INTERNATIONAL PAINTERS AND ALLIED TRADES INDUSTRYPENSION FUND, Derivatively on Behalf of Nominal, Defendant BGC Partners, Inc., Plaintiff,
CANTOR FITZGERALD, L.P., CF Group Management, Inc., Cantor Fitzgerald & Co., Howard W. Lutnick, Stephen T. Curwood, John H. Dalton, Barry R. Sloane, Albert M. Weis, Defendants, and BGC Partners, Inc., Nominal Defendant.
[972 N.Y.S.2d 470] Joseph De Simone, Bradford Jealous III, Michele L. Odorizzi, and Jonathan C. Medow of Mayer Brown LLP, for Defendants.
Robin Winchester of Kessler Topaz Meltzer & Check LLP, Stewart L. Cohen of Cohen Placitella & Roth PC, and Carl L. Stine of Wolf Popper, LLP for Plaintiff.
EILEEN BRANSTEN, J.
In this shareholder derivative action, Plaintiff International Painters and Allied Trades Industry Pension Fund brings suit on behalf of Nominal Defendant BGC Partners, Inc. (" BGCP" ), asserting claims for breach of fiduciary duty and unjust enrichment that stem from three transactions entered into by BGCP's Board of Directors (" Board" ). Defendants Cantor Fitzgerald, L.P., CF Group Management, Inc., and Cantor Fitzgerald & Co. (collectively, " Cantor" ), as well as Defendants Howard W. Lutnick, Stephen T. Curwood, John H. Dalton, Barry R. Sloane, and Albert M. Weis (the " Individual Defendants" ) now seek dismissal of Plaintiff's [972 N.Y.S.2d 471] Complaint pursuant to CPLR 3211(a)(7) for failure to plead demand futility and failure to state a cause of action against Defendants Curwood, Dalton, Sloane, and Weis (collectively, the " Outside Directors" ). Plaintiff opposes. For the reasons that follow, Defendants' motion to dismiss is granted.
Plaintiff is a shareholder of BGCP, a global brokerage company incorporated in Delaware. (Compl.¶¶ 5, 6.) BGCP was founded in April 2008— the product of a merger between one of Cantor's brokerage units and a pre-existing public company, eSpeed, Inc. Id. ¶ 17. During the period at issue in this litigation, Cantor was BGCP's controlling shareholder. Id. ¶ 7. Defendant Lutnick was BGCP's Chairman and CEO, as well as Cantor's Chairman and CEO. Id. ¶ 9. In addition, Lutnick allegedly controlled Cantor through its managing general partner, Defendant CF Group Management, Inc. (" CFGM" ). Id.
BGCP had a five-person Board of Directors. Defendant Lutnick was the Chairman, id., and was the only member of the BGCP Board affiliated with Cantor. See Defs.' Br. in Support of Motion to Dismiss at 3. The other four members of the Board— Defendants Curwood, Dalton, Sloane, and Weis— were outside directors. Id. ¶ 10.
The instant litigation involves three transactions entered into by the BGCP Board on behalf of BGCP, labeled by Plaintiff as: (1) the Debt Transaction; (2) the Equity Transaction; and (3) the Change-in-Control Transaction. Plaintiff claims that the Individual Defendants— the members of the BGCP Board— breached their fiduciary duties to the corporation by approving these purportedly related party transactions. Specifically, Plaintiff alleges that these three transactions unduly benefitted Cantor and Defendant Lutnick, to the detriment of BGCP.
A. The Debt Transaction
The Debt Transaction involved the sale of certain Cantor-issued notes that had been assumed by BGCP in connection with the April 2008 merger. (Compl.¶ 20.) As the notes were set to mature in April 2010 at an interest rate of 5.19%, BGCP purportedly considered options to satisfy its obligations to the third-parties to whom payment on the notes was due. After the Board's Audit Committee sought the guidance of independent legal and financial advisors, the Audit Committee approved the issuance of notes to Cantor that were due in 2015 at an 8.75% interest rate. Id. ¶¶ 22, 24. The proceeds from the sale of these newly-issued notes to Cantor were used to repay the 5.19% notes due to third-parties. Id. In its Complaint, Plaintiff contends that this transaction was " on its face ... unfair to [BGCP]," as the " 8.75% notes reflect a 1.25% rate increase in the cost of the debt and provide Cantor with valuable conversion privileges, which if exercised, could cause substantial dilution of BGCP's Class A common stock." Id. ¶¶ 26-28.
B. The Equity Transaction
The next transaction to which Plaintiff objects is the so-called Equity Transaction, through which BGCP sold 3.23 million shares of its Class A common stock, using Defendant Cantor Fitzgerald & Co. (" CF & Co." ) as its sales agent. Id. ¶ 38. Under BGCP's Controlled Equity Offering Sales Agreement with CF & Co., the sales agent was entitled to compensation equal to 2% of the gross proceeds of any equity offerings. Id.
While the sale of the Class A shares generated approximately $17,792,000 in net proceeds for BGCP, Plaintiff asserts that the corporation received no benefits [972 N.Y.S.2d 472] from the transaction, since BGCP then used approximately $17,371,000 of these proceeds to repurchase Class A common stock from Cantor. Id. ¶ 42. In addition, BGCP paid CF & Co. approximately $362,000 in sales commissions. Id.
C. Change-in-Control Transaction
Finally, Plaintiff maintains that Amended Change in Control Agreement entered into by Lutnick and BGCP was unfair to the company, given Lutnick's " sole and exclusive ability to determine whether to effect a change in control and thus trigger his own ...