Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

MESSING v. FDI

November 3, 1977

Messing, et al., plaintiffs
v.
FDI, Inc., et al., defendants


Stern, District Judge.


The opinion of the court was delivered by: STERN

In this derivative action, shareholders of FDI, Inc., charge violations of the Securities Act of 1934, 15 U.S.C. §§ 78(a) et seq. Specifically, they seek relief based on Rules 14a-9 and 10b-5, 17 C.F.R. §§ 240.14a-9 and 240.10b-5, promulgated under 15 U.S.C. §§ 78b and 78j(b), respectively, predicated on the alleged fraud of some of the directors and the alleged negligence of the remaining directors. Plaintiffs also assert pendent state law claims of negligence, fraud, waste, and breach of fiduciary duty. At issue now is the question whether the defendant directors may share counsel with the corporation, which appears as a nominal defendant. Also before the Court are the motions of one of the defendants to dismiss cross-claims which have been asserted against it.

 Some of the numerous defendants in this action are charged with negligence in connection with this merger; others with outright fraud. The allegations of fraud are leveled against defendants Braun, Gregg, Peltz and Pearl. Prior to the merger, defendants Braun, Gregg and Peltz (the "insiders") served as directors of Filter; defendant Pearl was a member of the defendant law firm Katten, Muchin, Gittles, Zavis & Galler (the "Katten firm"), general counsel to both Filter and Rayco. It is alleged that defendant Pearl and the insiders controlled 42% of the stock of Rayco and that, as a result of various transactions not relevant here, they had personally assumed in excess of two million dollars of Rayco's liabilities. Thus, it is alleged, these defendants helped bring about the merger for the purpose of simultaneously ridding themselves of their control of Rayco and their consequent personal indebtedness.

 The other defendants are charged with negligence in failing to detect that fraud. Specifically, it is alleged that the remaining directors of Filter, defendants Carr, Palmer, Cole and Stillman (the "outsiders") failed to act with due diligence when they approved the merger of Filter and Rayco. Also charged with negligence for their participation in the merger is the Katten firm, and defendants Prescott, Ball & Turben ("PBT"), and Joseph Miller and Russell, two investment firms engaged by Filter and Rayco, respectively, to opine on the fairness of the proposed exchange ratio.

 I. Motion of PBT to Dismiss Cross-claim of FDI.

 Although named as only a nominal defendant, FDI has taken an active role in this litigation by asserting in its own right a cross-claim against PBT. The first two counts of this cross-claim seek indemnification from PBT in the event that plaintiffs prevail and the exchange ratio at which FDI shares were issued is deemed to have been unfair. The third and fourth counts allege, respectively, negligence and breach of contract arising out of PBT's alleged failure to maintain adequate documentation of the manner in which it approved the suggested exchange ratio was fair.

 The portion of FDI's cross-claim against PBT which seeks indemnification from PBT in the event that plaintiffs prevail must be dismissed for failure to state a claim upon which relief can be granted, under Rule 12(b)(6), Federal Rules of Civil Procedure. *fn1"

 Plaintiffs seek no recovery from the corporation. Quite the contrary. Any determination that the exchange ratio was unfair will inure to the corporation's benefit, not to its detriment. If plaintiffs prevail, the corporation prevails; for the corporation, although a nominal defendant, is the real plaintiff in this action. Therefore, this Court perceives no basis for any claim of indemnification by FDI against PBT.

 Counts three and four of the cross-claim stand on a different footing and do state a claim. The allegations contained in these counts state an independent basis upon which the corporation may recover in its own right should it be found that PBT breached a duty to FDI, contractual or otherwise, to maintain records of the manner in which it arrived at its recommended exchange ratio, and that FDI was injured thereby.

 Accordingly, PBT's motion is granted as to counts one and two of FDI's cross-claim; it is denied as to counts three and four.

 II. PBT's Motion to Dismiss Cross-claims of Defendants Pearl and the Katten Firm.

 Defendants Pearl and the Katten firm have asserted a cross-claim for indemnification against PBT for any and all sums for which they may be found liable. This cross-claim must be dismissed for failure to state a claim upon which relief can be granted under Rule 12(b)(6), Federal Rules of Civil Procedure.

 This cross-claim is premised on the notion that defendants Pearl and the Katten firm were, if anything, "passive" tortfeasors while PBT was the "active" tortfeasor. *fn2" However, defendants Pearl and the Katten firm could be held liable in this action only if they are found to have been in some way culpable. *fn3" Indemnification lies only where a party free from fault is required by operation of law to answer for the fault of another. See, e.g., Tormo v. Yormark, 398 F. Supp. 1159, 1176 (D. N.J. 1975). Since defendants Pearl and the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.