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Alexandra Global Master Fund, Ltd. v. Ikon Office Solutions

July 20, 2007

ALEXANDRA GLOBAL MASTER FUND, LTD., PLAINTIFF,
v.
IKON OFFICE SOLUTIONS, INC., DEFENDANT.



The opinion of the court was delivered by: John G. Koeltl, District Judge

OPINION AND ORDER

In this action, a former holder of 5% convertible notes issued by IKON Office Solutions, Inc. ("IKON") claims that IKON committed federal securities fraud and common law fraud when it repurchased those notes at a negotiated price of 99.5% of their face value without revealing that it was planning to launch a new private placement and use the proceeds to exercise its right to redeem all of the outstanding 5% notes for 102% of their face value. The plaintiff, the investment fund Alexandra Global Master Fund, Ltd. ("Alexandra"), alleges that IKON's silence about its plans constituted an omission of material, non-public information which induced Alexandra to sell its notes for $805,250 less than IKON would have been required to pay upon exercising its redemption right pursuant to the governing Indenture.

Alexandra asserts two causes of action: (1) violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; and (2) common law fraud. IKON moves to dismiss the Complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6), arguing that the securities fraud claim cannot stand because IKON had no duty to disclose the omitted information about its plans to redeem the notes and that the information was not material in any event. IKON argues that the common law fraud claim fails for the same reasons and, in any event, the Court should decline to take supplemental jurisdiction over that claim after dismissing the federal securities fraud claim.

I.

A.

On a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the Complaint are accepted as true. Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss, all reasonable inferences must be drawn in the plaintiff's favor. Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985).

While the Court should construe the factual allegations in the light most favorable to the plaintiff, the Court is not required to accept legal conclusions asserted in the Complaint. See Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002); Barile v. City of Hartford, 386 F. Supp. 2d 53, 54 (D. Conn. 2005).

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the Complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Taylor v. Vermont Dep't of Educ., 313 F.3d 768, 776 (2d Cir. 2002); Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir. 1991); VTech Holdings Ltd. v. Lucent Techs., Inc., 172 F. Supp. 2d 435, 437 (S.D.N.Y. 2001).

B.

The following facts alleged in the Complaint are accepted as true for the purpose of deciding this motion to dismiss.

Alexandra purchased from IKON $32,000,000 in aggregate principal amount of 5% Convertible Subordinated Notes (the "Notes") due May 1, 2007 in 2004. (Compl. ¶ 8.) The Indenture governing the Notes provides that IKON could redeem the Notes in whole or in part, and that if it elected to redeem them between May 9, 2005 and April 30, 2006, it would be obligated to pay the Noteholders 102% of the principal amount together with accrued interest. (Id. ¶¶ 9-10; see also Indenture §§ 2.3, 11.1, attached as Ex. 1 to Mem. of Law in Supp. of Def.'s Mot. to Dismiss.*fn1 ) The Indenture and the Notes were governed by New York law. (Indenture § 1.12.)

In May and June of 2005, Kiera Konis, an employee of Alexandra's asset manager, asked Kathleen Burns, IKON's Treasurer, whether IKON had any interest in repurchasing the Notes Alexandra held. (Compl. ¶ 11.) Burns responded that IKON was not in the market to repurchase its securities at that time because "it was involved in another undisclosed 'project.'"

(Id. ¶ 12.) On July 18, 2005, Konis sent an email to Burns again asking whether IKON had an interest in repurchasing some of its 5% convertible bonds. (Id. ¶ 13.) Several minutes later, Burns responded by email to say that IKON had no interest in repurchasing. (Id. ¶ 14.)

The next day, July 19, 2005, Burns sent an email to Konis that said, "Kiera--can you tell me where you would be interested in selling if we are in the market?" (Id. ¶ 15.) Konis then called Burns and told her Alexandra sought to sell its Notes at their redemption price, 102% of their face value. (Id. ¶ 16.) Burns rejected this offer. (Id.)

On July 20, 2005, Konis sent an email to Burns offering to sell the Notes at "around the 101 level." (Id. ¶ 17.) Burns told Konis in a subsequent phone call that IKON had just repurchased Notes from another investor at 99.75% of their face value. Konis asked whether IKON would buy Alexandra's Notes at that price. (Id. ¶ 18.) On August 5, 2005, negotiations continued. Burns offered for IKON to buy about half of the Notes at 99.75%, and Konis eventually counteroffered to sell Alexandra's entire holding of the Notes at 99.5%. (Id. ¶¶ 20-23.) Burns confirmed that IKON would accept this offer, and the repurchase closed on August 10, 2005 with IKON paying Alexandra $32,048,950 for all of its Notes. (Id. ¶¶ 24-25.)

On September 8, 2005, IKON issued a press release stating that it was Launching a private placement of $225 million aggregate ...


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