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BERG v. FIRST AMERICAN BANKSHARES

December 19, 1983;

STEPHEN BERG, BANK OF BERMUDA, as trustee, FRANCES M. BLACKWELL, WILLIAM B. BOLTON, JOHNNE B. BURNETT, ANNA MAE BURRELL, CAROLINE G. CASLER, MURIEL CLARK, VAN WYCK CODDINGTON, CRABTREE ENTERPRISES, ROBERT GRACE, as trustee, D. RICHARD GRACE, F. CECIL GRACE, HOWARD E. GRACE, JANE R. GRACE, JOHN S. GRACE, LORI GRACE, MORGAN H. GRACE, NANCY TERRELL GRACE, NATALIE W. GRACE, OLIVER R. GRACE, JR., ROBERT M. GRACE, NANCY E. HUSSEY, RUTH JERVIS, as trustee, WILLIAM and MARJORIE KASSO, ANNE KELLY, as trustee, ANGUS C. LITTLEJOHN, GRETTA LODES, FRANK R. MACLEAR, SUZANNE MACLEAR, CYNTHIA B. MUIR, N. PRICE PASCHALL, CHARLES ROBBINS, as trustee, GWENDOLYN GRACE, DORIS ROYCE, OLIVER R. GRACE, SR., as trustee, GERALD I. WHITE, as trustee, FRANCES RICE SWAN, KINGSLEY SWAN, JR., BELLA TRIEBWASSER, GULIELMA R. VALENTINE, TRUDY WILKINSON, BLACKWELL WILLIAMS, MARJORIE WOODRUFF, and RICHARD and PAULETTE MANDELBAUM, Plaintiffs, against FIRST AMERICAN BANKSHARES, INC., FGB HOLDING CORPORATION, CREDIT AND COMMERCE AMERICAN HOLDINGS, N.V., CREDIT AND COMMERCE AMERICAN INVESTMENT, B.V., KAMAL ADHAM, ABDULLAH DARWAISH, FAISAL SAUD AL FULAIJ, ROBERT A. ALTMAN, JACK W. BEDDOW, JUSTIN D. BOWERSOCK, EUGENE B. CASEY, CLARK M. CLIFFORD, JAMES M. GAVIN, ELWOOD R. QUESADA, B. FRANCIS SAUL, II, ROBERT G. STEVENS and STUART SYMINGTON, Defendants.


The opinion of the court was delivered by: POLLACK

MILTON POLLACK, Senior District Judge.

The defendants who have appeared herein have moved for a transfer of this suit, pursuant to 28 U.S.C. § 1404(a), on the grounds that a purported class action previously filed and substantially related was heretofore removed from this Court to and is presently pending before the United States District Court for the District of Columbia and that all the factors to be considered by this Court in deciding such a motion warrant transfer of this case to that District.

 It appears that the plaintiffs in this action are united in the sense that the same corporation acts as investment counsel to virtually all of them and that to all intents and purposes this suit is essentially a "tag-along" suit to the one now pending in the District of Columbia.

 Plaintiffs oppose such transfer, contending that the class suit in the District of Columbia has already been through discovery and pretrial procedures, that the convenience of the plaintiffs would not be served, that it is unlikely that a consolidation of the suits would be ordered because of the disparity of preparation for trial, and that issues of law are now sub judice which might terminate the litigation. Paranthetically, such reasons reinforce the need and desirability for transfer in the interests of judical husbandry.

 For the reasons appearing hereafter, the motion for transfer should be granted.

 This and the District of Columbia suit both hinge their attack on the same proxy statement and the same resulting "going private" merger and contend that they violated the rights of the security holders who have brought these suits. The first suit was brought on March 29, 1982 as a class claim and was transferred to the District of Columbia on June 30, 1982. The instant suit was commenced the following year, on August 11, 1983.

 Both actions arise out of a "going private" merger involving defendant Financial General Bankshares, Inc. ("Financial General"), a Virginia corporation, pursuant to which all publicly held shares of stock in the corporation, including those of the plaintiffs in both suits, were cancelled and converted into a right to receive a specified amount of cash. As a result of this merger, the entire equity interest in Financial General was acquired by FGB Holding Corp. ("FGBHC"), another Virginia corporation.

 The merger was effected under the pursuant to the laws of the state of Virginia.

 This action for money damages alleges violation of federal securities laws, common law fraud, and breach of fiduciary duties in connection with the merger, which was approved more than one year ago on August 11, 1982 by over two-thirds of the relevant shareholders of the Class A Common Stock held by the plaintiffs in the two litigations.

 The plaintiffs respectively claim that the defendants engaged in a "fraudulent scheme" to acquire the Class A Common shares by "misleading" and "deceiving" two-thirds of the Class A shareholders through a Proxy/Information Statement to vote in favor of a proposed plan of merger by which the Class A shareholders would receive $28.00 per Class A share. Under Virginia law, a two-thirds vote was required for such shares to be converted into the right to receive cash. The basis of plaintiffs' claim is their view that they were not paid enough for their Class A stock.

 The challenged Proxy/Information statement is alleged to have been materially false and misleading in severl respects, including the following: it implied that the Class A Common Shares had historically traded at a substantial discount to the Common Shares and had a lower book value at the time of the proxy solicitation; it mistated that the relative value of the shares of the two classes was linked to differences in voting power; it omitted various other facts which would have indicated that the conversion price specified in the merger agreement for the class A Common Shares was below fair value; and it omitted to state that certain tax benefits would accrue to the acquiring group only if the merger agreement was approved by the requisite two-thirds of the Class A Common Shares.

 Plaintiffs claim that the manner and method by which their shares were cancelled and converted violated Sections 10(b), 14(a), and 13(e) of the Securities Exchange Act, 15 U.S.C. §§ 78k(b), 78m(e), and 78n(a), respectively, and Rules 10b-5, 14a-9, and 13e-3 promulgated thereunder, and also constituted a fraud upon plaintiffs in violation of the common law of Virginia and a breach of common law fiduciary duties.

 In addition, plaintiffs assert that the acquiring group, the defendants Adham, al Fulaij, Darwaish, and CCAI violated the Racketeer influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. In this regard, the complaint alleges that these defendants were an "enterprise" within the meaning of the RICO statute and participated in a pattern of racketeering activity involving fraud in connection with the sale or purchase of securities.

 In all pertinent respects, this is a District of Columbia case. Virtually all of the operative events which are the subject of this lawsuit occurred in and around Washington, and that is where virtually all relevant documents and likely witnesses may be found. The Southern District of New York was not the site of a single transaction or occurrence likely to have bearing on the merits of this action, and this District's sole link to the preceeding is the possible residence of certain of the shareholder plaintiffs or their trustees.

 The Question of Transfer Under 28 U.S.C. § 1404(a)

 The statute governing transfer of cases in the district courts, 28 U.S.C.§ 1404(a), states:

 For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or ...


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