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Solow v. Conseco

June 4, 2007

SHELDON H. SOLOW, PLAINTIFF,
v.
CONSECO, INC. AND CARMEL FIFTH, LLC, DEFENDANTS.



The opinion of the court was delivered by: Theodore H. Katz, United States Magistrate Judge

MEMORANDUM OPINION AND ORDER

Sheldon H. Solow ("Plaintiff") filed this action on October 8, 2006, alleging that Conseco, Inc. ("Conseco"), and Carmel Fifth, LLC (collectively, "Defendants"), fraudulently auctioned the General Motors Building, at 767 Fifth Avenue in New York City (the "GM Building" or "Building"). Specifically, Plaintiff alleges that, despite representations to the Plaintiff and others that the Building would be sold through a fair and open auction, Defendants instead engaged in a sham auction used merely to establish the price at which the Building would be sold to Defendants' favored bidder, Harry Macklowe ("Macklowe"). (See Memorandum of Law in Support of Plaintiff's Motion to Disqualify Kirkland & Ellis as Attorneys for Defendants, dated Mar. 9, 2007 ("Pl. Mem."), at 3-5.) Plaintiff asserts, among other things, causes of action for fraud, unjust enrichment, and breach of the duty to hold a fair auction. (See Complaint, dated Aug. 7, 2006 ("Compl."), ¶ 37.)

The action was referred to this Court for general pretrial supervision. Presently before the Court is Plaintiff's Motion to Disqualify Kirkland & Ellis, LLP ("Kirkland" or "Kirkland & Ellis") as attorneys for Defendants.*fn1 The motion is denied for the reasons set forth below.

BACKGROUND

The following material facts are undisputed unless otherwise indicated.

I. Bankruptcy Proceedings

In July 1998, Carmel Fifth, LLC, an indirect subsidiary of Conseco, Inc., and Donald Trump entered into an agreement to jointly purchase the GM Building, which they acquired shortly thereafter. (See Pl. Mem., at 3; Defendants' Opposition to Plaintiff's Motion to Disqualify Kirkland & Ellis, dated Apr. 23, 2007 ("Def. Mem."), at 4.) Subsequently, on December 17, 2002, Conseco filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern District of Illinois. (See Pl. Mem., at 3; Def. Mem., at 4.) Meanwhile, disagreements developed between Conseco and Trump over the GM Building, which eventually resulted in Conseco filing an adversary complaint in the bankruptcy court against Trump, regarding ownership of the GM Building. On March 5, 2003, Conseco sought an "Order Granting Authority to Sell Certain Real Property; Approving Bid and Other Procedures For and Establishing the Date, and Place of, Auction and Hearing; and Granting Authority to Enter into a Contract Containing a Break-Up Fee." Conseco also sought an order authorizing it to retain Eastdil Realty Company, LLC ("Eastdil") as its real estate agent, to assist in the sale of the GM Building. (See Bankruptcy Court Motions, Exhibits ("Ex.") G & H to Declaration of Jason M. Koral in Support of Plaintiff's Motion ("Koral Decl.").)

Trump disputed jurisdiction in the bankruptcy court, which subsequently dismissed Conseco's adversary complaint in part, for lack of subject matter jurisdiction, and stayed the remainder of the proceeding to allow the parties to engage in arbitration. (See Order, dated Apr. 4, 2003, Ex. D to Declaration of Amy C. Haywood in Opposition to Plaintiff's Motion ("Haywood Decl.").) On June 30, 2003, the parties stipulated to a dismissal of the adversary proceeding "and all related proceedings concerning the subject matter of this adversary proceeding" with prejudice. (Stipulation and Order, dated July 1, 2003, Ex. G to Haywood Decl.)

II. Sale of the GM Building

Upon resolving its dispute over ownership with Trump, Conseco withdrew its application to the bankruptcy court to conduct a Section 363 sale and instead enlisted Eastdil to conduct a managed sale process for the Building. (See Pl. Mem., at 3.) In July 2003, Eastdil circulated marketing materials to prospective bidders that included "a confidentiality agreement . . . to be executed before conducting initial due diligence." (Compl. ¶ 37.)

On July 16, 2003, in order to participate in the sales process, Plaintiff executed the "Principal Confidentiality Statement." The agreement stated:

The undersigned acknowledges that the Property has been offered for sale subject to withdrawal from the market, change in any offering price, prior sale or rejection of any offer, lack of satisfactory credit references of any prospective purchaser, or for any reason whatsoever, without notice. The Owner expressly reserves the right in its sole discretion to terminate, at any time with or without notice and without liability, any discussions with a party regarding a possible sale of the Property. (Principal Confidentiality Agreement, dated July 16, 2003 ("Conf. Agrmt."), Ex. H to Haywood Decl., at ¶ 8.)*fn2

After Plaintiff submitted his bid by the August 11, 2003 deadline, Eastdil informed Plaintiff that he was "not selected by the Owner to participate in the final round," but that since he had "indicated that [he] desire[d] to continue in the process," he could submit a final offer by no later than August 27, 2003. (Eastdil Letter, dated Aug. 13, 2003, Ex. J to Haywood Decl.) The letter reiterated that Conseco reserved the right, "in its sole and absolute discretion, to accept or reject any offer for any reason," and that factors "considered by the Owner in selection of a purchaser will include price, timing (to complete due diligence, and to close), level of due diligence completed to date, closing capacity and credibility and earnest money deposit." (Id.) Plaintiff submitted a final offer, but on August 28, 2003, Conseco accepted the bid of Harry Macklowe, awarding him the sale of the GM Building. (See Pl. Mem., at 4-5; Def. Mem., at 6.)

Plaintiff alleges that, because Defendants represented that the Building would be sold through a fair and open auction, he invested significant effort in preparing a bid for the Building. (See id. at 4.) He claims that at the final round of bidding, he submitted the "best, credible bid," and one that was $35 million greater than that of Macklowe. (Id.) Plaintiff further contends that Macklowe's bid was defective and contained false representations, and that Macklowe was essentially allowed to circumvent the bidding process by walking into Defendants' offices the day after the auction had closed and simply matching the $1.4 billion offer made by Plaintiff. (Id. at 4-5.)

III. Previous Litigation

Plaintiff subsequently brought an action in Delaware Chancery Court, seeking to nullify the sale of the Building to Macklowe, enjoin the closing, and direct Defendants to negotiate with Plaintiff for the sale of the Building. The court denied Plaintiff's request for an injunction, stating that "Solow did not convince me that an auction, in the ordinary sense of that word, was ever promised by defendants in connection with the sale of the GM Building." (Delaware Court Opinion, dated Sept. 24, 2003, Ex. K to Haywood Decl., at 2-3.) The court further concluded that "all the documents and written evidence contradict Solow's basic claim that an auction, with specified ground rules, was to be held in connection with the GM Building sale." (Id. at 3.)

After the court denied Plaintiff's request for injunctive relief, Plaintiff voluntarily dismissed his suit without prejudice. Plaintiff does not appear to have taken any further legal action with regard to this ...


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