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December 18, 1981

DANIELS & BELL, INC., Dan Bell Group, Inc., Bell, Jr., Travers J. and Bell, Sr., Travers J., Defendants

The opinion of the court was delivered by: POLLACK


At the threshold it is well to recall the standard for the issuance of a preliminary injunction.

 The plaintiff must show (a) irreparable harm and (b) either, one, likelihood of success on the merits or, two, sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.

 This action arises out of a suit by the plaintiff, Freedom National Bank of New York, to prevent what plaintiff perceives as a takeover attempt by the defendants. Plaintiff seeks a preliminary injunction to protect its public shareholders by restraining the defendants from acquiring more of plaintiff's shares and from voting the shares they presently have, a total of about eight percent of the voting power of the company. Plaintiff alleges, first, the defendants made false statements in their filings under Section 13(d) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78m(d) by claiming that their purchases of Freedom stock were for "investment" purposes when the purchases allegedly were actually part of a plan to acquire control of plaintiff; second, that defendants made, in effect, a tender offer without complying with Section 14(d) of the Exchange Act, as amended, 15 U.S.C. § 78n(d), and, third, that the defendants traded in plaintiff's common stock without disclosing their intention to shareholders in violation of Section 10(b) of the Exchange Act, 15 U.S.C., Section 78j(b), Rule 10b-5, and Section 14(e), 15 U.S.C. Section 78n(e).

 On December 10, 1981, on an application for a temporary restraining order, Judge Gagliardi in Part 1 signed a stipulation by the defendants that they would not acquire any shares of plaintiff's stock, would not vote their shares or solicit other stockholder's proxies, and would take no other steps to acquire control of plaintiff pending the resolution of this application and/or the trial.

 Plaintiff seeks a preliminary injunction to preserve that state of affairs until the outcome of the trial. At the threshold, it is clear that a preliminary injunction ought not to issue on plaintiff's 10(b) claim, since as an issuer the plaintiff lacks standing to bring that claim.

 Freedom is a national bank with its principal offices in Harlem and a branch office in Bedford Stuyvesant. It is the only black-owned and operated commercial bank in New York. The bank has 94,018 shares of common stock outstanding, which are registered pursuant to Section 12 of the Exchange Act and are publicly traded in the over-the-counter market.

 Plaintiff has approximately 1,770 shareholders, 90 percent of whom own 25 or fewer shares.

 Plaintiff alleges that as of January 1, 1981, defendant Daniels & Bell, Inc., (hereafter "D&B"), a broker-dealer and member of the New York Stock Exchange, owned 1,260 shares of plaintiff's common stock, and that by March 1981, D&B owned 5,290 shares. D&B was the record owner and Dan Bell, D&B's parent company, was the beneficial owner.

 By March 13, defendant Travers Bell, Jr., chairman of the board of both D&B and Dan Bell, filed a form F-11 and F-11-A under Section 13(e) of the Exchange Act in which he characterized D&B's purchases of what now amounted to about five and a half percent of plaintiff's shares as for investment purposes.

 On March 16, 1981, Bell, Jr. requested the appointment of defendant Travers Bell, Sr., a director of both D&B and Dan Bell, to Freedom's board of directors at the annual meeting scheduled for May 9, 1981. Two days before, that is, May 7, 1981, Bell, Sr. resigned his position as a director of D&B, a broker-dealer, so that he could serve as a director of plaintiff bank.

 On May 9, 1981, by virtue of cumulative voting rights attached to D&B's shares of the plaintiff, Bell, Sr. was elected director of the plaintiff and continues to serve.

 In May and June of 1981, D&B made mail solicitations to numerous shareholders claiming that it was a market maker in Freedom National Bank stock and offering $ 10.50 a share.

 Although characterized as a premium price, there is no evidence before the Court at this time as to how much of the alleged ...

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