Rosenfeld v. Black

The Lazard Fund, Inc. (Fund) merged into Moody’s Capital Fund, Inc. (Moody’s Capital). Then, Fund’s shareholders selected Moody’s Advisors and Distributors, Inc. (Advisors) as the successor to Lazard Freres & Co. (Lazard) as investment adviser. Dun & Bradstreet, Inc. (D&B) was the parent company of Moody’s Capital and Advisors. Contemporaneous with the merger agreement, Lazard entered into an agreement with D&B in which Lazard gave certain commitments to D&B in exchange for 75,000 shares of D&B stock. Rosenfeld (plaintiff) initiated a stockholders’ derivative action against Lazard and its directors (defendants), arguing that the agreement between Lazard and D&B was a fraud designed to conceal an unlawful sale of Lazard’s advisory contract, and Lazard secretly sought to use its influence to induce Fund’s stockholders to approve D&B’s subsidiary as the new investment adviser. The district court granted summary judgment for Lazard and its directors. Rosenfeld appealed. The court of appeals held that the Investment Company Act incorporated by implication the common-law rule that a fiduciary may not sell its office for personal gain, found issues of fact as to whether Lazard’s commitments were a mere sham to conceal the true nature of the payment and whether the proxy statement was deficient, and remanded the case for trial. Thereafter, the parties reached a settlement agreement in which Lazard agreed to pay Fund $1,000,000 in exchange for releases of Lazard and its directors from liability for their activities relating to the merger and contemporaneous agreement. Lazard and its directors also filed a petition for a writ of certiorari. The parties presented the settlement agreement to the district court for approval pursuant to Federal Rule of Civil Procedure 23.1.