Surowitz v. Hilton Hotels Corp

Facts

Surowitz, Plaintiff, bought stock in Hilton Hotels Corp., Defendant, with the aid of her son-in-law, Irving Brilliant. Plaintiff received a notice that Defendant was going to buy a lot of its own stock. Plaintiff sent this notice to Brilliant, who investigated the matter with one Rockler. On the basis of their investigation, they concluded that Defendant was engaged in a fraudulent scheme and explained the situation to Plaintiff. On this basis, Plaintiff agreed that the complaint be filed in her name. The complaint was a shareholders’ derivative action alleging the officers and directors of Defendant had defrauded Defendant of several million dollars. Rockler prepared the complaint and sent it to Brilliant. Brilliant showed Plaintiff an affidavit, took Plaintiff’s testimony and sent the affidavit after Plaintiff verified the complaint. Because Plaintiff had limited English speaking skills and a limited education, Plaintiff did not understand very much about the actual allegations. The District Court granted Defendant’s motion to require Plaintiff to submit herself to an oral examination by Defendant’s counsel. The examination showed that Plaintiff did not know anything about the allegations in the complaint. Defendant moved to dismiss the pleading on the ground that it was a “sham.” Rockler submitted two additional affidavits illustrating the investigation that had ensued prior to filing the complaint. The District Court dismissed the complaint with prejudice. The Court of Appeals affirmed, even though many of the allegations were true. Defendant was never required to file an answer.