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June 27, 2000


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

I. Standard of Review

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 (S.D.N.Y. 1996).

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)).

II. Background

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 defendants' motions.

A. Factual Background

1. Parties

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.

2. Trinity Tender Offer

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. Id.*fn13

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

B. Procedural Background

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 Aff.*fn16

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. ΒΆΒΆ 108(C)-(D). Plaintiffs also ...

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