129 F.R.D. 89 (S.D.N.Y. 1990), M21-45-MP, In re Ivan F. Boesky Securities Litigation

Docket Nº:M21-45-MP.
Citation:129 F.R.D. 89
Opinion Judge:MILTON POLLACK, Senior District Judge.
Party Name:In re IVAN F. BOESKY SECURITIES LITIGATION. v. DREXEL BURNHAM LAMBERT INCORPORATED, et al., Defendants. HOME SHOPPING NETWORK, INC., Plaintiff, This Document Relates only to this Case.
Attorney:Charles Wachter, Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., Tampa, Fla., for plaintiff Home Shopping Network, Inc. Debra L. Brown, Cadwalader Wickersham & Taft, New York City, Lead/Liaison Counsel, for plaintiffs Arden Way. Stanley Nemser, Wolf Popper Ross Wolf & Jones, New York Ci...
Case Date:January 30, 1990
Court:United States District Courts, 2nd Circuit, Southern District of New York
 
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129 F.R.D. 89 (S.D.N.Y. 1990)

In re IVAN F. BOESKY SECURITIES LITIGATION.

HOME SHOPPING NETWORK, INC., Plaintiff,

v.

DREXEL BURNHAM LAMBERT INCORPORATED, et al., Defendants.

This Document Relates only to this Case.

No. M21-45-MP.

MDL No. 732.

No. 89 Civ. 5755 (MP).

United States District Court, S.D. New York.

January 30, 1990

Debenture owners moved to intervene in action by issuer of debentures against underwriter of debentures for alleged giving of fraudulent advice. Issuer of debentures cross-moved for intervention joinder of proposed intervenors, and/or recommendation to Judicial Panel on Multidistrict Litigation that action be returned to Florida. The District Court, Milton Pollack, Senior District Judge, held that debenture owners were not entitled to intervene as of right or permissively.

Motion and cross-motions denied.

Charles Wachter, Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., Tampa, Fla., for plaintiff Home Shopping Network, Inc.

Debra L. Brown, Cadwalader Wickersham & Taft, New York City, Lead/Liaison Counsel, for plaintiffs Arden Way.

Stanley Nemser, Wolf Popper Ross Wolf & Jones, New York City, Lead/Liaison Counsel, for plaintiffs (Class action).

David Parker, Kleinberg Kaplan Wolff & Cohen, New York City, A. Gilchrist Sparks, III, Morris Nichols Arsht & Tunnell, Wilmington, Del., for proposed intervenors Rochester Convertible Growth Fund, Rochester Growth Fund, Inc., Werner Zimmerman and Mirjam Zimmerman.

Lawrence Jacobs, Paul Weiss Rifkind Wharton & Garrison, New York City, for defendant Michael R. Milken.

William F. Cavanaugh, Jr., Patterson Belknap Webb & Tyler, New York City, for defendant Drexel Burnham Lambert Inc.

OPINION AND ORDER

MILTON POLLACK, Senior District Judge.

Rochester Convertible Growth Fund, Rochester Growth Fund, Inc., Werner Zimmerman and Mirjam Zimmerman (referred to hereinafter collectively as the " Intervenors" ), on behalf of themselves and on behalf of the putative classes they represent, have moved to intervene under Rule 24, Fed.R.Civ.P., in the above-captioned proceedings. Home Shopping Network, Inc. (" HSN" ), plaintiff in a constituent action in the above proceedings, supports the motion for intervention and cross-moves, in addition or as an alternative, to join the proposed Intervenors through amendment or joinder pursuant to Rules 15(a), 20 and/or 21, Fed.R.Civ.P.; to transfer the HSN action to the Middle District of Florida pursuant to 28 U.S.C. § 1404(a); and/or for a recommendation to the Judicial Panel on Multidistrict Litigation to return the HSN action to Florida pursuant to 28 U.S.C. § 1407.

For the reasons set out below, the proposed Intervenors' motion and HSN's cross-motions are to be denied.

Background

The proposed Intervenors are owners of debentures issued by HSN for a $100 million Eurodollar offering abroad in 1987 of

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5- 1/2 % Convertible Subordinated Debentures due April 22, 2002 (the " Debentures" ). The Debentures were issued under an indenture, executed in New York, dated April 22, 1987 (the " Indenture" ), as supplemented by an indenture dated May 15, 1987 (the " Supplemental Indenture" ). HSN is a Delaware corporation with its headquarters in St. Petersburg, Florida.

The conversion rate of the Debentures into stock of HSN is questioned in the litigations referred to herein, but on different grounds for different relief.

There are two separate actions of relevance to the motions before the Court. The first was brought in the Middle District of Florida by HSN against Drexel Burnham Lambert International Limited (" Drexel" ) and their alleged coterie; none of the public Debenture holders was joined as a party or represented therein. HSN in that suit claims to be aggrieved that Drexel, the underwriter of the Debentures, gave HSN allegedly fraudulent advice which HSN followed committing it to the Debenture conversion ratio set forth in the Supplemental Indenture. The Florida court ruled that joinder of the public bondholders was not necessary for an adjudication of HSN's claims against Drexel.

The second suit was brought against HSN in the Delaware Court of Chancery by public investors who purchased the Debentures in reliance on the supplemented Indenture, namely the proposed Intervenors herein. In this suit the public investors seek to enforce the supplemented Indenture according to its terms for conversion of the Debentures.

Debentures:

The Debentures were issued and sold on April 22, 1987 in the Eurodollar market pursuant to an offering circular, dated March 31, 1987. Drexel was the underwriter of the Debentures and Bankers Trust Company (" Bankers Trust" ) was the named trustee under the Indenture. HSN filed a listing application (No. 14928) on March 9, 1987, with the American Stock Exchange, which listed shares of its common capital stock to be issued upon conversion of the Debentures. Those shares were also registered under Form S-1 with the United States Securities and Exchange Commission on March 10, 1987.1 The original Indenture provided that the Debentures were convertible into shares of HSN common stock at $25.80 per share, a price calculated as 20% higher than the market price at the time the offer was priced on March 26, 1987. At the $25.80 per share rate, each $1,000 face Debenture would be convertible into approximately 38.76 shares of HSN common stock. Pursuant to Section 1015 of the Indenture, HSN undertook to

at all times reserve and keep available and free from preemptive rights, out of its authorized Common Stock, solely for the purpose of issue upon conversion of Securities ... such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding Securities.....

The original Indenture further provided that the conversion price could be reset under certain circumstances.

HSN supplemented the original Indenture as of May 15, 1987, pursuant to which the conversion price of the Debentures became automatically subject to reset effective April 22, 1988, to the lower of i) the current conversion price then in effect ($25.80), or ii) 120% of the average of the last reported sales price of HSN common stock for the 30 days prior to April 22,

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1988. HSN issued a press release to the public on April 28, 1987, which stated in part:

The debentures include a provision for a reset of the conversion price after one year, under which, the conversion price may be lowered in the event the average sale price of HSN's shares for thirty trading days prior to the reset date, April 22, 1988, plus a twenty percent premium, is lower than the current conversion price.

HSN then issued a May 12, 1987 Offering Circular Supplement to the March 31, 1987 Offering Circular notifying the public of the new reset conversion price. The Supplement was filed with the American Stock Exchange on August 5, 1987 with HSN's amended Listing Application No. 14928.2

The market price of the stock issuable on conversion dropped drastically in the intervening year or so between the date of the Supplemental Indenture and the date on which the conversion rate was to be reset. The price of the common stock in March 1987, when the Indenture was priced, was approximately $20.64 per share. According to public reports, HSN's stock declined to 13 5/8 by May 22, 1987. By October 13, 1987, the price of the stock was 11 1/4 ; and, following the October 19th stock market crash, HSN's stock closed at 6 1/2 on October 23, 1987. Thus, the conversion price as of April 22, 1988, was automatically to be reset at $7.05, which represented 120% of $5.88, the average reported sales price for HSN stock for the 30 days preceding April 22, 1988. At such a conversion rate, a $1,000 face Debenture was convertible into approximately 141.84 shares of HSN common stock.

Middle District of Florida Action:

On April 18, 1988, only four days before the reset conversion price was to take effect under the supplemented Indenture, HSN filed a fraud suit against Drexel, Michael Milken, Allen Rosenthal and Joel L. Gold in the United States District Court for the Middle District of Florida, charging that HSN had been fraudulently...

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