Alleghany Corporation v. Allan P. Kirby, Charles T. Ireland, Jr., and Fred M. Kirby, Randolph Phillips ( 1964 )

MOORE, Circuit Judge:

For some ten years, the subject matter of the lawsuit now on appeal has been before the New York State and federal courts. The particular aspect now presented is an appeal from a judgment in an action in the district court wherein plaintiff (appellant), Alleghany Corporation,' sought to set aside, as obtained by fraud, a settlement of stockholders’ derivative actions. Alleghany Corp. v. Kirby, 218 F.Supp. 164 (S.D.N.Y.1963). This appeal is further limited to the claim that the settlement was obtained by defendant (appellee) Allan P. Kirby, as a result of his failure voluntarily to disclose upon the settlement certain facts, essential to a proper adjudication of the fairness and adequacy thereof, alleged to have been known to him at that time. The district court found adversely to appellant.

The transaction giving rise to the many suits originated on December 6, 1949. On that date four officers and directors, including defendant Kirby, voted illegally (so alleges plaintiff) to give themselves an opportunity to exchange Alleghany preferred stock held by them for Alleghany’s entire portfolio holdings of 48,225.61 shares of Class A stock of Investors Diversified Services, Inc. (ID S). Pursuant to a December 6, 1949 resolution authorizing an exchange, Kirby tendered his Alleghany preferred stock to Alleghany and Alleghany, in turn, transferred 24,062 shares of IDS stock to Kirby at a price of $8.1453 per share.

By 1954 the price of the IDS stock had advanced to some $200 a share. At such a price Kirby alone had profited at the expense of Alleghany in an amount in excess of $4,500,000. Champions on behalf of Alleghany did not long- remain on the sidelines and soon (1954-55) many derivative suits were commenced in both state and federal courts. Other similar suits were brought in the federal court. In accordance with a practice which had developed in the State court to avoid complete chaos amongst the many would-be champions, under the caption of Zenn et al. v. Anzalone et al., Sup.Ct., N.Y.Co., 17 Misc.2d 897, 191 N.Y.S.2d 840 (referred to as the Zenn suits), the ten suits were consolidated and a general counsel (Abraham L. Pomerantz of the firm of Pomerantz, Levy & Haudek) was designated for the plaintiffs in the state and federal suits. Such counsel and his firm were most skilled and experienced (at least for over twenty years) in ferreting out fraud on the part of directors alleged to have been more mindful of serving their own interests than those of the corporations whose interests they should have been serving.¹ Naturally the complainants in the various suits turned their spotlights on the IDS stock exchange and the fact that the beneficiaries thereof knew of, or were in a position to know of, the enormous prospective increase in earnings of IDS.

More specifically, the consolidated amended complaint (First Cause of Action) alleged that Kirby, Robert P. Young and other named co-defendants were engaged in a conspiracy “to enable defendants Young and Kirby to enrich themselves at the expense of Alleghany”; that the IDS stock exchange was to be made at Alleghany’s cost or the market price determined as of the final exchange date whichever was higher and “was to be conditional upon ratification by Al-leghany’s common stockholders at their annual meeting on May 3, 1950”; that the proxy statement was “false and misleading with respect to material facts and omitted to state material facts necessary to make the statements therein not false or misleading,” in part, including a failure to reveal not only an actual increase in earnings for the first three months of 1950 (i. e., $2.17 per IDS share, projected as $8.68 on an annual basis) but also a trend to further improvements “foreseeable to and foreseen by the individual defendants”; that 1950 earnings amounted to $20.76 a share; that the earnings trend was reflected in a spectacular increase in market value (also “foreseeable to and foreseen by”) to $28, $37.75, $89.50, $100 at the end of the respective years 1950-53 and about $200 at the date of the complaint; that even at the date of the exchange (May 15,1950) Kirby failed to pay the required consideration in that he paid $148,273.79 less than called for by the respective market prices of Alleghany preferred Series A and IDS stock; and that as a result of such fraud both the exchange and the purported stockholder ratification were void.² Recision or the difference in value between the price paid and the real worth of the IDS stock was demanded. Kirby, although named as a defendant in the state court suits, actually was not served with process therein.

As not unusual in this type of suit, settlement negotiations soon began and in July 1955 a settlement stipulation in the Zenn suits was drafted. Alleghany thereupon moved in the New York Supreme Court for approval of the settlement. A Referee was appointed by the court to inquire on the merits into the fairness and adequacy thereof. Under New York practice, notice of the terms of the proposed settlement was sent to all stockholders and hearings commencing in September 1955 were held before the Referee.

In February 1955 a suit had been brought in the federal court in New York by another group of stockholders entitled Breswick v. Briggs, S.D.N.Y., 135 F.Supp. 397. Although some of the charges made were similar to those in the Zenn suits, the 1950 IDS stock exchange was not placed in issue.

The Breswiek plaintiffs had not been participants in the Zenn settlement negotiations. For this reason and lest they be bound by any settlement therein, they sought and obtained in October 1955 a .federal court injunction against the interposition of any defense based upon any settlement agreement not negotiated with them.

Returning to the hearings before the Referee in the Zenn action, there was vigorous opposition to the settlement. Many of the arguments now advanced were urged as reasons for rejecting the settlement. Counsel (Seymour Grau-bard of Graubard & Moskovitz) for one objectant (Rosen) in particular worked in close association with counsel in Bres-wick. The statistics as to the nature and duration of the hearing are revealing. Eighteen witnesses were called, some 480 exhibits introduced, over 4,600 pages of testimony were taken and twenty-two law firms and attorneys appeared. The hearing on the merits of the settlement was) in effect, a hearing on the merits of the suits.

The primary issue in the first cause of action in the Zenn suits was whether Kirby knew or should have known that the IDS stock, which he obviously had acquired from Alleghany in a self-dealing transaction, was worth far more than he paid for it. Counsel for Alleghany, to establish such knowledge and a logical imputation thereof, sought to and did by pre-trial procedures delve into the files of Alleghany and IDS for proof.

The Referee characterized the hearings as “truly an adversary proceeding, more nearly resembling a trial on the merits than a hearing on a proposed settlement * * * ” He accurately perceived the principal issue, namely, Alle-ghany’s claim that the defendants had failed adequately to reveal to the stockholders “the alleged sharp upward turn in the profits of IDS and the further improvement of future earnings which it is claimed was foreseen by Young, Kirby and Purcell.”

Before considering the facts which appellant claims were not before the Referee, the alleged concealment of which forms the basis of its argument that the settlement was tainted with fraud, it would be well to review briefly certain items of proof before the Referee which bore upon Kirby’s then (December 1949 through May 1950) knowledge or which might reasonably have put him on notice of substantially increasing earnings.

In February 1950, Robert W. Purcell had written Young and Kirby advising them of a net income before home office expenses forecast for the IDS mortgage department alone of $5,720,000 for 1950 in contrast with $2,277,000 for 1949. Kirby was told that this estimate was said to be “very conservative” and that mortgage department “operations promise to show continued substantial earnings.” Had Kirby inquired at the end of the first quarter of 1950 as to net income, he would have learned of an income figure of $639,040 instead of a corresponding 1949 first quarter loss of $1,298. Purcell’s optimism for 1950 was justified by a net income for 1950 of $6,454,411 instead of $1,365,485 for 1949. In addition, the Referee had the actual net income figures for the years 1949-1953 as contained in the IDS annual reports which showed a steady increase from $374,355 in 1948 to $13,229,310 in 1953.

During the trial in the district court, Alleghany caused to be produced certain documents which were not before the Referee and claimed that Kirby’s failure to adduce them on the settlement hearings prevented the Referee from properly evaluating the fairness and adequacy of the proposed settlement under consideration. Of the “non-disclosed” documents which Alleghany claims were of critical significance, it stresses the following:

A. The Froggatt Report of April 29, 1949.

This report was addressed to the IDS Board of Directors and was primarily concerned with a valuation of IDS certificates in force as of December 31, 1948. In addition, a prognostication was made for the years 1949-53 of net income available for improving certificate reserves before profit or loss on sale of investments or income taxes. Kirby apparently had received this report in August 1949. It was mentioned in an exhibit introduced before the Referee and was later found in Alleghany and IDS files.

B. An IDS Projection of Net Income for the Years 1949-53 Before Profit or Loss From Sales of Investments and Income Taxes.

There was no evidence that Kirby had received these figures.

C. An IDS Projection of Net Income for 1950 Through 1954 and a Projection for 1950 by Months.

These projections produced from the IDS files in discovery proceedings were not admitted in evidence by the district court because there was no evidence that Kirby had ever had them in his possession or that he knew of them. Nor was there any showing that counsel in Zenn had been in any way precluded either in pre-trial or in the settlement hearings from seeking any and all papers in the possession of IDS. To the contrary, there was proof that during the hearings before the Referee (1954-1958) documents in the IDS files were available upon request.

D. The Purcell Letter to Young Dated July 27, 1954, With Enclosures.

On July 27,1954, Purcell sent to Young a letter from Waag, Vice-President and Controller of IDS, with certain documents obtained from Waag. The statement entitled “Comments on Operations December 1950” compares IDS’ financial situation as of December 31, 1950 with the same date in 1949. 1950 income is stated as $6,142,232 in contrast to 1949 income of $1,078,272. However, this statement must have been prepared subsequent to December 31, 1950, and hence not available prior to the consummation of the exchange. The district court excluded this exhibit. Another statement disclosed net income for 1949 and 1950 by quarters. Although excluded by the district court, this statement had been introduced in the Zenn hearings and showed an increase in net income from $1,365,485 in 1949 to $6,454,411 in 1950. The third statement set forth a 1950 quarterly analysis of some of the larger housing project items in which IDS had participated. This statement, although not received below, had also been admitted in the Zenn hearings.

In summary, most of the allegedly “non-disclosed” documents came from Al-leghany or IDS files. In some instances, copies were produced from Kirby’s files. The fact that IDS prepared projections could not have been unknown to Alle-ghany counsel in Zenn because the April 7, 1949 Shipman report contained a ten-year (1947-1956) IDS earnings projection. Other documents did not come into existence or into Kirby’s possession until after the stock exchange had been consummated. As to the documents which Kirby received, he was chargeable with all the legal consequences of such information ; as to those excluded by the district court on the ground that there was no evidence that Kirby had seen them, there is no basis for holding this finding of fact to be clearly erroneous. Furthermore, the district court had in the record before him evidence virtually identical to that contained in the documents excluded by him, particularly with relation to compilations of projected earnings. The earnings projections would undoubtedly have been useful in cross-examining Kirby before the Referee as to the extent of his belief with respect to future earnings. However, Kirby was not called as a witness and, therefore, there was no occasion to cross-examine.

As a result of the federal court’s suggestion in Breswick, the defendants in Breswick, including Kirby, engaged in their own settlement negotiations. These were productive of an increase in the Zenn offer, from $700,000 cash to $1,000,-000 plus certain other benefits. However, the Breswick plaintiffs still were not satisfied. The Breswick defendants then moved to vacate the injunction which for practical purposes was standing in the way of the Zenn settlement. The federal court thereupon appointed the Zenn Referee as a Special Master to hear and report on the good faith of the Breswick settlement proposal. Hearings were held in October and November 1958 and 675 pages of testimony were taken.

In June 1958 the Referee reopened the Zenn State court hearings to receive the increased offer and in November 1958 handed down his report of some 125 pages approving the settlement. Thereafter exceptions to the report were filed on behalf of the stockholder Rosen objecting to the settlement. The Referee’s report was attacked as ignoring and glossing over the evidence that tended to establish liability. The court was urged to “scrutinize the evidence and examine the law” and then withhold approval of the settlement. In the brief opposing approval, the objectant presented virtually all the arguments now advanced by appellant, namely, (1) the possession of inside knowledge by Kirby and Young that the earnings of IDS would increase approximately 500% for 1950 alone; (2) the illegality of the meeting of December 6, 1949 authorizing the exchange offer; and (3) the failure to disclose material facts to the stockholders and the falsity of facts disclosed in the proxy statement for the meeting of May 3, 1950 at which the exchange was ratified. The law relating to self-dealing on the part of directors, their fiduciary position, the legal effect of inside knowledge, the invalidity of the defenses of ratification and laches because of fraud, was also placed before the court.

In support of these arguments, the objectant had facts, leads and clues from which to draw the conclusion that Kirby knew or should have known of the speculative potential in the IDS shares. From the outset in 1948 when Alleghany was considering the acquisition of the voting and Class A (non-voting) stock of IDS, Kirby, Young and their associates were aware of the IDS financial picture. Kirby desired to be kept fully informed. This desire was fulfilled by oral and written financial reports. Specifically, Kirby was advised (if he did not already know) by Purcell’s letter to him and Young dated February 11, 1950, that there was enough additional mortgage business on the IDS books in 1949 to add some $5,-500,000 to IDS’s 1950 earnings. The prophecies envisioned were soon realized. Even before the stock exchange was consummated in May, 1950, the first quarter earnings of $631,000 against a loss of $223,000 for the corresponding quarter of 1949 were available. And had any counsel desired to inquire of Kirby himself not only as to his then knowledge but as to his state of mind regarding IDS and its future, all legal processes were at their command to make such inquiry. Even forecasts were known to have been made. Graubard in his testimony specifically mentioned forecasts and said that “my briefs to the Referee and Judge McGivem lay stress upon these forecasts.” He had “a particular recollection indeed of mention of these forecasts in correspondence between Mr. Purcell and Mr. Young.” Furthermore, Graubard argued in Zenn that the letter vividly demonstrated that “Purcell was able early in February 1950 to predict with uncanny accuracy the extra five million in mortgage department earnings of IDS for the entire year 1950.”

¡' The Supreme Court confirmed the Referee’s report, saying in part that “Every proposed settlement in this type of litigation constitutes a compromise in which each of the parties expects to make some surrender, in order to prevent costly and protracted litigation,” and concluded that “In sum, after consideration of all of the factors in this case, this court is of the opinion that the original stipulation of settlement herein, as now augmented by the latest subsequent offer of defendants, is fair and reasonable, was negotiated at arms’ length, is free from fraud or collusion and is in the best interests of the Alleghany Corporation and its stockholders.” Zenn v. Anzalone, 17 Misc.2d 897, 898, 899-900, 191 N.Y.S.2d 840, 843-844 (Sup.Ct.1954). However, because of the existence of the injunction in the Breswick suit in the federal court, the New York court directed that no order be entered until the injunction was vacated.

Thereafter, the federal court rejected the report of the Referee (Special Master in Breswick) which recommended that the injunction be vacated. At this stage further settlement negotiations were renewed which resulted in an offer by Kirby satisfactory to court and counsel in the Breswick suit. A supplemental stipulation of settlement in the Zenn action was thereupon executed, providing for the payment by Kirby of $1,100,000. The Young Estate agreed to contribute .an additional $900,000 to the basic Zenn settlement. Thus, Alleghany received $3,000,000 cash and return of control of IDS to Alleghany by the Murchison Brothers. The federal court injunction was thereupon vacated and towards the end of December 1959 orders of the Supreme Court, New York County, were entered, approving the settlement.

Appellant in this action originally attacked the settlement upon two grounds: (1) that Kirby obtained a favorable settlement for himself in the negotiations of October, November and December 1959 by inducing the defendant Randolph Phillips to betray alleged fiduciary duties to Alleghany for personal benefits promised to him by Kirby, and (2) that Kirby had failed to adduce before the Referee and the state court facts material to a proper evaluation of Kirby’s liability on claims arising out of the 1950 IDS stock exchange transaction.

The district court found that appellant had failed completely to establish any fraud in which Kirby and Phillips were involved in connection with the ultimate settlement. No appeal has been taken from this finding. There remains for consideration whether Kirby’s alleged failure to produce certain records before the Referee in the state court Zenn action under the circumstances provides a basis for a federal court setting aside the settlement and, in effect, trying the case de novo on the merits despite the settlement.

The theory behind allowing a stockholder to bring a derivative stockholders’ action rests upon the belief that wrongdoing directors will not voluntarily sue themselves or willingly admit their wrongful acts; hence, the right to bring a suit on behalf of the corporation is given to a stockholder. Here there were ten such suits. At this stage, if the defendant directors were fiduciaries, they certainly were not considered as such by the stockholder plaintiffs. They were under attack and entitled to defend themselves by all legal means including the right to require the plaintiffs to prove the charges made. They were, of course, under a duty to respond to all subpoenas, upon proper demand to produce all records in their possession, and to testify if called as witnesses. In the Zenn suit Kirby, although named as a defendant had not been served. He had not been subpoenaed or served with a notice to produce records in the suit itself or in the proceeding before the Referee. Nor did he testify before the Referee. Control of Alleghany’s interests so far as the 1950 IDS stock exchange was concerned was in the hands of competent counsel in the derivative suits on behalf of Alle-ghany who had available to them all the procedural processes designed for effective pre-trial preparation. Kirby and his co-defendants were in no position to force a settlement upon the Zenn plaintiffs. These plaintiffs could have insisted upon a trial. Had they prevailed, the damages according to the theory adopted by the court could have ranged from modest amounts to astronomical figures. But even fraud cases can often be settled. A settlement is the price of peace. There is no prerequisite to the settlement of a fraud case that the defendant must come forward and confess to all his wrongful acts in connection with the subject matter of the suit. Usually such settlements are accompanied by vigorous denials of any fraud whatsoever. Yet the entire thrust of appellant’s argument on this point is, in effect, directed to a proposition that Kirby was under some affirmative duty to come forward voluntarily with facts and documents possibly disclosed for the first time in this suit and ■of which he may or may not have had knowledge.

There can be no question that the exchange transaction perpetrated by Kirby, Young and Purcell violated fundamental legal principles against self-dealing. If the purchase of IDS was thought to be advantageous for Alleghany over a period of years, there was no justifiable reason for these officers to take this advantage away from the corporation to which they owed fiduciary duties. Nor can there be any question that the proxy statement on the basis of which stockholder ratification was sought was misleading, both in its statements and particularly in its omissions. Thus, the illegality of the exchange, the deception practiced upon the stockholders, the falsity of the Kirby statement as to the date of the exercise of the exchange offer, knowledge, either actual or imputed, of the very substantial increase in IDS earnings, the actual history of the earnings and market price of IDS stock over the period from 1950 to 1955, all these facts were available to the Zenn plaintiffs and were the basis of the charges in the stockholders’ complaint. To counsel who now represent Alleghany these are “shocking facts,” but they probably were equally shocking to the counsel who then were responsible for Alleghany’s welfare. Alleghany could have submitted these facts to the court for determination on the merits. Through its representatives, it elected to settle. The requirement that settlements of derivative suits be upon notice to all stockholders and be subject to court scrutiny and approval was a further protection. If the settlement were approved over stockholder objection, as here, such stockholder had a right to appeal to the Appellate Division of the Supreme Court and under certain circumstances to the New York Court of Appeals. The objecting stockholder here did not exercise such rights. Having failed to pursue its remedy along normal channels, Alleghany by this action sought to have a federal district court act, in effect, in an appellate capacity to review the decisions of the Referee and the New York Supreme Court. It does this upon its theory that it has discovered certain documents which, if produced before the Referee and Supreme Court would have induced them to have disapproved the settlement.

The wrongful conduct of Kirby and his associates formed the entire basis for the Zenn suits. The Referee and the counsel for the complaining stockholders were not kept in ignorance of the facts. If their searches, aided by pre-trial discovery, did not uncover certain documents, if their inquiries fall short of obtaining the documents now brought forth by Alleghany’s present counsel, or if in their judgment various documents were not introduced into evidence, these circumstances do not justify the setting aside of a settlement satisfactory to those in charge of the suit in behalf of Alle-ghany. Particularly is this true in the light of the bitter attack upon the settlement by the objecting stockholder. Were every settlement which had been carefully examined and judicially approved to be vacated at the behest of some subsequent corporate champion who brings forth certain documents which he claims might have so influenced the court that the settlement might not have been approved, there would be no finality to any litigation whether by settlement or by judgment.

By a fortiori analogy, the evidence said to have been “non-disclosed” or concealed should at least be of the character required for a new trial, namely, would it “probably have produced a different result.” Helene Curtis Inds. v. Sales Affiliates, 131 F.Supp. 119, 120, aff’d 233 F.2d 148 (2d Cir.), cert. denied, 352 U.S. 879, 77 S.Ct. 101, 1 L.Ed.2d 80 (1956). So much stronger should be the evidence of fraud where a collateral attack is being made in a federal court on a state court judgment which the parties thereto did not even challenge by resorting to state appellate proceedings. Examination of the “non-disclosed” documents leads to the conclusion, also reached by the district court, that although the documents would have been admissible had they been offered before the Referee, they do not form a basis for “collaterally attacking a judgment rendered after trial or a release given pursuant to the judgment.” 218 F.Supp. at 3.86. At most they would have been but cumulative evidence upon the basic issue of Kirby’s fraud in acquiring IDS stock at a grossly inadequate price. But this fraud gave rise to the stockholders’ suit and for this fraud he paid the settlement price. It is this price with which Alleghany’s present counsel is dissatisfied. However, as long as there are lawyers there will be expressions of honest belief that better settlements could have been obtained had subsequent counsel been in charge initially.

Alleghany makes much of our decision in United States v. Consolidated Laundries Corp., 291 F.2d 563 (2d Cir.1961), as supporting its argument that it was not for the trial judge here to speculate concerning the effect which the “non-disclosed” documents might have had on the Referee or the Court which confirmed the report. The situation in Consolidated Laundries was quite different. Had the documents there been made available to counsel for the defense upon cross-examination, the testimony of the Government’s principal witness might have been so discredited or altered that the very basis for the court’s factual determinations might have been shaken and changed. Here, however, the “non-disclosed” documents merely supply additional evidence that Kirby knew or should have known that the value of the stock he was acquiring was substantially greater than the price paid. The documents would undoubtedly have given the plaintiffs in Zenn greater fire power to train upon the enemy but judging by the plaintiffs’ and objectant’s briefs a rather substantial barrage was laid down. Alleghany’s real dissatisfaction must be based upon the Referee’s and Supreme Court’s decisions. There was certainly enough evidence presented to justify a rejection of the proposed settlement. Yet the stockholders suing on behalf of Al-leghany, represented as they were by able counsel, chose settlement. Whatever our thoughts may be as to the merits of the derivative suits and the wisdom of the settlement, these issues are not before us.

Alleghany advances as a legal proposition that Kirby was under an affirmative duty to present facts which might aid his adversaries in establishing his liability. No authority is cited for this proposition which would require a defendant accused of fraud to make an investigation of the files of the companies involved and to tender voluntarily all relevant documents there discovered. Even then such a defendant would be in peril of having the settlement vacated if in the future other letters or documents were discovered. No support for this legal theory comes from Alleghany’s citation of cases establishing the duty of self-dealing directors to make full and frank disclosure. For this failure the Zenn and Breswick suits were brought. On the merits Kirby and Young may well have obtained substantial financial benefits for themselves by wrongful self-dealing. But the bona fides of the 1950 stock exchange were not the issue for determination by the district court here; the issue was whether there was a sufficient basis for a federal court to nullify a settlement in a case involving fraud which had been judicially approved in the state court.

Appellant cites Masterson v. Pergament, 203 F.2d 315 (6th Cir.), cert. denied, 346 U.S. 832, 74 S.Ct. 33, 98 L.Ed. 355 (1953); Cohen v. Young, 127 F.2d 721 (6th Cir.1942), cert. denied, 321 U.S. 778, 64 S.Ct. 619, 88 L.Ed. 1071 (1943) ; and Heddendorf v. Goldfine, 167 F.Supp. 915 (D.Mass.1958) as supporting the principle that settlements in derivative actions should be set aside if accomplished through concealment by wrong-doing directors. In Masterson, supra, the appeal was from an order of the district court approving a compromise in a derivative suit. The order was affirmed although the dissenting judge would have vacated the settlement and directed the trial to proceed on the merits. The majority noted the difference between a trial on the merits and a review of a settlement, saying, 203 F.2d at 330:

“We must not forget that v/hat was submitted to the District Court was a proposed settlement. A settlement is the result of a compromise and in effecting a compromise each of the parties expects to make some surrender, in order to prevent unprofitable litigation, effect upon its credit, the wasting of time on the part of its officers that should be devoted to the success of its enterprise and, so, compromises are generally approved by the courts.”

In Cohen, supra, the same dissenting judge wrote for the rejection of a settlement but on the ground that the district court was in error in not considering the available evidence and in relying merely upon the recommendation of a majority of the attorneys. The case was remanded so that further testimony could be taken.

In Heddendorf, supra, the issue before the district court was whether the settlement of a stockholders’ derivative action should receive court approval. The court initially disapproved the settlement because of its failure to safeguard the stockholders against further wrong but left the door open for a settlement plan which contained protective provisions (167 F.Supp. at 923). In a supplemental opinion, approval was withheld until certain information was supplied under oath (id. at 926). Finally, the second compromise was approved (id. at 929). These steps were not unlike the proceedings in Zenn and Breswick whereby ultimately a settlement satisfactory to court and counsel in these cases was reached.

More analogous is the ease of Feldman v. Pennroad Corp., 155 F.2d 773 (3d Cir.), cert. denied, 329 U.S. 808, 67 S.Ct. 621, 91 L.Ed. 690 (1946). There a settlement of a stockholders’ suit in the Delaware state court was approved by the Court of Chancery after a hearing upon which many parties appeared in opposition. The Supreme Court of Delaware affirmed the Chancery Court’s decision. During this proceeding, the plaintiff Feldman brought an action in the federal court to enjoin the consummation of the proposed settlement. The district court dismissed the complaint. On appeal, the court of appeals affirmed, saying: “In the absence of bad faith, the Delaware law affords her no right to judicial interference with the settlement merely because the amount agreed upon in settlement is deemed by her to be inadequate.” (155 F.2d at 776.) The court referred to the state court’s finding “after a full hearing that the Pennroad directors acted in good faith in agreeing to the settlement,” and held that the “determination of these basic facts by the Court of Chancery is, therefore, now conclusive between the plaintiff and Pennroad and she is estopped from further disputing them in the present case.”

Tempting though it be to retry the settlement proceeding in the New York Supreme Court and, possibly with the subconscious advantages of hindsight, to reach different conclusions and draw different inferences from those of the Referee and court therein, this is not our appellate function. The district court had to resolve the issue before it, namely, whether to vacate the State court judgment approving the settlement because of Kirby’s alleged failure to produce certain documents. Essential to such resolution were such fact findings as Kirby’s possession and control of the documents, his knowledge of their contents and his suppression thereof. Upon the trial, the counsel representing Alleghany had full opportunity to examine and cross-examine the principal alleged culprit, Kirby, Pomerantz (counsel for the stockholders in the Zenn suits), Graubard (counsel who so vigorously opposed the settlement), Purcell, Shipman, the various attorneys who were instrumental in bringing it to a conclusion in December, 1959, and other witnesses. After hearing these witnesses, the court found “that plaintiff has failed to establish that defendant Kirby committed a fraud upon the State court or its Referee in failing to produce documents at the hearings before the Referee which were not called for at the hearings and most of which were not in his possession but were in the possession of IDS.” 218 F.Supp. at 186. In the light of the concession by plaintiff’s counsel that he could not tie the financial projections sought to be introduced to Kirby’s personal knowledge, the district court’s refusal to speculate or infer that Kirby must have seen them cannot be characterized as “clearly erroneous.” In view of this factual finding, it is unnecessary to consider the district court’s alternative conclusion that plaintiff cannot collaterally attack the settlement in the State Court because “The conduct of Kirby, if fraudulent, was not extrinsic fraud as defined by New York law.”

Affirmed.

1 . In Heddendorf v. Goldfine, 167 F.Supp. 915, 920 (D.Mass.1958), the court said:

“Moreover, Mr. Pomerantz’s judgment as to the value of so much of the claims as fall within the first four categories of the complaint is a judgment not only based on painstaking preparation but also reflecting an almost unparalleled experience in this type of litigation. * * * His support of the compromise embodies the pragmatism of a man whose shrewdness few antagonists have ever doubted.”

2 . Similar charges were made in the “Second Count” of the consolidated amended complaint in the federal court Zenn suit, Oiv. No. 92-205, S.D.N.Y.