Bell Atlantic v. Bolger

2 F.3d 1304 (3rd Cir. 1993)

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Nature of the Case

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Facts

This lawsuit stems from the April 1990 settlement of consumer fraud claims brought by the Pennsylvania Attorney General and the Pennsylvania Office of the Consumer Advocate against one of Bell Atlantic's subsidiaries, Bell of Pennsylvania. The settlement required Bell Atlantic to pay over $40 million in refunds to customers, contributions to a consumer education trust, and legal costs to the Attorney General. A group, representing shareholder Lazar (P), brought a derivative action in state court against nominal defendant Bell Atlantic and certain of its officers and inside directors, charging defendants with mismanagement and breach of fiduciary duty. The second group representing Martha Taub and the Trustees under the will of Beatrice Wilding (P), made a demand on Bell Atlantic's board to seek recovery from those responsible for the Bell of Pennsylvania matter. Bell Atlantic's board created a special committee that investigated the allegations with independent counsel. Following the investigation, Bell Atlantic's board accepted the committee's recommendation to reject the demand as not in the company's best interests. Taub then brought a derivative action in federal court. The Taub plaintiffs notified Lazar's counsel of the pending suit. Lazar never attempted to intervene. On the Friday preceding the Monday trial date, following extensive negotiations, the parties reached an agreement on settlement. Bell Atlantic agreed to (and did) disclose in its 1992 proxy statement information regarding the Bell of Pennsylvania matter, this litigation, and the Lazar state court litigation. Bell Atlantic also agreed to establish and follow new procedures to monitor sales and marketing programs. The agreement released all claims which were or could have been alleged in the complaint, including all claims arising from the Bell of Pennsylvania consumer fraud litigation. The agreement thereby jettisoned the Lazar state court claim. It also provided for counsel fees and expenses in an amount not to exceed $450,000. Before the settlement hearing, twenty-five shareholders, including Lazar, protested aspects of the proposed settlement. The district court denied all objections, approved the settlement agreement, and awarded fees and expenses to counsel in the amount of $421,437.19 plus interest. Lazar and the Kleins now appeal.