Login

Login

To access this feature, please Log In or Register for your Casebriefs Account.

Add to Library

Add

Search

Login
Register

Surowitz v. Hilton Hotels Corp

    Brief Fact Summary. Plaintiff, one of Defendant’s shareholders, brought a shareholder derivative action against Defendant alleging Defendant’s officers and directors defrauded millions of dollars from the shareholders. Plaintiff submitted an affidavit verifying the allegations of the complaint, which is allegedly required by the federal rule. Defendant moved to dismiss on the grounds that the complaint was a “sham” and Plaintiff was not a proper party because Plaintiff did not understand or know anything about the complaint.

    Synopsis of Rule of Law. In a shareholder derivative action, the Plaintiff need not know every detail about the complaint, nor understand that a lawsuit has been filed alleging certain claims. The good faith allegations made by a lawyer suffice to require the Defendant to respond to the complaint.

    Facts. Surowitz, Plaintiff, bought stock in Hilton Hotels Corp., Defendant, with the aid of her son-in-law, Irving Brilliant. Plaintiff received a notice that Defendant was going to buy a lot of its own stock. Plaintiff sent this notice to Brilliant, who investigated the matter with one Rockler. On the basis of their investigation, they concluded that Defendant was engaged in a fraudulent scheme and explained the situation to Plaintiff. On this basis, Plaintiff agreed that the complaint be filed in her name. The complaint was a shareholders’ derivative action alleging the officers and directors of Defendant had defrauded Defendant of several million dollars. Rockler prepared the complaint and sent it to Brilliant. Brilliant showed Plaintiff an affidavit, took Plaintiff’s testimony and sent the affidavit after Plaintiff verified the complaint. Because Plaintiff had limited English speaking skills and a limited education, Plaintiff did not understand very much about the actual allegati
    ons. The District Court granted Defendant’s motion to require Plaintiff to submit herself to an oral examination by Defendant’s counsel. The examination showed that Plaintiff did not know anything about the allegations in the complaint. Defendant moved to dismiss the pleading on the ground that it was a “sham.” Rockler submitted two additional affidavits illustrating the investigation that had ensued prior to filing the complaint. The District Court dismissed the complaint with prejudice. The Court of Appeals affirmed, even though many of the allegations were true. Defendant was never required to file an answer.

    Issue. Should Plaintiff’s case been dismissed as frivolous even though lawyers had investigated the allegations in the complaint prior to filing the lawsuit?

    Held. No. Reversed and remanded.
    Rule 23.1(Formerly Rule 23(b)) of the Federal Rules of Civil Procedure, requires that allegations be verified by oath, which Plaintiff did.
    Rule 23.1 of the Federal Rules of Civil Procedure was not meant to bar all shareholder derivative suits. It was only meant to prevent companies from settling worthless claims.
    Plaintiff was concerned about her investment and forwarded documents she received from Defendant to Brilliant. It does not matter that she was not familiar with the intricacies of the law.
    The stock was bought long before this investigation commenced, showing that Brilliant once had confidence in Defendant. The purpose of the shareholder’s derivative suit is to allow those who had confidence in Defendant but were subsequently wronged by Defendant to bring a lawsuit.
    Allegations were made in good faith, which is all that is required in order to compel Defendant to respond to the allegations.
    Concurrence. Rule 23.1 of the Federal Rules of Civil Procedure only requires that allegations be verified by oath by an individual. Verification by the attorney should be enough to meet the requirements of Rule 23.1.

    Discussion. This case demonstrates that evidence of a pre-filing investigation or other evidence demonstrating good faith is relevant in determining whether or not a complaint is “frivolous.” It should be noted that this case is a shareholder derivative action and not an average civil action where there are few plaintiffs. The analysis hinges on whether the Plaintiff is a proper representative, not whether she knew her lawyer would file a lawsuit.


    Create New Group

      Casebriefs is concerned with your security, please complete the following