S. at 194, and added:

We, of course, agree that the courts of appeals should

have wide latitude in their decisions of whether or

23

how to write opinions. That is especially true with re-

spect to summary affirmances. ... But here the

lower court summarily reversed without any opinion

on a point that had been considered at length by the

District Judge. Under the special circumstances of this

case, we are loath to impute to the Court of Appeals

reasoning that would raise a substantial federal ques-

tion when it is plausible that its actual ground of deci-

sion was of more limited importance. /d. at 194-95

n. 4. (Emphasis added.)

See also In re Flight Transportation Securities Litigation, 730

F.2d 1128, 1136 (8th Cir. 1984), cert. denied, 469 U.S. 1207

(1985) (the district court had before it the information neces-

Sary to consider the fairness of the proposed settlement);

Grunin v. International House of Pancakes, 513 F.2d 114, 125

and n. 9 (8th Cir.), cert. denied, 423 U.S. 864 (1975)(same). *

The issue, then, is not whether the District Court or

the Court of Appeals set forth the basis for its conclusions in

an opinion but, rather, whether the record supports those con-

clusions. As we already have demonstrated, the record below

contained ample evidence favoring the settlement and, fur-

thermore, demonstrates that the District Court had before it

We have found no Third Circuit decision supporting petitioners’

claim that a detailed opinion is required in all cases involving a disputed

settlement proposal. See Petition at 27-31. Of the Third Circuit cases

cited by petitioners, only Girsh v. Jepson, supra, §21 F.2d 153 (3d Cir.

1975) and Shlensky v. Dorsey, $74 F.2d 131 (3d Cir. 1978), involved

settlements of class actions. Petitioners’ reference to Shlensky is mislead-

ing. In that case, the court in fact affirmed the district court’s approval of

(footnote continued)

24

sufficient evidence on both sides of the dispute to permit it to

weigh carefully the relevant factors and reach an informed

decision. *

é: The Judgment Order Of The Third

Circuit Is Entirely Consistent

With That Court’s Internal Procedures

The decision of the Third Circuit to terminate the

appeal of this case by means of a judgment order was clearly

authorized by Chapter 6, Sections A(1)(a) and A(1)(b)(4) and

(S) of that Court’s Internal Operating Procedures (petition at

8-9) because (a) a written opinion in this case would have no

the settlement. It vacated only that portion of the judgment deaiing with

the award of fees. 574 F.2d at 149, 152. In Girsh, the court noted that

the district court’s opinion did not adequately set forth its findings, but in

keeping with the Protective Committee holding, it undertook its own

evaluation of the record and particularly emphasized in vacating the dis-

trict court’s judgment that the record in that case, unlike the record here.

was insufficiently developed to enable it to determine whether there was

adequate support for the settlement in question. 521 F.2d at 159-160.

Petitioners’ criticism of the quality of.the record in this case (peti-

tion at 32) is curious to say the least. While claiming that the record is

“wholly devoid of legal quality and competency,” petitioners in fact rely

upon evidence within the record, particularly the so-called “expert” re-

port, to support their argument that genuine issues of fact existed as to

the propriety of the settlement. See, e.g., Petition at 17, 26. Indeed,

petitioners’ frequent reference to the existence of such issues of fact be-

lies their claim that the record was inadequately developed and did not

contain sufficient evidence on both sides of the dispute.

25

precedential value, (b) no error of law by the District Court

appeared, and (c) this is a civil diversity case that does not

turn upon an interpretation of the Federal Rules of Civil Pro-

cedure or any Rule of Evidence.*

Simply stated, this is a straightforward, fairly rou-

tine dispute involving the arm’s-length, negotiated settlement

of a derivative action. There is nothing so unique about this

case that the public interest would compel further review. See

our discussion supra at 17-19. No issues of first impression or

important questions affecting the public interest were raised

or determined. Compare Patterson v. Newspaper and Mail Deliv-

erers’ Union, 384 F. Supp. 585, 588 (S.D.N.Y. 1974), affd,

514 F.2d 767 (2d Cir. 1975), cert. denied, 427 U.S. 911 (1976)

(more extensive discussion of merits of settiement by district

court is warranted because interests involved in employment

discrimination case are far broader than those of the particu-

lar litigants). In such a case, an extensive written opinion by

the Third Circuit would have no precedential value.

Moreover, we have demonstrated, first, that the

District Court’s decision involved no legal questions, and sec-

ond, that the absence of a written opinion from the District

Court presents no error of law. See supra at 19-24.

Fi Petitioners have not properly set forth the terms of Chapter 6, Sec-

tion A(1)(b)(5) of the Third Circuit Internal Operating Procedures. That

Section actually reads: “(5) That the appeal is a civil diversity case under

28 U.S.C. § 1332, the result of which does not turn upon an interpreta-

tion of the Federal Rules of Civil Procedure or any Rules of Evidence for

the United States District Courts and Magistrates.”

26

The only other legal matter raised by petitioners

concerns whether the issuance by CJI of the new Class C

common stock having three votes per share as part of the

recapitalization violated Section 14A:7-2 of the New Jersey

Business Corporation Act and the ruling of the court in Asarco

v. M.R.H. Holmes a Court, 611 F. Supp. 468 (D.N.J. 1985).

However, as we pointed out to the Court of Appeals, the issu-

ance of the new Class C common stock is entirely consistent

with the Asarco decision. What that case prohibits is the redis-

tribution of voting power within a given ciass of stock. It does

not prohibit the issuance of a new class of stock with superior

voting rights. Jd. at 477. The Class C common stock issued by

CJI was an entirely new class of stock and, as such, could

possess voting rights different from the other common stock.

Finally, the jurisdiction of the District Court in this

case was founded upon diversity of citizenship. The decisions

below do not turn upon the interpretation of any Federal Rule

of Civil Procedure or any Rule of Evidence. We already have

demonstrated, supra at 21, that petitioners’ reliance on Rule

52(a) is entirely misplaced: On its face, that Rule does not

apply here.

For all these reasons, thé instant case is precisely

the kind of case which the Third Circuit envisioned could be

terminated expeditiously by means of a judgment order. The

decision by the Third Circuit panel to so terminate this action

is thus entirely consistent with that Court’s internal proce-

dures.

27

CONCLUSION

The petition for writ of certiorari presents no issue

worthy of review by this Court, and should be denied.

New York, New York

September 25, 1987

Respectfully submitted,

JAY TOPKIS

PAUL, WEISS, RIFKIND,

WHARTON & GARRISON

Of Counsel: 1285 Avenue of the America

DONALD A. ROBINSON New York, New York 10019

ROBINSON, WAYNE, LEVIN, (212) 373-3000

RICCIO & LaSALA

ROEERT L. LAUFER Counsel for Respondent

PAMELA M. PARKER Triangie Industries, Inc.