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Fisher v. Kanas

May 7, 2007

CAROL FISHER, INDIVIDUALLY AND ON BEHALF OF A CLASS OF PERSONS SIMILARLY SITUATED, PLAINTIFF,
v.
JOHN A. KANAS, JOHN BOHLSEN, AND DANIEL T. HEALY, DEFENDANTS.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM OF DECISION AND ORDER

On December 12, 2006, Carol Fisher, individually and on behalf of a class of persons similarly situated (the "Plaintiff" or "Fisher"), commenced an action in New York Supreme Court Nassau County, against John A. Kanas ("Kanas"), John Bohlsen ("Bohlsen") and Daniel T. Healy ("Healy") (collectively the "Defendants"). On January 22, 2007, the Defendants removed the action to this Court pursuant to the Securities Litigation Uniform Standards Act of 1998 ("SLUSA").

Presently before the Court is the Plaintiff's motion to remand this action to state court, pursuant to 15 U.S.C. § 78bb(f)(3)(D) and 15 U.S.C. § 1147(c).

I. BACKGROUND

A. FACTUAL BACKGROUND

On December 12, 2006, the Plaintiff, a former stockholder of North Fork Bancorporation, Inc. ("North Fork"), filed a complaint in state court against the following North Fork executives: (1) Kanas, North Fork's President, Chief Executive Officer and Chairman of the Board of Directors; (2) Bohlsen, North Fork's Vice Chairman of the Board of Directors; and (3) Healy, North Fork's Executive Vice President and Chief Financial Officer. The Plaintiff contends that North Fork was incorporated in Delaware, and as a result, Delaware state law applies to the present case. The Plaintiff alleges that North Fork disseminated misleading proxy statements, misrepresenting executive compensation policies to stockholders. The Plaintiff contends that the executive compensation pay-out received by the Defendants was a violation of their fiduciary duties in violation of Delaware state law.

According to the Plaintiff, the class is composed of all former non-management North Fork stockholders who received 2004 and 2005 proxy statements, owned stock on December 1, 2006 and "were deprived of their full equity interest in North Fork as a result of the egregious sum of money paid to defendants." According to the complaint, an issue common to all class members is whether the Defendants breached their fiduciary duties by seeking to have North Fork's shareholders elect directors without disclosing information regarding executive compensation. Specifically, the Plaintiff claims that, prior to every election of directors, stockholders received a proxy statement containing an executive compensation disclosure. The proxy statements "painted a picture of a company with reasonable executive compensation standards," and informed shareholders that the compensation agreements were standard.

However, the Plaintiff contends that the statements made in the proxies regarding executive compensation were materially false and misleading because the Defendants failed to disclose the magnitude of the payments that they would receive under their change in control arrangements after Capital One's acquisition of North Fork. The Plaintiff further claims that the executive compensation agreements were unusual in that the Defendants' taxes were completely paid by the company.

The Plaintiff contends that if stockholders had been aware of the Defendants' executive compensation agreements, they would not have elected management's candidates as directors, and, as a result, the Defendants' compensation agreements would not have been renewed. The Plaintiff argues that she, as well as class members, have been damaged because, as a result of the Defendants' executive compensation agreements, stockholders did not receive the fair value of their interests in North Fork. The Plaintiff contends that the stockholders would have received "proportionately greater compensation for their North Fork shares from Capital One" if the Defendants had not received such excessive compensation. Specifically, the Plaintiff claims that shareholders "were deprived of their full equity interest in [N]orth [F]ork as a result of the egregious sum of money paid to the defendants."

B. PROCEDURAL HISTORY

1. The Prior Federal Action

In March 2006, the Plaintiff filed an action in this Court, against the present Defendants, as well as, North Fork, alleging that the Defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act ("Exchange Act") and breached their fiduciary duties. In the amended complaint, the Plaintiff alleged that after North Fork announced that Capital One would acquire North Fork, stockholders discovered that upon the acquisition, various change-in-control agreements between North Fork and its executives would result in a payment of $288 million to executives, including a "tax gross-up," whereby North Fork would pay the individual Defendants' personal income taxes.

In that action, the Plaintiff claimed that, prior to the acquisition announcement, stockholders were not aware of the executive compensation arrangements. In particular, the Plaintiff claimed that from 2003 through 2005, when North Fork's stockholders elected the Board of Directors, executive compensation was misrepresented by the Defendants because the proxy statements provided to stockholders contained "materially false and misleading" statements. The Plaintiff further alleged that the "defendants omitted to disclose accurately the potential magnitude of the payments under the change-in-control agreements with its executive officers." The Plaintiff also alleged that "North Fork's proxy statements painted a picture of a company with reasonable executive compensation standards." The Plaintiff sought to enjoin the payment of the executive compensation.

In December 2006, this Court granted the Defendants' motion to dismiss the amended complaint. The Court determined that the Plaintiff's allegations were insufficient to state a claim pursuant to Sections 14(a) and 20(a) of the Exchange Act. The Court further determined that essentially, the Plaintiff claimed that the Defendants breached their fiduciary duties to the corporation and that section 14(a) did not provide a cause of action to remedy a simple breach of fiduciary duty. The Court further found that it did not have jurisdiction over the Plaintiff's breach of fiduciary duty claim.

2. The Present Action

On January 22, 2007, the Defendants removed the present case to this Court. In support of removal, the Defendants contend that, pursuant to the SLUSA, the present case, as a covered class action, may not be maintained in state court because it alleges a misrepresentation in connection with the purchase or sale of a covered security.

On February 16, 2007, the Plaintiff filed a motion to remand the case to state court. The Plaintiff contends that, following this Court's dismissal of her original case, she filed the present action in state court setting forth the same "garden variety" breach of fiduciary duty claim as set forth in her original action. The Plaintiff claims that this Court previously held it did not have jurisdiction over the Plaintiff's breach of fiduciary claim, and therefore, should remand this action because it sets forth the same allegations.

The Plaintiff further claims that the Defendants' misrepresentations, although not actionable under federal law, are a violation of Delaware law. Although the Plaintiff admits that, pursuant to the SLUSA, the present case is a covered class action and involves a covered security, the Plaintiff claims that "none of the alleged misrepresentations was in connection with the purchase or sale" of a covered security. The Plaintiff contends that the false and misleading statements prevented the Plaintiff from voting in an informed manner in connection with the election.

In opposition to the Plaintiff's motion, the Defendants contend that, although the Plaintiff's present complaint alleges the same misrepresentations by the Defendants as her prior complaint, the Plaintiff has altered her claims in two ways. The Defendants contend that in the previous action, Fisher was the sole Plaintiff and sought to enjoin the payment of executive compensation. However, in the present action, the Plaintiff sets forth claims on behalf of a class of plaintiffs and claims that the class members were deprived of their full equity interests in North Fork as a result of the executive compensation agreements and would have received greater compensation for their North Fork shares if the Defendants had not been compensated. According to the Defendants, the Plaintiff's allegation that the misrepresentations resulted in the stockholders receiving less cash and stock for their North Fork shares, brings this action within the scope of the SLUSA. The Defendants argue that, pursuant to the SLUSA, the action is removable to this Court and subject to dismissal.

The Defendants also note that there is an exception to preemption under the SLUSA. According to the Defendants, although the "Delaware carve-out" offers exceptions to the SLUSA, the Plaintiff waived any such argument by her failure to make the argument in her opening brief. The Defendants further contend that the Delaware carve-out does not apply to this case because the action does not involve a communication with respect to the sale of securities and, additionally, because it only applies to actions brought within the state of incorporation.

In reply, the Plaintiff admits that she did not raise the Delaware carve-out in her brief. The Plaintiff further contends that the SLUSA is not applicable to this matter because the action does not involve the purchase and sale of securities. In addition, the Plaintiff claims ...


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