Arvin Industries v. Wanandi

• Citation: 722 F. Supp. 532
• Decision Date: 04 August 1989
• Docket Number: No. IP 89-182-C.,IP 89-182-C.
• Parties: ARVIN INDUSTRIES, Plaintiff, v. Ismanto WANANDI, a/k/a Edward Ismanto Wanandi, Defendant.
• Court: U.S. District Court — Southern District of Indiana

722 F. Supp. 532

ARVIN INDUSTRIES, Plaintiff, v. Ismanto WANANDI, a/k/a Edward Ismanto Wanandi, Defendant.

No. IP 89-182-C.

United States District Court, S.D. Indiana, Indianapolis Division.

August 4, 1989.

Ronald E. Elberger, Bose McKinney & Evans, Indianapolis, Ind., and Dewey Ballantine Bushby Palmer & Wood, New York City, for plaintiff.

James A. McDermott, James A. Strain, and Anne N. DePrez, Barnes & Thornburg, Indianapolis, Ind., and Wachell Lipton Rosen & Katz, New York City, for defendant.

ORDER ON DEFENDANT'S MOTION TO DISMISS

McKINNEY, District Judge.

I. Procedural Background:

Plaintiff Arvin Industries filed this action in February of this year seeking injunctive relief and declaratory judgment against defendant Ismanto Wanandi. The gist of Arvin's original Complaint was that Wanandi, who is an Indonesian citizen, had amassed over 5% of Arvin's stock, but had failed to file a complete and accurate Schedule 13D with the Securities and Exchange Commission under Section 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(d) and the regulations thereunder. Arvin alleged that Wanandi's 13D filing failed to set forth his relationship with the Indonesian military, his inability to acquire the company, and his true purpose in purchasing the stock. Shortly after filing its Complaint Arvin contacted this Court concerning possible problems with service of process on the defendant and a hearing was set. However, defendant's attorneys agreed to accept service for him. Soon thereafter Arvin moved this Court for expedited discovery.

Wanandi then moved to dismiss the Complaint, arguing that he had filed a complete Schedule 13D, and that he had supplemented his original filing to include the allegations contained in Arvin's complaint. Wanandi opposed the motion for expedited discovery and moved to stay discovery pending resolution of the motion to dismiss. This Court held in abeyance those requests pending consideration of the dismissal motion.

One week later Arvin filed its Amended Complaint in which it realleged the thrust of its first Complaint and added several additional theories under the Securities Exchange Act of 1934. Specifically, Arvin now makes the following allegations, which need to be set forth at some length in order to set the framework for resolution of this motion:

1. Wanandi has violated Section 13(d) of the Act (15 U.S.C. § 78m(d)) in relation to his Schedule 13D filings by:

a. failing to disclose his Indonesian military affiliations (Count One, ¶¶ 31-42);

b. failing to disclose financial background information (Count One, ¶ 43);

c. failing to disclose his actual purpose in buying Arvin stock (Count One, ¶¶ 44-45); and

d. failing to disclose his alleged violations of Section 7(f) of the Act relating to margin requirements (Count Six, ¶¶ 76-77).

II. Wanandi has violated Section 13(d)(3) of the Act (15 U.S.C. § 78m(d)(1), (3)) with respect to his Schedule 13D filing by failing to disclose that he is part of a group for the purpose of acquiring Arvin shares (Count Two, ¶¶ 48-54).

III. Wanandi has violated Section 9(a) of the Act (15 U.S.C. § 78i(a)) by making secret accumulations of stock and filing false and misleading Schedules in order to cause Arvin to fear takeover and therefore enter into a business relationship with Wanandi and his affiliates (Count Three, ¶¶ 55-59).

IV. Wanandi has violated Section 10(b) of the Act (15 U.S.C. § 78j(b)) and Rule 10b-5 by omitting material facts as part of a device, scheme, or artifice to defraud Arvin and its shareholders (Count Four, ¶¶ 60-65).

V. Wanandi has violated the margin requirements promulgated under Section 7(f) of the Act (15 U.S.C. § 78g(f)) by using 14.5 million dollars of credit to purchase 22.5 million dollars of Arvin stock, with more than 50% of the total purchase price being on margin (Count Five, ¶¶ 66-75).

Arvin does not seek money damages, but rather requests injunctive and declaratory relief prohibiting Wanandi from engaging in certain acts with respect to Arvin and Arvin stock. Arvin also seeks costs and attorneys fees incurred in bringing this action, and has asked for a jury trial as to all issues properly triable by a jury. Arvin has not yet asked for a preliminary injunction hearing.

Wanandi has again moved to dismiss the Amended Complaint, and the questions raised have been fully and thoroughly briefed. The motion raises a number of difficult issues which, after setting forth the relevant facts, the Court will address individually.

II. Facts:

The well-pleaded facts of this case, as taken as true on this motion to dismiss for failure to state a claim,¹ are as follows:

Plaintiff Arvin Corporation is an Indiana Corporation with its principal offices in Columbus, Indiana. Arvin is a diversified manufacturing company supplying a variety of products and services including automotive parts and research and development for the government. One of Arvin's businesses, Calspan, is a major defense contractor engaged in secret and highly sensitive work for the United States' armed services. Arvin's common stock is listed on the New York Stock Exchange and is registered with the Securities and Exchange Commission. As of January 1, 1988, there were approximately 18.8 million shares of Arvin common stock outstanding.

Defendant Ismanto Wanandi is a 33 year-old Indonesian resident. Wanandi is chairman of an Indonesian entity known as P.T. Gemala Kempa Daya ("Gemala"). Approximately 45% of Gemala is owned by an Indonesian company controlled by the "Astra Group," an Indonesian business group managed by the Soeradjaya family. Wanandi is an agent of Gemala, which in turn is controlled by the Astra Group and the Soeradjaya family.

Wanandi and his family members have diverse business interests in Indonesia including military-related concerns. Indonesian government entities and/or employees control a significant portion of the equity of certain Wanandi group companies. The Wanandi group companies are closely allied by cross-ownership stakes and interlocking management arrangements to the Astra group. The Gemala company is engaged in the manufacture and distribution of automotive parts. Defendant Wanandi is one of six brothers. Several of the Wanandi brothers have close ties to the Indonesian military.

At a date unknown to the plaintiff but before June 24, 1988, Wanandi agreed with one or more Indonesian businessmen representing Wanandi group and Astra group interests to pursue a plan to cause Arvin to enter into a business arrangement with Gemala. Defendant Wanandi agreed to act as the publicly identified vehicle for this plan, but at all relevant times Wanandi has acted as the representative and agent for Indonesian business interests in addition to his personal interests.

In accordance with this program, Wanandi entered into an agreement with Chase Manhattan Bank on June 24, 1988, pursuant to which Chase agreed to act as "exclusive financial advisor" to Wanandi "in connection with the proposed acquisition" by Wanandi of Arvin common stock, "or any other effort to obtain control of" Arvin. Under the Chase Agreement, Chase Manhattan is entitled to 10% of any profits realized by Wanandi on the sale of his Arvin stock holdings. Under the Agreement and subsequent accords, Chase Manhattan is authorized to "act upon any and all instructions ... given or purported to be given by Wanandi or Mr. Thomas J. Scott." Scott is an American citizen who operates through an entity called International Merchants in Suffolk County, New York.

In order to finance his stock accumulation program, Wanandi entered into a financing arrangement dated July 16, 1988, with the Singapore branch of CIC-Union Europeene ("CIC"). CIC is a France-based bank that does business in the United States through a New York office. CIC agreed to lend Wanandi up to $15,000,000 for the purchase of Arvin stock, with Wanandi being required to pledge to CIC any and all Arvin securities actually purchased. The CIC Credit Agreement contains a representation and warranty by Wanandi that he is not subject to the United States margin credit requirements. Wanandi eventually borrowed $14.5 million to aid in his purchase of some $22 million worth of Arvin stock.

At a time unknown to Arvin, Mr. Wanandi began to accumulate Arvin stock. By August 16, 1988, Wanandi had purchased more than 300,000 shares. On October 4, 1988, Wanandi filed a notification with the Federal Trade Commission to permit him to acquire in excess of $15 million worth of Arvin's common stock. Shortly thereafter Wanandi contacted certain customers of Arvin and discussed Arvin's business affairs. Wanandi stated that he would acquire control of Arvin. His purchases of Arvin stock continued throughout the fall of 1988.

On January 26, 1989, Wanandi wrote James K. Baker, the Chairman and Chief Executive Officer of Arvin, and requested a meeting to discuss Wanandi's views concerning Arvin. No such meeting has taken place. In February of 1989, Wanandi purchased an additional 174,000 shares of Arvin stock. On February 20, 1989, Wanandi filed his initial Schedule 13D with the SEC on behalf of himself. Wanandi stated his purpose in buying the 5.6% of Arvin to be "investment, although

Mr. Wanandi has considered, and will continue to consider, the possibility of a future acquisition of control of the Company, whether by means of a tender offer for all or a portion of the outstanding Common Stock, merger or other business combination, open market purchases, privately negotiated transactions or otherwise, or the development of another mutually-beneficial long-term business relationship with the Company. Mr. Wanandi has not made any definitive plans with regard to the foregoing, nor has he entered into any contracts, arrangements or understandings with any other party for such purpose except as otherwise specified herein, and he intends to continue to review and monitor his investment in the Company. Depending on market,

...