On Appeal from the United States District Court of the Virgin Islands (St. Croix) D.C. Civil No. 86-0020.
Seitz, Sloviter and Becker, Circuit Judges.
Factual and Procedural Background
The issues on this appeal concern only the district court's order requiring plaintiffs to pay for certain of the attorneys ' fees and costs incurred by the successful defendants who are appellees here. Therefore, a brief summary of the underlying action will suffice for our purposes.
Dr. Bernard Heller and his nephew, Sidney Lee, each owned nearly 50 % of the stock of West Indies Investment Co., Inc. and its two wholly-owned subsidiaries (jointly WILCO). When Dr. Heller died in 1976, he left his WILCO stock to the Dr. Bernard Heller Foundation (Foundation), a New York charitable trust. In 1985, the Board of Directors of WILCO agreed to liquidate WILCO, and such liquidation was completed by June 30, 1987.
In 1986, Herman Mark Harris, who had been Dr. Heller's attorney, and Ruth O. Freedlander, directors of WILCO and trustees of the Dr. Bernard Heller Foundation, and the Foundation, a major shareholder of WILCO, filed a stockholder's derivative suit in the District Court of the Virgin Islands, seeking an accounting and damages for alleged losses to WILCO attributable to financial transactions occurring over the course of a decade. The district court's jurisdiction was founded on V. I. Code Ann. tit. 4, § 32 and tit. 13, §§ 341 and 288.
The claims against the WILCO officers and directors, alleging that they converted corporate funds, committed fraud, and breached their fiduciary duties, were settled on April 27, 1987 for $250,000. These defendants are not parties to this appeal. The remaining claim, set forth in Count VlI of the complaint, alleged that defendants William Newkirk, Alan Bronstein and Andreas Esberg, who were WILCO's accountants, breached their duty to "exercise the usual and customary skills required of certified public accountants" in preparing audits, which the a ccountants knew "would be relied upon by directors and shareholders of [WIICO, et al.], and said audits were in fact relied upon by the plaintiffs." App. at 17.
In their answer of June 6, 1986, the accountant defendants included the applicable statute of limitations as an affirmative defense. On April 8, 1987, after discovery was completed, the accountant defendants filed a motion for summary judgment in which they argued that "the applicable two year statute of limitations bar[red] all claims relating to transactions or accounting services which occurred more than two years prior to the date on which litigation was instituted" and that any action relevant to the financial statements and opinion letters of July 1984 and October 1985, while timely, was barred because the "plaintiffs ha[d] not, in fact, relied upon those documents to their detriment." App. at 98-99. The district court granted the defendants' motion and dismissed Count VII with prejudice.
The accountant defendants then filed a motion for attorneys' fees and costs pursuant to V. I. Code Ann. tit. 5, § 541. After defendants supplemented their motion with more detail as required by the court, the district court awarded partial indemnification to the prevailing defendants including the following:
Expert Witness Fees ,000.00