Whitman v. Fuqua

561 F. Supp. 175, 1983 U.S. Dist. LEXIS 18308
CourtDistrict Court, W.D. Pennsylvania
DecidedMarch 24, 1983
DocketCiv. A. No. 82-516
StatusPublished
Cited by3 cases

This text of 561 F. Supp. 175 (Whitman v. Fuqua) is published on Counsel Stack Legal Research, covering District Court, W.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Whitman v. Fuqua, 561 F. Supp. 175, 1983 U.S. Dist. LEXIS 18308 (W.D. Pa. 1983).

Opinion

OPINION

ROSENBERG, District Judge.

This matter now before me is for a possible final determination of the above entitled matter. Its feature question presented by the joint motion is for approval of the payment of attorneys’ fees and expenses to the extent of approximately $1,458,000.00.

Presumably it requires a determination of a multiform and bitter contest between the plaintiff, Martin J. Whitman, and the defendants, J.B. Fuqua, Joseph P. Kazickas, Robert Redfearn, William F. Rockwell, Jr., Don N. Stitt, and The Cyprus Corporation, over the control of operations of The Cyprus Corporation.

Two simple questions, only, had been presented before this court in two different cases: the first was in Whitman v. Fuqua et al., No. 82-28 (W.D.Pa.1982). The plaintiff was successful in challenging the defendants before an election of The Cyprus Corporation, a non-diversified close-end investment company registered under the Investment Company Act of 1940, 15 U.S.C. § 80a-5. Not only was the plaintiff successful in challenging the proxy notices but was also successful in the campaign which followed after the entry of an order of this court for the election, including himself, of four directors to represent the preferred stockholders as against the opposition candidates. The opposition candidates for the election of directors to represent the common stockholders were not challenged.

The second question presented in this second and subsequent action against the same defendants brought by the plaintiff was challenged also successfully in having an ultra vires meeting held at Fort Lauder-dale, Florida, by the hold-over directors and officers a few days after the election in an effort to circumvent the election by cancel-ling out the failure of two amendments to the constitution which the stockholders voted down to convert this non-diversified, close-end investment company into a speculative corporation; and to deprive the newly elected directors of the power to participate in the control of The Cyprus Corporation for the future.

I made findings of fact and conclusions of law in Civil Action No. 82-28, and these I now incorporate in and make a part of this opinion. Whitman v. Fuqua et al., 549 F.Supp. 315 (W.D.Pa.1982).

Thus, only two questions were presented to this court. In the first case one related to proxies and election, and in the second case, now, a question of the payment of fees of attorneys and expenses to a total of 58 attorneys.

From this action in the Western District of Pennsylvania, two other branches developed into one action by the defendants in New York and a second action by the defendants in Delaware. Both the actions in New York and Delaware are not a part of this record, and the only relationship this court has with those actions is because of the courtesy of counsel in sending it copies of the complaints. I found no basis as of that time, upon receipt of the copies of the complaints, nor do I find any reason now, for the entry of either of these actions, [177]*177except for the purpose of the hindering, injunctive proceedings filed in those other jurisdictions.

In order to approve payment of fees and expenses to so many lawyers in an action such as this, who seek to take a part of the wealth of the owners of preferred and common stock, simply because a large fund is available in the treasury of the corporation, requires a concern for the owners of these shares of stock who were not in actuality represented in this court. Here we have two hostile factions embracing in a harmonious consent to pay without question what the attorneys claim.

The Cyprus Corporation maintains its principal management offices at Two Chat-ham Center, Pittsburgh, Pennsylvania. It deals primarily with investments in stocks, bonds and other financial instruments. These are principally conservative, highly-liquid investments which provide steady income without speculation or great risk of loss. Cyprus was incorporated in the State of Delaware on April 27, 1973, for the purpose of carrying on the business of a management investment company and to do all those acts and activities in which it may be lawfully engaged. Over a period of time the corporation has issued approximately 2,400,000 shares of preferred stock, and 34,-000,000 shares of common stock.

Rockwell with his partisan associates acquired power and control of the corporation in various ways. He became the largest stockholder by a single purchase of common stock in September, 1981. His dominated group eventually purchased the controlling interest of 17% of outstanding common stock for approximately $4,300,000.00. Thereupon, Rockwell was appointed Chairman of the Board of Directors and selected the present management. Only after my Opinion of October 14, 1982, did he begin to acquire either the ownership or control of preferred shares of stock.

The preferred stock has a guaranteed priority with regard to redemption and dividends, and most if not all of the net assets of the corporation are committed to the scheduled redemption of the preferred stock. Therefore, there was an inherent conflict between the long-term interests of these two groups: the preferred stockholders desired this investment company to continue to maintain a conservative low risk portfolio of securities and other liquid assets; while the common stockholders led by Rockwell commenced efforts to transform the corporation from an investment company to an operating company. Such a transformation would produce inherently greater risk to capital, but it would also provide a greater opportunity to make large profits and create value for the common stock.

This was the expressed opinion of Rockwell from the beginning to convert the character of The Cyprus Corporation which theretofore had been an investment company to a more or less speculative corporation and operate accordingly. Martin J. Whitman purporting to represent the majority of the preferred stockholders desired to maintain the status quo of the underlying securities and complained to this court in the original action in his capacity as an individual and as a trustee or custodian for other preferred stockholders. The purpose of this action was to compel management to furnish additional information to all stockholders, both preferred and common, regarding Board candidates and to procure certain amendments to the constitution which would have given power to the appropriate authorities to convert the security phase of the corporation into a speculative one, prior to the forthcoming election.

After appropriate discussions and compromises, and the procuring of conciliations by this court, this court caused the election to be postponed and permitted the plaintiff and all other parties time and opportunities to have proper information sent to all shareholders prior to the election and the vote on the amendments. The defendants cooperated in this connection and gave even more information than this court had suggested, with the result that after appropriate campaigning upon the information so sent, the election resulted in the choosing of four common stock directors approved by the Rockwell group and four preferred [178]*178stock directors approved by the plaintiffs group.

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Bluebook (online)
561 F. Supp. 175, 1983 U.S. Dist. LEXIS 18308, Counsel Stack Legal Research, https://law.counselstack.com/opinion/whitman-v-fuqua-pawd-1983.