The opinion of the court was delivered by: MICHAEL B. MUKASEY
MICHAEL B. MUKASEY, U.S.D.J.
Plaintiff Ira L. Mendell sues on behalf of Viacom Inc. and alternatively Viacom International Inc., to recover profits defendants allegedly realized by trading Viacom International stock in violation § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). Section 16(b) prohibits an owner of more than 10% of any class of an issuer's securities from purchasing and selling or selling and purchasing the issuer's securities within a six-month period. The central issue in dispute is whether defendants, who individually held less than 10% of Viacom International common stock but together held over 12%, should be considered a single entity for the purposes of § 16(b). The case has been submitted for judgment on stipulated facts. For the reasons set forth below, judgment will be entered in favor of defendants.
Plaintiff filed this action in January 1987 when the common stock of Viacom International, Inc. ("Viacom International"), was registered pursuant to § 12 of the Securities Exchange Act of 1934, 15 U.S.C. § 78l, and listed on the New York Stock Exchange. In June 1987, pursuant to a merger agreement, Viacom International's common stockholders exchanged their shares for a combination of cash and stock in a newly formed corporation, Viacom Inc., which became the sole owner of Viacom International. (Stip. PP 1, 2) Plaintiff as a shareholder of Viacom Inc. retained his standing to sue under § 16(b). Gollust v. Mendell, 115 L. Ed. 2d 109, 111 S. Ct. 2173 (1991).
The purchases and sales at issue were made in the summer and fall of 1986 by five of the defendants: Coniston Partners ("Coniston I"), Coniston Institutional Investors ("Coniston II"), Helston Investment Inc., Baker Street Partners, and WJB Associates (collectively "purchaser defendants"). The other defendants are natural persons -- Keith R. Gollust, Paul R. Tierney, Jr., and Augustus K. Oliver -- and entities they own -- Gollust Tierney and Oliver ("GTO"), a New Jersey general partnership, and Gollust & Tierney, Inc., a New Jersey corporation (collectively "GTO defendants"). Although the transactions were executed by the purchaser defendants, the parties agree that the investment decisions were made by the GTO defendants as general partners of Coniston I, Coniston II, Baker Street and WJB, and as investment managers of Helston. (Stip. P11) Plaintiff argues that because the purchaser defendants were controlled by the GTO defendants and because the GTO defendants were entitled to share in the profits earned by the purchaser defendants, the holdings of the purchaser defendants should be aggregated and the GTO defendants should be considered the beneficial owners of those shares. (Stip. P 7)
A description of the transactions executed by each of the purchaser defendants, and the extent to which the GTO defendants shared in the profits realized on those transactions, is essential to an understanding of the case. Coniston I is a New Jersey limited partnership which, like the other purchaser defendants, was formed by the GTO defendants to trade in public securities. (Malchman Aff. P 8; Stip. P 10) The GTO defendants are the general partners of Coniston I and GTO is the managing partner. At the time of the Viacom International transactions, the GTO defendants were entitled to between 17.68% and 19.72% of the profits of Coniston I by virtue of their capital investment in the partnership and, in addition, received a general partners' allocation of 20% of the balance of the partnership's profits. This amounted to a total interest of between 34.14% and 35.78%.
(Stip. P 10(c)) The limited partners, primarily unaffiliated investors, were entitled to the remaining profits. Between July 17, 1986 and July 30, 1986, Coniston I purchased a total of 387,700 shares of Viacom International which represented a total of 1.13% of Viacom International's 34,336,281 outstanding shares of common stock. (Stip. P 5(a), 8(a))
The ownership structure of Coniston II, also a New Jersey limited partnership, is similar to that of Coniston I. GTO is the general partner and, at the time, was entitled to 21.26% of the total profits by reason of a 1.57% capital investment interest and a general partner's allocation of 20% of the balance of the profits.
(Stip. P10(d)) Between July 17, 1986 and September 15, 1986, Coniston II purchased 76,800 shares of Viacom International common stock and options on another 18,000 shares. Together, the shares and options represented 0.28% of Viacom International's outstanding common shares.
Helston, a Panamanian corporation, is a wholly-owned subsidiary of Coniston International Corp., also a Panamanian corporation. At the time of the Viacom International transactions, Park Newent Associates, a partnership in which GTO had a 75% interest, owned 1% of the stock of Coniston International. The remaining 99% was owned by unaffiliated institutions and individuals. Because Park Newent was entitled to 20% of the profits represented by the ownership interests of the unaffiliated investors, in addition to the profits represented by its own shares, GTO was entitled to a total of 15.6% of the consolidated profits of Helston and Coniston International.
(Stip. P10(e)) Helston purchased 346,200 shares, 1.01% of Viacom International stock, between July 17, 1986 and August 25, 1986. (Stip. P5(c))
Baker Street, a New Jersey limited partnership, had one general partner, GTO, and two limited partners, Coniston I and Coniston II. Coniston I was entitled to 83.1% of Baker Street's profits and Coniston II was entitled to 16.9%. (Stip. P 10(f)). Thus, the GTO defendants had a 33.33% stake in Baker Street's profits.
In late July and August 1986 Baker Street purchased 380,700 shares of Viacom International stock, which represented 1.11% of the outstanding common shares. (Stip. P5(d))
The purchaser defendant with the largest holding in Viacom International, 8.51%, was WJB, a Bahamian partnership. WJB purchased 2,538,500 shares in August and September 1986 and options on an additional 394,500 shares in September 1986. (Stip. P 5(e); Stip. Ann. 1) Tracing the division of WJB's profits and determining the GTO defendants' interest in those profits requires navigation of a tortuous financial landscape. GTO was the general partner of WJB and there were six limited partners, Coniston I, Coniston II, Helston, Sabre Associates, Sabre Operations Inc. and Princeton/Newport Partners Special Situation Fund. Each of the limited partners was entitled to a percentage of WJB's profits in proportion to its respective capital contribution: Coniston I (54.47%); Coniston II (7.71%); Helston (31.41%); Sabre Associates (1.71%); Sabre Operations, Inc. (3.7%); and Princeton/Newport Partners Special Situation Fund (1%).
In addition to their interests in Coniston I, Coniston II and Helston which have already been discussed, the GTO defendants shared in the profits of WJB through Sabre Associates, Sabre Operations and Princeton/Newport Partners Special Situation Fund. Regarding Sabre Associates, GTO had a 58.82% limited partnership interest, a 5.18% indirect interest through its partial ownership of the managing general partner, and a 15% interest in the profits of other entities which held an aggregate interest of 34.26%. Thus, GTO was entitled to 69.15% of Sabre Associates' profits.
Sabre Operations is a wholly-owned subsidiary of Sabre International Corp., 2% of which is owned by Sabre Newent Associates, a partnership in which GTO has a 50% interest. In addition to its 2% ownership interest, Sabre Newent was also entitled to 20% of the profits on shares owned by unaffiliated investors. Accordingly, GTO was entitled to 10.8% of the consolidated profits of Sabre Operations and Sabre International.
The GTO defendants did not have an ownership interest in the Princeton/Newport Partners Special Situation Fund. However, the Fund's investment manager was Sabre Management Co., through which ...