The opinion of the court was delivered by: LASKER
Trans World Corporation (Trans World) instituted this action for injunctive and declaratory relief on March 11, 1983, alleging that the defendants, in the course of activities preceding Odyssey Partners' formal proposal of a non-binding shareholder resolution to be voted upon at Trans World's annual shareholder meeting on April 27, 1983, have violated Sections 13(d) and 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78m(d) and 78n(a) and the rules and regulations promulgated pursuant to those sections. The shareholder resolution, as presented in proxy materials prepared by defendant Odyssey Partners ("Odyssey"), would request the Board of Directors "to develop a program to separate Trans World's primary subsidiaries by spinning them off to Trans World's stockholders as independent public companies or by their sale."
All defendants except Eugene S. Rosenfeld move to dismiss the complaint under Fed. R. Civ. Pr. 12(b)(6) and 9(b); certain defendants (Bishopsgate Trust PLC, Hambros Investment Company, A.G., Hambros Investment Trust PLC, Kavilco, Inc., MR Investment Associates, NR Investment Associates, Royston Investments Co., and S.G. Warburg & Co., Ltd.) also move to dismiss the complaint under Fed. R. Civ. Pr. 12(b)(2) and 12(b)(3) for lack of personal jurisdiction and improper venue.
Trans World is a diversified holding company which through its five primary subsidiaries is engaged in airline services (Trans World Airlines, Inc.), hotel services (Hilton International Co.), food services (Canteen Corporation and Spartan Food Systems, Inc.), and real estate services (Century 21 Real Estate Corporation).
Defendants Jack Nash, Leon Levy, and Lester Pollack are the general partners of Odyssey; defendant Bert Fingerhut is a limited partner. Oppenheimer & Co., Inc. is a registered broker-dealer; Nash, Levy and Pollack are "controlling persons" of Oppenheimer & Co., Inc. within the meaning of Section 20 of the Exchange Act. Fingerhut is the head of research for Oppenheimer & Co., Inc. Oppenheimer Holdings, Inc. is a holding company which "directly or indirectly" owns a variety of companies including Oppenheimer & Co., Inc. Oppenheimer Capital Corp. is a registered investment advisor. (Complaint, paras. 10-17).
Oppenheimer Fund, Inc., Oppenheimer Special Fund, Inc., Oppenheimer Option Income Fund, Inc., Hamilton Funds, Inc., and Centennial Growth Fund, Inc. (together the "Funds") are registered investment companies. The complaint refers to Oppenheimer & Co., Inc., Oppenheimer Holdings, Oppenheimer Capital Corp., and the Funds as the "Oppenheimer Entities," and states that the registered investment advisor of each of the Funds is an affiliate of the Oppenheimer Entities. (Complaint, paras. 18-23).
Defendants Bishopsgate Trust PLC, Electra Investment Trust PLC, Hambros Investment Company A.G., Hambros Investment Trust PLC, Kavilco, Inc., MR Investment Associates, NR Investment Associates, Royston Investments Co., S.G. Warburg & Co., Ltd., and Eugene S. Rosenfeld are companies, partnerships or individuals who joined Hepplewhite Limited Partners, a partnership set up in or about August 1982 by Odyssey's predecessor company, Oppenheimer & Co. (Complaint, para. 34). These defendants are referred to in the complaint as the "Undisclosed Group Members," apparently because Trans World alleges that they are part of a group within the meaning of Section 13(d) of the Exchange Act. For the purpose of consistency, we adopt this appellation in the following discussion.
Count I of the complaint alleges violations by all of the defendants of Section 14(a) of the Exchange Act and of Rules 14a-3 and 14a-6, 17 C.F.R. §§ 240.14a-3 and 240.14a-6.
It alleges that the defendants, without furnishing Trans World shareholders with the information required by Rule 14a-3 and without filing their solicitation materials in advance with the Securities and Exchange Commission ("SEC") as required by Rule 14a-6, have engaged in a plan to solicit proxies from Trans World shareholders.
As defined in Rule 14a-1, 17 C.F.R. § 240.14a-1, the term "solicitation" includes, inter alia, any "communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy." As interpreted by the Second Circuit, a communication to stockholders may constitute a proxy solicitation, even if it does not contain an express request for a proxy, if it is "part of 'a continuous plan' intended to end in solicitation and to prepare the way for success." Studebaker Corporation v. Gittlin, 360 F.2d 692 (2d Cir. 1966), quoting SEC v. Okin, 132 F.2d 784 (2d Cir. 1943). The allegations of the complaint which according to Trans World state a cause of action for unlawful proxy solicitation under the standards described above fall into three main groups:
First, the complaint alleges that in August 1982, Oppenheimer & Co., the predecessor of Odyssey, formed Hepplewhite Limited Partnership ("Hepplewhite") "as the vehicle to solicit numerous holders of Trans World stock to support [the] objective of precipitating a break-up of Trans World." (Complaint, para. 50). Oppenheimer & Co. was the initial general partner of Hepplewhite, and Pollack was Hepplewhite's initial limited partner. Between August and November 1982, "numerous investors were solicited by defendants," and ten limited partners -- the Undisclosed Group Members -- joined Hepplewhite (para. 55). During this time, Oppenheimer & Co. was reconstituted as Odyssey; in November 1982, Hepplewhite was also formally reconstituted, and a new partnership agreement was executed by Odyssey and the Undisclosed Group Members. The Hepplewhite partners contributed all their Trans World stock to Hepplewhite, and Hepplewhite thereafter purchased additional shares of Trans World stock (approximately 157,200). Hepplewhite was dissolved in December 1982. (Complaint, paras. 49-56).
The second set of allegations upon which Trans World bases its solicitation claim concerns alleged efforts by the "defendants" to publicize their proposal that Trans World be broken up into independent companies. The complaint states that in late 1982 "defendants both communicated the 'break-up' concept they had decided to promote to various members of the financial community, the financial press and Trans World itself and engaged in calculated refusals to deny rumors concerning their intentions when queried by the press." (Complaint, para. 57). Third, the complaint recounts that Hepplewhite filed a Schedule 13(D) in December 1982 which announced that Hepplewhite had acquired more than 5% of Trans World's stock, that the stock had been acquired pursuant to Hepplewhite's plan to propose the separation of Trans World's operating subsidiaries into independent companies, and that Hepplewhite was being dissolved and its shares distributed to its partners. The 13(D) also stated that Hepplewhite's partners reserved the right to continue to advocate the separation program outlined in the 13(D) statement. (Complaint, paras. 65-67). According to Trans World, the statements in Hepplewhite's 13(D) constituted proxy solicitations with respect to the defendants' plan to propose the separation of Trans World's subsidiaries.
Although the adequacy of the above allegations as to each group of defendants is discussed below, it is to be noted at the outset that the complaint's repeated references to actions of the "defendants," without differentiation among the various defendants, is unacceptable. E.g., Complaint, para. 57 ("defendants proceeded to orchestrate the publicity they desired. . . . Defendants . . . communicated the 'break-up' concept they had decided to promote to various members of the financial community, the financial press and Trans World itself. . ."). Whether the standard applicable to claims under Section 14(a) is the Rule 9(b) standard requiring particularity in allegations of fraud, or simply the notice standard of Rule 8, each defendant is entitled to know precisely what Trans World is alleging as to him or it. Accordingly, Count I of the complaint will be dismissed unless Trans World amends the complaint so as to specify which of the actions relating to Trans World's 14(a) claim now charged to the "defendants" generally are charged to particular defendants individually.
As to those defendants who, upon amendment of the complaint, are specifically charged with having communicated the disaggregation concept to the financial community and press in an effort to influence shareholder opinion, the 14(a) claim will be deemed sufficient on the authority of SEC v. Okin, supra, and Studebaker Corp. v. Gittlin, supra. However, the allegation that any defendant simply refused to comment to the press on ...