Appeal from an order of the United States District Court for the Southern District of New York (Robert W. Sweet, Judge ), dismissing a derivative action as to Plaintiff pursuant to Fed. R. Civ. P. 41(b) for Plaintiff's failure to post security. Affirmed.
Before Oakes and Meskill, Circuit Judges, and Bonsal, District Judge.*fn*
On December 30, 1974, Randolph Phillips instituted this derivative action against Alleghany Corporation ("Alleghany") and certain of its directors, alleging violations of the federal securities laws, the Investment Company Act, the Interstate Commerce Act, and state laws relating to fiduciary duties of directors. The district court dismissed certain of the claims, but left outstanding two claims under the federal securities laws and one state claim alleging a breach of fiduciary duties. It further held that Phillips could represent Alleghany pro se. Phillips v. Tobin, 403 F. Supp. 89 (S.D.N.Y.1975). This holding was appealed and we held that Phillips, acting pro se, could not properly represent Alleghany in a derivative action because he was not an attorney. Phillips v. Tobin, 548 F.2d 408 (2d Cir. 1976). Thereafter, Judge Sweet granted Phillips' motion to substitute the present plaintiff, Simon V. Haberman, holder of 10 shares of Alleghany stock, as derivative plaintiff. On November 13, 1978, Alleghany moved for an order requiring Haberman to post security for costs pursuant to Rule 2 of the Civil Rules for the Southern and Eastern Districts of New York ("Local Rule 2") and Section 627 of the New York Business Corporation Law ("Section 627").
By order filed April 17, 1979 ("the April 17 order"), Judge Sweet directed Haberman to post security in the amount of $100,000 and directed Alleghany to furnish Haberman with a shareholders' list "for the sole purpose of enabling plaintiff to seek to join as additional plaintiffs other Alleghany shareholders so as to avoid the necessity of posting security pursuant to (section 627) and this Order." The order further provided that Haberman's failure within 60 days to post security in the amount of $100,000 or to move for intervention of shareholders to meet the requirements of Section 627 "shall constitute good cause for the involuntary dismissal of this action."
Within the 60 days, but more than four years after the action was instituted, Haberman acquired shares of Alleghany stock having a market value in excess of $50,000, that being the amount specified in Section 627.*fn1 Because of this acquisition, Haberman moved to be relieved from the April 17 order directing him to post security in the amount of $100,000. Alleghany cross-moved for an order dismissing the action for Haberman's failure to comply with the April 17 order.
By opinion dated September 27, 1979, Judge Sweet held that Haberman's purchase of Alleghany stock after the action was instituted did not meet the requirements of Section 627 and the April 17 order. Haberman v. Tobin, 480 F. Supp. 425 (S.D.N.Y.1979). Judge Sweet dismissed the state claim and required that an appropriate notice be sent to the holders of Alleghany stock. Thereafter, Haberman moved for reargument, which motion was denied.
Judge Sweet, by order filed October 19, 1979 ("the October 19 order"), directed Haberman to post a bond pursuant to Local Rule 2 in the amount of $10,000 within 15 days as a condition of his prosecuting the federal claims. The order stated that his failure to do so "shall constitute good cause for the involuntary dismissal, with prejudice, of this action." Haberman failed to post the $10,000 bond.
On October 26, 1979, Haberman applied for an order permitting him to deposit $100,000 in United States Government obligations to serve as security with regard to both the federal and state claims. By order dated November 8, 1979 ("the November 8 order"), Judge Sweet directed that
"Upon deposit by plaintiff of $100,000 with the clerk of the court by November 15, 1979, plaintiff's state claims will be reinstated, and the deposit shall be deemed good and sufficient security to meet all of this court's requirements under Rule 2 and section 627 with respect to both Federal and state claims alleged in the amended complaint herein."
The order further provided that
"plaintiff shall pay defendants the reasonable attorney's fees and court costs incurred by defendants in filing and litigating the July 2 motions to dismiss, in preparing the order entered by this court on October 19, 1979, and in responding to plaintiff's application to set aside the dismissal of the action."
Haberman failed to post the security by November 15, 1979. At a hearing held on November 16, his counsel informed Judge Sweet that Haberman would not post the security.
By order filed December 13, 1979 ("the December 13 order"), Judge Sweet dismissed the derivative action as to Haberman pursuant to Fed.R.Civ.P. 41(b) and directed that notice be sent to Alleghany stockholders advising them of the dismissal and their right to intervene in the action within 30 days to preserve their rights.*fn2 In addition, Judge Sweet awarded attorneys' fees and disbursements in the amount of $1900 to Alleghany and $250 to the ...