## Facts

- Shareholders of The Lazard Fund, Inc. brought a derivative action under the Investment Company Act of 1940 and related federal securities theories against the fund’s former adviser, Lazard Freres & Co., affiliated directors, and entities involved in a 1967 merger and adviser substitution.
- The Lazard Fund merged into Moody’s Capital Fund, Inc., and shareholders selected Moody’s Advisors & Distributors, Inc. (a Dun & Bradstreet, Inc. subsidiary) as successor investment adviser.
- Contemporaneous with the merger, Lazard and Dun & Bradstreet entered an agreement under which Lazard received 75,000 shares of Dun & Bradstreet stock in exchange for purported “commitments” to provide research and other services.
- Plaintiffs alleged the “commitments” were a sham concealing an unlawful sale of Lazard’s advisory office and that proxy disclosures to shareholders were materially misleading or incomplete.
- The district court initially granted defendants summary judgment; the Second Circuit reversed and remanded, recognizing that the Investment Company Act implied a fiduciary rule barring an adviser from profiting by selling its office and identifying factual disputes for trial.
- After remand and before trial (with a petition for certiorari pending), the parties negotiated a settlement requiring Lazard to pay $1,000,000 to the fund in exchange for broad releases; certain shareholders objected that the settlement and requested attorneys’ fees were inadequate or excessive.

## Issues

1. Whether the proposed derivative settlement payment of $1,000,000 and accompanying releases were fair, reasonable, and adequate to the fund and its shareholders under Federal Rule of Civil Procedure 23.1.
2. Whether the requested attorneys’ fees and expenses for plaintiffs’ counsel were reasonable in light of the monetary recovery and other benefits obtained for the fund.

## Decision

- The court approved the settlement and entered judgment, finding the compromise fair, reasonable, and adequate under Rule 23.1.
- The court credited that negotiations occurred at arm’s length after plaintiffs had obtained a favorable appellate ruling but while significant factual disputes, litigation cost, and appellate risk remained.
- The court approved substantial attorneys’ fees and expenses, concluding counsel conferred a substantial benefit on the fund through the $1,000,000 recovery and the litigation’s clarification and enforcement of mutual-fund adviser fiduciary obligations.

## Legal Principles

- In a derivative action, a settlement requires judicial approval after an independent evaluation of whether it is fair, reasonable, and adequate to the corporation and its shareholders (Fed. R. Civ. P. 23.1).
- Settlement review commonly considers the strength of the claims, litigation and appellate risks, complexity and duration, likely range of recovery compared to potential damages, shareholder reaction, the stage of proceedings, and the quality of counsel and negotiations.
- Attorneys’ fees may be awarded in derivative litigation when counsel’s efforts confer a substantial benefit on the corporation or its shareholders; the benefit may be monetary and may also include meaningful legal or deterrent effects.

## Conclusion

The court approved a $1,000,000 payment to the mutual fund to settle derivative claims arising from an alleged scheme to profit from an adviser transition, and it awarded attorneys’ fees based on the substantial benefit achieved through both the recovery and the litigation’s reinforcement of fiduciary limits on investment advisers.


Rosenfeld v. Black, 336 F. Supp. 84 (S.D.N.Y. 1972)