Appeals from judgment order dismissing claim of aider and abettor liability of purchaser of real estate assets of trust, sold in alleged breach of fiduciary duty of trustees; and from dismissal after trial of claim for restitution from purchaser as constructive trustee; and from incidental rulings and orders made during the litigation. Affirmed.
Oakes, Miner, Circuit Judges, and Pollack, District Judges.*fn*
This appeal grows out of six years of litigation stemming from an unsuccessful struggle in 1981 for control of a registered Missouri real estate investment trust, Terrydale Realty Trust ("TRT").
On January 9, 1981, BCG Associates ("BCG"), a New York partnership, made an unsolicited tender offer for 34.7% of the shares of TRT, offering $33.50 per share, in cash. The purpose of the offeror was to obtain control of TRT. Had the shares been acquired under the offer, when added to the 17.9% interest already owned by BCG's principals, it would have given BCG absolute control of TRT. Allowing for proration of tendered shares, the TRT stockholders would have had only a small amount of their shares purchased for cash, with the remainder being returned to them.
The trustees, believing that the tender offer was not acceptable, sought to obtain a better offer from BCG, viz., an agreement on its part to acquire 100% of TRT's shares at the $33.50 price, but BCG refused to amend its offer to include all shares to TRT. The trustees would not have opposed BCG's tender had it been for all of the TRT shares.
There were substantial disadvantages for TRT's stockholders apparent in BCG's partial offer, including loss of TRT's favorable tax status, a probable decline in marketability of its shares, and possibly cessation of its status as a reporting company under the Federal Securities Laws, among other things.
The trustees, two of whom were also substantial shareholders, set about to seek more attractive alternatives for TRT's shareholders. They solicited bids from numerous corporate and real estate investors, including seven of the largest and most sophisticated realty investors in North America. The TRT trustees, in essence, put TRT up for "auction" to the highest bidder. None of the sources approached was willing to offer a transaction which would yield more than $33.50 to all TRT shareholders. Ultimately, the trustees turned to San Francisco Real Estate Investors, Inc. ("SFREI"), and negotiations with the latter ripened into a proposal from SFREI to purchase TRT's four Denver office buildings, representing about 80% of the value of TRT's assets, a purchase to be made at prices set forth in recently obtained independent appraisals. None of the other potential White Knights was willing to make an offer as attractive as that of SFREI, and the District Court explicitly found that SFREI's offer was the best offer available.
TRT made the sale, and the trustees simultaneously voted to liquidate the trust and declared a liquidating dividend, thereby thwarting the tender offer. An initial liquidating distribution of $24 per share was declared. Over the next 12 months, a further $9.85 was distributed to TRT shareholders, bringing the total proceeds of the sale and liquidation to $33.85 per share for 100% of TRT's shares.
After the trustees' decision to sell and liquidate was announced, BCG extended its tender offer expiration date, and adjusted its offering price to $9.50 per share in order to take into account the $24.00 per share initial liquidating dividend. BCG acquired 80,884 shares pursuant to its extended tender offer, leaving it with approximately 38% of the outstanding TRT shares. During 1981, BCG continued to purchase TRT shares through a series of open market purchases. By January, 1982, BCG had apparently acquired just under 50% of the outstanding TRT shares.
On January 28, 1982, the TRT shareholders approved the creation of the Terrydale Liquidating Trust ("TLT"), the named plaintiff and appellant in this action, and elected as TLT trustees a slate of nominees controlled by the BCG group. BCG then caused TLT, newly controlled by what, in essence, was a defeated tender offerer, to be named plaintiff in this suit (1) against the former trustees of TRT, charging that they sold the TRT property at distressed prices to defeat the tender offer in the service of personal interests of some of the trustees, and (2) against SFREI, the purchaser of the realty, alleging that it had aided and abetted the allegedly tainted sale, and in any event, that it had sufficient notice of the trustees' alleged breach of fiduciary duty to warrant the equitable claim of restitution from SFREI.
In December, 1982, TLT reached a settlement with the former TRT trustees under which TLT abandoned its lawsuit against them and SFREI remained as the only defendant in the lawsuit.
In June, 1984, SFREI made a motion for summary judgment, which the District Court granted in part and denied in part. 611 F. Supp. 1006, 1031, 1033 (S.D.N.Y. 1984). The Court found that there was no genuine factual issue in respect to plaintiff's claim that SFREI was an aider and abettor of the alleged breach of fiduciary duty of the trustees or to the alleged breach of the unanimity provision of the Declaration of Trust. The aider and abettor liability claim was therefore properly dismissed on summary judgment for TLT's failure to establish the key material issue, SFREI's actual knowledge. Marine Midland Bank v. Smith, 482 F. Supp. 1279, 1290 (S.D.N.Y. 1979), aff'd mem., 636 F.2d 1202 (2d Cir. 1980). SFREI's constructive knowledge was an insufficient basis for recovery.
The Court denied summary judgment on an alleged domination and control issue pertaining to the trustees. The sale to SFREI required the approval of three of the five trustees, including two affirmative votes from among trustees Stamper, Murphy, and O'Flaherty. All trustees had voted to sell the assets, and the question raised whether the votes ...