Amendment No. 4
In response to these allegations, Defendants filed Amendment No. 4 ("Amendment # 4") to their Schedule 13D on October 30, 1995. Defendants now argue once again that Amendment # 4 cures the stated deficiencies in the previous filings and moots the action. Specifically, Amendment # 4 is signed by Lobbert Holding, as well as its four individual shareholders. Amendment # 4 attaches Horsehead's complaint as an exhibit. Finally, Amendment # 4 reiterates the fact that Lobbert Holding has never been convicted of any crime -- including criminal convictions for environmental matters.
Plaintiff asserts two claims in its Complaint. First, that Defendants have violated § 13(d) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78m(d), and Rules 240.13d-101 and 420.12b-20, by failing to disclose the above-mentioned material information in its Schedule 13D filings. Second, that Defendants Lobbert Holding, Kola, Tietz and Okon (collectively referred to as the "non-BUS Defendants") have violated § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), for the same alleged violations, as controlling persons of BUS AG. Defendants have moved to dismiss the Complaint in its entirety.
As an initial matter, all parties have submitted affidavits to the Court to be considered on the motion to dismiss. While evidence outside the pleadings is normally not considered in a motion to dismiss, Cloward v. Columbia Univ., 888 F. Supp. 21, 23 (S.D.N.Y. 1995), the Court may consider items outside the pleadings on a mootness defense, just as it may on a motion to dismiss on jurisdictional grounds. See Gilbert, Segall and Young v. Bank of Montreal, 785 F. Supp. 453, 461 (S.D.N.Y. 1992) ("In considering a factual attack on the jurisdictional allegations of the complaint, i.e., the truth of the jurisdictional facts alleged by the plaintiff is challenged, a court may receive any competant evidence, such as affidavits, in order to determine the factual dispute"); Kline v. Kaneko, 685 F. Supp. 386, 389 (S.D.N.Y. 1988) ("A court considering a motion to dismiss is usually confined to the facts in the pleadings, but "on a motion attacking the court's jurisdiction, the district judge may resolve disputed jurisdictional fact issues, and may rely on affidavits as well as the pleadings.") (citation omitted). See also Arvin Indus. v. Wanandi, 722 F. Supp. 532, 540 (S.D. Ind. 1989) ("In ruling on a mootness defense, the Court can consider items outside the pleadings.").
The Section 13(d) Claim
Section 13(d) requires any person acquiring a beneficial ownership of more than 5% of a class of registered stock in a company to make certain filings and disclosures with the issuer of the security, the exchange where the security is traded, and the SEC. Moreover, in an effort to ensure both the accuracy and adequacy of such information, the SEC's rules mandate that the § 13(d) information be contained in a certified statement "signed by each person on whose behalf the statement is filed or his authorized representative." S.E.C. Rule 13d-101, 17 C.F.R. § 240.13d-101.
Generally, once a subsequent 13D filing cures alleged omissions in prior filings, the § 13(d) claim alleging omissions must be dismissed as moot. Treadway Cos. v. Care Corp., 638 F.2d 357, 380, (2d Cir. 1980). However, the filing of an amendment merely disclosing the existence of adverse claims which allege falsities or omissions, without actually admitting the charges, may significantly circumvent the purpose of the disclosure requirements, and thus will not necessarily result in dismissal of the action. This is because
material facts might often be concealed and omitted from initial 13D Statements, to be cured only by subsequent disclosure of adverse claims which allege the omissions but which are disputed by the disclosing party. As a result, the true facts would often remain obscured and hidden from investors.
Warner Communications, Inc. v. Murdoch, 581 F. Supp. 1482, 1501 (D. Del. 1984).
All of the alleged deficiencies in the original 13D filings have been cured by further disclosure except the allegation that Lobbert Holding should be identified as a controlling shareholder of BUS AG, and that Lobbert Holding reveal its record of alleged environmental violations. All that remains is an analysis of whether the securities laws require disclosure of either of these alleged omissions.
A. Lobbert Holding as Controlling Shareholder
The Complaint alleges that the Lobbert Family is the beneficial owner of 67.6% of the common stock of BUS AG and beneficial owner of 52% of the shares of the combined common and preferred stock of BUS AG. It further alleges that Dieter Lobbert admitted the Lobbert Family's 52% control of BUS AG to Horsehead on or about May 2, 1995. Complaint at P 18. In support of its position, Plaintiff relies on Exhibit C of the Flaherty Affidavit, which is a chart allegedly prepared by an unidentified "leading German investment bank." The chart, which represents that the Lobbert Family controlled 52.01% of the combined common and preferred stock of BUS AG as of July 1, 1995, cites no source for this information.
In response to this allegation, Defendants assert in Amendments # 3 and # 4 that Horsehead is mistaken as to Lobbert Holding's interest, and that, in fact, although Lobbert Holding owns 52% of BUS AG's common stock, it owns only 40% of its voting stock. Amendment # 4, for example, states that under § 140 of the German Stock Corporation Law, preferred stock (which normally has no voting rights) automatically becomes voting stock if the issuing corporation does not declare dividends to its preferred stockholders for two consecutive years. Because BUS AG did not declare a dividend for either 1993 or 1994, the automatic voting rights provision was officially triggered on February 3, 1995. This was the date that BUS AG released its audited financial statements for 1994, which showed no dividends declared for that year. This Amendment was individually signed by each member of the Lobbert Family, as well as by a representative of Lobbert Holding.
Defendants have presented certifications contained in Amendment # 4 by Dieter Lobbert, Johannes Lobbert, Britta Lobbert, Maria Lobbert, Guenter Okon, Rolf Kola, Lobbert Holding GmbH, BUS AG, and BUS, as well as the sworn affidavit of Christoph Aupers, Lobbert's manager ("Aupers Aff."), all confirming Lobbert's shareholdings. The dilution of BUS AG's preferred stock pursuant to German Corporate law is confirmed in an accompanying affidavit of Jurgen Tietz, BUS AG's Vice President and general counsel ("Tietz Aff.).
Plaintiff responds that § 139 of the German Act on Stock Corporations does not require that preferred stockholders be granted no voting rights, but only that the corporation has the option to exclude such rights by the articles of incorporation.
Thus, without specific indication that BUS AG's articles of incorporation authorize the granting of voting rights under such circumstances, the motion to dismiss must be denied.
The myriad certified statements, particularly those signed by the Lobbert family, provide convincing proof that Plaintiff is mistaken about the extent of Lobbert Holding's and the Lobbert Family's ownership of BUS AG stock. Amendments # 3 and # 4 to Schedule 13D have satisfied the interests protected by § 13(d) by both addressing - and correcting - Plaintiff's allegation that Lobbert Holding owns 67.6% of the Common Stock of BUS AG and 52% of the "combined Common and Preferred Stock" of BUS AG by providing all required disclosures. In light of all the evidence presented, it is not necessary for Defendants to make another filing merely to state that BUS AG's articles of incorporation authorize the granting of voting rights to preferred stockholders in the conditions present here.
Finally, Plaintiff presents one additional argument in support of its position. According to Dr. Michael Witzel, an attorney licensed to practice law in Germany ("Witzel Aff."), even if the voting right of preferred stock is excluded by BUS AG's articles of incorporation, the non-payment of dividends for two consecutive years does not necessarily create voting rights for the preferred stock. Witzel Aff. at § II P 4. Witzel cites a complex German corporate law provision which provides that if the company has shown a profit which is sufficient for the added benefit, voting rights will not necessarily be granted.
Whether BUS AG properly withheld dividends and granted voting rights to preferred stockholders under German law is not an issue to be determined by this Court.
It should be obvious that this Court need not decide points of Italian or Swiss law, but only whether these foreign legal questions have been fully and fairly called to the attention of the shareholders.
Avnet, Inc. v. Scope Ind., 499 F. Supp. 1121, 1125 (S.D.N.Y. 1980), (citing Ronson Corp. v. Liquifin Aktiengesellschaft, 370 F. Supp. 597, 608 (D. N.J. 1974), aff'd 497 F.2d 394 (3d Cir. 1974), cert. denied, 419 U.S. 870, 42 L. Ed. 2d 108, 95 S. Ct. 129 (1974)) (stockholders were properly informed of defendants' foreign law difficulties where each contested point of foreign law and the opinions of counsel for both defendants and plaintiff were described).
Based on an analysis of the Amendments and the affidavits, it appears Defendants' disclosures sufficiently satisfy the requirements of § 13(d). Thus Defendants' motion to dismiss on this ground is granted.
B. The Alleged Environmental Violations
Plaintiff argues that § 13(d) requires Defendants to disclose that Lobbert Holding and various members of the Lobbert family have been the subject of regulatory investigations in Germany relating to environmental matters, as well as the environmental violations themselves. This argument is premised on a belief that there exists a substantial likelihood that a reasonable investor in Horsehead would have found this omitted information significant in deciding whether to buy or sell Horsehead stock. This argument has merit. These alleged investigations have reportedly resulted in findings of violations of environmental laws and/or regulations in the recent past, including violations within the last five years. Because Horsehead is itself engaged in the business of inorganic hazardous waste resource recovery, a reasonable investor in Horsehead stock could very well agree that Defendants' failure to disclose the environmental violations represents a purposeful omission of material facts.
While § 13(d) contains no explicit requirement for a 13D filing to include a description of environmental violations, Rule 12b-20 mandates the disclosure of further material information in order to make the required § 13(d) statements not misleading.
Victory Markets, Inc. v. Nelson, 81 Civ 1370 (HGM), 1982 WL 2278, *4 (N.D.N.Y. March 26, 1982). However, this Rule does not require filers to reveal information unrelated to § 13(d)'s mandated disclosures. Kaufman & Broad, Inc. v. Belzberg, 522 F. Supp. 35, 42 (S.D.N.Y. 1981) ("The rule does not . . . convert Section 13(d) into a mandate to disclose any and all material information, even if unrelated to the areas of disclosure required by Section 13(d)").
In Avnet v. Scope Indus., supra, the court dismissed a § 13(d) claim because defendant's second amendment to its Schedule 13D cured any alleged omissions and made plaintiff's claim moot. Relying on Copperweld Corp. v. Imetal, 403 F. Supp. 579, 606 (W.D. Pa. 1975) and Ronson Corp. v. Liquifin Aktiengesellschaft, 370 F. Supp. 597, 608 (D. N.J. 1974), aff'd per curiam, 497 F.2d 394 (3d Cir. 1974), cert. denied, 419 U.S. 870 (1974),
the Avnet court held that the defendants were not required to state in their schedules that the disputed allegation -- that Avnet, Inc. was an unregistered investment company -- was actually true. Instead, disclosure of the possibility of the alleged fact, and the conflicting positions taken by the parties, was held to be sufficient:
In sum, the purpose of the disclosure provisions of the securities laws is to see to it that the insider, management official, proxy solicitor, tender offeror or substantial shareholder, as the case may be, discloses to the investor the facts as truly believed by the discloser. When, as here, the record demonstrates that there is a dispute as to the facts, the law requires only that the disputed facts and the possible outcomes be disclosed. This is the limit of the law unless there is reason to believe that the facts are not genuinely in dispute.