Opinion
11-29-2016
CULLIGAN SOFT WATER COMPANY, et al., Plaintiffs–Respondents, v. CLAYTON DUBILIER & RICE, LLC. et al, Defendants–Appellants, Angelo, Gordon & Co., L.P., Defendants–Respondents, John Does 1–50, Defendants, Culligan Ltd., Nominal Defendant–Appellant.
Debevoise & Plimpton LLP, New York (Shannon Rose Selden of counsel), for appellants. Singler Professional Law Corporation, Sebastopol, CA (Peter A. Singler of the bar of the State of California, admitted pro hac vice, of counsel), for Culligan Soft Water Company, Cecil R. Hall, C & D of Rochester, LLC, Driessen Water Inc., Michael A. Bannister, T & B Enterprises, Inc., California Water & Filter, Inc., Shar Sher I. Inc., Water Quality Improvement, Inc., Culligan Southwest, Inc., Carey Water Conditioning, Inc., Michael Carey, Eric B. Clarke, Culligan Water Conditioning (Barrie) Ltd., Arthur H. Cooksey Jr., Corbett's Water Conditioning, Inc., Glen Craven, Culligan Water Conditioning–Horicon LLP, Henry T. Wood, Mayer SoftWater Co., Inc, Timothy Fatheree and Sue Fatheree, Cleanwater, Inc., Catherine Gilby, Canatxx, Inc., Quality Water Enterprises, Inc., Robert R. Heffernan, Charles F. Hurst, Karger Enterprises, Inc., Keppler Water Treatment, Inc., Robert Kitzman and Tracy Kitzman, Ladwig Enterprises, Inc., Richard Lambert and Marianne Conrad, Low Country Water Conditioning, Inc., Gina Larson, Michael G. Macaulay, Vetter's, Inc., Robert W. McCollum and Barbara N. McCollum, Richard C. Meier, Donald E. Meredith, Cleanwater Corporation of America, John Mollman and Janette Mollman, the Good Water Company Ltd., E & H Parks, Inc., Maumee Valley Bottlers, Inc., Schry Water Conditioning, Inc., Schry Water Treatment, Inc., Winslow Stenseng, Stewart Water Conditioning, Ltd., Bret P. Tangley, B.A.R. Water Corporation, Trilli Holdings, Inc., Bruce Van Camp, Walter C. Voigt and Charlotte P. Voigt, Marin H20, Inc., Allan C. Windover, Everett Windover, Culligan Soft Water Service (QUE) Inc., G.R. McCoy, Richard N. Wendt, Richard Sample and Marie Sample, the Water Meister, Inc., Alex Connelly, Go Water Inc., Van D. Waugh, Melissa Grill, Petro's Water Conditioning of John County, Inc., Water Treatment Services of Shelbyville, Inc., Countryside Management, Inc., Gulf Coast Water Conditioning, Inc., Adrian Water Conditioning, Inc., and Canney's Water Treatment, Inc., respondents. Simpson Thacher & Bartlett LLP, New York (Peter E. Kazanoff of counsel), for Angelo, Gordon & Co., L.P. and Silver Oak Capital, L.L.C., respondents. Akin Gump Strauss Hauer & Feld LLP, New York (Abid Qureshi of counsel), for Centerbridge Special Credit Partners, L.P., CCP Acquisition Holdings, L.L.C., CCP Credit Acquisition Holdings, L.L.C., respondents.
Debevoise & Plimpton LLP, New York (Shannon Rose Selden of counsel), for appellants.
Singler Professional Law Corporation, Sebastopol, CA (Peter A. Singler of the bar of the State of California, admitted pro hac vice, of counsel), for Culligan Soft Water Company, Cecil R. Hall, C & D of Rochester, LLC, Driessen Water Inc., Michael A. Bannister, T & B Enterprises, Inc., California Water & Filter, Inc., Shar Sher I. Inc., Water Quality Improvement, Inc., Culligan Southwest, Inc., Carey Water Conditioning, Inc., Michael Carey, Eric B. Clarke, Culligan Water Conditioning (Barrie) Ltd., Arthur H. Cooksey Jr., Corbett's Water Conditioning, Inc., Glen Craven, Culligan Water Conditioning–Horicon LLP, Henry T. Wood, Mayer SoftWater Co., Inc, Timothy Fatheree and Sue Fatheree, Cleanwater, Inc., Catherine Gilby, Canatxx, Inc., Quality Water Enterprises, Inc., Robert R. Heffernan, Charles F. Hurst, Karger Enterprises, Inc., Keppler Water Treatment, Inc., Robert Kitzman and Tracy Kitzman, Ladwig Enterprises, Inc., Richard Lambert and Marianne Conrad, Low Country Water Conditioning, Inc., Gina Larson, Michael G. Macaulay, Vetter's, Inc., Robert W. McCollum and Barbara N. McCollum, Richard C. Meier, Donald E. Meredith, Cleanwater Corporation of America, John Mollman and Janette Mollman, the Good Water Company Ltd., E & H Parks, Inc., Maumee Valley Bottlers, Inc., Schry Water Conditioning, Inc., Schry Water Treatment, Inc., Winslow Stenseng, Stewart Water Conditioning, Ltd., Bret P. Tangley, B.A.R. Water Corporation, Trilli Holdings, Inc., Bruce Van Camp, Walter C. Voigt and Charlotte P. Voigt, Marin H20, Inc., Allan C. Windover, Everett Windover, Culligan Soft Water Service (QUE) Inc., G.R. McCoy, Richard N. Wendt, Richard Sample and Marie Sample, the Water Meister, Inc., Alex Connelly, Go Water Inc., Van D. Waugh, Melissa Grill, Petro's Water Conditioning of John County, Inc., Water Treatment Services of Shelbyville, Inc., Countryside Management, Inc., Gulf Coast Water Conditioning, Inc., Adrian Water Conditioning, Inc., and Canney's Water Treatment, Inc., respondents.
Simpson Thacher & Bartlett LLP, New York (Peter E. Kazanoff of counsel), for Angelo, Gordon & Co., L.P. and Silver Oak Capital, L.L.C., respondents.
Akin Gump Strauss Hauer & Feld LLP, New York (Abid Qureshi of counsel), for Centerbridge Special Credit Partners, L.P., CCP Acquisition Holdings, L.L.C., CCP Credit Acquisition Holdings, L.L.C., respondents.
Order and final judgment (one paper), Supreme Court, New York County (Jeffrey K. Oing, J.), entered June 8, 2015, approving the partial settlement of the derivative action, unanimously reversed, on the law, without costs, and the judgment vacated.
The settlement does not provide for payment to the company (see Glenn v. Hoteltron Sys., 74 N.Y.2d 386, 392, 547 N.Y.S.2d 816, 547 N.E.2d 71 [1989] ). Plaintiffs are to receive the bulk of the $4 million settlement in reimbursement for their legal fees in this case, and the remainder is to be turned over to their franchisee organization for future legal fees or for distribution, at the organization's discretion, to plaintiffs. Moreover, because they have not obtained a substantial benefit for the company, but have accomplished only getting their lawyers paid, plaintiffs, who, after four attempts, have yet to plead properly that they have standing to sue derivatively, are not entitled to legal fees (see Seinfeld v. Robinson, 246 A.D.2d 291, 294, 676 N.Y.S.2d 579 [1st Dept.1998] ). It was an abuse of discretion to approve the settlement of a derivative action purporting to bind the company and all shareholders that was obtained by plaintiffs who had not established—and may never establish—their standing to bring the action. Contrary to plaintiffs' argument, defendants, as shareholders in the company who received notice of the settlement and had an opportunity to and did object to the settlement, have standing (see Posen v. Cowdin, 267 App.Div. 158, 160, 44 N.Y.S.2d 842 [1st Dept.1943] ).
FRIEDMAN, J.P., SWEENY, SAXE, KAPNICK, GESMER, JJ., concur.