decided: December 14, 1978.
DAVID SEIGAL AND ETHEL SEIGAL, PLAINTIFFS-APPELLANTS,
DAVID MERRICK, DEFENDANT, AND WILLIAM T. GOSSETT, WILLIAM R. HEARST, JR., WARREN HELLMAN, H. BLACKMER JOHNSON, JOHN H. JOHNSON, WILLIAM C. KEEFE, RALPH F. LEWIS, MALCOLM A. MACINTYRE, HARRY MCINTYRE, JOHN T. POLLOCK, DENNIS C. STANFILL, GORDON STULBERG, GERALD TRAUTMAN, JOHN L. VOGELSTEIN, DEFENDANTS-APPELLANTS, AND TWENTIETH CENTURY-FOX FILM CORPORATION, DEFENDANT, AND MURIEL KOBY, GEORGE ROSEN AND SANDRA SACHS, INTERVENORS-OBJECTORS-APPELLEES. HARRY GEHLER, PLAINTIFF-APPELLANT, V. WILLIAM R. HEARST, JR., H. BLACKMER JOHNSON, JOHN J. JOHNSON, WILLIAM C. KEEFE, MALCOLM A. MACINTYRE, JOHN T. POLLOCK, RALPH LEWIS, DENNIS C. STANFILL, GORDON STULBERG, GERALD A. TRAUTMAN, WILLIAM T. GOSSETT, DEFENDANTS-APPELLANTS, AND DAVID MERRICK, DEFENDANT, AND TWENTIETH CENTURY-FOX FILM CORPORATION, DEFENDANT, AND MURIEL KOBY, GEORGE ROSEN AND SANDRA SACHS, INTERVENORS-OBJECTORS-APPELLEES.
A settlement was reached in a stockholder derivative suit and presented to the District Court (Hon. Constance Baker Motley) pursuant to F.R. Civ. P. 23.1. The court refused to approve the settlement. Appeal was taken. A motion to dismiss was made by the corporation involved and by a stockholder-objector on the ground that the order was not appealable. The Court of Appeals held that the order refusing approval of the settlement was a non-appealable interlocutory order. Motion to dismiss appeal granted.
Before Lumbard, Moore and Gurfein, Circuit Judges.
Both the plaintiffs and the defendant-directors in two stockholder derivative actions brought on behalf of Twentieth Century-Fox Film Corp. ("Fox") appeal from an order of the District Court (Hon. Constance Baker Motley, Judge ) Refusing approval of a stipulation of settlement under F.R.Civ.P. 23.1. The settlement that was disapproved by Judge Motley involved the granting of options, which were restricted in certain ways, to defendant-directors at a certain striking price, a consideration being paid for the options. The objectors attacked the settlement as illusory and unfair to Fox.
Fox and objectors to the settlement have moved to dismiss the appeal on the ground that the order of the District Court refusing to approve the settlement is not an appealable order. Fox contends that appellants, by the terms of the stipulation, have waived their right to appeal. The objectors add that the order, even without regard to the stipulation, is not a final order. 28 U.S.C. § 1291. We hold that the refusal of the District Court to approve a settlement in a stockholder derivative action is not appealable under § 1291.
The question is one of first impression in this circuit. On its face the order is clearly not a final order within the literal meaning of 28 U.S.C. § 1291, for the order did not result in a judgment that would terminate the proceeding. Catlin v. United States, 324 U.S. 229, 65 S. Ct. 631, 89 L. Ed. 911 (1945). Nor did appellants seek an order from the District Court under 28 U.S.C. § 1292(b) certifying that the non-appealable order involves a controlling question of law.
The only ground upon which appealability may conceivably be premised is the collateral order doctrine of Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528 (1949). In that well-known case, the question was whether a federal court, having jurisdiction of a stockholder derivative action through diversity of citizenship, must apply a statute of the forum state which made plaintiffs post security for costs and certain expenses as a condition to suit. The District Court had decided that the state statute was not applicable to an action in the federal court. 7 F.R.D. 352 (D.N.J.1947). The Court of Appeals thought otherwise and reversed. 170 F.2d 44 (3d Cir. 1948).
The Supreme Court held the decision appealable because it
appears to fall in that small class which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated. . . .
We hold this order appealable because it is a final disposition of a claimed right which is not an ingredient of the cause of action and does not require consideration with it.
337 U.S. at 546-47, 69 S. Ct. at 1225-26.
Significantly, the Court added:
But we do not mean that every order fixing security is subject to appeal. Here it is the right to security that presents a serious and unsettled question. If the right were admitted or clear and the order involved only an exercise of discretion as to the amount of security, a matter the statute makes subject to reconsideration from time to time, appealability would present a different question.
337 U.S. at 547, 69 S. Ct. at 1226.
Thus, Cohen decided an important categorical question of federalism which, because it could arise only at the threshold of litigation, had to be reviewed before final judgment if ...
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