The opinion of the court was delivered by: Keenan, District Judge.
The central facts of this case are set forth in Clemente
Global Growth Fund, Inc. v. Pickens, 705 F. Supp. 958 (S.D.N Y
1989), familiarity with which is assumed. There, this Court
ruled that plaintiff, a closed-end management investment
company (the "Fund"), had standing to sue to enforce § 12(d)(1)
of the Investment Company Act of 1940 (the "1940 Act") and that
plaintiff was entitled to a preliminary injunction enjoining
defendants from closing a tender offer for up to 100% of
Although the Court will avoid repetition of its prior
decision where possible, a significant change in the
circumstances surrounding the proposed tender offer
necessitates frequent comparison of the factual background
existing in January, 1989 with that today in January, 1990.
Most notably T. Boone Pickens, III and Sumter Partners, L.P.
("Sumter") have announced that they have abandoned the tender
offer and intend to sell all or substantially all of the Fund
stock which they presently hold. This Court held in its
previous decision that Sumter satisfied the definition of an
investment company and had over 100 beneficial owners under
the counting mechanisms of the 1940 Act. See Clemente, 705
F. Supp. at 964-68; 15 U.S.C. § 80a-3(c)(1)(A). Accordingly,
Grace Pickens Global Acquisition Partners ("GPGAP"), the tender
offer vehicle consisting of Sumter and five other limited
partnerships, could not lawfully acquire more than 3% of the
Fund's stock under § 12(d)(1)(A) of the 1940 Act,
15 U.S.C. § 80a-12(d)(1)(A).
On April 19, 1989 the GPGAP partnership agreement was
amended to effect Sumter's withdrawal from the partnership.
The amendment also provided that the remaining partners would
be associated under the name Grace Global Acquisition Partners
("Grace Global"). The defendants emphasize that the cleavage
between Sumter and the other members of Grace Global was
absolute and irrevocable. On April 21 Grace Global notified
the Securities and Exchange Commission of these changes in an
amendment to the group's Schedule 13D and 14D-1 filings. The
amendment represents that "[i]n the event Grace Global and its
partners obtain control of the Fund, Sumter will not
participate financially or otherwise." Grace Def't's Exh. A.
In addition, Sumter filed a separate Schedule 13D confirming
the split. Sumter avows in this filing that there are no
"contracts, arrangements, understandings or relationships
(legal or otherwise) among" Sumter and its former partners.
Sumter also states that it will not acquire any more Fund
shares and that it intends "to dispose of all or substantially
all" of the Fund shares it holds. Grace Def't's Exh. B.
Apart from Sumter's withdrawal, the composition of the
tender offer vehicle is unchanged. Grace Global is a general
partnership with five general partners, each of which is a
limited partnership: Anglo American Security Fund, L.P.
("Anglo American"); Sterling Grace Capital Management, L.P.
("Sterling Grace"); Drake Associates, L.P. ("Drake");
Grace-Merrill, L.P. ("Grace-Merrill"); and Churchill
Associates, L.P. ("Churchill"). The general partners in Grace
Global maintain that each partner actively participates in
management and that no partner has an expectation of profits
derived solely from the efforts of others.
Sumter's 46% stake in the former GPGAP is now gathered in
the two Grace Global partners with the greatest economic
resources: Anglo American and Sterling Grace. If all Fund
shares are now tendered, Grace Global will be funded as
Anglo American 38.6%
Sterling Grace 44.6%
Plaintiff does not dispute that each of the five limited
partnerships that comprise Grace Global has fewer than 100
beneficial securities owners. Plaintiff challenges, however,
Grace Global's assertion that this conclusion attaches when
the five are regarded as a group or as Grace Global.
See Mattingly Aff. ¶¶ 31, 39-45. Plaintiff also contends that a
factual question exists with respect to the completeness of the
split between Sumter and the other limited partnerships.
Sumter contends that it has decided the game is not worth
the candle and thus has abandoned the tender offer. To
demonstrate its good faith, Sumter points out that it has
severed all ties to the other limited partnerships and avows
that no agreements or understandings exist between those
limited partnerships and Sumter. Sumter has also announced
that it intends to sell all or substantially all of its Fund
stock. On this basis Sumter argues that the Fund's claims
against it are moot and therefore the injunction entered
against it should be vacated and summary judgment entered in
A defendant seeking to dismiss a case as moot bears a heavy
burden. See United States v. W.T. Grant Co., 345 U.S. 629, 633,
73 S.Ct. 894, 897-98, 97 L.Ed. 1303 (1953). This burden is not
satisfied until it is "`absolutely clear that the alleged
wrongful behavior could not reasonably be expected to recur.'"
Gwaltney of Smithfield v. Chesapeake Bay Found., Inc.,
484 U.S. 49, 66, 108 S.Ct. 376, 386, 98
L.Ed.2d 306 (1987) (quoting United States v. Phosphate Export
Ass'n, Inc., 393 U.S. 199, 203, 89 S.Ct. 361, ...