Appendix — Cincinnati Enquirer, Inc. v. Ramey
Supreme Court brief1975
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APPENDIX A
Nos. 74-1110-12, 74-1114,
74-1113, 74-1115-16
FOR THE SIXTH CIRCUIT
Jean Wuirenouse RaMey, a
Plaintiff-Appellee,
v.
Tue Cincinnati Enguirer, INc., and
AMERICAN FINANCIAL Corp.,
Defendants-Appellants.
ANGIOLINA MORELLI,
Plaintiff-Appellee,
Vv.
Tue Cincinnati Enguirer, INc., and
AMERICAN FINANCIAL Corp.,
Defendants-Appellants,
orem ewww weer orcecccccccccccce > ORDER
ALBERT Harnris,
Plaintiff-Appellee,
v.
THe Cincinnati Enquirer, INc., and
AMERICAN FINANCIAL Corp.,
Defendants-Appellants.
Jean W. Ramey, ANGIOLINA MORELLI
and Aubert Harris,
Plaintiffs-Appellees,
v.
THe E. W. Scripps Companr, THE
Scripps-HowarD INVESTMEN? Co.,
and Jack R. Howarp,
Defendants-Appellants. :
2a
Cecit F. SCHOEN, a/k/a CECILE F.)
SCHOEN,
Plaintiff Appellant and
Cross-Appellee,
v.
THE CINCINNATI ENQuIRER, INC., THE
E. W. Scripps Co., THE Scripps-How-
ARD INVESTMENT Co., Jack R. Howarp
and AMERICAN FINANCIAL Corp., ET
AL.,
Defendants-Appellees and
Cross-Appellants.
Cecit F. SCHOEN, a/k/a CECILE F.
SCHOEN,
Plaintiff-Appellant and
Cross-Appellee,
Vv.
THE CINCINNATI ENQuIRER, INC., THE
E. W. Scripps Co., THE Scripps-How- 4
ARD INVESTMENT Co., Jack R. How-
ARD, and AMERICAN FINANCIAL Corp.,
ET AL.,
Defendants-Appellees and
Cross-Appellants.
Ceci. F. ScHoEN, a/k/a CEcILe F.
SCHOEN,
Plaintiff-Appellant and
Cross-Appellee,
Vv.
THE CINCINNATI ENQuIRER, INC., THE
E. W. Scripps Co., THE Scripps-How-
ARD INVESTMENT Co., JAcK R. Howarp
and AMERICAN FINANCIAL CorpP., ET
AL.,
Defendants-Appellees and
Cross-Appellants. /
3a
Before Puitiips, Chief Judge, Eowarps and McCree, Circuit
Judges.
Upon consideration, it is ORDERED that the petition for re-
hearing be and hereby is denied. We make no comments as to
any rights that The Cincinnati Enquirer may or may not have to
file a motion in the District Court under Fed. R. Civ. P. 60(b).
Entered by order of the court.
CLERK
4a
APPENDIX B
IN THE
FOR THE SIXTH CIRCUIT
i 2 2
Jean WHITEHOUSE RAMEY, Plaintiff-Appellee,
-Vvs—
Tue Cincinnati Enquirer, Inc. and Defendants-Appel-
AMERICAN FINANCIAL CORPORATION, lants.
A
ANGIOLINA MORELLI, Plaintiff-Appellee,
-Vvs—
Tue Cincinnati Enquirer, Inc. and Defendants-Appel-
AMERICAN FINANCIAL CORPORATION, lants.
-- NO. T4712 _
ALBERT Harris, Plaintiff-Appellee,
-Vvs—
Tue Cincinnati Enquirer, Inc. and Defendants-Appel-
AMERICAN FINANCIAL CORPORATION, lants.
NO. 74-1114
Jean W. Ramey, ANGioLinA Moretti Plaintiffs-Appellees,
and ALBERT Harris, ;
-Vvs— a
Tue E. W. Scripps Company, THE Defendants-Appel-
Scripps-HowarpD INVESTMENT Com- _lants.
pany, and Jack R. Howarp,
9
SY ABELL DAE ARE Te
S
— OE Ree he GR Sone ee IO ae
SRY Ts ee 8 YER IEE CEM ONDE
Ceci, F. ScHoen, aka CeciLe F.
SCHOEN,
Tue Cincinnait Enquirer, Inc., THE
E. W. Scripps Company, THE SCRipPs-
Howarp INVESTMENT CoMPANY, JACK
R. Howarp, and AMERICAN FINANCIAL
CorpP., ET AL.,
Ceci, F. ScHoen, aka CEcILe F.
SCHOEN,
—-VSs—
THe CINCINNATI ENQuIRER, INC., THE
E. W. Scrieps CoMPANY, THE SCRIPPS-
Howarnp INVESTMENT CoMPANY, JACK
R. Howarp, and AMERICAN FINANCIAL
Corp., ET AL.,
Ceci, F. ScHoen, aka CEcILe F.
SCHOEN,
THe CINCINNATI ENQuiRER, INC., THE
E. W. Scripps CoMPANy, THE SCRIPPS-
Howarp INVESTMENT CoMPANY, JACK
R. Howarp, and AMERICAN FINANCIAL
Corp., ET AL.,
Plaintiff-Appellant and
Cross-Appellee,
Defendants-Appellees
and Cross-Appellants.
Plaintiff-Appellant and
Cross-Appellee,
Defendants-Appellees
and Cross-Appellants.
Plaintiff-Appellant and
Cross-Appellee,
Defendants-Appellees
and Cross-Appellants.
Appeals from United States District Court for the
Southern District of Ohio, Western Division
6a
PETITION FOR REHEARING
The Cincinnati Enquirer, Inc. (the “Enquirer”) hereby peti-
tions the Court for Rehearing pursuant to Rule 40 of the Federal
Rules of Appellate Procedure, for the purpose of modifying and
clarifying the Court’s decision of December 26, 1974, in the fol-
lowing respects:
(1) To modify its Opinion so that upon remand of this case to
the District Court it is required to render judgment against the
Enquirer in the amount of $313,449.59 with interest at the rate
of 6% per annum from October 10, 1973; and
(2) In the alternative, to grant the District Court the authority,
upon remand, to entertain a motion under Rule 60(b) of the Fed-
eral Rules of Civil Procedure to reduce the award of attorneys’
fees to Plaintiffs’ counsel.
THE CINCINNATI ENQUIRER, INC.
BY:
Louis F. Gilligan
Keating, Muething & Klekamp
18th Floor, Provident Tower |
Cincinnati, Ohio 45202
381-1150
and
BY:
a A. Lloyd, Jr.
rost & Jacobs
2900 DuBois Tower
Cincinnati, Ohio 45202
621-8550
PANERA RTA PEON DORE IR ARN BAAN NEEL ESET IER Ly SACRE TN ENE I ey SEEM wn ot ong OES, tb»
ja
ARGUMENT
Introduction
In its judgment of October 10, 1973, the District Court
awarded a total of $865,000 in attorneys’ fees (including
$115,000 in prejudgment interest) to plaintiffs’ counsel. Of that
total award, the District Court ordered that $326,290.90 (37.7%)
be paid by The E. W. Scripps Company, The Scripps-Howard
Investment Company and Jack R. Howard (the “Scripps
Group”), $393,333.60 (45.5%) be paid by the Enquirer, and
$145,375.50 (16.8%) be paid by AFC on behalf of the Enquirer's
minority shareholders.
In its decision of December 26, 1974, the Court found that the
District Court did not abuse its discretion by awarding total at-
torneys’ fees of $750,000 to Plaintiffs’ counsel. However, the
Court also vacated that portion of the District Court's judgment
requiring part of those fees to be paid by parties other than the
Enquirer.
This Court’s decision reversed the rationale employed by the
District Court to award attorneys’ fees against the Enquirer, the
Scripps Group, and the minority stockholders. Based upon this
Court's decision, the Enquirer's liability for attorneys’ fees, as a
matter of law, cannot exceed the amount previously determined
by the District Court, i-e., $393,333.60. From this figure must be
deducted the sum of $115,000, which this Court ruled was
unlawfully assessed against the Enquirer as prejudgment interest.
Therefore, the total liability of the Enquirer is, according to this
Court's decision, $278,333.60 plus $35,115.96 in expenses, or a
total of $313,449.56.
In the alternative, upon remand, the Enquirer wishes to sub-
mit a motion to the District Court, pursuant to Rule 60(b) of the
Federal Rules of Civil Procedure, to reduce the total attorneys’
fees awarded to Plaintiffs’ counsel in light of the Court’s decision
of December 26, 1974, that only the Enquirer was liable for at-
torneys’ fees in this derivative action. Therefore, this Court is re-
quested to clarify its decision in accordance with the request
made herein so that upon remand the Enquirer may make the
above-referred to motion.
8a
IN A STOCKHOLDER’S DERIVATIVE SUIT, THE DE-
FENDANT CORPORATION IS ONLY LIABLE FOR AT-
TORNEYS’ FEES BASED UPON THE BENEFITS CON-
FERRED BY THE LITIGATION ON THE CORPORATION,
ITSELF. =
I. The District Court's total award of attorneys’ fees was based.
upon the benefits conferred by the litigation upon three_
groups, i.e., the Enquirer, the Scripps Group, and the minor-
ity shareholders. :
The history of the proceedings at the District Court level
makes evident that the question of the resolution of who should
pay the attorneys’ fees (allocation of fees) was a prerequisite to
the determination of the total amount of fees to be awarded.
On May 14, 1973, at the beginning of the Allocation Hearing,
counsel representing the Plaintiffs’ counsel on their Application
for Attorneys’ Fees made a motion with the District Court that
the total fee award be determined prior to the Allocation Hear-
ing. The record of this proceeding (Allocation Hearing, Tr. pp.
15-17) indicates that the Court could not and would not assess
attorneys fees without first considering the allocation question,
and the Court concluded the overruling of Plaintiffs’ motion
with the following:
Tue Court: I realize that this is very important to your
clients, and I am keenly aware of the need
for an order which will bring this to a con-
clusion. But you are keeping us from our
work today, because this (allocation) is
something we have to get behind us before
we can make that order (attorneys’ fees).
(Emphasis supplied; our parenthesis.)
Thereafter, on September 13, 1973, the District Court ren-
dered its Opinion, at which time it contemporaneously awarded
the sum total of attorneys’ fees and made the allocation thereof.
It is submitted that the District Court’s Opinion indicates that
the total award of $900,115.96 ($865,000 in fees and $35,115.96
eer FOR POEL SE LOLOL OL LEN OLE IIDEC LILLE IGE EL GS I OO 8 FE Bhs ELSES
4/4
9a
in expenses) was determined in large part on the basis of who
had been benefited by the litigation. Properly, the District Court
referred to Denney v. Phillips & Buttorf Corp., 301 F. 2d 269,
Cert. denied, 379 U.S. 831 (1964), in determining the amount of
the fee (Op. p. 7). Equally, this Court in rendering its decision in
this case held that one of the considerations in fixing attorneys’
fees is “the value of the benefit rendered to the corporation or its
stockholders”. (Ramey, et al. v. Cincinnati Enquirer, et al., Op.
p- 14.)
In awarding the attorneys’ fees in this case, the District Court
has opined that the shareholders of the Enquirer, Scripps-How-
ard and the minority, received benefits and that, therefore, this
was to be taken into consideration in determining the amount of
fees. The Court’s Order of October 10, 1973, on the attorneys’
fees included the following finding:
4. That the defendant, The Cincinnati Enquirer, Inc., and
all of its shareholders, including the Scripps Group, have re-
ceived substantial benefits, both tangible and intangible, as
a result of this litigation, and the payment of the award of
fees and costs should be allocated among those so benefited.
(Order, P. 514)
Therefore, the District Court in determining the amount of
fees necessarily gave consideration to what benefits were re-
ceived by the various parties that the Plaintiffs’ wished to re-
ceive attorneys’ fees from, i.e., the Enquirer, the Scripps Group,
and the minority shareholders.
In determining the Enquirer’s liability for attorneys’ fees and
expenses, the District Court considered its relative size and abil-
ity to pay for the fees. In both its Opinion of September 13, 1973,
and Order of October 10, 1973, the District Court referred to
these factors. For example, in its Opinion the Court stated:
For one thing, we have taken into account that the annual
income of The Enquirer was only $2,049,161 for 1969 (after
taxes) and $2,319,638 for fiscal 1970. The Enquirer's cash re-
sources are roughly those of the down payment or cash pay-
ment mentioned herein. We are not saying this is con-
trolling, but it seems appropriate to take into account the
SSP PRL PRN MRE NER REYNE IT SAE RAD TPE RL ARE TPT MR RHO OPN EES SSRIS
10a
fact that The Enquirer, while not a small corporation, was
not a giant. (P. 501).
Besides the earning capacity of the Enquirer of approximately
$2,000,000 per year, the Court was also aware that the Enquirer
balance sheet of September 30, 1969, indicated that its total
shareholders equity was only $12,136,213.
Significantly, of the $900,115.96 total fees and expenses
awarded in this case, $428,449.56 ($393.333.60 fees and
$35,115.96 all expenses) was awarded against the Enquirer,
which was less than 50% of the total awarded. Therefore, if the
Enquirer is alone liable for the entire amount of attorneys’ fees,
it is apparent that the Enquirer’s total liability for fees is more
than double what the District Court had ruled, in its d’»cretion,
was reasonable as to that Defendant.
Il. It is improper to assess the Enquirer for attorneys’ fees based
upon benefits conferred upon its former shareholders, which
benefits were incidental and unique to those shareholders and
were not even remotely conferred upon the corporation,
itself.
The foregoing analysis indicates that the District Court, while
properly applying the prerequisites to the award of attorneys’
fees in accordance with Denney v. Phillips & Buttorf Corp.,
supra., nevertheless erroneously included too many benefits in
awarding the attorneys’ fees by considering the incidental and
unique benefits conferred upon the stockholders of the corpo-
ration, viz., the Scripps Group and the minority shareholders.
For example, the Court in its Opinion stated:
The Court concludes this is a proper case for allocation, but
hastens to point out this is not because of any bad faith or
the participation of the Scripps Group in the preparation of
the proxy statement and agreements. They did indeed par-
ticipate, and their suggestions—eventually, at least—were
welcomed by the Enquirer. There was no bad faith on their
part, and the Court so found. Nevertheless, the Scripps
lla
plied.) (P. 511)
Rever ‘ng the Distgict Court, this Court held that the| former
stockholders of the Enquirer could not be liable for attorneys’
fees. We submit that
neys’ fees cannot be i
trict Court had dete
This Court has ruleq that because this action was a $tock-
holder’s derivative suit, ivi
ually against stockhold
rivative litigation, bu
corporation. Ramey, et dJ., supra., p. 20. In so ruling, the Court
followed Jones v. Uris
1967).
However, it is submitt
holding herein and with the Jones case, the fees for which a
poration could be resporgible must be those for which it \re-
ceived a benefit and would otherwise have had to pay for itself.
We believe the language qyoted from Jones in this Court’s Op
ion is dispositive of the Enquirer's position as follows:
[T]he reason for the award of such fees in a stockholder’s de-
rivative suit . . . [is] that the plaintiffs’ efforts have conferred
on the corporation a benefit for which the corporation
would otherwise have had to pay itself.
In short, it is the Enquirer's position that it is not equitable or
12a
legally proper to hold it liable for fees originally assessed against
the Scripps Group and the minority stockholders for the follow-
ing reasons:
(1) The District Court calculated the fees on the basis of ben-
efits received by the three parties Plaintiffs’ attorneys sought to
recover them from, i.e., the Enquirer, the Scripps Group, and
the minority stockholders.
(2) This Court has determined that the Scripps Group and the
minority stockholders cannot be charged for any part of the fees,
but has assessed the Enquirer for this portion of them.
(3) This is impermissible in view of this Court’s holding and
the Jones case requiring that the corporation pay for benefits
which it received from the litigation and which it would have
had to otherwise pay for itself.
(4) Since the Enquirer received none of the benefits which the
District Court accorded to the Scripps Group and the minority
stockholders, the Enquirer cannot be liable for fees calculated on
the basis of these benefits.
Conclusion
The Enquirer requests this Court to reconsider its Opinion
rendering the entire attorneys’ fees against it in light of the con-
siderations stated herein, and to rule as a matter of law that it is
liable for only that portion of the attorney fee award previously
attributed to it consistent with this Court’s other findings. Aiter-
natively, the Enquirer requests that the Court clarify its decision
so that upon remand to the District Court it may move for a
modification of the attorney fee award pursuant to Rule 60(b) of
the Federal Rules of Civil Procedure.
THE CINCINNATI ENQUIRER, INC.
BY:
Louis F. Gilligan
— Muethin & Klekamp
t Tower
emo Olle 45202
381-1150
BY:
13a
and
woo ey A. Lord, Jr.
2900 eet Tower
Cincinnati, Ohio 45202
621-8550
l4a
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing Petition for Re-
hearing has been sent by regular United States mail to counsel
for all parties this 9th day of January, 1975. |
Louis F. Gilligan
15a
APPENDIX C
Nos. 74-1110-16
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
Jean WurrEHouse RAMEy,
Plaintiff-Appellee,
Vv.
Tue Cincivnati Engumenr, Inc., and
AMERICAN FINANCIAL CORPORATION,
Defendants-Appellants.
ANGIOLINA MORELLI,
Plaintiff-Appellee,
v.
Tue Cincinnati Engumer, Inc., and
AMERICAN FINANCIAL CORPORATION,
Defendants-Appellants. APPEALS from the
United States District
AuBeRT HaRRis, Court for the South-
Plaintiff-Appellee,| ern District of Ohio,
Vv. Western Division.
Tse Cinceynat: Engumen, Inc., and
AMERICAN FINANCIAL CORPORATION,
Defendants-Appellants.
Jean W. Ramey, ANGIOLINA MORELLI
and ALBERT HAanais,
Plaintiffs-Appellees,
Vv.
Tue E. W. Scripps Company, THE
Scripps-HowarD INVESTMENT Com-
PANy and Jack R. Howarp,
Defendants-Appellants.
16a
Cecn, F. Scuoen, aka. Cecne F.)
SCHOEN,
Plaintiff-Appellant and
Cross-Appellee,
v.
Tue Cincinnati Enqumen, Inc., THE
E. W. Scrirps Company, THE
Scripps-HOWARD INVESTMENT Com-
PANY, JACK R. Howarp, and AMERI-
CAN FINANCIAL CorpP., ET AL.,
Defendants-Appellees and
Cross-Appellants.
Ceci. F. ScHoen, aka. Cecme F.
SCHOEN,
Plaintiff-Appellant and
Cross-Appellee,
v.
Tue Cincinnati EnQuienr, Inc., THE |
E. W. Scripps Company, THE
Scripps-Howarp INVESTMENT Com-
PANY, JACK R. Howarp, and AMERI-
CAN FINANCIAL Corp., ET AL.,
Defendants-Appellees and
Cross-Appellants.
Ceci. F. Scuoen, a.k.a. Cecme F.
SCHOEN,
Plaintiff-Appellant and
Cross-Appellee,
v.
Tue Cincinnati Engumen, Inc., THE
E. W. Scripps Company, THE
Scripps-Howarp INVESTMENT Com-
PANY, JACK R. Howarp, and AMERI-
CAN FINANCIAL Corp., ET AL.,
Defendants-Appellees and
Cross-Appellants. |
Decided and Filed December 26, 1974.
MB SARE DIE Tes
17a
Nos. 74-1110-16 Ramey, et al. v. Cinti. Enquirer, et al.
Before Puuirs, Chief Judge, Eowarps and McCnez, Cir-
cuit Judges.
Purturs, Chief Judge. These are appeals from an order
granting attorneys’ fees in four stockholder derivative suits
that were dismissed on grounds of mootness after trial but
before adjudication. The District Judge’s order awarded a
total of $865,000 in attorneys’ fees and $35,115.96 in ex-
penses to be paid to plaintiffs’ attorneys in four cases by de-
fendants Enquirer' and Scripps,? with a contribution of $145,-
375.00 on the part of the minority shareholders to be paid
by American Financial Corporation.*
This litigation had its genesis in an antitrust action filed
against the E. W. Scripps Company by the Department of
Justice in 1964. The Scripps-Howard interests, while owning
Cincinnati's only evening newspaper, The Cincinnati Post and
Times Star, also acquired the majority interest in the stock
of The Cincinnati Enquirer, Cincinnati’s only morning news-
' paper. The antitrust action was tried before the same District
Judge who rendered the judgment involved in the present
appeal and was terminated by a consent decree requiring that
Scripps divest itself within 18 months of its controlling in-
terest in the Enquirer.
Early in 1970 the management of the Enquirer, ultimately
supported by a majority of the minority shareholders, put to-
gether a bid to Scripps-Howard to purchase Scripps-Howard’s
60 per cent share of the Enquirer stock. A stock acquisition
agreement was signed which provided that the Enquirer would
purchase all of the Enquirer stock owned by Scripps-Howard
at $35 per share, 11% million dollars to be paid in cash and
‘Enquirer in this opinion will refer to the Cincinnati Enquirer,
In, the owner of the newspaper, The Cincinnati Enquirer.
2Sciipps or Scripps-Howard will be used in this opinion to refer
to the pps group of defendants, consisting 6 the E. W. Scripps
Co., Scripps-Ho Investment Co. and Jack Howard.
3 Subsequentlv American Financial or AFC,
LAETOLI OSE ERIE TL LEE LIES OPI OD LETT TIS FPR PINE | TE RO
18a
Ramey, et al. v. Cinti. Enquirer, et al. Nos. 74-1110-16
the balance to be paid by the issuance of 60,000 shares of
preferred stock.
The details of the plan and its proposed financing by the
Prudential Life Insurance Co. of America were as follows:
1) The Enquirer would purchase directly from the Scripps
group 330,558 Enquirer shares at $35 a share, totaling $11,-
569,530.
2) Of this sum the Enquirer was to borrow $10,500,000
from the Prudential Life Insurance Co., to be repaid at 12
per cent interest over 16 years.
3) The balance of 171,428 shares owned by the Scripps
group would be purchased by the Enquirer by issuance and
exchange of 60,000 newly authorized shares of convertible
preferred stock that Scripps then agreed to sell (and Pru-
dential by separate contract agreed to buy) for $6,000,000
in cash. The Enquirer would be obligated to pay a yearly
dividend of $7.65 on each share of preferred stock and to
redeem a minimum of 3,000 shares a year at $110 per share.
4) Under this arrangement the Prudential Life Insurance
Co. would have invested $16,500,000, on which the Enquirer
would be required to pay a return of 12 per cent on the
loan and about ten per cent on the preferred stock. On default
of the Enquirer's obligation on either the preferred stock or
the debt, Prudential could acquire the entire assets of the
Enquirer.
5) The Enquirer was able to contribute only one million
dollars from its working capital to accomplish this purchase.
6) The redemption of preferred stock, plus the interest
on the loan, would equal about one and one-half million dol-
lars a year. Previously the Enquirer had been netting about
two million dollars each year after taxes.
7) No provision was made for any offer to the minority
stockholders of the Enquirer. At a stockholders’ meeting on
October 23, 1970, the stock acquisition plan described above
SEP
Brey
19a
Nos. 74-1110-16 Ramey, et al v. Cinti. Enquirer, et al.
was approved by a vote of 222,930 to 75,307, with the Scripps’
60 per cent of the shares not voting.
In October 1970 three stockholders’ derivative suits (Ramey,
Morelli and Harris) were filed to set aside this stock pur-
chase plan, alleging, among other things, that the proxy state-
ment contained untrue and misleading statements of material
fact and that the plan violated various provisions of both fed-
eral and Ohio law.* Two of these suits (Ramey and Morelli)
were filed before the stockholders’ meeting and resulted in
the order of the District Court on October 22 enjoining the
execution of the purchase agreement until further order. The
derivative action of Harris was filed on October 26. Later
in November an action was filed on behalf of a stockholder.
named Schoen. This suit also attacked the acquisition agree-
ment, essentially contending that the proposed transaction was
fraudulent.
The cases were tried for about two months, concluding Janu-
ary 18, 1971. Ten days after the trial and before any opinion
had been announced, the litigation was mooted when Scripps,
making use of an escape clause in the acquisition agreement,
terminated its proposed deal with the Enquirer group. This
termination by Scripps was prompted by a bid of $35 a share
(the same figure as the Enquirer bid, but extended to all
rinority shareholders) from a California-based trading stamp
company called Blue Chip Stamps. Thereafter, and before
the court had acted on a petition by the United States and
the Enquirer to require the Scripps group to extend the
Enquirer agreement, the American Financial Corporation of-
fered Scripps-Howard $40 per share for its 60 per cent in-
terest in the Enquirer's stock and offered the same amount per
share to all of the minority shareholders. This offer was
accepted by Scripps-Howard. AFC proceeded to acquire
E. §§10(b) and 14(a) of the Securities Exchange Act of 1934,
15. U < 5 eth: 78n (a) a and the rules thereunder, 17
CFR. 240.14a-9 (1974); Onto Rev. Cone Ann.
5170135" ‘Page's Supp. 1973).
la a i > WIRE CRS NR. AN Ne RA ARIAT ES Ti wl aE ASS
20a
Ramey, et al. v. Cinti. Enquirer et al. Nos. 74-1110-16
the entire Scripps-Howard izterest and ultimately all of the
minority shares.
The District Judge subsequently issued an informal opinion
disclosing the findings of fact that he would have made and
the conclusions of law that he would have entered had the
case not been mooted. He then heard and decided the re-
quests by the different attorneys for attorneys’ fees.
In his fee opinion, the District Judge described the Enquirer-
Scripps deal, as originally proposed, in the following language:
“However, it is to be noted that the transaction would
have changed the Enquirer stock from ‘safe’ to ‘risky’
or ‘high leverage.’ And the Enquirer-Scripps deal was
accurately described as ‘thin.’ As stated by one of the
Enquirer directors, it was no deal for ‘widows or
orphans.”
In the same opinion he also said in part:
: “The purchase by a corporation of its own shares has
: a potential for abuse, and restrictive legislation has there-
: fore grown up to meet the need to prevent such abuse.
Hence, any time a corporation attempts to purchase its
own shares, especially on a shoestring, the transaction
has to be cast in a form which meets the legal require-
ments and a number of extremely difficult questions in
the area of corporate law and finance arise. One re-
striction on purchase by a corporation of its own shares
is the Impairment of Capital Statute, Ohio Revised Code
1701.35, which provides that after such purchase the
‘debts’ of the corporation must not exceed its assets plus
‘stated capital.’ That explains why only so much money
could be borrowed from Prudential and the balance had
to be raised by sale of preferred stock which could be
determined to be ‘equity’ and not ‘debt.’ In this case
the preferred stock had warrants, voting powers, conver-
sion privileges, redemption and other rights, and a dif_i-
cul’ and serious question was presented as to whether,
though cast in the form of ‘equity, it was not in law
OM 7 “ROPIEL PS PUES IIL EO Gh IE ER OPEL MEE IL OEE LE OIE ASIP LOSES BAIN TATE LG EGET ECA GES DLS MOE on BEE LEE I MY FEI ERE EE ae
Fe a eee ee ee ee
FBI LEE ORS LVL RIO LEI IOI ELE LOOT OE ICID SLES OLLIE OILED LENE DEER INS WL OGL MEELIS LOE Ee ew Ieee
2la
Nos. 74-1110-16 Ramey, et al. v. Cinti. Enquirer, et al.
and in fact ‘debt.’ If the shares were ‘debt,’ the assets
of the Enquirer after the purchase of the Scripps shares
would not have exceeded debts plus stated capital as
required by ORC 1701.35, and the deal would have been
illegal.
“That was just one of many complex questions. An-
other involved the corporate power and many others
arose in connection with the proxy statement and the
claims that statements therein were materially misleading.
One of these was it was not accurate in its portrayal
of the effect of the deal on the Enquirer's ability to pay
dividends and its dividend policy. Another was that
in describing the effect of the plan on the book value
of the Enquirer stock (proxy statement, p. 6) instead of
a drop from plus $15.42 per share to ‘none,’ the proxy
statement should have shown a drop from $15.42 to minus
$13.07.
“[{I]n the Enquirer case, by deciding to change stated
capital as proposed from $5 per share to $1 per share,
the shareholders were saying in effect they chose to em-
bark on the proposed corporate venture and in order
to do so to completely change the capital structure of
the Enquirer, eliminate the shareholders’ equity, change
its stock from ‘safe’ to ‘risky, and agreed to pay for the
outstanding shares out of future earnings.
“We also considered the commentary and the chapter
on the Model Corporation Act — the commentary to §5,
‘Right of corporation to acquire and dispose of its own
shares.’ This points out that most statutes, like the Model
Act, provide in substance that a corporation’s own shares
shall be purchased only out of surplus except in special
situations specified in the statute. And of the many
cases, one which we found noteworthy is Mountain States
Steel Foundries, Inc. v. C.L.R., 284 F. 2d 737 (5 Cir.,
1960), where an impairment statute similar to Ohio’s was
under the glass.
22a
Ramey, et al. v. Cinti. Enquirer, et al. Nos. 74-1110-16
to apply on
it took to litigate Scripps kept its option open, and along
a share, ‘he difference between $40 and $35 being about
$2.5 million or more to Scripps alone.
“Nevertheless, in fixing the fee we have not gone on
the assumption that there is an identifiable fund, such
as the interest on the obligation to Prudential. We have
concluded that as far as economic benefit and other ways
this case is unique, and, while we conclude that a sig-
nificant service was performed by the applicants, and
there is strong evidence of economic benefit, especially
in the testimony . . .”
Po Rae GE REAR PRL Star gee 8 RD OOP AO Parl in ee noger a5-ter
23a
Nos. 74-1110-16 Ramey, et al. v. Cinti. Enquirer, et al.
The District Judge then proceeded to decide the claims
of the different attorneys for fees. He noted that the claims
had totaled a maximum of $1,750,000. His award was less
than half of that sum, $750,000, augmented by $115,000 of
‘prejudgment interest, an item contended by appellants to be
unprecedented on these facts. The District Judge also ordered
that ten per cent of the fee be awarded to Mesh, the attorney
for Schoen, with the balance to be divided one-third each to
the three law firms representing Ramey, Morelli and Harris,
respectively. He also ordered that $326,290.90 be paid by
the Scripps-Howard group, $393,333.60, plus $35,115.95 ex-
penses, by the Enquirer, and $145,375.50 by American Finan-
cial Corp., which had, by court order, withheld $2.00 a share
for legal fees when it bought the shares of the minority
stockholders.
The principal appellate issues appear to us to be these:
1) Did this litigation produce such a benefit for the corpo-
ration (The Cincinnati Enquirer, Inc.) as to justify the award
of fees?
2) ‘Did the District Judge abuse his discretion by awarding
excessixe fees?
3) Was the award of prejudgment interest legally justi-
fied?
4) Assuming attorneys’ fees were justified in some sum,
could they legally be awarded against any party other than
the Enquirer?
5) Did the District Judge commit error in dismissing the
Scripps-Howard indemnity cross-claim against the Enquirer
and AFC? «
1) ‘The Corporate and Stockholder Benefit
The District Court’s proposed findings of fact and conclu-
sions of law in the original derivative actions found violations
. BO TRL TIRE EOI LEI IL GENET ILE IDOL GER DNL! LOLI DOD AG LEG IRE VLEET. DEL CE ELLIS EY PORT
24a
Ramey, et al. v. Cinti. Enquirer, et al. Nos. 74-1110-16
of state and federal laws that would have required prepa-
ration of an amended proxy statement and resubmission of
the acquisition plan to the Enquirer shareholders. It is clear
to this court that the District Judge made no findings of
deliberate concealment or fraud. It also is clear that although
appellants describe the violations found by the District Judge
as “technical,” nonetheless they would have served to require
disclosures that would have alerted the Enquirer’s minority
stockholders further concerning the financial burden that their
corporation was undertaking to assume.
There was testimony before the District Judge from which
he could have concluded, as he did, that the Enquirer's man-
agement was proposing a high-risk plan. The cash payment
of over one million dollars would have depleted the Enquirer's
working capital, thereby impairing liquidity. The $16,500,000
obligation to Prudential, including the loan and the preferred
stock, was about equal to the total asset value of the En-
quirer. The plan would have raised the Enquirer’s debt ratio
to about 90% from a relatively low 21%. It is clear that
such a highly leveraged capital structure could bring about
a financial disaster if the Enquirer suffered even a temporary
decline in revenues. The District Judge had ample reason to
doubt that Enquirer earnings could service the Prudential
loan and at the same time meet the preferred stock dividend
and redemption requirements. Finally, we note that the plan
of acquisition would have produced no corporate benefit for
the Enquirer commensurate with the substantial debt that it
would have assumed.
As we see the matter, plaintiffs’ derivative suits succeeded
in delaying consummation of the risky repurchase plan until
two other companies made offers that would have accom-
plished the Scripps-Howard divestiture without the adverse
effect upon the Enquirer's capital structure. Further, inso-
far as the derivative actions exposed inaccuracies and mislead-
ing statements in the proxy materials, this litigation constituted
“corporate therapeutics,” which benefits both the corporation
ry PSPS Eg Sp Gp OR LE
Nos. 74-1110-16 Ramey, et al. v. Cihti. Enquirer, et al.
and its stockholders. Mills v. Electric Auto-Lite Co., 396 US.
375, 396 (1970). The plaintiffs’ efforts\also conferred an inci-
dental benefit upon all of the Enquirer’s shareholders. Had
the initial repurchase plan not been delayed, the more attrac-
tive AFC offer presumably would not have been made.
On the record before us, we cannot hold clearly erroneous
the findings of the District Court that the plaintiffs’ suits
resulted in a substantial benefit to the Enquirer. Fen. R. Cv. P.
52(a).
We conclude that the services performed by plaintiffs’
attorneys justify an award of fees, even though no fund has
been brought into court and even though it may be impossible
to assign an exact monetary value to the, benefit conferred
upon the corporation. In this respect the t case is con-
trolled by Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970),
in which the Supreme Court outlined the following definitive
view on the award of attorneys’ fees when\no specific fund
has been produced by the litigation:
“While the general American rule is that attorneys’
fees are not ordinarily recoverable as costs, both the
courts and Congress have developed exceptions to this
rule for situations in which overriding considerations
indicate the need for such a recovery. A primary judge-
created exception has been to award expenses where a
plaintiff has successfully maintained a suit, usually on
behalf of a class, that benefits a group of in the
same manner as himself. See Fleischmann Corp. v.
Maier Brewing Co., 386 U. S., at 718-719. To allow the
others to obtain full benefit from the plaintiffs efforts
without contributing equally to the litigation expenses
would be to enrich the others unjustly at the plaintiff's
expense. This suit presents such a situation, The dis-
semination of misleading proxy solicitations was a ‘deceit
practiced on the stockholders as a group, J. I. Case
Co. v. Borak, 377 U. S., at 432, and the expenses of
petitioners’ lawsuit have been incurred for the benefit
of the corporation and the other shareholders.
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Ramey, et al. v. Cinti. Enquirer, et al. Nos. 74-1110-16
“The fact that this suit has not yet produced, and
may never produce, a monetary recovery from which the
fees could be paid does not preclude an award based
on this rationale. Although the earliest cases recogniz-
ing a right to reimbursement involved litigation that had
produced or preserved a ‘common fund’ for the benefit
of a group, nothing in these cases indicates that the
suit must actually bring money into the court as a
prerequisite to the court’s power to order reimbursement
of expenses.
“Other cases have departed further from the traditional
metes and bounds of the doctrine, to permit reimburse-
ment in cases where the litigation has conferred a sub-
stantial benefit on the members of an ascertainable class,
and where the court’s jurisdiction over the subject mat-
ter of the suit makes possible an award that wili op-
erate to spread the costs proportionately among them.
This development has been most pronounced in share-
holders’ derivative actions, where the courts increasing-
ly have recognized that the expenses incurred by one
shareholder in the vindication of a corporate right of
action can be spread among all shareholders through
an award against the corporation, regardless of whether
an actual money recovery has been obtained in the cor-
poration’s favor. For example, awards have been sus-
tained in suits by stockholders complaining that shares
of their corporation had been issued wrongfully for an
inadequate consideration. A successful suit of this type,
resulting in cancellation of the shares, does not bring
a fund into court or add to the assets of the corpora-
tion, but it does benefit the holders of the remaining
shares by enhancing their value. Similarly, holders of
voting trust certificates have been allowed reimburse-
ment of their expenses from the corporation where they
succeeded in terminating the voting trust and obtaining
for all certificate holders the right to vote their shares.
In these cases there was a ‘common fund’ only in the
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Nos. 74-1110-16 Ramey, et al. v. Cinti. Enquirer, et al.
sense that the court’s jurisdiction over the corporation
as nominal defendant made it possible to assess fees
against all of the shareholders through an award against
the corporation.
“In many of these instances the benefit conferred is
capable of expression in monetary terms, if only by esti-
mating the increase in market value of the shares at-
tributable to the successful litigation. However, an
increasing number of lower courts have acknowledged
that a corporation may receive a ‘substantial benefit’ from
a derivative suit, justifying an award of counsel fees,
gee of whether the benefit is pecuniary in nature.
“In setae suits under § 14(a), ngage where the
violation does not relate to the terms of the transaction
for which proxies are: solicited, it may be impossible
to assign monetary value to the benefit. Nevertheless,
the stress placed by Congress on the importance of fair
and informed corporate suffrage leads to the conclusion
that, in vindicating the statutory policy, petitioners have
rendered a substantial service to the corporation and its
shareholders.” Id. at 391-96. (footnotes omitted.)
Moreover, the fact that these suits became moot does not
preclude recovery of attorneys’ fees. So long as a substautial
benefit is conferred upon the corporation, it is not necessary
that the litigation be brought to a successful completion.
Kahan v. Rosenstiel, 424 F.2d 161, 167 (3d Cir.), cert. denied,
398 U.S. 950 (1970); see Blau v. Rayette-Faberge, Inc., 389
F.2d 469, 473-74 (2d Cir. 1968).
We have no doubt that the District Court was warranted in
awarding counsel fees to plaintiffs’ attorneys.
2) Reasonableness of Fees
The trial judge in determining the value of services rendered
by lawyers who have tried a case before him ordinarily has
an infinitely better opportunity to evaluate those services
. met
Wierraneorceompensaness
28a
Ramey, et al. v. Cinti. Enquirer, et al. Nos. 74-1110-16
than does an appellate court. Therefore, appellate courts
hold that the trial judge’s determinations on legal fees should
not be set aside unless there is a clear abuse of discretion.
In an early case the United States Supreme Court stated
this principle clearly:
“The conclusion to which we have come is that, under
the circumstances of this case, the Circuit Court had
the power, in its discretion, to allow to the complainant,
Vose, his reasonable costs, counsel fees, charges, and
expenses incurred in the fair prosecution of the suit, and
in reclaiming and rescuing the trust fund and causing
it to be subjected to the purposes of the trust. The
allowances made for these purposes we have examined,
and do not find anything therein seriously objectionable.
The court below should have considerable latitude of
discretion on the subject, since it has far better means
of knowing what is just and reasonable than an appellate
court can have.” Trustees v. Greenough, 105 U.S. 527,
537 (1881) (Emphasis added.)
This circuit over the years has pointed out the considerations
that enter into the fixing of reasonable fees by the court. They
include 1) the value of the benefit rendered to the corpora-
tion or its stockholders, 2) society’s stake in rewarding at-
torneys who produce such benefits in order to maintain an
_ incentive to others, 3) whether the services were undertaken on
a contingent fee basis, 4) the value of the services on an
hourly basis, 5) the complexity of the litigation, and 6) the
professional skill and standing of counsel involved on both
sides. Denney v. Phillips & Buttorff Corp., 331 F.2d 249 (6th
Cir.), cert. denied, 379 U.S. 831 (1964); Pergament v. Kaiser-
Frazer Corp., 224 F.2d 80 (6th Cir. 1955); In re Detroit Int'l
Bridge Co., 111 F.2d 235 (6th Cir. 1940).
Denney presents a fact situation quite similar to the instant
case in' that no cash fund ever was developed from which
fees could be paid:
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Nos. 74-1110-16 Ramey, et al. v. Cinti. Enquirer, et al.
F
“The derivative action concerned the purchase by
respondent of 60,000 shares of stock, owned by the
trolling stockholders, in Wm. R. Moore Dry Goods
pany for $2,700,000. While the derivative
pending and before it was assigned for trial, the
and directors rescinded the purchase of the M
On the former appeal we held that the
stock, at least, constituted constructive fraud.
(officers and directors of the respondent ) to the
respondent interest on $2,700,000 from the date of the
commencement of the action to the date of rescission and
to fix attorneys’ fees for the petitioners. We held that
the fact that the defendants rescinded the transaction
before the court had an opportunity to pass upon the
merits of the case would not defeat the right of counsel
to compensation.
“The trial judge entered judgment for interest in the
sum of $40,800. Counsel for the respondent claim that
Hi
4
i
theory, counsel cite Southern v. Beeler, Atty.-Gen., 183
Tenn. 272, 195 S.W.2d 857. More relevant to the issue
in this case is Grant v. Lookout Mountain Co., 93 Tenn.
691, 28 S.W. 90, 27 L.R.A. 98. There the court
satin Pvetlonceen= Rigeemnn- athe Bow ntonco
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Ramey, et al. v. Cinti. Enquirer, et al. Nos. 74-1110-16
of the purchase of the Moore stock, or its resale, the trial
judge entered an order impounding $270,000 of the cor-
poration’s funds out of which attorneys’ fees might be
paid. This order was made without prejudice to the
contentions of any of the parties.
“The court granted judgment in favor of the petitioners
for $235,000 attorneys’ fees and for $6,227.98 expenses.
The trial judge found that the services were of vast pro-
portions and that they were effective. He took into con-
sideration the time spent by the lawyers, the complexity
of the legal questions involved, the results accomplished,
the professional standing of petitioners, and the profes-
sional standing of respondent’s lawyers. He viewed the
transaction in its entirety based upon all the facts in
the case. The judge also took into account the public
policy aspect to stockholders’ derivative actions, i. e., that
they serve a good purpose and should be encouraged
rather than discouraged.” Id. at 250-51.
The District Judge in the instant case found on substantial
evidence that this was difficult and complex litigation, that
the public had a stake in this and similar litigation, that the
lawyers on both sides were competent and of high standing
in their profession, and that plaintiffs’ lawyers had contingent
agreements that could not possibly compensate them (or en-
courage others) in relation to the services performed.
On the subject of amount of fees, the plaintiffs relied upon
three witnesses, Mr. Jerome Goldman, Mr. James D. St.
Clair, and Mr. Henry P. Jeffrey — all capable and experienced
attorneys of excellent reputation. Their opinions as to fees
earned in the subject litigation were $1,750,000, $1,500,000
and $1,250,000, respectively.
It does not appear to this court that the defendants ever real-
ly anticipated escaping from payment of substantial attorney
fees.5 They called as expert witnesses the Honorable Earl
5 The District Judge said on this point:
“As the Court understands it, there is no dispute among the
parties that the attorneys are entitled to fees. There is a
new. eR ee Pe ee eee IF PONE RMS Fa Cie MEF ee tei eke as SS eeeee Co ook ele
2 EE REPT IL INS BEN IL MERE LN EDD AED * NEE IS ON Pe Sr 2. a
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Nos. 74-1110-16 Ramey, et al. v. Cinti. Enquirer, et al.
Morris, former President of the American Bar Association, and
Mr. Thomas Conlan, a prominent member of the Cincinnati Bar.
Morris’ total estimate of an appropriate fee was just under
$400,000 and Conlan’s was $465,000. While the $750,000 award-
ed by the District Judge exceeds the defendants’ estimates,
it is approximately half of the plaintiffs’ claims. As we have
pointed out, the District Judge found that defendants’ bene-
fit from this litigation was substantial. He did not pin a
specific figure upon the benefit, but he had before him tes-
timony that would have allowed a finding of between $7,500,-
000 and $17,500,000. We find no abuse of discretion in the Dis-
trict Court’s award of the sum total of fees.
We have considered the subsidary argument between the
attorneys for plaintiffs in the consolidated cases, who had stipu-
lated to an equal division of fees between three firms rep-
resenting Ramey, Morelli and Harris, and attorney Mesh in the
Schoen case. Similarly, we find no abuse of discretion, and
no basis in law or fact for either setting aside or increasing
the ten percent of the total fee awarded to Mesh, the attorney
for plaintiff Schoen.
3) Prejudgment Interest
This court, however, finds no legal grounds for the $115,000
award of “prejudgment interest.” The District Court said:
“In fixing the amount of the award now the Court must
also take into account the fact that it should have been
fixed sixteen months ago, and would have been but for
the fact that the Enquirer’s application to have Scripps
pay part or all of the fee was delayed and much time
was taken to try to get the matter settled.
“As a result the Enquirer and AFC have had use of the
money, and, in that connection, a representative of AFC
testified that they expected to make 15% per annum from
dispute as to the amount to which they are entitled. In any
event we conclude that the applicants are entitled to substantial
fees and expenses herein.”
32a
Ramey, et al. v. Cinti. Enquirer, et al. Nos. 74-1110-16
their capital. The money paid into a fund at the Court’s
direction when AFC offered to buy the minority share-
holders has been on interest.”
We recognize that some courts have regarded prejudgment
interest as being justified by the need for adequate compen-
sation so as to make the injured party whole. See United
States v. Michael Schiavone & Sons, Inc., 450 F.2d 875 (1st
Cir. 1971); Louisiana & Arkansas Ry. v. Export Drum Co., |
359 F.2d 311 (5th Cir. 1966).
In the instant case, however, we feel that the attorneys
involved have been compensated amply for their services by
the District Judge’s fee award. Obviously, the District Judge
allowed fees based not on quantum meruit alone but in sub-
stantial part upon the favorable results of their labors. As
we have noted, he made no findings of fraud or overreaching
that might justify punitive damages. We find no evidence
of dilatory tactics or purposeful delay on the part of de-
fendants.
In the instant case the attorneys’ fees ultimately allowed
were not a liquidated sum or a sum certain until the entry of
the District Court’s judgment for fees filed on October 10,
1973. In a recent case the Ninth Circuit stated:
“True, claims for ‘reasonable’ attorneys’ fees, being un-
liquidated until they are determined by a court, are not
entitled to pre-judgment interest as would be certain liqui-
dated claims. But once a judgment is obtained, interest
thereon is mandatory without regard to the elements of
which that judgment is composed. Cf. United States v.
Michael Schiavone & Sons, Inc., 450 F.2d 875 (Ist Cir.
1971).” Perkins v. Standard Oil Co., 487 F.2d 672, 675
(9th Cir. 1973).
The judgment of the District Court is modified to allow
interest on the award of $750,000 in fees from October 10,
1973.
SETS ba ELIS CVAD ENG A TN A ONIN! LENE ET ES LEE SEE
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Nos. 74-1110-16 Ramey, et al. v. Cinti. Enquirer, et al.
4) Liability for the attorneys’ fees
We now turn to the question of whether the attorneys’ fees
can be awarded legally against any party other than the
Enquirer.
This appeal grows out of derivative actions filed on behalf
of the Enquirer by four of its minority stockholders. The En-
quirer itself was named as a nominal defendant, but the
real defendants were Scripps-Howard and individual officers
and directors of the Enquirer. As the Ramey complaint makes
clear, it was a corporate right of the Enquirer that the suits
sought to enforce:
“This action is filed on behalf of Enquirer for its bene-
fit and the benefit of its shareholders as a shareholder's
derivative action to enforce a right and cause of action
of Enquirer which should be enforced by said corpora-
tion, but on which said corporation refuses to act because
it is being prevented from so doing by the Board of Di-
rectors of Enquirer... .”
Thus it appears that this case presents typical derivative ac-
tions within the meaning of the conventional hornbook
definition:
“In legal effect, a stockholders’ suit is one by the corpo-
ration conducted by the stockholder as its representative.
The stockholder is only a nominal plaintiff, the corpora-
tion being the real party in interest.
“The suit is a derivative one, and is to be distinguished
from a representative action brought by a stockholder as
an individual and for his own benefit in behalf of himself
and other stockholders similarly situated. Where plain-
tiff does not seek to enforce relief for the benefit of the
corporation, it is not derivative and not a stockholders’
suit.” 13 W. Fiercuer, Private Corporations § 5939
(perm. ed. 1970) (footnotes omitted).
It is a general principle of corporate law that a minority
stockholder who proceeds at his own expense in a derivative
SSAC LAT RF BPE F ie a Tee:
Ramey, et al. v. Cinti. Enquirer, et al. Nos. 74-1110-16
action resulting in a substantial benefit to the corporation
is entitled to recover reasonable counsel fees from the corpo-
ration that has benefitted from his efforts. See 19 Am. Jur.
2d Corporations § 588, at 111 (1965); 13 W. Frercuer, Pri-
vATE Corporations § 6045 (perm. ed. 1970); 10 C. Wricut &
A. MiLuer, FEDERAL PRACTICE AND ProcepurE § 2675 (1973);
Annot., Litigation Expense — Corporate Charge, 39 A.L.R.2d
580, 583 (1955); Annot., Litigation Expense — Corporation
Liability, 152 A.L.R. 909, 914 (1914).
The cases make it clear that “(t]he obligation-to reimburse a
shareholder who brings a successful derivative suit is an ob-
ligation of the corporation.” Levine v. Bradlee, 378 F.2d 620,
622 (3d Cir. 1967). See Mills v. Electric Auto-Lite Co., 396 U.S.
375, 389-90 (1970) (assessing fees against corporation); Kahan
v. Rosenstiel, 424 F.2d 161, 167 (3d Cir.), cert. denied, 398
U.S. 950 (1970) (“In derivative suits . . . the corporation
which benefits from the suit . . . is directed to pay [attorneys
fees].”); Denney v. Phillips & Buttorff Corp., 321 F.2d 249
(6th Cir.), cert. denied, 379 U.S. 831 (1964) (assessing fees
against corporation). Counsel fees in such cases are not
awarded individually against other stockholders who may have
profited from the derivative litigation, but against the corpo-
ration. Speaking for the court in Jones v. Uris Sales Corp.,
373 F.2d 644, 648 (2d Cir. 1967), Judge Friendly explained
the rationale for this rule as follows:
“[T]he reason for the award of such fees in a stockhold-
er's derivative suit . . . [is] that the plaintiffs efforts have
conferred on the corporation a benefit for which the
corporation would otherwise have had to pay itself.”
The present derivative actions were filed by minority stock-
holders of the Enquirer, not by minority stockholders of
Scripps. There was no attorney-client relationship, derivatively
or otherwise, between Scripps and the attorneys representing
the four plaintiff minority shareholders.
i at a al ee Tek Bi a maps ners
Nos. 74-1110-16 Ramey, et al. v. Cinti. Enquirer, et al.
Absent a finding that Scripps or the minority stockholders
acted fraudulently or “in bad faith, vexatiously, wantonly, or
for oppressive reasons,” Hall v. Cole, 412 U.S. 1, 5 (1973),
there is no legal basis for awarding any part of the attorneys’
fees against the Scripps group or against the minority share-
holders. Under the controlling law set forth above, the entire
fee must be assessed against The Cincinnati Enquirer, Inc.,
the corporation whose stockholders initiated the derivative
action.
The fact that the Scripps growp and the minority stock-
holders profited from the sale of their stock at higher prices
than those provided in the original contract is no basis for
assessing against them any part of the attorneys’ fees awarded
to counsel who filed the derivative actions on behalf of the
Enquirer. Incidental benefits to Scripps or minority stock-
holders, in the absence of an adjudication of fraud or miscon-
duct on their part, does not justify a judgment against them
for any part of the attorneys’ fees. See Schleit v. British Over-
seas Airways Corp., 410 F.2d 261, 262 (D.C. Cir. 1969);
Preston v. United States, 284 F.2d 514, 515-16 (9th Cir. 1960);
Jett v. Merchants & Planters Bank, 228 F.2d 156, 159 (4th Cir.
1955).
Accordingly, the judgment of the District Court filed October
10, 1973, is vacated insofar as it awards any part of the at-
torneys’ fees therein adjudicated to be paid by any party
other than The Cincinnati Enquirer, Inc.
It appears that, pursuant to an order of the District Court,
$2.00 per share was withheld from the purchase price re-
ceived by some of the minority shareholders who accepted the
AFC tender offer. This fund was to be used for payment of
plaintiffs’ attorneys’ fees. In view of the foregoing opinion, it
6The only authority directly supporting an assessment against
Scripps and the ann shareholders appears to be one law review
article. Cole, Counsel Fees in Stockholders’ Derivative and Class Ac-
tions — Hornstein Revisited, 6 U. Ricumonp L. Rev. 259, 279-81
ee, Suffice it to say that we do not agree with the author’s
conclusions.
DI a aoe ae 7” Fe © ee a ee
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Ramey, et al. v. Cinti. Enquirer, et al. Nos. 74-1110-16
is clear that the sums so withheld must be paid to the share-
holders affected. To the extent, however, that AFC con-
tributed its own money to this fund, it may, if it wishes, make
this fund available for payment of the attorneys’ fees assessed
against the Enquirer, its wholly-owned subsidiary.
5) Scripps Cross-Claim
Scripps filed a cross-claim against the Enquirer on the basis
of pendent jurisdiction, seeking to recover $291,842.29 in
attorneys’ fees and other expenses incurred by Scripps in the
trial of these cases and $173,029.75 in attorneys’ fees and
other expenses incurred by Scripps in connection with the
application for fees filed by plaintiffs’ counsel. The District
Court declined to accept pendent jurisdiction of this; cross-
claim. We hold that the District Court did not abuse its
discretion in this respect.
6) Conclusion
The case is remanded to the District Court for further pro-
ceedings not inconsistent with this opinion, including modifi-
cation of the judgment of October 10, 1973, so as to require
payment by The Cincinnati Enquirer, Inc., of the fiees al-
lowed to the respective counsel, plus interest from October
10, 1973.
The costs of this appeal are taxed against The Cincinnati
Enquirer, Inc.
Re CL RETAIL OE LET BLAU L LIE ILENE ELI AEDIES LIL
re Re are
. 37a
APPENDIX D
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
Jean Wutrenouse Ramey, "9
’ Plaintiff
v.
No. 7704
Tue Cincinnati Enquirer, INC., ET
AL.,
Defendants J
ANGIOLINA MORELLI, 4
Plaintiff
v.
No. 7707
Tue Cincinnati Enquirer, INc., ET
AL., b
Defendants
ALBERT Harnris, \
Plaintiff
v.
No. 7720
Ricuarp D. ALDER, ET AL, :
Defendants D
Ceci. F. SCHOEN, A.K.A. CECILE FS
SCHOEN, etc., ET AL, .
Plaintiffs,
v.
No. 7734
Tue Cincinnati ENQuirer, INC., ET
AL,
LORE LAGS LL OLE LEO LOLI LLDPE LES SAL LONI ALL ron
\
38a
ORDER AND DECREE
The above-named cases came on to be heard on the joint ap- —
plications of the plaintiffs’ counsel in the consolidated cases of
Ramey, Morelli and Harris, and the separate application of
plaintiff's couusel in the case of Schoen, for an award of reason-
able counsel fees and reimbursement of their costs in this litiga-
tion, the Court. upon consideration of the evidence presented to
the Court in open hearings by all parties, the representations of
plaintiffs’ counsel at such open hearings, the applications for at-
torneys’ fees and expenses and the memoranda in support
thereof, as well as the memoranda in opposition thereto, and the
entire record heretofore made in this litigation, as well as the
record in case No. 5656, United States of America v. E. W.
Scripps Company, and being fully advised in the premises, finds
as follows:
1. That the attorneys for the plaintiffs have rendered valuable
legal services in this litigation, for which they should be reason-
ably compensated, and they have incurred expenses for which
they should be reimbursed, the respective amounts being here-
inafter set forth.
2. That the attorneys’ fees awarded herein, although less than
the amount requested by all of plaintiffs’ counsel, are fair, just
and reasonable in light of the moderate size of corporation in-
volved and its ability to pay, the nature and extent of the signifi-
cant services rendered, the unique and substantial benefits ac-
corded to The Cincinnati Enquirer, Inc. and its shareholders by
plaintiffs’ counsel’s efforts in this litigation, and the factors con-
sidered by the courts in the determination of attorneys’ fees in
such cases.
3. That the expenses for which reimbursement is ordered are
reasonable in amount and were necessarily incurred by plaintiffs’
attorneys in connection with this litigation.
4. That the defendant, The Cincinnati Enquirer, Inc., and all
of its shareholders, including the Scripps Group, have received
substantial benefits, both tangible and intangible, as a result of
39a
this litigation, and the payment of the award of fees and costs
should be allocated among those so benefitted.
WHEREFORE, IT IS HEREBY ORDERED, ADJUDGED
AND DECREED, THAT
1. The Scripps Group, The Cincinnati Enquirer, Inc. and
American Financial Corporation, on behalf of those Enquirer
shareholders who sold or exchanged their Enquirer shares with
AFC, as a result of its tender offer of February 18, 1971, shall pay
to the attorneys for plaintiffs reasonable attorneys fees and shall
reimburse them for their respective expenditures as follows:
Attorneys
A. Goldman, Cole & Putnick of
Cincinnati, Ohio, Attorneys
for the Plaintiff in the action
entitled, Jean Whitehouse
Ramey v. The Cincinnati
Enquirer, Inc., et al. No.
7704
B. Bauer, Morelli & Heyd, of
Cincinnati, Ohio, Attorneys
for the Plaintiff in the action
entitled Angiolina Morelli v.
The Cincinnati Enquirer,
Inc. No. 7707
C. Cors, Hair & Hartsock of
Cincinnati, Ohio, and
Pomerantz, Levy, Jaudek
and Block, of New York
City, Attorneys for the
Plaintiff in the action
entitled Albert Harris v.
Rilchard D. Alder, et. al,
No. 7720
Fees
$259,000.00
$259,50u.00
$259,500.90
Expenses
$12,225.70
$ 4,410.52
$ 5,403.29
40a
D. Gene L. Mesh of Cincinnati, $ 86,500.00 $13,076.45
Ohio, Attorney for Cecil F.
Schoen, aka Cecile F.
Schoen v. The Cincinnati
Enquirer, Inc., et al, No.
7734
Total $865,000.00 $35,115.96
2. The Court does hereby order that the payment of such
fees an‘1 expenses shall be made by the following corporations:
A. The Scripps Group is hereby ordered to pay $326,290.90.
B. The “incinnati Enquirer, Inc. is hereby ordered to pay
$393,333.60 of the fe . and $35,115.96 of the expenses.
C. American r:=acial Corporation is hereby ordered to pay
on behalf of those forme: “nquirer shareholders who as a result
of the AFC tender offer of February 18, 1971, sold their Enquirei
shares to AFC for cash (26,843% shares) the sum of $13,421.84 of
the fees and expenses.
D. American Financial Corporation is hereby ordered to pay
on behalf of those former Enquirer shareholders who, as a result
of the AFC tender offer of February 18, 1971, exchanged their
Enquirer shares for AFC securities (263,907% shares) the sum of
$131,953.66 of the fees and expenses.
3. The Court declines to accept pendent jurisdiction of the
counterclaim filed by the Scripps Group against The Cincinnati
Enquirer, Inc., in connection with the allocation of the attor-
neys’ fees and expenses.
4. This litigation is now finally dismissed as moot and with-
out reservation of jurisdiction.
5. The reasonable attorneys’ fees and expenses herein or-
dered, unless paid within one week from the date of this order
shall bear interest at the legal rate until paid.
United States District Judge
4la
APPENDIX E
_ UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
JEAN WHITEHOUSE RAMEY,
Plaintiff,
v.
Tue CincinNaTI Enquirer, INC., ET
AL.,
ANGIOLINA MORELLI,
Plaintiff,
v.
Tue Cincinnati ENguirer, INC., ET
AL.,
Defendants
ALBERT Harris,
Plaintiff,
v.
RicHarp D. ALDER, ET AL.,
Defendants
esececeenecaenceaneceneeaenee2eregeeere"
Crecu. F. ScHoEN, a.k.a. Cecite F.
SCHOEN, etc., ET AL.,
Plaintiffs,
Vv.
Tue CinciInNATI ENQuirerR, INC., ET
AL.,
OPINION
s
NO. 7704
NO. 7707
NO. 7720
NO. 7734
(ON APPLICATION FOR FEES)
42a
Porter, J.: This is the Court’s decision on the application of
counsel, for fees in four stockholder derivative actions. Three of
these will be referred to as the “consolidated cases.” They are
Ramey (7704), Morelli (7707), and Harris (7720). They were filed
October 4, 7 and 20, 1970, and were consolidated for trial. The
Schoen case (7734) was filed a little later. It will be referred to as
the “Schoen case,” and, for convenience, when reference is made
to all four, it will be as “the Enquirer case.’
Such “case” grew out of the attempt late in 1969 by the
Enquirer to buy the Enquirer, i.e., the corporation sought to pur-
chase the interest of the majority shareholders, the Scripps
group. The same offer made by the corporation to the Scripps
group was not made to the plaintiffs or other minority share-
holders.
The price was $17.5 million, with $1,026,748 cash and the rest
financed through Prudential Life Insurance Company in a very
complicated transaction, part of which was a loan bearing 12%
interest and the rest raised from the sale of preferred stock—or is-
suance of preferred stock—stock with so many features a serious
question was raised as to whether it was debt or equity. The sig-
nificance of that will be explained herein. Suffice it to say here
that the complexity of the financing cannot be fully appreciated
without at least a perusal of the pay statement and, for that
reason, a copy of it is attached.
In retrospect it may be said that it was inevitalle that one or
more derivative suits would be filed. One reason this can be said
is that the policy of the law is to encourage such actions. But the
main reason is that the Enquirer is an institution as well as a cor-
poration, and, as an institution, it has a history, though distin-
guished, not without dissension in the ranks of its stockholders.
Hence, though every aspect of the deal and proxy statement was
worked on with great competence and care, it came as no sur-
prise to either the Enquirer or the Scripps group that the consoli-
dated actions were filed before the scheduled shareholders’ meet-
ing to vote on management’s proposal that the Enquirer buy out
the majority shareholders.
Later (October 20) the Morelli case was filed; then Schoen (No-
43a
vember 2), and somewhere along the line still another case was
filed in Common Pleas Court. To have delayed a heai ‘ng on the
merits after the ones filed in this Court were at issue we td have
been to let the transaction go by default under a litigation escape
clause in the contract. Hence, the case was assigned for hearing
as soon as it was at issue and lasted over a period of two months,
greatly exceeding counsels’ estimate that it would take approx-
imately eight days. The questions presented were then briefed
and the case submitted on the merits.
At that advanced stage the Scripps group opted out under the
escape clause and took a better offer which did run to all share-
holders and not just a majority.
Applications for fees were made in due course and were sub-
mitted on evidence as to the nature and extent of the services,
expert opinions on economic benefit to the Enquirer which re-
sulted from the services, and also expert opinions as to the value
of the services. Then there was a hearing on the Enquirer's mo-
tion to require the Scripps group to pay all or part of the fees
eventually awarded.
The record before the Court includes taat of the main case. It
also includes, by agreement again, the record in Case No. 5656,
the civil antitrust suit by the government against E. W. Scripps
Company, which ended in a 1967 consent decree ordering
Scripps to divest itself of its interest in the Enquirer. Of course, it
includes eight days of testimony, oral argument, briefs and the
application and affidavits.
L
We turn to a discussion of the applicable rules and findings as
to all matters pertinent under such rules, conclude what the total
fee should be (page 21), find what percen age should be awarded
in the Schoen case (page 27), how the total should be allocated
among the stockholders, the Scripps group and the Enquirer
(page 28).
As the Court understands it, there is no dispute among the par-
ties that the attorneys are entitled to fees. There is a dispute as to
the amount to which they are entitled. In any event we conclude
44a
that the applicants are entitled to substantial fees and expenses
herein.
We begin the discussion of the applicable rules by quoting at
length, footnotes and all, from the latest Supreme Court case on
the subject. This is Hall v. Cole, US. (41
U.S.L.W. 4658, May 21, 1973), where the Court said the following:
I
Although the traditional American‘ rule ordinarily disfavors
the allowance of attorneys’ fees in the absence of statutory’ or
contractual authorization,® federal courts, in the exercise of their
equitable powers, may award attorneys’ fees when the interests
of justice so require. Indeed, the power to award such fees “‘is
part of the original authority of the chancellor to do equity in a
particular situation.” Sprague v. Ticonic National Bank, 307 U.S.
161, 166 (1939), and federal courts do not hesitate to exercise this
inherent equitable power whenever “overriding considerations
indicate the need for such a recovery.” Mills v. Electric Auto-Lite
Co., 396 U.S. 375, 391-392 (1970); see Fleischmann Distilling
Corp. v. Maier Brewing Co., 386 U.S. 714, 718 (1967).
Thus, it is unquestioned that a federal court may award coun-
sel fees to a successful party when his opponent has acted “in
bad faith, vexatiously, wantonly, or for oppressive reasons.” 6
Moore’s Federal Practice 1352 (1966 ed.); see, e.g., Newman v.
‘The American rule, it might be noted, is more restrictive than the general
rule that prevails in most other nations. See, e. g.. Ehrenzweig. Reimburse-
ment of Counsel Fees and the Great Society, 34 Calif. L. Rev. 793 (1966).
Many commentators have ed for a. “liberalization” of the American rule.
See, e. & Stoebuck, Counsel Fees Inchided in Costs: A Logical Development,
38 U. Colo. L. Rev. 202 (1966); Ehrenzweig, supra; Kuenzel, The Attorney’s
Fee: Why Not a Cost of Litigation?, 49 Iowa G. Rev. 75 (1963): McCormick,
Counsel Fees and Other nses of Litigation as an Element of Damages, 15
Minn. L. Rev. 619 (1931); ment, The Allocation of Attorney’s Fees After
Mills v. Electric Auto-Lite Co., 38 U. Chi. L. Rev. 316 (1971): Note, Attorney’s
Fees: Where Shall the Ultimate Burden Lie?, 20 Vand. L. Rev. 1216 (1967).
‘See, e. g., Clayton Act, § 4, 38 Stat. 731, 15 U.S.C. § 15; Communications
Act of 1934, § 206, 48 Stat. 1072 47 U.S.C. § 206; Interstate Commerce Act, §
16, 34 Stat. 390, 49 U.S.C. § 16 (2); Securities Exchange Act of 1934, § § 9 (e),
18 (a), 48 Stat. 890, 897, 15 U.S.C. § § 78i (e), perth
"See, e. g., Fleischmann Distilling v. M Co., 86 U.S. 714,
717 (1967); Hauenstein v. Lynham. 100 U.S. 483 (1880); Day v. W odworth, 13
How. (54 U. S.) 363 (1852).
45a
Piggie Park Enterprises, Inc., 390 U.S. 400, 402 n. 4 (1968); Vaug-
han v. Atkinson, 369 U.S. 527 (1962); Bell v. School Bd. of Pow-
hatan County, 321 F. 2d 494 (CA4 1963); Rolax v. Atlantic Coast
Line R. Co., 186 F. 2d 473 (CA4 1951). In this class of cases, the
underlying rationale of “fee-shifting” is, of course, punitive, and
the essential element in triggering the award of fees is therefore the
existence of “bad faith” on the part of the unsuccessful litigant.
Another established exception involves cases in which the
plantiff’s successful litigation confers “a substantial benefit on
the members of an ascertainable class, and where the court’s ju-
risdiction over the subject matter of the suit makes possible an
award that will operate to spread the costs proportionately
among them.” Mills v. Electric Auto-Lite, supra, at 393-394.’
“Fee-shifting” is justified in these cases, not because of any “bad
faith” of the defendent but, rather, because “[t]o allow the others
to obtain full benefit from the plaintiff's efforts without contrib-
"This exception has its origins in the “common-fund” cases, which have tra-
ditionally awarded attorneys’ fees to the successful plaintiff when his represen-
tative action creates or traces a “common-fund,” the economic benefit of
which is shared by all members of the class. See, c. g., Central Railroad &
i v. Pettus, 113 U.S. 116 (1885); Trustees v. Gr , 105 U.S. 527
(1882). In Sprague v. Ticonic National Bank, supra, the rationale of these cases
was extended to authorize an award of attorneys’ fees to a successful plaintiff
who, although on her own behalf rather than as representative of a class, nev-
ertheless established the right of others to recover out of ific of the same
defendant through the oe of stare decisis. In reaching this result, the
Court expiained that the iaries of the plantiff's litigation could be made
to contribute to the costs of the suit by an order reimbursing the plaintiff out
of the defendant’s assets from which the beneficiaries eventually would re-
cover. Finally, in Mills v. Electric Auto-Lite Co., supra, we held that the ration-
ale of these cases must logically extend, not only to litigation that confers a
monetary benefit on others, but also to litigation “ ‘which corrects or prevents
an abuse which would be prejudical to the rights and interests’ ” of those oth-
ers. Id., at 396, Bosch v. Meeker Cooperative Light & Power Assn., 257
Minn. 362, 367, 101 N. W. 2d 423, 427 (1960).
Citing our decisions in Mills and Newman v. Piggie Park Enterprises. Inc.,
supra, respondent contends that the award of attorneys’ fees in this case might
also be justified on the d that, by successfully prosecuting this litigation,
respondent acted as a “ ‘private attorney eneral’ vindicating a vert that
Congress considered of highest priority.” Newman v. Pi Park oo ip
pn ow at 402. See also Knight v. Auciello, 453 F. 2d 852 (CA1 1972); Lee
v. Home Sites Corp., 444 F. 2d 143 (CA5 1971). In light of our con-
clusion with respect to the “common benefit” rationale, however, we have no
occasion to consider that question.
46a
uting equally to the litigation expenses would be to enrich the
others unjustly at the plaintiff's expense.” Id., at 392; see also
Fleischmann Distilling Corp. v. Maier Brewing Co., supra, at 719;
Trustees v. Greenough, 105 U.S. 527, 532 (1882). Thus, in Mills v.
Electric Auto-Lite Co., supra, we approved an award of attor-
neys’ fees to successful shareholder plaintiffs in a suit brought to
set aside a corporate merger accomplished through the use of a
misleading proxy statement in violation of § 14 (a) of the Secu-
rities Exchange Act of 1934. 15 U.S.C. § 78n (a). In reaching this
result, we reasoned that, since the dissemination of misleading
proxy solicitations jeopardized important interests of both the
corporation and “ ‘the stockholders as a group,” the successful
enforcement of the statutory policy necessarily “rendered a sub-
stantial service to the corporation and its shareholders.” Mills v.
Electric Auto-Lite Co., supra, at 396. Under these circumstances,
reimbursement of the plaintiffs’ attorneys’ fees out of the corpo-
rate treasury simply shifted the costs of litigation to “the class
that has benefited from them and that would have had to pay
them had it brought the suit.” Id., at 397.
The Enquirer case falls under Mills v. Electric Auto-Lite Co.,
396 U.S. 375 (1970). As that implies, there was no bad faith.
It is next in order to note what the Court said in Sprague v.
Ticonic National Bank, 307 U.S. 161, 167 (1939), namely:
“.... As in much else that pertains to equitable juris-
diction, individualization in the exercise of a discretionary
power will alone retain equity as a living system and save it
from sterility... .”
Thus, each case stands on its own; the question of the amount
of fees is one addressed to the discretion of the Court; and the
Court is under a duty to carefully exercise such discretion. Ac-
cording to a leading article on the subject (Professor Hornstein,
“Counsel Fee Award,” 69 Harv. L. Rev. 658, 681 (1956), the gen-
eral rule about attorney fees in a stockholders’ derivative action
is that the amount is almost entirely within the discretion of the
*Mills v. Electric Auto-Lite Co., supra, at 392, quoting J. I. Case Co. v. Borak,
377 US. 426, 432 (1964).
47a
trial judge. The discretion is subject only to the limitation that
the award be fair and reasonable, and it is helpful to note that
there is a national average in this type of case after it has been
fully litigated of slightly over 20% of recovery made on behalf of
the corporation.
Though the Court has wide latitude in the exercise of its dis-
cretion, there are guidelines and we are controlled by those laid
down by the Sixth Circuit in Denny v. Phillips & Buttorf Corp.,
301 F. 2d 249, cert. den., 379 U.S. 831 (1964). There the Court
said the criteria in fee award cases are:
The amount and effectiveness of the services; The profes-
sional standing of plaintiffs’ attorneys; The standing of de-
fendants’ lawyers; The public policy that such suits serve a
good purpose and should be encouraged.
In addition the amount of recovery or economic benefit plays
an important part as well as the number and complexity of the
factual and legal problems.
Il.
FINDINGS ON MATTERS PERTINENT UNDER
THE RULES
The consolidated cases were initiated by complaints filed Oc-
tober 16, 20 and 26, 1970, and the pleadings in the cases as sub-
mitted were amended complaints of the plaintiffs and answers
filed thereto. By agreement of all parties except the Scripps
group at the commencement of the litigation a temporary re-
straining order was entered restraining consummation of the
agreement of acquisition of the Scripps-Howard stock by the En-
quirer as set forth in the proxy statement (but letting the October
23 meeting go ahead).
All defendants filed motions for summary judgment and mem-
oranda in support thereof, and there were opposing memoranda
filed on behalf of the plaintiffs. The motions were argued No-
vember 17, 1970, and the Court overruled the motions for sum-
mary judgment on November 18, 1970.
In preparation for trial counsel for the plaintiffs examined
thousands of documents in the files of the Enquirer, the account-
48a
ing firm of Peete, Marwick, Mitchell and Company, Cincinnati,
Ohio, and the Prudential Insurance Company of America in
Newark, New Jersey, and took depositions of various defendants
and accounting personnel.
The trial of the cases commenced November 18, 1970, and ter-
minated January 18, 1971, and involved 32 days of trial. The
transcripts of testimony consisted of 5,739 pages, and 352 exhib-
its were introduced. Briefs on the merits were filed simultane-
ously on January 27, 1971, and reply briefs on January 31, 197].
Under the consent decree issued November 12, 1968 in Case
No. 5656 in this Court the Scripps group described in the proxy
statement was required to divest itself of all of their 501,896
shares of Enquirer stock and the extended date by which they
had to make such divestiture was about to expire on February
11, 1971.
On that date the Scripps group refused to extend its contract
with the Enquirer to sell their stock to the Enquirer. The govern-
ment requested the Court in Case No. 5656 to require the
Scripps group to extend the contract. The Court refused. This
decision of the Court was entered while consummation of the
plan as set forth in the proxy statement was being prevented by
temporary restraining order and after the cases had been fully
tried, briefed and argued, and while the Court had the case un-
der submission.
On February 18, 1971, after the Court announced its tentative
conclusions, American Financial Corporation made an offer to
pay the Scripps-Howard group $40 per share in cash for 501,896
shares held by that group. This offer ran to all shareholders. It
was accepted February 19, 1971, and the total purchase price
has been paid to the Scripps-Howard group. The offer to other
shareholders was $40 in cash, or, in the alternative, at the share-
holder’s option, to exchange American Financial securities for
each share of Enquirer. Ainerican Financial Corporation ac-
‘quired 94% of the Enquirer stock and later forced a sale of the
rest, so it now holds 100% of the Enquirer stock.
The plaintiffs in the consolidated cases were represented by
the Cincinnati firm of Goldman, Cole and Putnick, a leading
49a
lawfirm of Cincinnati, Ohio, represented principally by Jerome
Goldman and Douglas G. Cole. Goldman has been in practice in
excess of 38 years and extensively engaged in corporate and busi-
ness matters. Cole has been in practice 23 years, and both have
been engaged previously in complex litigation.
In the Morelli case, the plaintiff's attorneys were Bauer,
Morelli and Heyd, a leading Cincinnati firm, represented princi-
pally by Arnold Morelli and Charles Heyd, both of whom were
former Assistant United States Attorneys with broad trial expe-
rience, Morelli having been an attorney for 19 years and Heyd
for 9.
Mr. Harris was represented by Cors, Hair and Hartsock, an-
other leading lawfirm of Cincinnati. Members of the firm who
were working on the case were plantiff’s son, Irving Harris and
William Kohlhepp. Harris had been involved in other litigation
of complex cases, having been a lawyer for 19 years. He was one
of the Attorneys in this case who was also in the Ohio Casualty
case referred to herein, and associated with them were the firm
of Pomerantz, Levy, Haudek and Block, of New York City, a
leading firm nationally in shareholder derivative suits, and on its
behalf Abraham L. Pomerantz, who has been in practice for 45
years and who is nationally recognized as an authority in share-
holder derivative suits and other complex litigation and who has
enjoyed great success in this field. Mr. Pomerantz was also in the
Ohio Casualty case.
The firm of Frost & Jacobs and the firm of Goldman, Cole and
Putnick were likewise engaged in the Ohio Casualty case.
At the outset Messrs. Pomerantz and Goldman could be
termed “lead counsel” with the others playing imporfant but
lesser roles. Mr. Pomerantz had to withdraw from actual partici-
pation in the trial after a week, though he remained active in co-
operation with Mr. Harris after that. Following Mr. Pomerantz’s
withdrawal, the burden fell on Mr. Goldman. All those who had
any part in this case must recognize not only that Mr. Goldman
was equal to the occasion, but his representation of the plaintiffs
required outstanding ability and physical stamina as well. In almost
25 years as a trial judge I have not witnessed anything like it.
The defendants, The Cincinnati Enquirer, Inc., and the indi-
Oa
vidual directors thereof, were represented by the firm of Frost &
Jacobs, another leading Cincinnati firm, and partners and associ-
ates who participated were the late John C. Egbert, John A.
Lloyd, fr., Dennis J. Barron, John Stith, and Robert A. Dimling.
The Scripps group was represented by the nationally known
Cleveland firm of Baker, Hostetler and Patterson (67 lawyers)
and principally represented by Richard F. Stevens, one of the
leading trial lawyers of the midwest, with 38 years experience as
a trial lawyer in professionally demanding cases. He was ably as-
sisted by H. Stephen Madsen and Sherman Dye, both expe-
rienced lawyers, and their local associate was James W. Hengel-
brok, of Gorman, Davis, Hengelbrok and Price, himself an
experienced trial lawyer.
In preparation for trial and discovery and in the actual trial of
the case, including conferences with the Court and preparation
and argument on motions, preparation of pleadings, briefs and
arguments, research and other activities, Goldman and Cole
spent 1505 hours and 10 minutes; Morelli and Heyd, 1037 hours
and 30 minutes; Harris, Kohlkepp and Glaser, 853 hours;
Pomerantz and others in his firm a lesser number.
Thus it can be seen that the amount of service was substantial
timewise. The Court also finds it was demanding from a profes-
sional standpoint because there were numerous questions and
some of them were extremely complex.
Next, it needs to be noted that the fees were contingent. Also,
the professional standing of all of the plaintiffs’ attorneys was of
the highest, and that is true of defendants’ lawyers as well.
This high standing was put to the test in this lawsuit, and all
counsel came through with flying colours, Plaintiffs’ counsel had
to make a quick analysis of a complex transaction. In doing so
and predicting its effects they had the benefit of the work of Mr.
William L. McGrath on many, if not most of the factual prob-
lems. Mr. McGrath, a highly successful businessman, was a direc-
tor of the Enquirer who vigourously opposed the transaction at
every turn and wrote letters, many of which were exhibits in the
“main case,” confirming his strong views.
Nevertheless, there was an inimense amount of work for
5la
plaintiffs’ counsel in getting around the many factual questions
involved, and as much, if not more, work on the legal questions
involved. Such questions were inherent in the transaction. The
purchase by a corporation of its own shares has a potential for
abuse, and restrictive legislation has therefore grown up to meet
the need to prevent such abuse. Hence, any time a corporation
attempts to purchase its own shares, especially on a shoestring,
the transaction has to be cast in a form which meets the legal re-
quirements and a number of extremely difficult questions in the
area of corporate law and finance arise. One restriction on pur-
chase by a corporation of its own shares is the Impairment of
Capital Statute, Ohio Revised Code 1701.35, which provides that
after such purchase the “debts” of the corporation must not ex-
ceed its assets plus “stated capital.” That explains why only so
much money could be borrowed from Prudential and the bal-
ance had to be raised by sale of preferred stock which could be
determined to be “equity” and not “debt.” In this case the pre-
ferred stock had warrants, voting powers, conversion privileges,
redemption and other rights, and a difficult and serious question
was presented as to whether, though cast in the form of “equity,”
it was not in law and in fact “debt.” If the shares were “debt,”
the assets of the Enquirer after the purchase of the Scripps shares
would not have exceeded debts plus stated capital as required by
ORC 1701.35, and the deal would have been illegal.
That was just one of many complex questions. Another in-
volved the corporate power and many others arose in connection
with the proxy statement and the claims that statements therein
were materially misleading. One of these was that it was not ac-
curate in its portrayal of the effect of the deal on the Enquirer's
ability to pay dividends and its dividend policy. Another was
that in describing the effect of the plan on the book value of the
Enquirer stock (proxy statement, p. 6) instead of a drop from plus
$15.42 per share to “none,” the proxy statement should have
shown a drop from $15.42 to minus $13.07.
To appreciate the ncture of the questions which arise when a
corporation proposes to purchase the interest of its majority
shareholders (and the offer does not run to all shareholders) a
52a
consideration of the literature on the subject is necessary. The
Court had to examine the literature in the main case to deter-
mine whether the Scripps-Enquirer deal violated the Ohio Im-
pairment of Capital Statute, ORC 1701.35. We found partic-
ularly helpful a 1966 article in the Fordham Law Review, Vol.
28, page 637, entitled “Share Repurchases under Modern Corpo-
ration Laws,” by Robert A. Kessler. More recent literature in-
cludes: Note: “The Current Law Regarding Reduction of Capi-
tal: Its Methodology, Purpose and Dangers,” 110 U. Pa. L. Rev.
732 (1962);Israels, “Corporate Purchase of Its Own Shares-Are
There New Overtones,” 50 Cornell L. Q. 620 (1965); Israels,
“Limitations on the Corporate Purchase of Its Own Shares,” 22
Southwestern L. J. 755 (1968); Zilber, “Corporate Tender Offers
for Their Own Stock: Some Legal and Financial Consid-
erations,” 33 U. Cinn. L. Rev. 315 (1964).
Texts considered include: Henn, Corporations (2d Ed., 1961),
§ § 175, 176, 335, 336; Townsend’s Ohio Corporation Law, Ch.
15, especially § 15.5; Fletcher, Cyclopedia of Corporations, in
which at § 2849, p. 370 is the statement:
“Most of the statutes now provide that the purchase may be
made only from surplus of one kind or another with varying
definitions of ‘surplus.’ ”
In note 43 it is observed that Ohio’s 1701.61 does not contain any
definition of “‘surplus.”
Not only is “surplus” not defined in Ohio, but neither is
“stated capital.” Since it can be manipulated, it simply reflects
the will of the majority of the shareholders (or the directors, if
they are authorized by the articles to acquire the corporation's
stock) as to what amount of capital is not available for acquisi-
tion by the corporation of its own shares and distribution to
shareholders of dividends. Thus, in the Enquirer case, by decid-
ing to change stated capital as proposed from $5 per share to $1
per share, the shareholders were saying in effect they chose to
embark on the proposed corporate venture and in order to do so
to completely change the capital structure of the Enquirer, elim-
inate the shareholders’ equity, change its stock from “safe” to
“risky,” and agreed to pay for the outstanding shares out of fu-
53a
ture earnings.
Another text is Cavitch, Ohio Corporation Law. In § 9.32(2),
p. 310, § 8.22, it is noted that stated capital is not defined in ORC
1701.01, though it is referred to extensively in 1701.30.
We also considered the commentary and the chapter on the
Model Corporation Act—the commentary to § 5, “Right of cor-
poration to acquire and dispose of its own shares.” This points
out that most statutes, like the Model Act, provide in substance
that a corporation’s own shares shall be purchased only out of
surplus except in special situations specified in the statute. And
of the many cases, one which we found noteworthy is Mountain
States Steel Foundries, Inc. v. C.1.R., 284 F. 2d 737 (5 Cir., 1960),
where an impairment statute similar to Ohio's was under the
glass.
This should suffice to underline that a proposed acquisition of
the Enquirer of its own shares, cast in the form it was, was not
only “thin” financially, but legally as well.
In addition to the questions discussed above, there were oth-
ers, most of which are discussed in the opinion of the Court in
the main case, and we turn now to an explanation of why the
opinion was announced, even though the case was moot.
For one thing, the lawyers had worked so hard they deserved
to know how they would have come out if the case had not been
mooted. More importantly, the decision was announced so that
the Enquirer (if the Enquirer decided to and was permitted to in-
tervene) could decide whether or not it was worthwhile to ap-
peal an order in Case No. 5656, United States of America v. E.
W. Scripps Company, which, of course, was the antitrust case in
which there was a consent order under which Scripps had to di-
vest itself of the Enquirer stock by a certain date. The divestiture
deadline was continued from time to time and after the Enquirer
case was submitted it was expected that Scripps would apply for
and obtain still another extension because of the pendency of this
litigation. However, during the litigation the Scripps group kept
its options open, i.e., entertained offers. When the Enquirer liti-
gation was over and the matter submitted to the Court for the
deciston, along came an offer (the Blue Chip Offer) for $35 a
54a
share. This ran to all shareholders (as distinguished from the En-
quirer offer which ran only to the majority shareholders). Scripps
decided not to ask for an extension (in 5656) of the time within
which it had to divest.
Earlier in 5656 the Enquirer tried to intervene in order to op-
pose a Scripps application for such an extension. It was ex-
tremely unlikely that the Enquirer would have been allowed to
intervene at the point when it attempted to do so. Before the
Court ruled thereon the Enquirer withdrew its application.
When Scripps decided not to ask for an extension of the time
within which it could divest, the government moved that Scripps
be compelled to go ahead with its contract with the Enquirer.
This was denied. The government decided not to appeal. It was
the Court’s view at that time that the Enquirer's position was
changed, and the Enquirer was practically invited to renew its
application to intervene so that if it desired to do so, it could ap-
peal the Court’s decision denying the government’s request that
Scripps be compelled to complete its deal with the Enquirer. It
did not ask to intervene.
That brings us to the issue of economic benefit.
There was testimony about this in the hearing on the appli-
cation for fees. There was also testimony in the main case which
bore indirectly on this, ¢.g., the testimony of Charles Sawyer and
William L. McGrath regarding the effect of the assumption of
the $17.5 million “obligation” (if not debt) on the ability of the
Enquirer to pay dividends or even survive. Hence, the con-
clusion was inescapable that much of the testimony on this sub-
ject in the hearing on the application for fees was cumulative.
As to economic benefit, while there is dispute, this much can
be said. If the Enquirer had purchased the Scripps shares, that is,
if the plan had not been restrained, the Enquirer would have
paid out $17.5 million in principal and would have lost the in-
come on investments owned by it which had to be liquidated to
apply on the purchase price of the stock in the sum of
$1,026,748. In addition, the Enquirer would have obligated itself
to interest payment on the loan of $15,975,000, and dividend
payments on preferred stock of $4,590,000, and payment of pre-
55a
miums on required preferred stock redemption of $600,000,
which payments would haye totaled $22,191,748, in addition to
the $17.5 million in principal previously stated. Also, as to eco-
nomic benefit, it can be said that the corporation, as Mr. Gold-
man contended, received nothing for the $17.5 million it paid for
its own stock, or would have paid. If the deal had gone through,
the Book value of the stock would have gone from plus to minus,
and it is probable the market value would have gone way down,
at least temporarily. An incidental benefit conferred on the
shareholders was that in the time it took to litigate Scripps kept
its option open, and along came the Blue Chip offer to all share-
holders for $35 a share, and the AFC offer to all shareholders of
$40 a share, the difference between $40 and $35 being about $2.5
million or more to Scripps alone.
Nevertheless, in fixing the fee we have not gone on the as-
sumption that there is an identifiable fund, such as the interest on
the obligation to Prudential. We have concluded that as far as
economic benefit and other ways this case’ is unique, and, while
we conclude that a significant service was performed by the ap-
plicants, and there is strong evidence of economic benefit, espe-
cially in the testimony of Mr. Sawyer and Mr. McGrath, we can-
not put a figure on it, though we can say it is substantial.
From all the foregoing it is clear that the attorneys (in the con-
solidated cases alone) have made a strong case to justify their
requests for $1.75 million in fees. But we must read practical
guidelines into Mills v. Electric Auto-Lite Co., 396 U.S. 375
(1970), and when we do, the Court concludes that the requested
allowances of counse! must be cut. We proceed to a discussion of
the reasons.
For one thing, we have taken into account that the annual in-
come of the Enquirer was only $2,049,161 for 1969 (after taxes)
and $2,319,638 for fiscal 1970. The Enquirer’s cash resources are —
roughly those of the downpayment or cash payment mentioned
herein. We are not saying this is controlling, but it seems appro-
priate to take into account the fact that the Enquirer, while not
a small corporation, was not a giant.
More importantly, while an economic benefit was conferred
;
iiiitiiestereicrneneieenencsieeenineniemetiianasinneiieesibiniemmetitie \"
56a
by the attorneys’ services, it was a “benefit” not wanted by most
of those “benefitted.” The vote to approve the purchase of the
Scripps shares was overwhelming. But for the case being mooted,
the proposal could have been resubmitted to the shareholders,
and, if approved, there would not have been any economic ben-
efit. We must conclude that most of the shareholders voted the
way they did because they thought it was a gamble worth taking
and because some wanted to keep the Enquirer locally owned
and independent. It must be remembered that in 1952 a similar
desire led employees and interested members of the community
to raise enough money to purchase the majority interest in the
Enquirer offered for sale by the McLean Est@te. This turned out
well for the shareholders, though they could not keep control be-
cause in order to finance the deal the purchasers had to give war-
rants, and it was these that the Scripps group purchased and
thereby eventually acquired the majority interest in the
Enquirer.
This time around it was management, as distinguished from
the rank and file, which spearheaded the effort to keep the En-
quirer independent and locally owned, but it was by having the
Enquirer buy the shares of the majority interest.
However, it is to be noted that the transaction would have
changed the Enquirer stock from “safe” to “risky” or “high le-
verage.” And the Enquirer-Scripps deal was accurately de-
scribed as “thin.” As stated by one of the Enquirer directors, it
was no deal for “widows or orphans.”
Next, another thing that was taken into consideration was that
while the applicants and their clients made no bones about the
fact they believed the proposed purchase by the Enquirer of the
ripps shares was ill-advised; in their reply brief they make
clear (page 4) that they do not claim that the various attorneys
for the defendants are evil men and would do something they
thought was wrong. They recognized the attorneys for the En-
quirer as highly respected and they had similar regard for the
Enquirer's accountants. But they did say that such attorneys and
" accountants made the mistake of looking on the proxy statement
not as an unbiased presentation of all the relevant facts but as a
|
57a
“selling toof” to persuade the common sharehoiders to vote for
the proposals, and plaintiffs thought management was interested
in perpetuating itself in power.
In fixing fees we have considered that while the plaintiffs may
not have withdrawn claims that management of the Enquirer
was trying to perpetuate itself in power (or at least some mem-
bers of management) and were personally motivated, such claims
could not be established. Nevertheless, it is probable that if the
plan had been resubmitted and approved, management would
have continued in the same hands, and in that event manage-
ment would have been perpetuated in power without having to
buy the Scripps shares themselves.
Speaking of motivation, we should not overlook the plaintiffs.
I can only conclude that one (Mrs. Ramey) was motivated in part
by old antagonisms. Mr. Harris thought some people might get
hurt and “Jerry [Goldman] needed help.” We did not require a
statement from Mrs. Morelli, a widow who has a language diffi-
culty and who was following the advice of her attorney-nephew.
In fixing the amount of the award now the Court must also
take into account the fact that it should have been fixed sixteen
months ago, and would have been but for the fact that the En-
quirer’s application to have Scripps pay part or all of the fee was
delayed and much time was taken to try to get the matter
settled.
As a result the Enquirer and AFC have had use of the money,
and, in that connection, a representative of AFC testified that
they expected to make 15% per annum from their capital. The
money paid into a fund at the Court's direction when AFC of-
fered to buy the minority shareholders has been on interest.
AFC bought the Enquirer aware of and without protecting it-
self by an indemnity agreement from having to pay this fee. AFC
did not make an offer until this suit was over.
The Court has not considered that the applicants caused the
AFC offer. On the contrary, some counsel tried to frustrate the
Scripps-AFC offer.
The Court concludes that the fee request should be cut and
fees in the Enquirer case should be in the amount of $865,000. Of
ISTE PE DEAT LAREN FE TIO LIP EE ONL DAIS LOG GOT SE He Net. Hist
58a
€
that amount $115,000 is included because in the Court’s view the
fee should have been fixed almost two years ago at $750,000, and
$115,000 should be allowed because AFC and Enquirer have had
use of that amount of money for this period, and their own repre-
sentative testified that AFC would have made almost twice that
amount on that amount of capital.
This is the total fee in all the cases. It remains to determine
how this should be divided among the attorneys. This presents no
problem in the three consolidated cases, because the Court is ad-
vised of the agreement among counsel “going in” that the fee, if
any, would be divided equally among the three sets of lawyers. It
is therefore only necessary to decide what proportion of the total
fee, if any, should be awarded for services in the Schoen case.
Il.
This determination of what share, if any, of the total fee
should be awarded in the Schoen case is difficult. It required
thorough analysis and requires complete candour.
The Schoen case was not consolidated with the other three,
but, instead, was tried simultaneously with them. Counsel in the
consolidated cases would not agree to any other arrangement for
the stated reason that to do so would make for “too many cooks.”
Lead counsel in the consolidated cases and counsel in the
Schoen case were no strangers to each other. In fact, counsel in
the Schoen case was formerly associated with Mr. Goldman and
was his client in a 10(b)(5) derivative case filed in this Court one
year prior to the Enquirer cases (the Ohio Casualty case). In that
Mr. Mesh shared with Mr. Goldman a percentage of Mr. Gold-
man’s one-third of the $600,000 fee approved by the Court,
though Mr. Mesh did not participate in the preparation for trial
which resulted in the settlement of the case. I think it is fair to
assume that Mr. Mesh’s experience in this type of case began
with the Ohio Casualty case, although Mr. Mesh was also associ-
ated with Mr. Goldman and took some depositions for him in the
case of Elder-Beerman v. Federated Department Stores, No. ,
United States District Court for the Southern District of Ohio,
Western Division, at Dayton.
pera 23s Oe
59a
From this.and what has happened since it is clear that Mr.
Mesh is rapidly gaining experience in the field of stockho'der de-
rivative and other commercial cases. Also it is clear that he is
willing and able financially to take the risks inherent in such rep-
resentation and dedicated along that line. But for some reasor it
is not possible for him and Mr. Goldman to pull in the same har-
ness. We conclude that Mr. Mesh’s interest and experience was
known to other lawyers even then, accounting for the referral of
the Schoen case to Mr. Mesh by Mr. Al Mechley, who will share
in the fee, if one is allowed.
It seems in order to first inquire whether the Schoen case
should have been filed. 1 cannot conc!ude that it should not have
been filed. It is clear that it would have been filed before it was if
the referral had come before it did.
The Morelli and Harris cases were “look alikes” to the Ramey
case. Schoen was different. Counsel in the Schoen case evidently
consulted experts to see what, if anything, had been overlooked
in the first three cases and concentrated his attack on such over-
looked issues and the request that the Schoen case be designated
as a class action (which it never was).
In any event, the Schoen case was tried simultaneously with
the others, submitted, and, while under submission, became
mooted like the others when the Scripps group exited via the liti-
gation clause in their contract with the Enquirer. The Court ren-
dered its tentative decision and counsel in the Schoen case made
several claims as to his part in bringing about this favorable
result.
Before proceeding to an examination of such claims we note
agreement with the contention of the defendants that counsel in
the Schoen case should only share in the total attorneys fee if he
helped bring about the favorable result. In the exercise of the
discretion to which applications such as this are addressed, the
Court must be alert to distinguish between legitimate corporate
derivative actions and strike suits, and to discourage the latter.
The standing of the legal profession and the integrity of the
courts requires no less. While the policy of the law is to encour-
age derivative suits in the interests of corporate “therapy,” ex-
a a a i Be i i ey
ia ce
60a
treme care must be taken in passing on applications for attorney
fees in this type of case, and nothing allowed if a case is more a
“strike” case than a legitimate derivative action. By the same to-
ken, if restraint in the filing of such action would have been more
appropriate, it is in order to scale down claims for attorney fees
otherwise allowable.
There is no suggestion by the defendants that the first three ac-
tions were not legitimate derivative actions, and, as shown by
the testimony of their own experts, the defendants recognize en-
titlement by the attorneys in those cases to fees.° Earl Morris, for
instance, recognized that the key to the question is the Court’s
decision and from that determined that the proxy statement was
not right, the method of submission was not right, and, therefore,
there was a therapeutic result. (However, in his view no fund
was created and no money benefit would inure to the Enquirer
or EWS.)
But as to Schoen the application of Schoen’s counsel for attor-
ney fees is not recognized by defendants as meritorious. In fact,
it is opposed vigourously by all defendants and by the lead coun-
sel in the consolidated cases as well.
Before considering what counsel in the Schoen case actually
did, we reject the following claims on his part: ~~
First, that he is entitled to points because he is the only one
who requested that his case be designated as a class action;
Second, that counsel in Schoen alone caused a rise in the mar-
ket value of Enquirer stock from $23 to $35 and thereby con-
ferred an economic benefit on the corporation and its share-
holders by killing the Enquirer-Scripps deal;
' Third, that it was due to counsel in the Schoen case that
Scripps kept its options open, particularly for an offer that ran to
the minority shareholders as well as the majority. In this con-
nection we must conclude that as a result of the research of their
own counsel, Scripps was well aware of every facet of the scope
of the fiduciary duty of the Scripps group as majority share-
holders;
*The fact that the case became moot does not affect the Court’s power to
award attorney fees. Globus v. Jaroff, 279 F. Supp. 807.
LI PIPER ie AE FLUE FY SR PR oy Oe Lh APONTE PAE Pa OW Ca
oe,
ae ale ad
poten r
6la
Fourth, that counsel in the Schoen case alone stopped the En-
quirer from paying a premium bribe to Scripps.
The heart of Mr. Mesh’s claim is that he was responsible for
recognition of the Court that there were “special circumstances”
and the deal was “high-leverage.” As to high-leverage, we fail to
see how this is any different from “thin” ard “no deal for widows
and orphans.” As to the case being one of “special circum-
stances,” this referred to the fact that the Enquirer was buying
the Enquirer, a situation which, as noted herein, had a potential
for abuse and was therefore one which required even more can-
dour about the nature of the deal and its possible effects than
contained in the exhaustive explanation to shareholders in the
proxy statement.
We pass to a determination of whether counsel in the Schoen
case did contribute to the successful result in all the cases—and,
if so, how.
First, we note that counsel in the Schoen case was cooperative
in limiting his participation in the trial to matters not covered in
the consolidated cases. It is also a fact that he worked hard and
long on the task of supplementing what the others did, and, with
the help of experts in the field, screening the work of counsel in
the consolidated cases to see what, if anything, was overlooked.
Necessarily Mr. Mesh’s services were not on the main frontals
of attack, e.g., the debt-equity question, impairment of capital,
and the claim that the proxy statement was misleading. He con-
centrated on such things as the claim that Scripps violated its
fiduciary duty as a majority shareholder by accepting an offer for
its stock which did not run to the minority shareholders (and in
other ways). In that connection it must be remembered that
Scripps had been in court for many years, was under an order of
divestiture, and must have been anxious to get the litigation be-
hind them. Also, the Court found in its decision there was no
breach by the Scripps group of their fiduciary duty to minority
shareholders and no premium bribe.
It did not seem at the time of trial that counsel in the Schoen
case was that much help on the main issues in the case. Further-
more, it complicated matters to have a fourth case and a lot of
q FERED Pripesccapses 0 OBO ES PR EETITUT PRETO OPE? (OR GREINER 19 6 CNET
62a
time logged by the attorneys in the consolidated cases who were
working on the main issues was in waiting around while the
novel issues were being litigated.
Nevertheless and notwithstanding, tie Court concludes that
counsel in the Schoen case should share in the total fee with the
attorneys in the consolidated cases. We must conclude that he
would have helped on the main issues if he had had a chance to,
and he did the only thing he could and that was concentrate on
the peripheral issues, and on these he worked long and hard in a
back-up role to see if anything was missed. We cannot conclude
that this was any less of a contribution than that made by those
in a supporting role in the consolidated cases.
As this suggests, if counsel in the consolidated cases had not
agreed among themselves upon the distribution of the fees, and it
had been left up to the Court, we would have awarded more
than one-third to Mr. Goldman.
For one thing, the fact that Mr. Mesh kept plugging contin-
ually in the Schoen case that the majority shareholders were civ-
illy liable if they accepted an offer for their stock which did not
run to all shareholders at least was a constant reminder to the
Scripps group of their exposure, though plaintiffs’ chances on
that point were appraised as slim.
The Court concludes that for his contribution counsel in the
Schoen case should get 10% of the fee allowed.
We have not overlooked that on cross-examination the expert
on behalf of Mr. Mesh testified that Mesh would be entitled to
nothing if unsuccessful in his contention that no premium bribe
was paid as contended by him, etc. Neither have we overlooked
that Mesh did not know how much of his total time was taken in
the pursuit of such matters.
IV.
ALLOCATION—AND PENDENT JURISDICTION
That brings us to allocation and pendent jurisdiction. Alloca-
tion is a lawsuit in itself.
The Court concludes this is a proper case for allocation, but
hastens to point out this is not because of any bad faith or the
<< wet reys COS Bs NCTE Pity” Gare "’ he al ee re a ee prin asa aM oes
63a
participation of the Scripps group in the preparation of the
proxy statement and agreements. They did indeed participate,
and their suggestions—eventually, at least—-were welcomed by
the Enquirer. There was no bad faith on their part, and the
Court so found. Nevertheless, the Scripps group occupied a
fiduciary position. They came out real well and the time it took
for this litigation worked to their great advantage in that a better
offer came along—one for $5 more per share and which took
them off the hook as far as exposure to claims that they were civ-
illy liable if they accepted any offer which did not run to the mi-
nority shareholders. Much more could be said, but that should
suffice to show why the Court concludes this is a proper case for
allocation. We therefore conclude that the Scripps group should
pay (toward fees and expenses) at the rate of 65¢ a share, for a to-
tal of $326,232.40 for their 501,896 shares. We also conclude the
former shareholders who were paid in cash were benefitted and
should contribute at the rate of 50¢ per share. There were 26,843
such shares, so this is a total of $13,420.50.
On behalf of the shareholders who converted to AFC secu-
rities, the Court concludes that they should also pay 50¢ per
share toward the fees and expenses. There were 263,907%ths
such shares, so the total should be $131,953. The balance of the
fees and expenses should be paid by the Enquirer.
Finally, the Court declines to accept pendent jurisdiction of
the counterclaim of the Scripps group against the Enquirer in
“connection with fees. The reason for so doing was aptly put by’
one of counsel for the Enquirer, and that is simply “enough is
enough.”
Entry accordingly.
United States District Judge
Jean Wurrenouse Ramey Civil Actions
vs. > No. 7704
Tue Cincinnati Enquirer, INc., ET AL., |
ANGIOLINA MorRELLI ™"
br > No. 7707
Tue Cincinnati Enourrer, INc., ET
AL., A
ALBERT HARRIS 3)
vs. > No. 7720
Ceci. F. Scuoen, a/k/a Cecue F. >
SCHOEN,
vs. S No. 7734
——P oon
THe Cincinnati Enguirer, INc., et
TRANSCRIPT OF PROCEEDINGS
Be Ir Rememperen that on Friday, February 12, 19711, at 3:00
p.m., the above-styled action came on for conference before the
Honorable David S. Porter, Judge of the United States: District
Court for the Southern District of Ohio.
CRRA FEEL LE TD! CLIN OLE IA
eT al n= Se
Fetal hein naieaeiietetes tien tietemta at Ue teat aah aera tas ea
65a
APPEARANCES:
On behalf of Plaintiff Jean W. Ramey:
Jerome Goldman, Esq.,
Douglas G. Cole, Esq.,
of
Goldman, Cole & Putnick
On behalf of Plaintiff Angiolina Morelli:
Arnold Morelli, Esq.,
Charles G. Heyd, Esq.,
of
Bauer, Morelli & Heyd
On behalf of Plaintiff Albert Harris:
Abraham Pomerantz, Esq.,
of
Pomerantz, Levy, Haudek & Block
and
Irving Harris, Esq.,
of
Cors, Hair & Hartsock
On behalf of Plaintiff Cecil F. Schoen:
Gene I. Mesh, Esq.,
Joel S. Moskowitz, Esq.,
of
Mesh & Moskowitz
On behalf of The Cincinnati Enquirer, Inc., and Enquirer
Enterprises, Inc.:
Dennis J. Barron, Esq.,
of
Frost & Jacobs
On behalf of the Defendant Board of Directors of The Cin-
cinnati Enquirer, Inc.: }
John A. Lloyd, Jr., Esq.
of
Frost & Jacobs
On behalf of the Defendant Scripps-Howard Group:
Richard F. Stevens, Esq.,
———
Baker, Hostetler & Patterson
and
James W. Hengelbrok, Esq.,
of
Gorman, Davis, Hengelbrok & Price
2
pee my iat Raita at vF —
*
—
67a
Tue Court: Gentlemen, we are here to try to do good. Unless
this is carefully conducted, and I am sure you all appreciate that,
it may do more harm than
is said here will be disclosed and no one participating in this per-
mit themselves to be interviewed and there are to be no dis.
closure unless on written permission of the Court with notice to
opposing counsel; that if disclosure has to be made to any party
or representative of the party, that person should be first sub-
jected to the protective order.
Mr. GotpMan: Would this prohibit disclosure to my partner
or to, say, Mr. Harris or Mr. Morelli? =
Tue Court: Actually, I thought they were going to berhere.
Mr. GotpMan: They would love to be present, Judge. May
they come up? They would love to be present.
Tue Court: Yes, I do not have any objection to that.
Mk. Stevens: Yes, Jim Hengelbrok, also.
Mr. Lioyp: Mr. Hobson also. He went back across the street.
Tae Court: You can see why I asked for spokesmen. I just
Cannot manage something on the proportions of fifteen or sixteen
lawyers.
Mr. Gotpman: Can they just be silent sitters?
Tue Court: Yes.
Tue Court: Surely, you have to talk about it among your-
selves to give advice.
Mk. Stevens: I really have to tell Mr. Dye and Mr. Madsen. J
don’t know it would have to go beyond that.
Me. Lioyp: We obviously have to tell Mr. Dale.
Tue Court: You agree with that?
Mr. Bannon: I think we would have to tell Mr. Hobson.
Mr. Gotpman: I think I would require any of my partners to
sign the agreement that they are bound by it.
68a
Mr. Barron: We will do that or tell them. I think we would
have to tell Mr. Hobson, who is a party, and—
Tue Court: He is also a member of the firm.
Mr. Barron: Yes.
Tue Court: I would consider your signature would bind any
member of your firm. You make the disclosure in view of that.
Mr. Barron: I think the only other person we would be con-
cerned about is whether it would include Mr. Dale, whether we
would be free to disclose to him because he is the president and
client.
« Mk. Srevens: Mr. Howard and Mr. Scripps, actually both of
them probably, but I am sure they could be subjected to the
order.
Tue Court: We have mechanics there as to how to subject
them to the order. If you just want to get something in writing
from them that they, pursuant to the Court’s order, that they
subject themselves.
Mr. Srevens: Well, I would undertake on behalf of Mr.
Howard and Mr. Scripps—I take it it is not necessary as to any of
my partners—to obtain a stipulation from them subjecting them-
selves to the order which would be presently signed.
Tue Court: Yes. Offhand, I do not see any need for any of the
plaintiffs—
Mr. Gotpan: I do not think they need to know.
Tue Court: —to get the information.
Mr. Gotpman: I will not disclose it to Mrs. Ramey.
Mr. Mesu: Nor will I to Mrs. Schoen.
(Thereupon, Messrs. Hengelbrok, Cole, Harris, Morelli,
Heyd and Moskowitz entered the room.)
Tue Court: This covers these gentlemen. I did not mean any
offense in excluding you. In fact, I did not mean to exclude you. I
just mecnt by advising spokesmen were to be selected that there
be spokesmen selected so we could keep this within manageable
limits.
The first order of business has been the consideration of a pro-
tective order, the substance of which is all parties in this confer-
ence agree and they are ordered not to disclose to anyone except
69a
their partners what is said by anyone, including the Court here,
and they not permit themselves to be interviewed.
We are here to try to do good; and, if we do not watch our
step, we are going to do more harm than good. That is the reason
for this precautionary step. Maybe I ought to sign it, too, as a
participant and a judge.
(Laughter.)
Mr. Lioyp: Your Honor, we understand under the order we
will be free to disclose the happenings here to our partners in the
firm?
Tue Court: Yes.
Mr. Lioyp: And to Mr. Hobson and Mr. Dale.
Tue Court: But your signature to this subjects them to this.
Mr. Lown: All of these people, it subjects them.
| Tue Court: Your problem on mechanics is the same as Mr.
i
i
Stevens, as far as Mr. Dale is concerned. Even though he is of
counsel in your firm, unless it is agreed that your signature will
i bind him, also, in view of the fact that he is of counsel as well as
president and publisher.
Mr. Luoyn: I think we could do that.
Tue Court: What do you think?
Mr. Lioyp: I feel we can.
Tue Count: Is there any objection?
Mr. Go_pMan: There is none.
Mr. PoMERANTz: No.
(Thereupon, all counsel as listed on the appearance page
signed the protective order.)
Mr. GoLpMan: Your Honor, shall Mr. Pomerantz make an oral
motion?
Tue Court: As I understand it, you withdrew on the record?
Mr. Pomerantz: Well, that is substantially accurate. I have to
say “substantially,” because the fact of the matter is that, as I
stated at the time, it was my wife’s illness which brought me
back to New York. But the fact is, also, that I did kind of—well,
~.actively or certainly substantially contribute to the ensuing
events.
I was in almost daily touch with counsel in Cincinnati, and I
2 eae ee BB ore
70a
won't take time to tell you the extent of my participation, so that
I have never really regarded myself as being out of it, other than
the day-to-day participation in the trial.
But let me, nonetheless, your Honor, in view of the area of
doubt that is involved, and I confess there is some ambiguity
about my status, make a formal application for leave to be read-
mitted to active participation in what remains of this lawsuit,
which I take it is probably not very much and yet might be very
critical.
In that connection may I make these just few brief remarks to
indicate why I got back into the thing at all.
Last week one day Charles Keating telephoned to suggest to
me that he had an offer to make. I am not going to tell you about
the offer now, because I am aware of your admonition not to
state anything that might embarrass the situation, except to.say
it was a proposal, a proposal which I felt would moot the issue in
this case if acceptable all around.
I called the Department of Justice and spoke to Mr. Pearson
and to Mr. Poole and narrated what I understood to be this pro-
posal to them. Then as a consequence of that, I found myself in
touch with Mr. Stevens, having learned there had meanwhile
been another proposal about which you are aware, the Blue
Chip proposal.
Mr. Lioyp: Your Honor, may I object for the record to Mr.
Pomerantz’s re-instatement and to the proceeding at the present
time wherein he is making this statement preliminary to what
your Honor has said—
Tue Court: Do you object to him being re-admitted to the
case in view of the development?
Mr. Barron: Yes, I do.
Mr. Pomerantz: Under the circumstances, may I be permit-
ted to continue my application in usual fashion, reserving your
right to object until after I have made my affirmative presenta-
tion, which I will try to do very briefly?
It would seem to me the time to oppose an application is after
it has been made, not during its process, if it be made.
Tue Court: Well, it might suffice to just, without disclosing
a wr UE RPP UL TEE EP ET es
71a
anything—I do not know what prejudice could result; but, if
there is any doubt about it, without disclosing who called or
what was said or anything of that nature, you did get back in the
case?
Mr. Pomerantz: Yes. And just to bring it up to date in three
or four more sentences, I must confess in all fairness that I am re-
sponding and I am doing two things at once.
Now I am telling you why I am back in the case, and I am also
answering some rather intemperate and I think rather uncalled
for observation about my reappearance in the case by the gentle-
man who just interrupted my remarks, so let me say, your Honor,
with a minimum of detail, let me point out why I am here,
which I will do; two things to point out.
I am not kind of jumping back on the bandwagon at the elev-
enth hour on the one side and then on the other side at the meet-
ing which I suggested, which was a meeting I suggested in all
good faith and without the overtone from innuendos that have
been surrounding it and the names that have been called in con-
nection with it.
After I spoke to Mr. Stevens and learned from him what the
situation was and with his consent on it and after I spoke to the
Department of Justice and after I spoke to Mr. Goldman and Mr.
Morelli and after I spoke to everybody in this situation, except
for The Cincinnati Enquirer—and I will come back to that in a
moment—I then called your Honor to suggest that I felt we had a
situation here where this litigation was terminated. This was the
thrust ofany remarks to your Honor.
Now, I must confess that at that time I had no idea in the
world that there would be any conceivable objection on the part
of The Cincinnati Enquirer, and that is why I did not call Frost
and Jacobs.
I might add to that that the basis for my feeling was it was per-
fectly clear to me, so I thought—I could be wrong—that the
client of Mr. Stevens had every contractual right to terminate
the arrangement, which in fact is what he did formally in the let-
ter which went out, I am told, yesterday I think it was or today.
So that then when the matter was suggested, and pursuant to
2 a, CO oe .
2
—— OI POR BL ORE! OY OS CM ES OE EME TeS Mae hI
OTE LN tia EAPO RS NOE Bo SC) 7S ANREE LOCI kA NRBEY CP II fh
72a
your Honor’s request, we called everybody, including Mr. Lloyd.
Tue Court: Excuse me. You should in fairness put on the rec-
ord when you called me you said you were calling with the ap-
proval of Mr. Stevens, Mr. Goldman, Mr. Morelli and everybody.
And I had every right to assume that “and everybody” includes
Frost and Jacobs, and that is why I talked to you.
Mr. Pomerantz: If your Honor says that is what I said, I have
no doubt of it.
Tue Court: Well, we made notes of it. | am not saying you in-
tended to mislead the Court, but that was the result. And
frankly, I have been embarrassed by the situation.
Mr. PoMERANTz: Let me say to your Honor, if I said “every-
body,” then I certainly said “everybody” as far as my thinking at
the time was concerned. It was everybody who was interested in
the resolution of the controversy, because I had no means of
knowing that The Cincinnati Enquirer had taken any position
back in New York. The corporation in these cases, your Honor,
as you know, in every derivative action are generally people for
whose behalf the action is prosecuted by the plaintiff stock-
holders.
Tue Court: My experience in this area is limited, but it just
seems to me wide the mark where the corporation is the pur-
chaser. I could not see how there could be peace. What you sug-
gested was maybe there was peace and a meeting would help
promote that. I could not possibly see how there could be peace
in this situation unless The Enquirer was in on it.
Mr. PoMERANTz: Well, my answer to that, as I conceived it at
the time and I might add as I still conceive it, your Honor, is that
whenever Mr. Stevens’ client said, “We are terminating this
deal,” that’s the end of this litigation. I am not going to debate
that. He may be open to a lawsuit by The Cincinnati Enquirer
for having breached his contract, and that is between one side
and the other. But your Honor, the way I view this matter, we
are seeking to enjoin a contract.
Mr. Barron: Your Honor, we simply made an objection for
the record.
Tue Court: i think this is getting way afield.
FER FRR LI INE Pa IN REET BE ODE Ae NOTE AIT LMR A MG IO IO ITTY LS TE SEITE IN NG
essere will
SPR ETERS oo
een Sen er oe ee eos
73a
Mr. PoMERANTZ: May I just respond to that?
Mr. Srevens: If I may interrupt, your Honor, this is doing
exactly what I think your Honor decided would not be done. He
is speaking to the subject of mootness, and I believe it has noth-
ing to do with whether he should be admitted or not admitted to
appear in this case.
Mr. Pomerantz: I am not going to address myself beyond say-
ing because I have been 46 years as a lawyer, and I have been at-
tacked for unethical conduct, and all I am now submitting to
your Honor is, if | have beén wrong, it has been a failure to com-
municate. There couldn't have been anything improper intended
because, if there were, would I misrepresent Mr. Lloyd and then
invite him to the ceremony for the purpose of having him expose
my misrepresentation? I would be all kinds of a fool to debate
that.
Now, I am not going to debate mootness with you. I am going
to say, (A), I ought to be re-admitted to active participation in
the case; but, (B), should that application be denied, if what I
have done in that situation should be ethically improper, I think
my application should not be seriously entertained. I submit,
however, I have done nothing improper. At worse, it is a failure
to communicate.
I felt then and I feel now that what I said was correct; that on
the basis of these developing facts, this litigation was finished.
That was the purpose of the meeting which I sugested we call.
Now, I am done with my remarks. I am not arguing mootness.
Tue Court: I want to show on the record you did apologize to
the Court in a subsequent phone conversation.
Mr. PoMERANTz: I did, sir.
Tue Court: Not by way of admitting that you did anything
wrong, but I think you certainly recognized that the Court was
misled and maybe you didn’t intend to mislead the Court, but I
was sure as heck misled.
Mr. PoMERANTz: I recognize that.
Tue Court: I want you to know that he apologized. I know
the letter was strongly worded, and I am sure the sentiments
were strongly felt; but there were some assumptions in there—I
a RECAP ERE FIAT OE FELONY EDEN Tae A DTD EE PRS LOTT EN VERA
74a
mean, you recognized that your assumptions might not be cor-
rect, and that is the reason I wanted it on the record about the
apology and why I talked to him in the first place.
I would not have talked to him, unless I made a mistake which
I do very easily, unless I thought it had, as he said, the approval
of quote “everybody.”
Mr. Lioyp: We understand that, your Henor, no problem.
Tue Court: I am in enough trouble.
Mr. Stevens: I think the Court, if the Court please, I should
add in the one conversation I had with Mr. Pomerantz that I
have no recollection of agreeing to his calling a meeting or in-
dicating in any way that there was agreement among the parties
to the litigation to settlement.
I do recall he spoke to me, said he wanted to call the Court,
asked if I objected. I said I did not.
I did tell him only shortly prior to his call, which was around
noon on last Tuesday, that we had dictated over the phone the
press release which Mr. Howard issued and that I thought prior
to his talking with the Court it would be helpful if he had the in-
formation in that press release so that he would know specifi-
cally who the offerer was and what the terms were of the offer.
Beyond that, I do not have any additional recollection.
Mr. PoMERANTz: That is a perfectly accurate statement of our
conversation.
Tue Court: Well, I am going to grant the motion. I do so be-
cause you have a good reputation in this court and in cases also
that involved Frost and Jacobs—only you were on the same side
that time.
I think Mr. Pomerantz played a role of leadership in getting a
settlement in the Ohio Casualty case after two months of in-
tensive discovery and a number of meetings and calls. I think
everybody has participated in this case with honor.
I have to say in all frankness, as I indicated in my letter, that if
you don’t make peace among yourselves, I do not think you are
going to be able to do the job in this case that you did in Ohio
Casualty because I think The Enquirer attorneys are key attor-
neys in this and, if you are not getting along with them because
a
s Bie Sees
75a
you have been calling each other names—
Mr. Gotpan: I think we will get over this because they hap-
pen to be very good friends of mine, and I think they will get
over this momentary time of temper.
Tue Court: As I understand it, the only thing you want to
take up in the presence of the Court, at least, is this matter of
what the decision is tentatively, considering the case is not moot.
It may be moot at the moment. I consider it a distinct possibility
that either on or after the appeal from yesterday’s order in 5656
that Scripps may be ordered to re-instate the contract, and I can
see how it might be helpful to counsel in deciding whether to
urge the Government to appeal, whether to pursue further litiga-
tion which would make peace an impossibile achievement.
You might want to know how this. case lines up with the trier
of the facts. AmI right? = *
Mr. Barron: Yes, your Honor.
Tue Court: You do not want to do anything but that today?
Mr. Barron: That is corréct, your Honor.
Te Court: Hopefully, we will get beyond that and get to the
peace table later, but I donot see how you can unless you know
what the tentative decision of the Court is if the case is on ap-
peal or after appeal not moot because Scripps is ordered to re-in-
state its contract with The Enquirer.
I sent the law clerks out in the hall to tell you other than that I
did not want to discuss moothess because I did not think it was
the time. ;
I want it distinctly understood that this is tentative, and I re-
peat for emphasis it is not for publication. It is a broad outline of
what the Court concluded on the main and critical issues of the
case. We are still working on it,
I reserve the right to change my mind on any conclusion or
finding that I indicate now that I tend to hold.
My conclusion, the injunction against the acquisition by The
Enquirer of its own shares owned by Scripps should be continued
and made permanent unless within a reasonable time it is dis-
solved on motion and for good cause shown if two-thirds of The
Enquirer shareholders qualified to vote approve the write-down
ELROD ON LM OP NIE LOND Sane ICS
ee te aC ene
TGa
of the stated capital of preferred shares which the Court finds
Prudential has agreed to purchase for $6 million.
As this implies, the Court has concluded that the shortcut pro-
posed by the three-cornered arrangement of having the shares is-
sued to Scripps in exchange for 171,432 shares of Enquirer stock
and simultaneously sold to Prudential for $6 million must be
viewed by considering substance over form; and, when it is, we
conclude that the shares were purchased and not exchanged.
I concluded that this three-cornered arrangement is impermis-
sible in what I think of as the special circumstances of this case.
By that I mean that this is a situation where a corporation is re-
purchasing its own shares in the hands of the majority and/or
controlling shareholder, without making the same offer to minor-
ity shareholders and with no restriction being required by Ohio
law against the use of capital created by sich write-down in the
stated value for the purpose of reacquiring its own shares.
Now, by mentioning the purchase and exchange issue first, I
do not mean to imply that there may not have to be a resubmis-
sion to the shareholders on proposal number one if Scripps is or-
dered on or after appeal to re-instate its contract with The En-
quirer. More about that later.
Next, The Enquirer prevails on the debt-equity issue. In other
words, the Court has determined that the preferred shares are
equity and not debt.
On the issue of whether or not the plan nevertheless violates
the impairment of capital statute, the Court has concluded that
it does not. “Impairment of capital statute” is a misnomer, for
the statute expressly allows a corporation to purchase its own
shares in certain instances, of which this is one, even out of capi-
tal. With two-thirds shareholder approval, Ohio allows any pur-
chases from capital (or a lesser percentage down to a majority, if
articles so provide). Such purchases are permitted from any type
of surplus if two-thirds of the voting shareholders approve or if
the articles of incorporation so permit, provided formalities are
complied with.
Hence, we have concluded that almost any corporation may
purchase any of its shares out of any type of surplus, no matter
Riise cis —
77a
how created. Specifically, we have concluded that “reduction
surplus,” the result of a write-down of stated capital, would be
available for share purchases and the Ohio statute is generous in
allowing a reduction of “stated capital” in any case by a two-
thirds vote of the affected shareholders.
Surplus thus created is expressly made “capital surplus” (un-
der Section 64 of the Model Act) and hence is available for share
repurchase, and I assume the same is true in Ohio.
Next, The Enquirer articles of incorporation do not, in their
present form, authorize the corporation to repurchase its shares
without the approval of two-thirds of those qualified to vote on
such proposal because, at the very least, the proposed plan
“could” “impair capital” as that phrase is used in the articles.
That phrase is not used in 1701.35.
In other words, “impairment of capital,” as used in the articles
does not mean that by use of diverted capital The Enquirer
“could” comply with the law by writing down the stated capital
of its common and the preferred shares.
1701.35, although it was apparently intended to protect share-
holders as well as creditors, affords minimal protection against
repurchase with shareholder approval of its own shares out of
any capital, including capital created by write-down of stated
capital.
Next, now, that brings us to the 10(B)5 question. I might de-
viate from the script a little to say I was impressed with the
credibility of the authors of the proxy statement and in general
the completeness and fairness of the presentation of the plan and
effects of the plan. But here again, I think the special circum-
stances, as I referred to before, enter the picture and have the ef-
fect of requiring or holding that there are certain material omis-
sions and maybe one or more misleading statements.
This may not be the correct way to put it, but the way it oc-
curred to me when I was dictating these notes was on the 10(B)5
question the Court would find on resubmission of the plan to the
shareholders for approval several things should be done. For one,
I note and I do not have the page. I know you know the one I am
referring to in the proxy statement because it is explanatory of
78a
the effect of the plan on shareholders’ equity. It just seemed to
me there shouldebe: a statement such as the one in the earlier
draft of the proxy statemént to the effect that the approval of the
plan would cause thé elimination, at least temporarily, of the
common shareholders’ equity.
Next, it seemed to the Court in the president’ s letter or in the
outset of the proxy statement there should be a disclosure (re-
quired by fiduciary duty) that there is a conflict between the in-
terests of management and some of the directors in retaining lo-
cal control of The Enquirer under the present management, and
their duty to see that the minority fare as-well ag possibly finan-
cially under the divestiture order. My tentatiye.conclusion along
this line, or another Aciittative conclusion along this line, is that
there should be a statement in any resubmitted proxy statement
to the effect that m adoption of the plan would change the
stock from “safe” to “risky,” or at least that the plan is “high le-
verage” or “risky.”
It remains to be decided whether or not, as contended by the
plaintiffs, the Directors should be required to make a recommen-
dation to the shareholders as te whether or not the plan is fair
and equitable.
It remains to be decided whether the proxy statement is mis-
leading in any other respect or whether or not there are any
other material omissions.
I will vary from the script here to say a lot of the sub-
paragraphs in paragraph 20 of the Ramey complaint were di-
rected to the accounting treatment in the proxy statement
throughout the trial, maybe understandably there were charges
of bad faith. I felt that the statement in the plaintiffs’ reply brief
was such that all those charges have to be reviewed in the light
of that statement, “that these men who worked on this were hon-
— =
vi able men.
They may not have overlooked some opportunities to make
the statement look good. There was no pattern of intent to de-
fraud or anything of that nature which emerged to this trier of
the facts as a result of the testimony, quite the contrary.
In general, I would not find any of those misleading in a 10(B)5
79a
or 14A9 sense; though, it did seem to the Court that some op-
portunities were not overlooked to make the statement look
good. That is not as strong a statement as the plaintiffs’ that it
was turned into a selling document, but it just seemed to me in
the context of what I have referred to as the special circum-
stances in this case that complete candor was required, which is
very hard to achieve I realize.
I am not changing the rules. I am thinking of it in what is ma-
terial in the way of omission or what might be misleading in the
way of something that was presented. In other words, I see that
these special circumstances very much enter the picture in the
Court's determination what is a material omission in this proxy
statement.
It remains to be decided whether or not in the proxy state-
ment there should be a statement that the dividend policy may
be jeopardized, even though there is a regulation against predic-
tion. I am not sure this would prevent a gloomy prediction; and I
aim not sure, in all frankness, if the matter is resubmitted it
should not be said that the risk is involved. It may be proper in
that connection to say management thinks the risk is one that is
worth taking.
I would have to say it remains to be decided whether any
other changes should be made. In other words, whether there are
any material omissions in view of the Court’s conclusion that the
special circumstances in this case are what they are. This is not
the ordinary situation, but one with problems which are peculiar
because the purchase is by a corporation of its own shares and
because the problem is acute because the shares being acquired
are the controlling shares.
I find no evidence of conspiracy or breach of fiduciary duty on
the part of the Directors or breach of fiduciary duty on the part
of the majoriiy shareholder to the minority shareholders. How-
ever, this does not foreclose reexamination of the contention that
the majority shareholder breached a fiduciary duty to the minor-
ity shareholders if the case is reopened to include evidence that,
after the close of the trial of the case, an offer was received
which constituted an “alternate” to the offer of The Enquirer. I
80a .
find no alternate existed prior to that.
I find no causation between the plan and the drop it in the
market.
I conclude there is no legal requirement on the part of The
Enquirer to make the same offer to the other shareholders.
I find that the $35 figure was a fair value and no premium was
paid. : |
I would overrule without considering the motion for a motion
for directed verdict in favor of the outside Directors because that
matter is before the Court on the merits, and I would prnnenn to
find in favor of said defendants.
The Court finds The Enquirer has power to acquire the
Scripps’. shares, but there must be no question on resubmission
about the propriety of the exercise of such power.
As I have indicated, all that remains to be done is put this de-
cision in the form which the law quires; and I said in the letter
that takes time. If in the process I change my mind on any of
these things, I reserve the right to do so.
It would be a mistake to construe what I have done here as an
invitation to further argument or to think that this is opened up
to questions as to why I did this or why I did it. Those are my
tentative conclusions. They are revealed in the hope that the dis-
closure will be helpful. ae
Mr. PoMERANTz: It will be.
Mr. STevens: Thank you, your Honor.
Mr. Lioyp: I wonder, before we break, if I might hear again
the first paragraph?
Tue Court: You may get a inert
Mr. Luoyp: I wasn’t aware of that.
(Thereupon, the conference came to a close.)
8la
CERTIFICATE
IN THE UNITED STATES DISTRICT COURT .
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
Cincinnati, Ohio
This is to certify that the foregoing transcript of proceedings
in the matter of
JEAN WHITEHOUSE RAMEY
vs.
THe CINCINNATI _Enqumer, Inc., eT |
AL.,
ANGIOLINA MORELLI
vs.
THE CINCINNATI ENQUIRER, INC., ET
AL., ; é
RICHARD D. ALDER, ET AL.,
eee te ee ee et ie
>) Civil Actions
\
> No. 7704
>, No. 7707
-
82a
Ceci, F. ScHOEN, A/K/A CECILE F. bz
SCHOEN,
vs. > No. 7734
Tue Cincinnati ENguirer, INC., ET
on the 12th day of February, 1971, before the Honorable David
S. Porter, Judge of the United States District Court for the South-
ern District of Ohio, is a true and correct transcript thereof.
Lysbet P. Hoffman
Official Court Reporter
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.