The opinion of the court was delivered by: Scheindlin, District Judge.
Plaintiffs Polar International Brokerage Corp. ("Polar"),
Christopher Corroon, Peter Corroon and Faith V. Hyndman bring
this securities fraud class action against various corporate and
individual defendants.*fn1 Plaintiffs and the purported class
members are former shareholders of defendant Willis Corroon. They
allege that defendants violated sections 13(e) and 14(e) of the
Securities Exchange Act of 1934 (the "Exchange Act"),
15 U.S.C. § 78m(e), 78n(e), by making material misrepresentations and
omissions in connection with a 1998 tender offer by defendant
Trinity for outstanding shares of Willis Corroon. Plaintiffs also
bring related state law claims for breach of fiduciary duty,
violation of New York Business Corporations Law § 717 ("BCL §
717") and common law fraud.
Both the federal and state law claims assert that defendants'
alleged fraudulent acts concealed the inadequacy of Trinity's
tender offer and, as a result, misled Willis Corroon shareholders
who unwittingly approved the transaction and tendered their
shares for insufficient consideration. The state law claims
additionally assert that the Individual Defendants breached their
fiduciary duties to Willis Corroon shareholders by failing to
obtain a superior tender offer for Willis Corroon shares.
Defendants now move, pursuant to Federal Rules of Civil
Procedure 12(b)(6) and 9(b), to dismiss plaintiffs' First Amended
Complaint ("Complaint") for failure to state a claim upon which
relief may be granted and for failure to plead fraud with
particularity. For the reasons that follow, defendants' motions
are granted in their entirety.*fn2
Dismissal of a complaint for failure to state a claim pursuant
to Rule 12(b)(6) is proper only where "it appears beyond doubt
that the plaintiff can prove no set of facts in support of his
claim that would entitle him to relief." Harris v. City of
N Y, 186 F.3d 243, 247 (2d Cir. 1999). "The task of the court
in ruling on a Rule 12(b)(6) motion is merely to assess the legal
feasibility of the complaint, not to assay the weight of the
evidence which might be offered in support thereof." Cooper v.
Parsky, 140 F.3d 433, 440 (2d Cir. 1998) (internal quotations
omitted). Thus, to properly rule on such a motion, the court must
accept as true all material facts alleged in the complaint and
draw all reasonable inferences in the nonmovant's favor. See
Harris, 186 F.3d at 247. Nevertheless,
"[a] complaint which consists of conclusory allegations
unsupported by factual assertions fails even the liberal standard
of Rule 12(b)(6)." De Jesus v. Sears, Roebuck & Co.,
87 F.3d 65, 70 (2d Cir. 1996) (internal quotations omitted).
In deciding a Rule 12(b)(6) motion, the district court must
limit itself to facts stated in the complaint, documents attached
to the complaint as exhibits or documents incorporated in the
complaint by reference. See Dangler v. New York City Off Track
Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999). However, in
securities fraud actions, the court "may review and consider
public disclosure documents required by law to be and which
actually have been filed with the SEC. . . ." Cortec Indus.,
Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991). See
also Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir.
1991); Salinger v. Projectavision, Inc., 934 F. Supp. 1402, 1405
Rule 9(b) sets forth additional pleading requirements with
respect to allegations of fraud. Rule 9(b) requires that "[i]n
all averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity." But, under
Rule 9(b), "[m]alice, intent, knowledge and other condition of
mind of a person may be averred generally."
Securities fraud actions are subject to the requirements of
Rule 9(b). See Shields v. Citytrust Bancorp, Inc.,
25 F.3d 1124, 1127 (2d Cir. 1994). However, the Private Securities
Litigation Reform Act of 1995 (the "PSLRA"), 15 U.S.C. § 78u-4,
heightened that Rule's requirement for pleading scienter in the
securities fraud context. See 15 U.S.C. § 78u-4(b)(3)(A); see
also Press v. Chemical Inv. Servs. Corp., 166 F.3d 529, 537-38
(2d Cir. 1999). As a result, in securities fraud actions,
scienter may not be averred generally. Rather, plaintiffs must
"state with particularity facts giving rise to a strong inference
that the defendant acted with the required state of mind."
Press, 166 F.3d at 538 (quoting 15 U.S.C. § 78u-4(b)(3)(A)).
Unless otherwise indicated, the facts and allegations set forth
below are drawn from the Complaint and certain public disclosure
documents. They are presumed true for purposes of resolving
Willis Corroon is an international insurance brokerage firm
that offers insurance, reinsurance, risk management and loss
control services to corporate and institutional clients
worldwide. Complaint ¶ 9.*fn3 Although the firm is organized
under the laws of England and Wales, it is licensed to conduct
business in the United States, and American Depository
Shares*fn4 of Willis Corroon trade on the New York Stock
Exchange. Id. The Individual Defendants were officers and
directors of Willis Corroon at all times relevant to the instant
action. Id. ¶ 20.
Defendant KKR is a leading private equities firm which
identifies long-term equity investments; negotiates, structures
and arranges financing for such investments; and monitors the
value of such investments over time. Id. ¶ 11. KKR is managed
by approximately thirty persons who operate from offices in New
York, New York. Id.
Defendant Trinity is a public limited company organized under
the laws of England and Wales. 7/27/98 Trinity Schedule
14D-1 & Schedule 13D ("Tender Offer Statement") at 8.*fn5
Trinity was formed at the direction of KKR for the express
purpose of acquiring Willis Corroon. Complaint ¶ 10. Trinity
maintains offices in New York, New York. Id.
The Insurance Company Defendants are investors and equity
partners in Trinity. Id. ¶¶ 12-16. Three of the five Insurance
Company Defendants maintain offices in New York, New York. Id.
¶¶ 14-16.*fn6 The Investment Bank Defendants are also investors
and equity partners in Trinity. Id. ¶¶ 17-19. The Investment
Bank Defendants all maintain offices in New York, New York. Id.
Plaintiffs Polar, Christopher Corroon, Peter Corroon and
Hyndman were, at all relevant times, owners of Willis Corroon
securities. Id. ¶ 8.
In December 1997, KKR contacted Willis Corroon to discuss the
possibility of a business transaction between the two firms.
7/27/98 Recommended Cash Offer for Willis Corroon Group plc on
Behalf of Trinity Acquisition plc (the "Solicitation"), Ex. A to
12/10/99 Affidavit of Defendants' Counsel Paul Curnin in Support
of Defendants' Motion to Dismiss Plaintiffs' First Amended Class
Action Complaint ("Curnin Aff."), at 97.*fn7 After six months of
discussions and financial due diligence, KKR proposed that
Trinity, its indirectly-owned subsidiary, acquire Willis Corroon
at a tender offer price of 200 pence per share (the "Offer").
Id. A committee of five independent directors was formed to
consider the Offer on behalf of Willis Corroon shareholders.
Id. at 6.*fn8 On July 21, 1998, the independent directors
"unanimously decided that the terms [of the Offer] were fair and
reasonable and that they would recommend that all holders of
Willis Corroon securities accept the [O]ffer." Id. at 98. The
independent directors based their decision on multiple factors,
including the advice of Willis Corroon's financial adviser,
Deutsche Bank. Id. at 7-10. The following day, July 22, Trinity
and Willis Corroon publicly announced that Trinity would acquire
Willis Corroon in a cash transaction valued at $1.4 billion
dollars. Complaint ¶ 29; 7/22/98 Press Release Issued by Willis
Corroon and Trinity ("July 1998 Press Release"), Ex. A to 12/9/99
Affidavit of Defendants' Counsel Robert C. Myers ("Myers
Aff.").*fn9 According to the announcement,
the two companies would be merged into a new entity named the
Trinity Group, plc. Complaint ¶ 29.
Detailed information concerning the Offer, together with the
Offer itself, was circulated to shareholders via the July 27,
1998 Solicitation. Solicitation, Ex. A to Curnin Aff. As set
forth above, Trinity agreed to acquire the outstanding equity of
Willis Corroon for 200 pence per share or £ 10 (approximately
$16.00) per ADS. Complaint ¶ 29; Solicitation, Ex. A to Curnin
Aff., at 7. The Offer price represented a 12% premium over the
closing price of Willis Corroon stock on July 21, 1998, and a 29%
premium over the average closing price of Willis Corroon stock
during the six months immediately preceding the Trinity Offer.
Complaint ¶ 29; Solicitation, Ex. A to Curnin Aff., at 8.*fn10
The Solicitation disclosed that seven senior executives of
Willis Corroon — Individual Defendants Reeve, Colraine, Johnson,
Nixon, Pinkston, Schreyer and Lucas — had "agreed in principle to
invest in the Trinity Group alongside the KKR Fund and the
Insurance Companies." Solicitation, Ex. A to Curnin Aff., at 6.
According to the Solicitation, it was because of these
executives' personal interest in the Offer that a committee of
independent directors was selected to evaluate the fairness of
the Offer. Id.
The Solicitation further disclosed that, prior to the
commencement of the Offer, Trinity purchased 42,558,502 Willis
Corroon shares from corporate shareholder Phillips & Drew Fund
Management Limited ("Phillips & Drew") at a price of 201.75 pence
per share. Id. at 7; Complaint ¶¶ 31-32.*fn11 In addition, the
seven interested executives, the five independent directors and
Phillips & Drew had irrevocably agreed to tender their Willis
Corroon shares — in the case of Phillips & Drew, its remaining
Willis Corroon shares — to Trinity pursuant to the Offer.
Solicitation, Ex. A to Curnin Aff., at 7.*fn12 Therefore, at the
time the Offer commenced, Trinity had already effectively
acquired 19.7% of Willis Corroon's issued share capital.
Finally, the Solicitation included a letter to Willis Corroon
shareholders from the independent directors unanimously
recommending the Offer and setting forth the reasons for their
recommendation. Id. at
6-10. Among other things, the letter states:
The Independent Directors of Willis Corroon, who have
been so advised by Deutsche Bank, financial adviser
to Willis Corroon, consider the terms of the Offer to
be fair and reasonable. In providing advice to the
Independent Directors, Deutsche Bank has taken
account of the Independent Directors' commercial
assessments. Accordingly, the Independent Directors
unanimously recommend all Willis Corroon
Securityholders to accept the Offer. . . .
Id. at 10; see also Complaint ¶ 37.
By September 25, 1998, more than 90% of Willis Corroon equity
holders had tendered their ownership interests to Trinity.
Complaint ¶ 70.*fn14 On November 6, 1998, Trinity acquired the
remaining outstanding Willis Corroon equity through a U.K.
process known as "compulsory acquisition." Id. ¶¶ 70, 72.*fn15
On July 28, 1998, one day after the Offer commenced, plaintiff
Polar brought action in New York State Supreme Court against the
same defendants named here. The state court complaint alleged
that the Offer price was wholly inadequate and asserted claims
for breach of fiduciary duty, violation of BCL § 717 and common
law fraud. See 7/28/98 State Court Complaint, Ex. B to Curnin
Two months later, on September 30, 1998, Polar filed a
substantially identical action in this Court. In addition to the
common law claims alleged in state court, however, the federal
court complaint included a claim for securities fraud under §
14(e) of the Exchange Act.
On October 9, 1998, Polar filed a motion for expedited relief
seeking to enjoin an October 19 meeting of Willis Corroon
shareholders. In its motion papers, Polar asserted that
defendants failed to circulate Deutsche Bank's "written fairness
opinion". Polar claimed that the written fairness opinion was
material to the equity holders' decisions regarding whether to
approve the Offer. In response to Polar's motion, counsel for
defendants informed Polar that Deutsche Bank had presented its
fairness opinion orally and that no written fairness opinion had
ever been issued.
On October 14, this Court declined to enjoin the shareholders
meeting, finding that the meeting itself posed no threat of harm
to Polar. However, a hearing was scheduled for October 21 to
determine whether injunctive relief was appropriate in light of
Trinity's planned compulsory acquisition of the remaining Willis
Corroon shares. On the morning of the hearing, counsel informed
the Court that the parties had reached a settlement.
In an order dated January 13, 1999, I certified a plaintiff
class for purposes of the proposed settlement and directed
plaintiff's counsel to provide notice to the class. A fairness
hearing was held on March 8, 1999.
Following the fairness hearing, and after reviewing submissions
by both parties, I rejected the proposed settlement concluding
that while it was of great benefit to defendants and plaintiff's
counsel, it was of negligible benefit to the plaintiff class.
See Polar Int'l Brokerage Corp. v. Reeve, 187 F.R.D. 108
(S.D.N.Y. 1999).*fn17 In declining to approve the settlement
offer, I noted that Polar's substantive federal and state law
claims appeared to have little merit and warned that "if
plaintiff chooses to proceed, it should be mindful of the PSLRA's
requirement of a mandatory Rule 11 review at the conclusion of
any case." Id. at 120 n. 10.*fn18
On October 8, 1999, plaintiffs filed the instant class action
Complaint. Plaintiffs seek to represent a class of persons who
owned Willis Corroon securities at the time of the Offer.
C. Allegations of the Complaint
Claim II alleges that defendants violated § 13(e) of the
Exchange Act, and Rule 13e-3 promulgated thereunder, by failing
to procure a written fairness opinion from Deutsche Bank or any
other financial adviser. Id. ¶¶ 81-86.
Claim III alleges that defendants breached their fiduciary
duties to Willis Corroon shareholders by failing to shop the
company or to otherwise obtain a higher price for Willis Corroon
shares. Id. ¶¶ 87-94. Claim IV similarly alleges that
defendants' failure to seek superior tender offers for Willis
Corroon securities violated BCL § 717 which requires corporate
directors to perform their duties in good faith. Id. ¶¶ 95-103.
Claim V charges defendants with common law fraud and deceit,
again alleging that defendants made actionable misrepresentations
and omissions in connection with the Offer. Id. ¶¶ 104-08.
Pursuant to these claims, plaintiffs seek an order (i)
"vitiating and setting aside the positive vote accepting the
Tender Offer"; and (ii) "restoring plaintiffs and [the purported
class members] to their equity interests in Willis Corroon."
Id. ¶¶ 108(C)-(D). Plaintiffs also ...