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Granada Invest., Inc. v. DWG Corp.

Granada Invest., Inc. v. DWG Corp.

United States Court of Appeals for the Sixth Circuit

February 20, 1992, Argued ; April 30, 1992, Decided ; April 30, 1992, Filed

Nos. 91-3297, 91-3343, 91-3399, 91-3402, 91-3407

Opinion

 [*1204]  SUHRHEINRICH, Circuit Judge. Granada Investments, Inc. offered DWG Corporation $ 572 million in an effort to merge the two companies. DWG declined the offer. What followed reflects both the complexity of securities lawsuits and [**4]  the appetite for litigation exhibited by the parties.

Granada, beneficial owner of more than 5% of DWG's issued and outstanding common stock, brought a derivative suit against DWG and its directors, including Victor Posner. Posner is Chairman of the Board, President and Chief Executive Officer, and controlling shareholder of DWG. After Granada's complaint was twice amended, DWG counterclaimed and filed a third-party action.

Thereafter the parties spent many months attempting to work out a settlement. A compromise agreement was finally reached, allowing the litigants to avoid the precarious outcome of a trial on the merits. The district court found the settlement fair and we see no basis for disturbing this judgment.

Granada's initial barrage of claims included breach of fiduciary duties owed by  [*1205]  DWG directors to DWG shareholders, self-dealing by Posner, and manipulation by DWG directors of the stock market in violation of section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5.

DWG and Posner denied Granada's allegations and filed a counterclaim and third-party complaint, asserting that Granada and its investors used insider information [**5]  to acquire a large block of DWG stock. It was further claimed that Granada contravened a host of federal securities laws, rules, and regulations.

Following discovery the parties undertook prolonged and laborious settlement negotiations. A stipulated settlement was reached on August 30, 1990 and approved preliminarily by the district court on September 18, 1990. A key element of the settlement was the dismissal with prejudice of all claims asserted or that could have been asserted by any of the settling parties. Another component of the settlement concerned changes in corporate governance. The agreement called for the district court to designate three new directors to DWG's board of directors. The new directors must have no business or familial relationship with any party to this action and shall serve on the audit and compensation committees of DWG.

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962 F.2d 1203 *; 1992 U.S. App. LEXIS 8833 **; Fed. Sec. L. Rep. (CCH) P96,637

GRANADA INVESTMENTS, INC., Plaintiff-Appellee, v. DWG CORPORATION, et al., Defendants-Appellees. DWG CORPORATION, Counterplaintiff and Third-Party Plaintiff-Appellee, v. GRANADA INVESTMENTS, INC., et al., Counterdefendants and Third-Party Defendants-Appellees, FAIRVIEW FINANCIAL CORPORATION; G.H. ENTERPRISES, INC.; PETER F. PELLULO; GLOBAL FINANCIAL CORPORATION; and LEONARD PELLULO (91-3407/3399), Third-Party Defendants-Appellants, GEORGE P. HELLHAKE; JESSIE B. HELLHAKE; and PAUL R. HELLHAKE (91-3407/3399); EGS LIMITED PARTNERSHIP; PATRICK C. CESTARO; and IRVING G. AND BENICE BRILLIANT (91-3297/3343/3402), Objecting Shareholders-Appellants.

Subsequent History: Remanded by DWG Corp. v. Granada Invest., Inc., 962 F.2d 1201, 1992 U.S. App. LEXIS 8768 (6th Cir. Mich., Apr. 30, 1992)

Prior History:  [**1]  ON APPEAL from the United States District Court for the Northern District of Ohio. District No. 89-00641. Thomas D. Lambros, Chief District Judge.

Granada Invs., Inc. v. DWG Corp., 1991 U.S. Dist. LEXIS 22118 (N.D. Ohio, Feb. 12, 1991)

Disposition: Affirmed

CORE TERMS

settlement, shareholders, costs, district court, expenses, parties, objecting, special committee, reimbursement, derivative suit, new director, objectors, savings, rates

Business & Corporate Law, Shareholder Actions, Actions Against Corporations, General Overview, Civil Procedure, Appeals, Standards of Review, Abuse of Discretion, Class Actions, Derivative Actions, Compromise, Business & Corporate Compliance, Contracts Law, Types of Contracts, Settlement Agreements