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June 16, 1976

Federated Development Company, et al.

Haight, District Judge.

The opinion of the court was delivered by: HAIGHT

HAIGHT, District Judge.

The defendants have brought a motion for summary judgment directed at the two remaining counts of plaintiff's second amended complaint. Previously, by Memorandum of Judge Bonsal dated November 26, 1974 and reported at 387 F. Supp. 355 (S.D.N.Y. 1974), and Order dated December 20, 1974, plaintiff's three other causes of action were dismissed on the pleadings, and his motions for class certification and appointment of a receiver denied. In opposing the instant motion, plaintiff also seeks "reinstatement" of the dismissed portions of his suit on the grounds that the Court misconstrued the thrust of his second amended complaint, and further, that recent decisions of the Court of Appeals for the Second Circuit are said to warrant the re-opening of certain portions of Judge Bonsal's decision.

 For the reasons set forth below, defendants' motion for summary judgment is granted, and plaintiff's requested relief is denied.

 The Parties

 Defendants in this action include Federate Development Company ("Federated"), a New York real estate investment trust whose shares were traded on the New York Stock Exchange; the individuals comprising its board of trustees immediately prior to and following a September, 1973 tender offer for control of Federated, successfully undertaken by SMR Holding Corporation ("SMR"), a privately-owned Delaware corporation controlled by one Charles E. Hurwitz; and SMR. Plaintiff is a sizeable Federated shareholder, and had, at a time preceding the activities complained of herein, served on Federated's board of trustees.

 Since Federated's genesis in the 1960s, members of the stock brokerage house of Loeb, Rhoades & Co. (" LR"), particularly one John L. Loeb ("Loeb"), held a substantial, though minority, block of Federated stock, placed several LR officers on its board of trustees, and appear to have exercised considerable influence over the management of the company. Although key participants in plaintiff's averred fraudulent scheme, neither LR nor its members, save for those on Federated's board during 1973, are defendants herein.


 Accepting as I must for summary judgment purposes plaintiff's rendition of the facts, it appears that in March, 1973 Hurwitz of SMR approached Federated with a proposal that the two companies be "combined", such reorganization to be effected through an SMR tender for a majority of outstanding Federated shares. Although Federated's management found the plan unacceptable in light of the fact that they would thereby become minority shareholders, the idea appealed to the LR group which was allegedly in need of fresh capital. The LR group threatened to encourage the tender offer unless another means of transfusing funds to them were found, and consequently, the "Boston agreement" was struck between Loeb and William T. Golden ("Golden"), Federated's Chairman, pursuant to which Federated would initiate a plan of liquidation. According to plaintiff, this approach was preferable for all concerned since the book value of Federated stock was somewhat higher than the price per share of the contemplated tender offer.

 Having ostensibly rebuffed SMR, Federated as a first step towards its own liquidation, made a tender offer on March 26 for its own stock at $8.00 per share, ultimately reducing the number of its outstanding shares by 216,124. Plaintiff notes that this tender facilitated the SMR bid by lessening the number of outstanding shares and had the effect of increasing the book value of the remaining Federated stock. It is not averred that Federated's shareholders were notified of the "Boston agreement" at this time, or of the decision to liquidate the company.

 Plaintiff maintains that LR's need for capital was so pressing, however, that it could not await the orderly liquidation of Federated, and thus, in contravention of the advice of each party's counsel to shut off communications for a six-month period, continued to discuss with Hurwitz and his associates the possibility of an SMR takeover bid. More specifically, plaintiff avers that during July of 1973, Hurwitz solicited Lehman Bros. for their assistance in the contemplated takeover bid, assuring the investment banking firm that the Federated management and the LR group would cooperate in such a venture. Additionally, plaintiff claims that Hurwitz and the LR group met on other occasions during that summer for the purpose of preparing an upcoming tender offer.

 The second amended complaint pleads that on or about September 17, LR presented to Federated's board the tender offer it had concocted with Hurwitz, the terms of which were intended to insure maximum "insider" participation (i.e. the LR and Federated management groups) to the detriment of the "outsider" shareholders. Further, plaintiff avers such a scheme was motivated solely for the benefit of the LR group and in contravention of the interests of the shareholders who would have been best served by implementation of the liquidation plan previously embarked upon. By abandoning the "Boston agreement", casting their lot with SMR and tendering their own shares, Federated's trustees are charged with a breach of their fiduciary duty.

 On September 19 SMR announced over the Dow Jones news ticker a tender offer for 800,000 Federated shares (approximately 50.01% of the company's outstanding stock) at $12.25 per share. Simultaneously, a press release containing news of the tender was issued to the major wire services, the Wall Street Journal (which published a story on the offer on September 20), the New York Times, and to some 59 major brokerage houses. Additionally, the firm of D.F. King & Co., Inc. was retained to respond to inquiries concerning the tender offer, which by its terms was to expire at midnight on September 29.

 Although SMR had been provided with a Federated shareholders list, no use was made of same until September 21, when, at Federated's insistence, copies of the tender offer were mailed to the shareholders at SMR's expense. The Offer to Buy contained the following relevant provision:

"5. Anticipated Acquisition of Control by SMR.
SMR intends through this Offer to acquire sufficient Shares to give it working control of the Company. It intends to seek majority representation on the Company's Board of Trustees and to call a special meeting of shareholders of the Company for that purpose. SMR has no present plans to liquidate the Company, but would expect to continue the businesses, in which the Company is now engaged, of reinsurance and of disposing of the Company's real estate properties. SMR may seek, among other possibilities, to merge or consolidate the Company with SMR itself. The holders of Shares not purchased pursuant to this Offer would be affected by any such merger . . ."

 The Offer to Buy also disclosed the March negotiations between SMR and Federated, but stated that they had been terminated at that time, SMR having determined to make no tender offer.

 Also on September 21, Federated shareholders were sent a letter from Golden advising them that the tender offer was being studied by Federated's board, which would issue its recommendations on September 24. As promised, a subsequent communication was distributed to Federated shareholders, in which the trustees stated that they believed the tender would be successful, and added:

". . . Without endorsing SMR Corporation, its principals, or the tender program the Trustees have concluded that they will tender their shares. (It is expected that their families and associates will do the same.) Loeb, Rhoades & Co. and its partners and members of their families as of March 8, 1973 owned 292,161 shares or 18.3% of the shares ...

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