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KOPPEL v. WIEN

November 16, 1983

JAY H. KOPPEL, Plaintiff, against LAWRENCE A. WIEN, ALVIN S. LANE, and WIEN, LANE & MALKIN, Defendants; MARY GREENBAUM, Plaintiff, against LAWRENCE A. WIEN, ALVIN S. LANE, and WIEN, LANE & MALKIN, Defendants.


The opinion of the court was delivered by: DUFFY

MEMORANDUM & ORDER

KEVIN THOMAS DUFFY, D.J.:

 Defendants Lawrence A. Wien, Alvin S. Lane, and Wien, Lane & Malkin ("WL&M") move to dismiss plaintiff's Consolidated Second Amended and Supplemental Class Action Complaint on the alternative grounds of lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. This complaint alleges, inter alia, violations of sections 14(a) and 10(b) of the 1934 Securities Exchange Act. Defendants also seek attorneys' fees and costs. For the reasons that follow the motion to dismiss is granted.

 I.

 BACKGROUND

 Plaintiffs seek to sue on behalf of the joint venturers (the "Participants") of a partnership entity known as St. Moritz Hotel Associates ("SMHA"). SMHA holds title to the St. Moritz Hotel (the "Hotel") and to a ground lease of the land underneath the building. SMHA was conceived and organized in 1961 by defendant Wien and Harold L. Strudler. Each had an undivided one-half interest in SMHA. In December 1961, they sold participations in SMHA in accordance with the terms of two participation agreements which defined separate but identical joint ventures. Defendants Wien and Lane, who replaced Strudler, are the general partners of SMHA and the agents for the participants. Defendant WL&M and its predecessor firms have been general counsel to SMHA since its creation.

 Essentially all operational duties since SMHA's inception have been performed by the defendants as the agents of SMHA. These activities have included legal and administrative services such as acting as general counsel to SMHA, "maintaining all of its partnership records, performing physical inspections of the property, and reviewing insurance coverage." Letter of Lawrence Wien dated November 6, 1981, Defendants' Notice of Motion, Exh. B at 3 ("November 6, 1981 letter"). Defendants also have conducted substantial services on SMHA's behalf including "monthly receipt of rent from the sublessee, payment of monthly ground rent and mortgage installments, payment of monthly and annual distributions to the Participants, confirmation of the payment of real estate taxes, and active supervision and review of Associates' independent public accountants with respect to all financial statements and tax information and distribution thereof to the Participants." Id. at 3-4. Defendants also prepared all quarterly, annual, and other periodic filings with the state and the SEC. The incidental costs incurred during the provision of these services were paid by the defendants.

 The participation agreements provided that the participants would share profits and losses in proportion to their relative fractional interests. The agreements reserved to the participants the power to sell, mortgage or transfer the property, building, and furnishings, and to renew or modify the various leases involved. Even these powers, however, could be overridden under section 7 of the agreements which provided:

 7. If the consents of Participants owning at least eighty per cent (80%) of The Property have been obtained . . . the Agent . . . shall have the right to purchase the interest in The Property of any Participant who has not given such consent. . . . The price shall be the lesser of (i) the amount of the capital contribution of such participant, . . . or (ii) the appraised value of the interest in The Property.

 By letter dated November 6, 1981, Wien and Lane notified the participants that they were exploring the possibility of selling the Hotel. In the letter, the defendants sought the participant's consent to a modification of the original agreements which would allow the defendants to share in the sales proceeds above $14,400,000.00. *fn1" Defendants indicated that the reasons for the modification were threefold: (1) the defendants would no longer provide legal, administrative, or financial services upon sale of the property; (2) a "great deal of work with brokers and prospective purchasers" would have to be done to effect a sale; (3) the agreements did not provide for defendants' sharing in any profits upon a sale of the property, and defendants as the original conceivers and creators of the investment deserved a share as some type of deferred compensation. The letter also reminded the participants that upon the consent of over 80 percent of the participants, the agents could buy out the nonconsenting participants at a book value that was much lower than the fair market value.

 On November 19, 1981, plaintiff Koppel commenced suit challenging the proposed modification.Plaintiff Greenbaum's suit was filed shortly thereafter. On November 25, 1981, defendants sent a letter to the participants stating that over 60 percent of the participants had consented to the proposed modification, and requesting the response of the other participants. No mention was made in the November 25th letter of either lawsuit. In a letter to the Participants dated January 20, 1982, Wien noted that over 86 percent of the participants had consented to the modification, but that two participants had instituted the instant lawsuits. Wien stated that he was withdrawing the proposed modification ostensibly because he did not want to force anyone to pay additional compensation to himself or WL&M. He indicated, however, that he might seek voluntary consents to the profit sharing and that he was still pursuing the possibility of a sale.

 On May 24, 1982, Wien again write to the participants this time seeking their conditional consent to a sale of the property.Although there were no definite negotiations or commitments, Wien stated that it was important that he be able to conclude a sale swiftly if an acceptably offer were received. He defined an "acceptable offer" as one in excess of $25 million.

 By August 1982, over 94 percent of the participants had given Wien their consent to the potential future sale of the Hotel. On August 20, 1982, Wien sent a letter to the participants asking each Participant to voluntarily agree to give defendants a share of the profits from any further sale of the Hotel. The formula was that set out in the November 6, 1981 letter: one-third of all proceeds in excess of $14.4 million.

 The original and first amended complaints in this case alleged that the November 6th and 25th letters violated the 1934 Act. I eventually dismissed the amended complaint as moot in a decision dated October 28, 1982, because the November 6th proposal was withdrawn. I also denied plaintiffs' motion for attorneys' fees. Plaintiffs' were granted, however, leave to file a second amended complaint. It is this complaint, asserting violations ...


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