We have before us two appeals taken from one settlement agreement approved by two District Court Judges in partial resolution of three class action-shareholders' derivative suits. The defendants-appellants, D. Doyle Mize (Mize), and his wholly owned company, the Addis Corporation (Addis), claim that the District Court Judges approved the settlement agreement without holding the requisite hearings, without sufficiently evaluating its terms, and without explaining why it was found "fair and reasonable." For the reasons given below, we affirm the judgments of approval without reaching the merits of these issues.

The cast of characters and the basic plot of this corporate drama can be briefly described. The appellees are Southdown, Inc., (Southdown), the corporation on whose behalf the derivative suits were brought and a nominal defendant in the litigation, the plaintiffs in the three derivative-class action suits, and those defendants in all three suits who approved the partial settlement agreement. Appellant D. Doyle Mize, a defendant in all three cases, was Chairman and Chief Executive Officer of Southdown until March 1975, when he became Chairman and Chief Executive Officer of Southdown's then wholly owned subsidiary, Valhi, Inc. (Valhi). Mize is the principal target of all three suits. The gist of the complaints is that Mize engineered several transactions designed to enrich himself and his colleagues at the expense of Southdown and its stockholders.

The plaintiffs in the Darrow suit included claims on behalf of a class of Southdown's preferred shareholders with their derivative complaint; the plaintiffs in the Spalding suit linked the derivative claim with a class allegation on behalf of the holders of Southdown's convertible debentures. The suits, consolidated by District Judge Seals, alleged violations of state and federal law in Southdown's March 1975 spin-off of Valhi by a distribution of 100% Of Valhi's common stock to the common shareholders of Southdown. The suits named Mize and other directors of Southdown and Valhi as the principal defendants; the Darrow suit also named a defendant class of Southdown's common shareholders. The Cummings case, filed before District Judge Hannay, is also a derivative suit brought by Southdown's preferred shareholders. These plaintiffs sought to rescind the transfer of certain assets by Southdown to Valhi accomplished before the spin-off, and to recover wrongful profits allegedly made by Mize and other members of the Southdown Board of Directors from transactions involving another Southdown subsidiary, the Pelto Oil Company.

In 1976, the plaintiffs and some of the defendants began negotiations towards a partial compromise and dismissal. After the notice of the proposed settlement was approved by the District Judges and sent to the approximately 12,000 security holders of Southdown, three parties objected, including Mize.1 In July 1976, Judges Seals and Hannay entered final judgments approving the partial settlement agreement. The agreement dismissed most of the individual directors named as defendants, dismissed the defendant class of common shareholders, eliminated certain claims against Southdown, established a procedure whereby nominees of the Protective Committee for the Responsible Management of Southdown would assume full control of the corporation, and provided for the reimbursement of plaintiffs' attorneys' fees. The settlement expressly preserves the principal claims for equitable and monetary relief against Mize, his corporation, and those alleged to have collaborated in the transactions under attack.2

Out of the welter of defendants involved in this litigation and the 12,000 stockholders who were notified of the settlement, Mize and Addis alone appeal from the judgments approving the settlement. They do so not as defendants aggrieved by the judgment, but rather as security holders of Southdown.3 We hold that on principles akin to standing, Mize and Addis cannot object to the settlement, and therefore affirm the judgments below.

Mize and Addis claim that the judgments approving the settlement agreement are tainted by the District Courts' failure formally to articulate the reasons in support of its approval; by omissions from the notice sent to shareholders and discrepancies between the notice and the terms of the agreement;4 and by the inclusion in the agreement of a provision requiring Southdown to reimburse the plaintiffs' attorneys' fees without a separate hearing on either the question of imposing the fees or the amount. With the exception of this final item, the appellants make no specific allegations that the substance of the settlement agreement is oppressive or onerous to Southdown or its shareholders.5 Nor do they now urge that, given the abundant knowledge of the persons and plots each Judge gathered during the long pendency of these and related suits, the Courts below erred in failing to hold full evidentiary hearings before approving the settlement. The most likely injury to the company alleged to result from these defects, and the harm which we assume this appeal is meant to forestall, is that the judgments approving the settlement agreement will not be res judicata.

We measure Mize's ability to object to the settlement agreement as a stockholder appealing on behalf of Southdown and its shareholders by asking whether he could have brought a derivative action in the first instance. See, e. g., In re Pittsburgh & Lake Erie Rr. Co. Securities and Antitrust Litigation, 3 Cir., 1976, 543 F.2d 1058, 1064-68. The first question is whether Mize is a stockholder of Southdown within the meaning of F.R.Civ.P. 23.1.6 Mize holds subordinated promissory notes in Southdown, some of which are convertible into common stock. A debentureholder, as a contract creditor of the corporation, has no ownership interest and therefore no derivative standing. E. g., Dorfman v. Chemical Bank, S.D.N.Y., 1972, 56 F.R.D. 363, 365. Whether a holder of convertible debentures has standing to assert claims derivatively is not free from doubt. See generally 3B Moore's Federal Practice, P 23.1.17, at 68-69, and cases cited therein. No Fifth Circuit case has directly addressed the question. Assuming, without deciding, that Mize's holdings give him sufficient interest in Southdown to assert claims in its behalf and on behalf of other shareholders, we still conclude that he and Addis cannot properly pursue this appeal.

We hold that the tenuousness of the harm to Southdown that Mize asserts on this appeal, in comparison to his own exposure to substantial personal liability in the continuing litigation, requires us to affirm the District Courts' approval of the settlement agreement. By this appeal, Mize attempts to occupy simultaneously the position of a defendant sued by the corporation and that of a shareholder seeking to advance the interest of this corporation. The equitable principles that form the basis for all stockholders' derivative suits preclude Mize from assuming this contorted position. The conflict of interest flowing from his continuing involvement as a defendant and the obvious inequity of allowing this appeal further to delay the partial resolution of this complex litigation are readily apparent. As shareholders speaking on behalf of Southdown, Mize and Addis can show no injury suffered by the corporation by reason of the judgments approving the settlement. They can show great harm to their individual interests in the necessity of continuing to defend the derivative claims against them and the possibility that they will do so unsuccessfully. But this anxiety is wholly removed from their assumed role as apostles for Southdown.

These equity-based considerations are reinforced by more technical terms. Mize and Addis do not meet the requirement of Rule 23.1 that the stockholder-plaintiff in a derivative suit "fairly and adequately represent the interests of the shareholders . . . similarly situated . . . ." As this Court has recently held:

While a plaintiff is not necessarily disabled to bring suit simply because some of his interests extend beyond that of the class, the court may take into account outside entanglements that render it likely that the representative may disregard the interests of the other class members.

Blum v. Morgan Guaranty Trust Co., 5 Cir., 1976, 539 F.2d 1388, 1390.7

Because Mize and Addis cannot properly represent the corporation or its shareholders and can therefore demonstrate no harm to the corporation resulting from the alleged defects in the settlement or the procedures by which it was approved, the judgments approving the settlement agreement remain unchallenged.

AFFIRMED.