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PORTNOY v. GOLD RESERVE CORP.

March 15, 1989

LEO P. PORTNOY, Plaintiff,
v.
GOLD RESERVE CORPORATION, a Montana corporation, and DR. RONALD P. GRUNWALD, M.D., Defendants


Robert J. McNichols, United States District Judge.


The opinion of the court was delivered by: MCNICHOLS

ROBERT J. McNICHOLS, UNITED STATES DISTRICT JUDGE

 On January 26, 1989, the Court heard argument on plaintiff's application for attorney's fees and expenses. Plaintiff had previously brought a shareholder's derivative suit in this Court in order to recover illegal short-swing profits. Thereafter, plaintiff moved the Court for an award of his legal fees and expenses incurred in prosecuting the derivative action and in allegedly motivating the recovery of the illegal profit. For reasons that follow, the Court denies plaintiff's request because his efforts were not an important motivating factor in the recovery of the short-swing profits, and because policy considerations do not favor an award.

 FACTS AND PRIOR PROCEEDINGS

 In early February 1988, GRC prepared and filed Dr. Grunwald's Form 4, through which form the SEC requires directors and officers of publicly held corporations to disclose their transactions in the stock of that corporation. GRC claims that at that time it became aware of Dr. Grunwald's violation of § 16(b) and advised Dr. Grunwald to see his attorney to rectify the problem.

 Immediately after the SEC Form 4's became public, by letter dated February 19, 1988 attorney David Lopez sent on behalf of his client CRA Realty Corp. a letter demanding that GRC redress Dr. Grunwald's violation. By letter dated February 22, 1988, attorney Morris Levy sent on behalf of his client Jammys International, Inc. a similar letter. Finally, by letter dated February 26, 1988, attorney Jerrold Shapiro sent a similar letter on behalf of his client Leo Portnoy, who owned one share of the 3,907,972 outstanding shares in GRC stock. *fn2"

 On February 29, 1988, the same day that GRC received Shapiro's letter, Dr. Grunwald's personal attorney sent Dr. Grunwald a letter, with a copy to GRC, stating that Grunwald had agreed to disgorge the short-swing profit, but that the precise amount of restitution could not be determined until May 1988. Consistent with this letter, on March 16, 1988 counsel for GRC sent Messrs. Lopez, Levy, and Shapiro letters informing them that GRC was investigating the violation and would recover any unlawful profits if a violation were found. Then on April 26, 1988, counsel for GRC again wrote to the three attorneys and advised them that the exact amount to be recovered could not be determined under Rule 16(b)-6 for several more weeks. *fn3"

 On September 2, 1988, after noting that "the 'insider' has now satisfied his unequivocal obligation under the statute," Shapiro requested that this Court award to him from GRC his legal fees and expenses in the sum of $ 8,032.58 ($ 7,538.75 in legal fees and $ 493.83 in disbursements) incurred in prosecuting this action. *fn4"

 GRC opposes Shapiro's request on the following grounds: (1) since GRC was already seeking to recover the illegal profit when Portnoy made his first complaint, Shapiro is not entitled to his request as his efforts were not a motivating factor in GRC's recovery; (2) the hours Shapiro alleges were spent on the case are excessive and unnecessary in part because GRC had notified Shapiro early on that it would recover the illegal profits; and (3) considering the simplicity of the work allegedly performed, Shapiro's rate of compensation is unreasonable.

 The Court now turns to determine whether it would be equitable to allow Shapiro recovery of his fees and expenses in bringing Portnoy's complaint. *fn5"

 DISCUSSION

 Although the Securities Exchange Act of 1934 does not require a grant of attorney's fees, a court in its equitable discretion may award reasonable attorney's fees and expenses to a shareholder who brings a derivative action or otherwise provides efforts that ultimately result in a recoupment of short-swing profits by the corporation since such an award spurs the enforcement of § 16(b). Blau v. Rayette-Faberge, Inc., 389 F.2d 469 (2nd Cir. 1968); Smolowe v. Delendo Corp., 136 F.2d 231, 241 (2d Cir.), cert. denied, 320 U.S. 751, 88 L. Ed. 446, 64 S. Ct. 56 (1943); Portnoy v. Standard-Pacific Corp., 666 F. Supp. 140, 142 (N.D.Ill. 1987). The policy for such a fee award is that the corporation has received some benefit for a statutory violation that may have remained ...


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