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S.E.C. v. AMSTER & CO.

May 14, 1991


The opinion of the court was delivered by: Haight, District Judge:


In this civil action plaintiff Securities and Exchange Commission ("SEC") sues all defendants for alleged violations of section 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(d), and accompanying regulations; and all defendants but one for alleged violation of section 10(b) of the Act, 15 U.S.C. § 78j(b), and its regulations. Defendants move under Rule 12(b)(6), Fed.R.Civ.P., to dismiss the complaint for failure to state a claim, or in the alternative for summary judgment under Rule 56(c). Because all parties rely upon materials outside the pleadings, I treat defendants' motion as one for summary judgment.


Defendant Amster & Co. is a New York limited partnership and the successor partnership of Lafer, Amster & Co. ("LACO"). The principal business of both Amster & Co. and LACO was and is risk arbitrage investing.

Defendant Arnold Marvin Amster was and is a general partner and the senior managing partner of Amster & Co.

Defendant Barry Stuart Lafer was at the relevant times a general and managing partner of Amster & Co. Lafer left Amster & Co. and founded his own investment firm in the summer of 1988.

Defendant Joel Richard Packer was at the relevant times a general partner of Amster & Co. Packer left Amster & Co. in approximately June 1988.

This last-described investment strategy brought a company called Graphic Scanning Corp. ("Graphic") to the attention of LACO in August 1984. At that time Graphic owned and operated radio paging and cellular telephone franchises throughout the United States. In August 1984 Graphic publicly announced a liquidation. LACO, anticipating the liquidation to occur within a year and a half of the announcement, began purchasing shares of Graphic. LACO made these investments on its own account, and also indirectly on behalf of its limited partners, the largest of which was the General Electric Pension Fund.

Eventually LACO's purchases of Graphic shares amounted to a 5% interest in Graphic. LACO was therefore required to comply with the disclosure provisions of § 13(d) of the Securities Exchange Act. LACO's Schedule 13(D), dated August 18, 1985, described the purpose of its transactions in Graphic in part as follows:

  Each of LACO and the Other Filing Persons has
  acquired the shares of Common Stock which he owns
  (see Item 5 below) for the purpose of making an
  investment in the Company and not with the present
  intention of acquiring control of the Company's
  The shares of the Common Stock reported as being
  owned by LACO were acquired in connection with
  arbitrage and other activities in the ordinary
  course of LACO's business. Certain general
  partners and employees of LACO have had telephone
  conversations with the Company. LACO does not
  believe that it received any material information
  during those conversations which had not then been
  publicly disseminated by the Company.
  Each of LACO and the Other Filing Persons supports
  the Company's public announcement on September 24,
  1984 and February 15, 1985 regarding its intention
  to develop a plan of asset distribution to its
  stockholders complying with Section 337 of the
  Internal Revenue Code. LACO presently intends to
  continue to purchase shares of Common Stock in the
  over-the-counter market or in private transactions
  if appropriate opportunities to do so are
  available, on such terms and at such times as it
  considers desirable. If the Company abandons its
  intention referred to above, either by public
  announcement or through of a course of action or
  inaction which leads LACO to believe that a
  distribution of the Company's assets to its
  stockholders will not be effected within a
  reasonable period of time, LACO intends to review
  its position and take any such action as it deems
  appropriate at the time.

On January 28, 1989, Graphic filed with the SEC a Form S-1 Registration statement in which Graphic indicated for the first time that the announced liquidation might not go forward. The Form S-1 stated in part: "Although the Company is currently considering the sale of all of its operations and assets, if appropriate offers are not received for all of the assets, it is possible that the Board may determine to sell only portions of the Company's operations and assets." The form also indicated that the Graphic Board was negotiating with the Company's founder and chairman, Barry Yampol, with respect to claims Yampol had against Graphic, one possible resolution being the transfer to Yampol of "certain cellular radio telephone properties and other assets of the Company."

There then ensued a series of meetings involving LACO officers, representatives of other Graphic shareholders, and various attorneys. It is not necessary for purposes of supplying the background of this litigation to describe those meetings and related documents in detail. They are dealt with in the discussion which follows.

For purposes of background, it is sufficient to say that on March 3, 1986, LACO and others affiliated with it filed Amendment 7 to their Schedule 13D with an effective date of February 28, 1986. Amendment 7 stated that defendants had decided to join a group to engage in a proxy contest to obtain control of Graphic. Amendment 7 had been preceded by Amendment 5, filed on or about February 10, 1986, and Amendment 6, filed on or about February 18. Amendment 5 made no changes in the description of defendants' purpose of their transactions in Graphic. Amendment 6 stated that the defendants had begun to consider "on a preliminary basis" waging a proxy contest for control of Graphic as the result of information disclosed in a Form 8-K filed by Graphic on February 7, 1986.

That Form 8-K announced, among other developments, an agreement in principle settling Yampol's claims, pursuant to which Yampol would receive Graphic's interests in cellular radio telephone services in Boston and Worcester as well as an option to purchase a minority interest in two Graphic subsidiaries, in return for certain payments, a release of Yampol's claims against Graphic, and the retirement of Yampol. Amster regarded the Yampol settlement, as described in Graphic's Form 8-K, as a theft of corporate assets.

Between February 4 and 14, 1986, LACO continued to purchase Graphic securities. Individual defendants Lafer and Amster also made purchases. Specifically, on February 3, 1986 LACO bought $1.7 million face value of Graphic convertible debentures at a cost of $1,466,250. On February 4, LACO purchased a total of 17,500 shares of Graphic common stock. On February 6 LACO purchased another 87,500 shares, and on February 7 an additional 100,000 shares, for a total of 205,000 shares at a total cost of $1,410,000. On February 14, defendants Lafer and Amster each purchased 25,000 shares of Graphic at a total cost (for 50,000 shares) of $352,000.

After conducting an administrative investigation, including the taking of depositions ex parte, the SEC filed this complaint seeking injunctive relief and an order of disgorgement. The complaint asserts two claims. First, all defendants are charged with violating § 13(d) and its accompanying rules. Specifically, defendants are charged with failure to file timely and accurate amendments to the Schedule 13D. In that regard, the complaint alleges that "[n]o later than on or about February 3, 1986, defendants singly and in concert changed the purpose of their investment and no longer held their Graphic stock for investment purposes only." Complaint, ¶ 13. The complaint further alleges that "[b]eginning no later than February 3, 1986, each of the defendants attended meetings or participated in discussions during which they proposed and solicited support for a proxy contest to take control of Graphic." ¶ 14.

Amendment 5 to the Schedule 13D is alleged to violate § 13(d) because it "failed to disclose that the defendants were considering waging a proxy contest for control of Graphic," an omission which the SEC alleges rendered Amendment 5 false and misleading. ¶ 15. Amendment 6, which stated that defendants had begun to consider "on a preliminary basis" waging a proxy contest for control of Graphic, is alleged to be false and misleading in misrepresenting the date when defendants began to consider a proxy contest; the basis for their change of purpose; and the nature and extent of their consideration of a proxy fight for control of Graphic. ¶ 17. Amendment 7, in which defendants declared their decision to enter a proxy contest, is alleged to be false and misleading in its suggestion "that defendants did not decide to go forward with a proxy fight until February 28, 1986, when in fact they had reached that decision earlier." ¶ 19.

The SEC's second claim, alleged against all defendants except Packer, realleges and incorporates by reference the complaint's prior allegations. ¶ 29. The complaint then alleges violation of § 10(b) and Rule 10b-5 in consequence of the acts and conduct previously alleged.

The filing of the complaint was preceded by an extensive administrative investigation. After filing of the complaint, the parties have conducted discovery including a number of depositions. All defendants now move for summary judgment dismissing the complaint.


The Standards for Summary Judgment

Rule 56(c) provides that summary judgment:

  shall be rendered forthwith if the pleadings,
  depositions, answers to interrogatories, and
  admissions on file, together with the affidavits,
  if any, show that there is no genuine issue as to
  any material fact and that the moving party is
  entitled to judgment as a matter of law.

Rule 56(e) provides in part:

  Supporting and opposing affidavits shall be made
  on personal knowledge, shall set forth such facts
  as would be admissible in evidence, and shall show
  affirmatively that the affiant is competent to
  testify to the matters stated therein. . . . When
  a motion for summary judgment is made and
  supported as provided in this rule, an adverse
  party may not rest upon the mere allegations or
  denials of the adverse party's pleading, but the
  adverse party's response, by affidavits or as
  otherwise provided in this rule, must set forth
  specific facts showing that there is a genuine
  issue for trial. If the adverse party does not so
  respond, summary judgment, if appropriate, shall
  be entered against the adverse party.

In considering a summary judgment motion, "the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987).

Although the movant initially bears the burden of showing that there are no genuine issues of material fact, once such a showing is made, the party opposing a properly supported motion must "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986). Summary judgment is warranted where, "after adequate time for discovery . . . [the non-moving party] fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). To establish a genuine issue of fact, the party opposing summary judgment must "do more than simply show that there is some metaphysical doubt as to the material facts"; it must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Electric Industry Corp., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1985) (quoting Rule 56(e); emphasis is the Court's). Absent such a showing, summary judgment is appropriate since "a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp., 477 U.S. at 323, 106 S.Ct. at 2552-53. The standard for granting summary judgment "mirrors the standard for a directed verdict under Federal Rule of Civil Procedures 50(a), which is that the trial judge must direct a verdict if, under the governing law, there can be but one reasonable conclusion as to the verdict." Anderson, 477 U.S. at 250, 106 S.Ct. at 2511.

The Governing Principles of Law

The SEC's first claim alleges violations of § 13(d) of the 1934 Act, a section of the statute popularly known as the Williams Act. The Williams Act requires a group that has acquired, directly or indirectly, beneficial ownership of more than 5% of a class of a registered equity security to file a statement with the SEC disclosing, inter alia, the identity of its members and the purpose of its acquisition. The Second Circuit considered the legislative history of § 13(d) in GAF Corp. v. Milstein, 453 F.2d 709, 717 (2d Cir. 1971), cert. denied, 406 U.S. 910, 92 S.Ct. 1610, 31 L.Ed.2d 821 (1972). The court of appeals observed in Milstein that prior to enactment of the Williams Act, individuals seeking control of a corporation through a proxy contest were required to comply with ยง 14(a) of the 1934 Act and the SEC's proxy rules, and those making stock tender offers were required to comply with other provision of ...

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