June 12, 1990
JOHN P. DUGAN, JR., DONNA L. DUGAN, AND JOHN P. DUGAN & SON, INC., A MARYLAND CORPORATION, PLAINTIFFS,
ANN D. DINEEN, ADMINISTRATRIX OF THE ESTATE OF ROSE F. DUGAN, DEFENDANT
Chandler, Vice Chancellor.
The opinion of the court was delivered by: Chandler
Mary P. Dunleavy ("Dunleavy") moves to intervene and vacate the consent order dismissing a case filed in this Court, styled John P. Dugan, Jr., et al. v. Ann D. Dineen, Del. Ch., C. A. No. 10864. Dunleavy seeks both intervention and vacation, simultaneously, since they are wholly dependent on one another. The underlying declaratory judgment action, at which Dunleavy's motion is directed, was filed by John P. Dugan, Jr. ("John Dugan"), John Dugan's wife and John P. Dugan & Sons, Inc. ("Dugan Inc.") against Ann D. Dineen ("Dineen"), the executrix *fn1 of the estate of Rose F. Dugan ("Rose Dugan"). The underlying complaint sought a declaration that Rose Dugan made valid inter vivos gifts of Dugan Inc. stock to her son -- John Dugan. After deciding not to contest the action, Dineen, in her capacity as executrix, entered a consent agreement that was approved by this Court on October 16, 1989. Dunleavy moved to intervene and vacate ten days later.
Plaintiffs in the underlying action oppose intervention and vacation. Defendant Dineen takes no position. A rather detailed review of the factual background is required to fully understand the Dunleavy application.
I. FACTUAL BACKGROUND
A. Dugan Inc.
The dispute centers around Dugan Inc., a Maryland corporation, principally located in New Castle, Delaware, engaged in the ready-mix concrete business. Dugan Inc. was incorporated in 1954 by John Dugan, his father John F. Dugan, Sr., and Edmond P. Maguire. Of the 180 originally issued shares, John Dugan, Rose Dugan (John F. Dugan, Sr.'s wife) and Katherine Maguire (Edmond Maguire's wife) each held 60. In 1958 and 1959, John Dugan, Rose Dugan and Katerine Maguire were each issued an additional 40 shares, giving each 100 shares.
Then, on August 7, 1965, at the apparent direction of John F. Dugan, Sr., Katherine Maguire's 100 shares were transferred, in four blocks of 25, to each of Rose Dugan's four children (John Dugan, Dunleavy, Dineen and Jane E. Craft). This gave John Dugan 125 shares, Dunleavy 25 shares, Dineen 25 shares and Jane E. Craft 25 shares. Jane E. Craft and Dineen later gifted their shares to John Dugan, giving him a total of 175 shares.
In early 1972, John Dugan asked his mother, Rose Dugan, to give him all of her stock in Dugan Inc. John Dugan claims that his mother was aware that John F. Dugan, Sr., who died in 1966, had promised him all the stock in Dugan Inc. in return for his efforts in establishing the company. On April 19, 1972, through her attorney, Thomas J. Healy, Jr., Rose Dugan transferred her 100 shares of Dugan Inc., to John Dugan. In the presence of Mr. Healy, and with Mr. Healy witnessing her signature, Rose Dugan endorsed for transfer stock certificates 1 and 10 (representing her 100 shares of Dugan Inc.). Rose Dugan then purportedly gave certificates 1 and 10 to John Dugan.
Rose Dugan also owned 98 shares of Dugan Rental Corporation ("Dugan Rental"). John Dugan was the only other shareholder owning 102 shares. On April 30, 1972, Dugan Rental merged into Dugan Inc., with Dugan Inc. being the surviving corporation. Through the merger, the outstanding shares of Dugan Rental were converted into shares of Dugan Inc. John Dugan received 36.48 (certificate number 23) shares of Dugan Inc., and Rose Dugan received 35.52 (certificate number 22) shares. John Dugan alleges that Rose Dugan then gave him certificate number 22 which represented Rose Dugan's remaining interest in Dugan Inc. Although John Dugan claims that Rose Dugan delivered certificate number 22 to him, it is uncontested that she failed to sign the reverse of the certificate. Dunleavy contests whether her mother delivered, or ever intended to deliver, certificate number 22 to John Dugan. The underlying dispute is thus centered around the alleged transfer of certificate number 22.
John Dugan then had the stock, allegedly gifted from his mother, cancelled on the books of Dugan Inc. and registered in his name. Certificate number 24 was issued in John Dugan's name to evidence the 100 shares transferred to him on April 19, 1972. Certificate number 25 was also issued in his name to evidence the 35.52 (certificate number 22) shares allegedly transferred to him following the merger. At that point, Dugan Inc.'s books showed two stockholders of record: John Dugan who owned 347 shares and Dunleavy with 25 shares.
On May 30, 1972, Rose Dugan executed a will that she had asked her attorney, Mr. Healy, to prepare. The will excludes her son, John Dugan, and divides all her property among her three daughters -- Dunleavy, Dineen and Jane E. Craft. John Dugan points to this as evidence that his mother transferred all of her stock to him in lieu of his inheritance.
Rose Dugan was a director of Dugan Inc. until she resigned on April 25, 1985. During her tenure as a director, John Dugan maintains that his mother clearly understood that she was no longer a stockholder of Dugan Inc. He points out that she always had full access to Dugan Inc.'s books and records. In addition, she executed waivers of notice of Dugan Inc. directors' meetings. All such waivers, according to John Dugan, stated that he and Dunleavy were the only stockholders of Dugan Inc.
B. Administration of Rose Dugan's Estate
Rose Dugan died on January 28, 1986. Dineen was named executrix in Rose Dugan's will and on February 12, 1986, letters testamentary upon the estate of Rose Dugan were granted to Dineen. After compiling an inventory of Rose Dugan's property, on May 6, 1986, Dineen filed the inventory with the New Castle County Register of Wills. On schedule C of the inventory, Dineen reported that Rose Dugan owned no stock of any company.
Each beneficiary of Rose Dugan's estate, including Dunleavy, received a copy of the inventory. In accordance with 12 Del.C. § 2302 each beneficiary also executed a waiver of notice and consent of beneficiary to court approval of account. On June 20, 1986, Dineen filed a first and final accounting with the Register of Wills. The Division of Revenue of the State of Delaware then issued a certificate of clearance to the Register of Wills. On June 15, 1987, the first and final account was approved by order of the Court of Chancery.
C. Dunleavy's Actions
Shortly after her mother's death, Dunleavy began looking into the business and affairs of Dugan Inc. On July 15, 1986, her attorney, accompanied by an accountant, reviewed Dugan Inc.'s books and records. This review apparently lead to Dunleavy's first action filed on July 8, 1987, in the United States District Court for the District of Maryland, styled Mary P. Dunleavy v. John P. Dugan, Jr., et al., C. A. No. R-87-1764 ("federal action"). The federal action alleging various breaches of fiduciary duty -- excess executive compensation, excess retained earnings and excess accumulations of cash -- is against Dugan Inc. and its three directors, John Dugan, Donna Dugan, and Timothy Dineen. On February 2, 1988, the federal action was transferred to the United States District Court for the District of Delaware (C. A. No. 88-57 (CMW)), where it is currently pending.
On June 5, 1989, Dunleavy amended her federal action to include allegations that Rose Dugan owned shares of Dugan Inc. at the time of her death in 1986, and that these shares should have been part of Rose Dugan's estate. The shares referenced in the amendment include Rose Dugan's original 100 shares (certificate numbers 24 and 25) and the 35.52 shares (certificate number 22) that arose from the merger of Dugan Inc. and Dugan Rental. John Dugan contests Dunleavy's allegations as to both groups of stock.
As for the 100 shares, John Dugan maintains that Dunleavy's allegations are supported by absolutely no evidence. The situation surrounding the 35.52 shares is somewhat different. It appears that in the late fall of 1985, John Dugan discovered the absence of his mother's signature on the reverse of certificate number 22. To remedy this situation, John Dugan traced his mother's signature on the reverse of certificate number 22. This act was discovered by Dunleavy on March 15, 1989, after an expert examined the stock certificate representing the 35.52 shares and determined that Rose Dugan's signature was a traced forgery. John Dugan contends, under several theories, that this act does not invalidate the gift of the 35.52 shares of stock to him.
Next, on June 5, 1989, John Dugan, Donna L. Dugan and Dugan Inc. (collectively "plaintiffs") filed a declaratory judgment action in this Court against the executrix of Rose Dugan's estate, Ann Dineen, seeking a declaration that Rose Dugan made valid inter vivos gifts of Dugan Inc. stock to John Dugan. Craig B. Smith, Esquire ("Smith"), counsel for plaintiffs, sent a courtesy copy of the complaint to Dunleavy's Delaware counsel, Richard Cooch, Esquire ("Cooch"). Cooch thereafter advised Dunleavy to intervene promptly in order to protect her interests. Dunleavy was unwilling to seek intervention at that time, evidently because of the expense involved in doing so. Instead, she authorized Cooch to monitor the action, which he did by periodically checking the file in the Register's office. Dineen, in her capacity as executrix, answered on June 28, 1989, opposing the complaint solely on the basis of the statute of limitations. Then, on July 20, Dunleavy filed a claim against her mother's estate, under 12 Del.C. § 2102, based on the forgery. On September 20, 1989, plaintiffs in this action moved for summary judgment, a fact learned by Cooch on October 6.
Sometime in late September or early October (and unknown to Cooch or Dunleavy), Frederick T. Haase, Jr., Esquire ("Haase"), counsel for Dineen and the estate of Rose Dugan, advised Smith that Dineen did not oppose the plaintiffs' summary judgment motion and was not going to respond to it. Smith promptly advised the Court of this fact by letter and submitted a proposed form of order. Cooch was not informed of this development. On October 16, 1989, this Court by stipulated order found that Rose Dugan made inter vivos gifts in 1972 of 135.52 shares of Dugan Inc. The Court further determined that even if one or more of the 1972 gifts was not valid, both the statute of limitations and the doctrine of laches barred Rose Dugan during her lifetime, and thus now bar her estate, from pursuing any claim to recover the stock.
As grounds for the present motion, Dunleavy complains that the gift from Rose Dugan to John Dugan of 35.52 shares of stock was invalid and that the order was submitted to the Court without notice to her. Whether that order should be vacated and Dunleavy allowed to intervene in that action are the questions before me now.
II. THE MERITS OF THE MOTIONS
Dunleavy's motion to intervene is governed by Chancery Court Rule 24 which provides:
(a) Intervention of Right. Upon timely application anyone shall be permitted to intervene in an action: (1) When a statute confers an unconditional right to intervene; or (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the Disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.
(b) Permissive Intervention. Upon timely application anyone may be permitted to intervene in an action: (1) When a statute confers a conditional right to intervene; or (2) when an applicant's claim or defense and the main action have a question of law or fact in common. In exercising its discretion the Court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties.
Plaintiffs attack Dunleavy's intervention request on several grounds. First, the plaintiffs assert that the request is untimely, emphasizing that Dunleavy, despite being aware of the litigation from its inception, chose not to seek intervention until after judgment was entered on October 16. Second, the plaintiffs note (and Dunleavy does not deny) that no statute is involved which would confer a conditional or unconditional right to intervene. Third, they contend that Dunleavy has no interest relating to the property or transaction which is the subject of the main action and that Dunleavy's claims or defenses share no common questions of law or fact with the main action. Fourth, the plaintiffs insist that the proper course for Dunleavy is to bring an action against the executrix (Dineen) to compel her to bring assets into the estate. Because this course of action is available, they argue, Disposition of this action will not impair or impede Dunleavy's ability to protect her interests. Finally, the plaintiffs contend that Dunleavy's interests were adequately represented by Dineen. Intervention, they argue, would unnecessarily delay these proceedings and prejudice the rights of the original parties.
Postjudgment intervention is unusual and infrequently granted. 3B J. Moore, Moore's Federal Practice para. 24.13, at 24-154 & n. 19 (2d ed. 1987). Although under either subdivision (a) or (b) of Rule 24 the application to intervene must be "timely," this issue is not divorced from the general requirements of the paragraph under which intervention is sought. Id. Thus, for example, the timeliness requirement under Rule 24(b) shades into the general requirements of subdivision (b) that the Court consider whether intervention will unduly delay or prejudice the adjudication of the rights of the original parties. Id.; Equal Employment Op. Comm'n. v. United Air Lines, Inc., 515 F.2d 946, 949 (7th Cir. 1975). Timeliness is a flexible concept, requiring consideration of all the circumstances of a particular case. See Fleming v. Citizens of Albemarle, Inc., 577 F.2d 236 (4th Cir. 1978), cert. denied, 439 U.S. 1071 (1979); Lockwood v. Hercules Power Co., 7 F.R.D. 24, 28-29 (W.D. Mo. 1947); United Airlines, Inc. v. McDonald, 432 U.S. 385 (1977), reh'g denied, 434 U.S. 989 (1977). The fact specific analysis called for in such cases has been recognized by commentators:
There is considerable reluctance on the part of the courts to allow intervention after the action has gone to judgment and a strong showing will be required of the applicant. Motions for intervention after judgment ordinarily fail to meet this exacting standard and are denied. As was stated by one court:
"The rationale which seems to underlie this general principle, however, is the assumption that allowing intervention after judgment will either (1) prejudice the rights of the existing parties to the litigation or (2) substantially interfere with the orderly processes of the court."
If neither of these results would occur the mere fact that judgment already has been entered should not by itself require an application for intervention to be denied. Thus although the cases "tend to involve unique situations" and to require "a close examination of all the circumstances of the case," in a significant number of cases intervention has been allowed even after judgment. Wright & Miller, Federal Practice and Procedure: Civil, § 1916, cited in, DiSabatino v. Wawaset Park Maintenance Corp., Del. Ch., C. A. No. 6563, Hartnett, V.C., slip op. at 2 (June 23, 1983). (granting motion to intervene after judgment in order to permit intevenors to appeal the decision of the trial court in the main action).
In each instance where postjudgment intervention is sought, there is necessarily a tension, on the one hand, between the interests of finality in litigation and the concern, on the other hand, that an intervenor who will be bound by the judgment have an opportunity to protect its interests, especially where its interests may not have been adequately defended by those already parties to the action. Alert to the hazzards of upsetting final judgments, courts require postjudgment intervenors to make a strong showing of entitlement and of justification for failure to request intervention sooner. See e.g., United States v. Associated Milk Producers, Inc., 534 F.2d 113 (8th Cir. 1976), cert. denied, 429 U.S. 940 (1976). In the language of subdivision (b), the inquiry is whether a decision to permit intervention will substantially interfere with the Court's orderly processes or seriously prejudice the rights of parties to the main action. Weighing these considerations in the unusual circumstances of this proceeding, I am of the opinion that intervention should be permitted under Chancery Rule 24(b). Discussion of the requirements under Chancery Rule 24(a) is therefore unnecessary.
My reasons for granting permissive intervention are grounded in the unusual factual and procedural circumstances of this case. Dunleavy moved promptly (within ten days) after she learned that the October 16 order had been entered. While her failure to seek intervention earlier is very troubling, I accept the view, for purposes of this motion, that she had no reasonable basis before October 16 for believing that Dineen, in her capacity as executrix of their mother's estate, would capitulate to the plaintiffs' summary judgment application. Despite plaintiffs' strenuous arguments to the contrary, I am not satisfied that conversations Dunleavy had with Dineen, in July or August of 1989, forecasted Dineen's decision to consent to the entry of judgment. Dunleavy followed the progress of the action closely. It defies logic to think that she would simply monitor an action against her mother's estate if she truly knew that the executrix viewed the estate's legal position as hopeless. Dineen, interestingly, has taken no position on the motion to intervene. The litigation, up to the point of this motion, has been swift, about four months from filing to judgment. It has not been intensively litigated. Most of the activity, aside from plaintiffs' opening brief on the summary judgment motion, has centered on the present motions. This case is thus unlike cases cited by plaintiffs where intervention after judgment is sought following intensive litigation, or cases where significant discovery, motions or other testimony have been taken, or cases where an intervenor seeks to upset a negotiated or bargained for settlement. See, e.g., Keller v. Wilson & Co., Del. Ch., 194 A. 45 (1937). Here, the original parties have not engaged in active or lengthy litigation; nor was the stipulated judgment the product of bargaining or settlement negotiations in which the plaintiffs and Dineen arrived at an agreed upon resolution of their differences. For these reasons I find that no cognizable prejudice to the parties to the main action has been demonstrated. Compare Keller v. Wilson & Co., supra, (denying intervention in a class action lawsuit that had spanned two years, including one appeal to the Delaware Supreme Court, and which had resulted, after settlement negotiations, in a stipulated dismissal, especially in light of the fact that the proposed intervenor's own right of action was not prejudiced by the dismissal). Additionally, it appears that Dunleavy's interests may be affected adversely by the October 16 order. The order finds that Rose Dugan made valid inter vivos gifts in 1972 of 135.52 shares of Dugan Inc., a finding that would appear to complicate any effort by Dunleavy to force Dineen to bring an action to recover the disputed 35.52 shares.
Finally, Dunleavy's claim with respect to the 35.52 shares of stock purportedly owned by her mother involves questions of law and fact that are in common with (if not identical to) the questions of law and fact in the main action. On the issue of delay, it is undeniable that the proceeding will be delayed as a result of the intervention. On this record, however, I cannot find that the delay is "undue" or so excessive as to warrant denial of the application for intervention. Dunleavy moved to intervene within days after the consent judgment was entered. The delay since that time has been a result of briefing, argument and decision on the pending motion. Moreover, it is important to bear in mind, in my opinion, that the "adjudication" of rights that occurred in this case was the result of a stipulated judgment. This is not a situation where the intervenor stood on the sidelines and watched as the parties actively litigated the matter to a final judgment, or where the parties to the main action had negotiated and bargained regarding a settlement that the intervenor hopes to upset. See Keller v. Wilson & Co., supra. This is a case where the defendant initially resisted (by filing an answer), and then promptly surrendered after a dispositive motion was filed. The lawsuit ended a little more than four months after it was filed. No cognizable prejudice to the parties to the main action having been demonstrated and considering the unusual circumstances present in this case, I conclude that intervention should be permitted in accordance with Chancery Court Rule 24(b).
B. Vacating the Judgment Order
Dunleavy contends her motion to vacate the October 16 judgment is warranted under Chancery Rule 60(b) (1) (mistake, inadvertence, surprise or excusable neglect) or (3) (misrepresentation) or (6) (other reasons justifying relief from the operation of the judgment). Characterizing Dunleavy's acts as tactical, conscious and deliberate, plaintiffs deny that she may claim mistake, inadvertence, surprise or excusable neglect. Plaintiffs also insist that Smith's letter to Cooch did not constitute a promise or representation that Dunleavy would be able to participate in the action; nor is there evidence indicating that she relied on Smith's statement. Since she made a free and conscious choice regarding the conduct of the litigation, argue the plaintiffs, Dunleavy cannot be granted relief under Rule 60(b) (6) from the consequences of that decision. See Keith v. Melvin L. Joseph Construction Co., Del. Super., 451 A.2d 842, 846 (1982).
Under Rule 60(b) (1), a judgment may be vacated or opened for "mistake, inadvertence, surprise or excusable neglect." Dunleavy was fully aware of the litigation and acted deliberately in deciding not to intervene, even though her lawyer, Cooch, urged her to do so. As troubling as this action is to the Court, it is consistent with the thought, advanced by Dunleavy, that she had no reason to suspect that Dineen would not resist the declaratory judgment complaint. Dunleavy knew that an answer had been filed and that the plaintiffs had moved for summary judgment, supported by a thorough and carefully written brief. With the motion being briefed (and evidently resisted) and with Cooch checking with the Register's office for developments, Dunleavy apparently believed her position was not immediately threatened. She was, however, quite mistaken. Her actions in this respect, as disturbing as they are to the Court, do seem to undercut the argument that Dunleavy was aware that Dineen considered the estate's position in the lawsuit to be hopeless. Why would Dunleavy have gone to the trouble of having Cooch monitor the action if she knew that Dineen was going to capitulate to the plaintiffs and submit to judgment? Why would Dunleavy have moved for intervention and vacation of the order ten days after it was entered if she had known all along, as plaintiffs argue, that Dineen thought she had no grounds on which to resist the declaratory judgment action? If she knew or had reason to know that Dineen would not resist the entry of judgment, why would Dunleavy wait? Considering Dunleavy's actions in this light, one may reasonably conclude (1) that she anticipated active litigation by Dineen and (2) that she expected an opportunity, before any final resolution of the matter, to participate formally. The unusual circumstances of this case lead me to conclude that Dunleavy was surprised by the sudden turn of events on October 16 when this litigation abruptly ended with entry of the stipulated judgment. That Dunleavy may have acted deliberately and intentionally before October 16 in choosing not to seek intervention fails, in my opinion, to detract from the fundamental point that, in the particular circumstances of this case, she had no reasonable basis on which to conclude before October 16 that Dineen would stipulate to the entry of judgment. The circumstances warrant relief from the operation of the judgment.
Plaintiffs contend that Dunleavy has failed to show, if relief from the judgment is granted, that the outcome of the action may be different from what it will be if the stipulated judgment is permitted to stand, i.e., that Dunleavy has failed to demonstrate a meritorious claim or defense to the underlying action. See Battaglia v. Wilmington Savings Fund Society, Del. Supr., 379 A.2d 1132, 1135 (1977); 10 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure, § 2697 (1983). They also argue that substantial prejudice will be caused to the plaintiffs if the motion to vacate is granted.
Dunleavy has made a series of assertions relating to her claim that Rose Dugan never gifted the disputed stock to John Dugan. Whether a donor intended to make a gift and whether the requisites for valid delivery of a gift have been met, are issues that usually depend upon a searching analysis of the surrounding facts and circumstances. Dunleavy asks for an opportunity to bring all the facts on these issues before the Court, insisting that she has a cognizable claim. Plaintiffs have set forth a host of defenses to Dunleavy's claims, defenses which appear, at this stage, daunting and formidable. Even so, I cannot say with certainty that Dunleavy's claims and defenses are without merit.
The wording of Rule 60(b) does not require the moving party to establish the possibility of a meritorious defense to the underlying action. Such a requirement, however, has been judicially established in Delaware. Keith v. Melvin L. Joseph Const. Co., supra; Battaglia v. Wilmington Savings Fund Society, supra. There appears to be no universally accepted standard, nationally or within this state, as to what constitutes a meritorious defense. For these reasons, trial courts are given great latitude in determining a showing of a meritorious claim or defense. 10 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure, supra, citing, Trueblood v. Grayson Shops of Tennessee, Inc., D.C. Va., 32 F.R.D. 190, 196 (1963). The majority of courts have refused to accept general denials or conclusory statements and have insisted upon presentation of some factual basis for the supposedly meritorious claim or defense. Id., citing Gomes v. Williams, 420 F.2d 1364, 1366 (10th Cir. 1970). Dunleavy's claims and defenses meet this requirement.
In addition, plaintiffs have not persuaded me that serious or substantial prejudice will accrue to them if the October 16 order is vacated and this matter is litigated fully on its merits. While delay occasioned by the briefing and decision of this motion and the costs associated with that effort are undoubtedly burdens visited upon the plaintiffs as a result of Dunleavy's actions, such burdens in the circumstances here do not rise to the level of substantial prejudice. Accordingly, Dunleavy's motion to vacate the judgment order will be granted. Chancery Court Rule 60(b)(1). This relief, however, will be conditioned upon Dunleavy's payment of the plaintiffs' counsel fees and expenses related to the motions decided herein. See Chancery Court Rule 60(b) (court may relieve a party from a final judgment "upon such terms as are just"). As a further condition to the relief granted, Dunleavy shall defray those court costs associated with her intervention and vacation of judgment motions. Counsel for the plaintiffs shall submit an affidavit to the Court detailing the fees incurred by plaintiffs in this connection. Counsel for Dunleavy shall submit a form of order implementing the rulings herein.