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Lewis v. S.L. & E. Inc.

decided: October 8, 1987.

DONALD E. LEWIS, PLAINTIFF-APPELLANT, CROSS-APPELLEE,
v.
S.L. & E., INC., ALAN E. LEWIS, LEON E. LEWIS AND RICHARD E. LEWIS, DEFENDANTS-APPELLEES, CROSS-APPELLANTS



Appeal and cross-appeal from a final judgment of the United States District Court for the Western District of New York, John T. Curtin, Chief Judge, awarding damages and attorneys' fees to derivative suit plaintiff and defendant S.L. & E. Affirmed in part, vacated and remanded in part.

Meskill, Kearse, and Altimari, Circuit Judges.

Author: Kearse

KEARSE, Circuit Judge

In this appeal, their fourth trip to this Court in this stockholder derivative suit, the parties attack a final judgment of the United States District Court for the Western District of New York, John T. Curtin, Chief Judge, which, inter alia, (1) awarded the corporate defendant S.L. & E., Inc. ("SLE"), $129,919.88 against the individual defendants to remedy their waste from 1966 through 1972 of the assets of SLE; (2) out of this sum, awarded disbursements to plaintiff Donald E. Lewis ("Donald") and fees to his attorneys; and (3) evaluated Donald's shares in SLE, after SLE's net recovery herein, at $19,531.74 and, in return for payment of that amount, ordered Donald to transfer his shares to a company related to SLE, pursuant to a 1962 shareholders' agreement. Donald has appealed, contending principally that the court erred in calculating SLE's injury, in failing to award prejudgment interest on the $129,919.88 actually awarded, and in determining the attorneys' fees to be awarded him. Defendants, including SLE, have cross-appealed, contending principally that the individual defendants did not waste the assets of SLE, that the court awarded Donald too much in disbursements and attorneys' fees, and that the court should have imposed sanctions on Donald pursuant to Fed. R. Civ. P. 11. We find merit only in the contention that the district court erred in not requiring the individual defendants to pay prejudgment interest to SLE on the amount awarded to remedy their waste of its assets.

BACKGROUND

This action was commenced in 1973. Its pertinent history through trial is set forth in Lewis v. S.L. & E., Inc., 629 F.2d 764 (2d Cir. 1980) (" Lewis II "), familiarity with which is assumed. In Lewis II, we determined that the individual defendants, who were shareholders and directors of SLE, bore, and had failed to sustain, the burden of proving that the rent they caused their other corporation to pay SLE for use of the latter's building was fair and reasonable, and we remanded the matter to the district court

(a) for the entry of judgment in favor of SLE against [the individual defendants], jointly and severally, in such amount as the district court shall determine to be equal to the amounts by which the annual fair rental value of the [SLE] Property exceeded $14,400 in the period February 28, 1966-June 1, 1972, (b) for an accounting as to the value of Donald's SLE shares as of June 1, 1972, in light of such judgment, (c) for an order, following such accounting, of specific performance of the shareholders' agreement, and (d) for such other proceedings as are not inconsistent with this opinion.

629 F.2d at 773.

Following the remand, the district court conducted further proceedings and entered a nonfinal judgment further proceedings and entered a nonfinal judgment dated January 9, 1984 ("1984 Judgment"), which, inter alia, ruled that the total amount by which the fair rental value of SLE's property exceeded the rental set by the individual defendants was $129,919.88. The 1984 Judgment was not final because (a) it did not determine how much should be deducted from that amount for an award to Donald as attorneys' fees for the successful prosecution of the derivative suit, and (b) it did not, therefore, finally determine the value of Donald's shares. Notwithstanding the lack of finality, both sides immediately appealed, with Donald contending that the district court's monetary awards were too low, and defendants contending that there had been no waste of SLE's assets and that the district court's monetary awards were too high. We dismissed that appeal for lack of appellate jurisdiction. In so doing, we pointed out one aspect of the 1984 Judgment that was plainly flawed, and we stated that the parties' other contentions appeared to have no merit. Lewis v. S.L. & E., Inc., 746 F.2d 141 (2d Cir. 1984) (" Lewis III ").

Following that dismissal, the district court conducted proceedings with regard to attorneys' fees and entered a judgment dated January 8, 1987 ("1987 Judgment"), which finally concluded the litigation (and corrected the flaw pointed out in Lewis III). These appeals followed.

Discussion

In their present appeals, both sides have revived the arguments they made in Lewis III and have attacked the court's rulings on attorneys' fees. We have reviewed all of their arguments and find no merit in any of their challenges other than Donald's challenge to the failure of the 1987 Judgment to include an award to SLE of prejudgment interest on the $129,919.88 by which the individuals had caused SLE to be underpaid rent for the period 1966-1972.

Section 5001(a) of the New York Civil Practice Law and Rules ("CPLR"), which governs in this diversity action, see Spector v. Mermelstein, 485 F.2d 474, 481 (2d Cir. 1973), provides that prejudgment interest

shall be recovered upon a sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property, except that in an action of an equitable nature, interest and the rate ...


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