Harry Lewis v. Earle A. Chiles, Howard Burnett, Virgil Campbell, Earl M. Chiles, Cyril K. Green

719 F.2d 1044 Harry LEWIS, Plaintiff-Appellant, v. Earle A. CHILES, Howard Burnett, Virgil Campbell, Earl M. Chiles, Cyril K. Green, et al., Defendants-Appellees. No. 82-3486. United States Court of Appeals, Ninth Circuit. Argued and Submitted July 6, 1983. Decided Nov. 4, 1983. Irving Bizar, Pincus, Munzer, Bizar & D'Alessandro, New York City, Bruce M. Hall, Portland, Or., for plaintiff-appellant. James N. Westwood, Miller, Nash, Yerke, Wiener & Hager, Barbee B. Lyon, Tonkon, Torp, Marmaduke & Booth, Robert L. Allen, Morrison, Dunn, Carney, Allen & Tongue, James H. Clarke, Spears, Lubersky, Campbell & Bledsoe, Henry Kantor, Phil Goldsmith, John D. Ryan, Portland, Or., for defendants-appellees. Appeal from the United States District Court for the District of Oregon. Before SNEED, FARRIS and CANBY, Circuit Judges. FARRIS, Circuit Judge: 1 Harry Lewis, a citizen of New York and a stockholder in Fred Meyer, Inc., an Oregon corporation, filed this shareholder derivative action on June 18, 1980. Federal jurisdiction was based on diversity of citizenship. 28 U.S.C. Sec. 1332 . During the pendency of the action the shareholders of Fred Meyer, Inc., approved the sale…

concurring:

I concur in Judge Farris’ opinion. I write separately to suggest that although the plaintiff had no standing to maintain a derivative suit, individually or on behalf of a class, he may not be, or have been, as the case may be, foreclosed from seeking recovery based upon a direct claim against the defendants. 1

Pursuit of a derivative cause of action by a shareholder is possible only if the shareholder ownership requirement is satisfied throughout the duration of the suit. In this case, the plaintiff, having received the monetary value for his shares as the result of the transaction approved by a majority of the shareholders, does not satisfy that requirement. The plaintiff, therefore, has no standing to assert a derivative cause of action.

The plaintiff seeks to salvage his derivative action by requesting leave to amend his complaint under Fed.R.Civ.P. 15(a) to transform it into a class action. Although a motion for leave to amend the complaint is properly within the discretion of the district court, “the court may deny leave to amend where the proposed amendment fails to allege facts which would support a valid theory of liability.” Verhein v. South Bend Lathe,…

Harry Lewis, a citizen of New York and a stockholder in Fred Meyer, Inc., an Oregon corporation, filed this shareholder derivative action on June 18,1980. Federal jurisdiction was based on diversity of citizenship. 28 U.S.C. § 1332 . During the pend-ency of the action the shareholders of Fred Meyer, Inc., approved the sale of the corporation’s assets to two companies for a price of fifty-five dollars per share. The business was sold as a going concern, and the derivative claim was specifically included in the assets sold. The defendants moved for summary judgment on the ground that Lewis no longer had standing to prosecute the suit. The district court granted their motions on June 8, 1982. The court subsequently denied Lewis’s request for attorneys’ and accountants’ fees. We affirm.

FACTS

Lewis’s primary allegations were that unauthorized bonuses had been paid to the corporation’s senior officers; that, in order to decrease his personal income tax liability, Fred G. Meyer appropriated a corporate opportunity by purchasing a building which he later leased to Fred Meyer Savings and Loan Association, a subsidiary of Fred Meyer, Inc.; and that the corporation, without independent…