Motient Corp. v. Dondero

• Citation: 529 F.3d 532
• Decision Date: 27 May 2008
• Docket Number: No. 07-10302.,07-10302.
• Parties: MOTIENT CORP., Plaintiff-Appellant, v. James D. DONDERO; Highland Capital Management Services, Inc.; Highland Capital Management, L.P.; Highland Crusader Offshore Partners, L.P.; Highland Equity Focus Fund, L.P.; Highland Legacy Limited; Highland Select Equity Fund, L.P.; PAMCO Cayman, Ltd.; Prospect Street High Income Portfolio, Inc.; Prospect Street Income Shares, Inc.; Strand Advisors, Inc., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

529 F.3d 532

MOTIENT CORP., Plaintiff-Appellant, v. James D. DONDERO; Highland Capital Management Services, Inc.; Highland Capital Management, L.P.; Highland Crusader Offshore Partners, L.P.; Highland Equity Focus Fund, L.P.; Highland Legacy Limited; Highland Select Equity Fund, L.P.; PAMCO Cayman, Ltd.; Prospect Street High Income Portfolio, Inc.; Prospect Street Income Shares, Inc.; Strand Advisors, Inc., Defendants-Appellees.

No. 07-10302.

United States Court of Appeals, Fifth Circuit.

May 27, 2008.

T. Ray Guy, Paige Holden Montgomery, Weil, Gotshal & Manges, Dallas, TX, Richard William Slack (argued), Weil, Gotshal & Manges, New York City, for Motient Corp.

Jay Joseph Madrid, Kristen Lee Sherwin, Stephanie Sansing White, Winstead, PC, Gary D. Eisenstat, Figari & Davenport, Dallas, TX, Craig T. Enoch (argued), Winstead, PC, Austin, TX, for Dondero.

Paul Brian Lackey, Michael Philip Aigen, Lackey Hershman, Dallas, TX, Darryl Wade Anderson, Fulbright & Jaworski, Houston, TX, for all other Defendants-Appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before DAVIS and SOUTHWICK, Circuit Judges, and CLARK, District Judge.^*

CLARK, District Judge:

This is a suit for damages and injunctive relief under the Securities Exchange Act, 15 U.S.C. § 78m(d) (1934) (amended 1970). The district court correctly held that there is no private cause of action for monetary damages under the Act and dismissed the suit for failure to state a cause of action. However, circumstances changed during the pendency of the appeal so that there is no longer any threat of irreparable harm and the request for injunctive relief is now moot. Therefore, we affirm the district court's denial of money damages and remand in part, with directions to dismiss the claims for injunctive relief without prejudice.

I.

This securities case arose out of Defendant-Appellee James Dondero's attempted corporate takeover of Motient.¹ Dondero is the majority owner and President of Highland Capital Management, an investment company, and also the "ultimate parent entity" for Defendants-Appellees Highland Prospect Street High Income Portfolio, Inc., Prospect Street Income Shares, Inc., Highland Legacy Limited, Highland Crusader Offshore Partners, L.P., PAMCO Cayman, Ltd., Highland Equity Focus Fund, L.P., Highland Select Equity Fund, L.P., and Highland Capital Management Services, Inc. (collectively the "Highland Entities," and with Dondero, referred to as "Highland").

Through one or more of the Highland Entities, Dondero purchased approximately $33 million (face value), or approximately ten percent, of Motient's outstanding high-yield debt prior to 2002. Dondero's debt investment in Motient was later converted to equity, and Dondero was invited to serve on its Board of Directors.

On June 10, 2002, pursuant to Section 13(d) of the Securities Exchange Act, 15 U.S.C. § 78m(d) (1934) (amended 1970) ("Schedule 13(d)"), several of the Highland Entities filed a Schedule 13D indicating that they were members of a group that beneficially owns in excess of five percent of Motient's common stock ("13D Group"). By April 19, 2005, the remaining Highland Entities joined the 13D Group.

Motient alleges that while it was addressing the issues with its stock, Dondero began planning to take over Motient by using Schedule 13D amendments to publicly oppose Motient's board. Motient argues that Highland filed amendments containing false, incomplete, and misleading information about the company, its management, and its board. Specifically, Motient challenges six of these amendments filed during the September — October 2005 time period involving three topics: an exchange offer, a roll-up transaction and committee actions.

First, Motient claims that Highland attempted to derail an exchange offer, which would allow investors who purchased Series A Preferred Stock to exchange, on a one-for-one basis, these shares for new shares of Series B Preferred Stock in order to correct a voting rights issue (hereinafter referred to as "Exchange Offer"). Motient argues that he did so by painting Motient management in a bad light by stating that Motient's board had not met to discuss or evaluate the exchange offer.

Second, Motient states that Highland opposed the consolidation or "roll-up" of MSV ("Mobile Satellite Ventures") and TerreStar into Motient, which Motient's board believed would have enabled each company to more effectively raise capital for building their next generation satellite/terrestrial communications system (hereinafter referred to as "Roll-Up Transaction"). According to Motient, the implied valuations that Dondero deduced from the Roll-Up Transaction were inconsistent with the actual valuations shared with Dondero at board meetings. Motient asserts that the Amendment misstates the ownership percentage that existing Motient shareholders would have following the Roll-Up Transaction. Motient claims Dondero failed to disclose that Motient has worked with independent financial advisors when structuring the transaction.

Third, Motient alleges that Highland's SEC filings accused the Audit Committee of failing to conduct a proper investigation of allegations he had made against board members, consultants, and third parties concerning apparent self-dealing, conflicts of interest, fiduciary lapses, and excessive payments (hereinafter referred to as "Board and Audit Committee Actions").

Motient asserts that the six 13D amendments filed in relation to these events contain statements by Motient that were made intentionally, willfully, negligently and/or with reckless disregard for the truth.

Motient filed its First Amended Complaint, which specifies numerous public statements made by Dondero and one or more of the Highland Entities in their Schedule 13D amendments as being violative of Section 13(d). The complaint sought a declaratory judgment, an order that Highland immediately amend the Schedule 13D amendments, injunctive relief preventing Highland from taking further actions to purchase or sell Motient securities or solicit shareholder votes, and compensatory damages.

Dondero and the Highland Entities moved to dismiss Motient's First Amended Complaint for failure to state a claim under Rule 12(b)(6), arguing that Motient failed to satisfy the heightened pleading standard of the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b) (1995).

On August 7, 2006, the district court dismissed Motient's complaint without prejudice, giving Motient twenty days to replead. Instead, on August 28, 2006, Motient filed a notice of appeal. Because the district court's judgment was not yet final, this Court did not have jurisdiction, and on December 22, 2006, this Court granted Highland's motion to dismiss the appeal for lack of jurisdiction. Meanwhile, the district court signed a final judgment on December 1, dismissing Motient's claims without prejudice.

On December 18, 2006, Highland filed a motion to alter or amend judgment to dismiss the complaint with prejudice. The issue of mootness was not raised in this motion.² The district court entered an Amended Final Judgment on February 7, 2007, dismissing Motient's claims with prejudice, from which Motient now appeals.

II.

This Court reviews a dismissal of a civil complaint de novo. Barrie v. Intervoice-Brite, Inc., 397 F.3d 249, 254 (5th Cir.2005). A motion to dismiss under Rule 12(b)(6) is not appropriate unless the plaintiff's pleadings on their face show, beyond a doubt, that the plaintiff cannot prove any set of facts sufficient to entitle him to relief. Garrett v. Commonwealth Mortgage Corp., 938 F.2d 591, 594 (5th Cir. 1991). A Rule 9(b) dismissal is reviewed under the same de novo standard as a dismissal under Fed.R.Civ.P. 12(b)(6). See Shushany v. Allwaste, Inc., 992 F.2d 517, 520 (5th Cir.1993). In determining whether a case was properly dismissed under Rule 12(b)(6), the reviewing court must assume all facts contained in the pleadings are true, Davis v. Monroe Cty. Bd. of Educ., 526 U.S. 629, 633, 119 S.Ct. 1661, 143 L.Ed.2d 839 (1999), and view the facts in the light most favorable to the plaintiff. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir.2000). It is also well established that "[t]he district court's interpretation of a statute is ... subject to de novo review." Withhart v. Otto Candies, LLC, 431 F.3d 840, 841 (5th Cir.2005) (reviewing de novo district court's erroneous grant of motion to dismiss).

III.

A.

In its Complaint, Motient sought "actual and compensatory damages." Motient argues that the district court erred by holding that there is no private right of action for money damages under Section 13(d). This is an issue of first impression in this Circuit.

In 1968, Congress added the Williams Act Amendments in response to a gap in the federal securities laws which permitted cash tender offers and other acquisitions resulting in shifts of corporate control without adequate disclosure of information to investors. H.R.Rep. No. 1711, at 2-3, reprinted in 1968 U.S.C.C.A.N. 2811, 2812-14; General Aircraft Corp. v. Lampert, 556 F.2d 90, 94 (1st Cir.1977). This remedial measure imposes candid disclosure and reporting requirements on tender offers and on other attempts to purchase control of publicly traded corporations. Gearhart Industries, Inc. v. Smith Intern., Inc., 741 F.2d 707, 713 (5th Cir.1984). The Williams Act was intended to give needed information to investors in target corporations in order to protect them from takeover bidders, who up to that point had been able to operate in secrecy, by getting needed information to investors. Id. Importantly, Congress did not enact the Act to "tip the scales in favor of management or its opponents, but to ensure that a public shareholder, confronted by cash tender for his stock, can obtain adequate information about the qualifications and intentions of the offering party before responding to the...