The opinion of the court was delivered by: POLLACK
Milton Pollack, Senior District Judge:
The defendants, New England Development, Inc. and The Richard E. Jacobs Group, Inc. (collectively, "the Defendants") have applied for findings herein under Section 21D(c) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78u-4(c), that plaintiff, Simon DeBartolo Group, L.P. ("SDG"), and/or its counsel, Gordon Altman Butowsky Weitzen Shalov & Wein ("Gordon Altman"), should be assessed sanctions for violating Fed. R. Civ. P. 11(b). For the reasons set forth below, sanctions are jointly and severally assessed against SDG and Gordon Altman for violations of Rule 11.
Both SDG and the Defendants are large owners and developers of shopping centers and other real estate assets. During the spring and summer of 1997, the Defendants negotiated privately with the Real Property Trust ("RPT"), a privately held Massachusetts real estate investment trust, about a possible merger of their respective shopping center businesses. RPT's sole asset is a general partnership interest in Shopping Center Associates, which owns and develops shopping centers worth more than $ 1 billion. RPT has approximately 129 shareholders, and its shares are not registered.
The proposed merger, dubbed "Project Grand Slam," would have resulted in a new, publicly held real estate investment trust. RPT's board of trustees retained Lazard Freres & Company ("Lazard") to analyze Project Grand Slam and to report to RPT's shareholders on its worthiness. Lazard held informational meetings regarding Project Grand Slam for RPT shareholders in May, June and July, 1997. At the July meeting, Lazard estimated that the value of the RPT stock under the Project Grand Slam proposal would be $ 18.43 per share. SDG, as one of RPT's shareholders, received this information in regular course.
During July and August, 1997 both SDG and the Defendants purchased RPT's stock from several of the company's large institutional shareholders. SDG purchased approximately 6% of the capital stock during this time period; the Defendants acquired 24%.
Following the July meeting, the Defendants took significant steps towards effectuating the merger. On August 7, 1997, RPT and the Defendants announced a Formation Agreement for Project Grand Slam. On August 28, 1997, RPT sent its shareholders (including SDG) proxy materials for a shareholders' meeting on September 30, 1997 to vote on the project. The proxy materials included Lazard's opinion that Project Grand Slam was fair to RPT's shareholders and recommended that RPT shareholders should vote in favor of Project Grand Slam at the September 30 meeting.
On or about August 28, 1997, SDG announced a tender offer for the remainder of RPT's outstanding shares at $ 17.50 per share. This offer was scheduled to expire on September 25, 1997.
SDG countered further by filing this lawsuit on September 5, 1997 accusing the Defendants of securities fraud in the acquisition of the RPT stock which the Defendants had purchased earlier in the year from the institutional holders in the transactions mentioned above. On the same day that the lawsuit was filed, SDG sent an explanatory letter "TO ALL SHAREHOLDERS OF RETAIL PROPERTY TRUST." In this letter, SDG wrote:
Because of the nature of the litigation and our belief that SDG's offer both maximizes shareholder value and brings certainty of execution to those who wish to dispose of their Shares, we would strongly urge you not to sell or commit to sell any of your Shares or voting rights to the Defendants or persons or entities acting in concert with them....
In the lawsuit, SDG sought an injunction prohibiting the Defendants from purchasing any further shares of RPT, and from voting any RPT shares or exercising voting rights allegedly acquired in violation of Rule 10b-13, 17 C.F.R. § 240.10b-13, promulgated pursuant to Section 10(b) of the Exchange Act, and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated pursuant to Section 10(b) of the Exchange Act. SDG claimed that without an injunction, it would suffer "immediate" harm. The Defendants opposed SDG's motion for a preliminary injunction and for expedited discovery and moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6), for failure to state a claim upon which relief can be granted.
At the hearing on the motion, SDG reversed its course; it announced that it did not wish to proceed and moved to withdraw its application for an injunction. The reason given to the Court by SDG's counsel was that the Defendants, some four days earlier, had terminated the Formation Agreement and had canceled the shareholders' meeting set for September 30.
SDG requested that their motion for an injunction be denied without prejudice. However, under the circumstances, the court dismissed SDG's motion for an injunction with prejudice, and granted the Defendants' cross motion for dismissal of the complaint. This Court ruled that there was no substance to SDG's claims under either Rules 10b-13 or 10b-5 of the Exchange Act:
I think Project Grand Slam was neither a cash tender offer nor a cash exchange offer for any equity security. It's an asset purchase agreement under a plan to merge the shopping center of the Defendants with the shopping center assets of [RPT]. I don't know if the shareholders are going to convene on September 30, 1997 or whether that's been called off, but that's neither here nor there. We neither have a cash tender offer nor a cash exchange offer nor a transaction within the purview of Rule 10b-13. And there is law in the Second Circuit, in the Third Circuit and elsewhere which observes that an asset sale transaction is not the equivalent or tantamount to the acquisition of securities.
Moreover, the [SDG] is neither a purchaser or seller in any aspects of Project Grand Slam, nor with respect to the shares of RPT [acquired by the Defendants], nor do the Defendants have any fiduciary relationship with respect to [SDG] or RPT, nor is there any fraud pleaded with respect to any purchase or sale, The purchases in private transactions by the defendants of shares of RPT are not transactions within the purview of Rule 10b-5. No ...