Cellular Technical Services Co. v. Trueposition

• Decision Date: 12 February 2009
• Docket Number: No. 3:07cv1682 (MRK).,3:07cv1682 (MRK).
• Citation: 609 F.Supp.2d 223
• Parties: CELLULAR TECHNICAL SERVICES COMPANY, INC., et al., Plaintiffs, v. TRUEPOSITION, INC., et al., Defendants.
• Court: U.S. District Court — District of Connecticut

609 F.Supp.2d 223

CELLULAR TECHNICAL SERVICES COMPANY, INC., et al., Plaintiffs, v. TRUEPOSITION, INC., et al., Defendants.

No. 3:07cv1682 (MRK).

United States District Court, D. Connecticut.

February 12, 2009.

COPYRIGHT MATERIAL OMITTED

Liam S. Burke, Paula Cruz Cedillo, Thomas J. Finn, Jorden Burt-Smsby, Simsbury, CT, for plaintiffs.

Patrick J. McHugh, Richard S. Gora, Finn Dixon & Herling, Stamford, CT, Richard Benjamin Harper, Baker & Botts, LLP-NY, New York, NY, for defendants.

MEMORANDUM OF DECISION

MARK R. KRAVITZ, District Judge.

Plaintiffs in this case are the former owners of a telecommunications company called KSI, Inc. ("KSI").¹ Defendants include TruePosition, Inc. ("TruePosition") and Liberty TP Management, Inc. ("Liberty"), both of which are subsidiaries of Defendant Liberty Media Corporation ("Liberty Media"), as well as Mark Carleton, J. David Flemming, Timothy D. Lenneman, John Orr, and Christopher Shean (collectively "Defendants"). The individual Defendants are high-level officers of TruePosition and Liberty and/or Liberty Media. In mid-2000, Plaintiffs became minority stockholders in TruePosition after it acquired KSI. At the time of the acquisition, Plaintiffs' stock was valued at approximately $ 19 per share.

In this action, Plaintiffs sue Defendants in a seven-count complaint alleging that Defendants engaged in a series of fraudulent, deceitful, and interested transactions over the course of five years that ultimately diluted Plaintiffs' interest in TruePosition and enabled a short-form merger of TruePosition and Liberty TP Acquisition, Inc. in July 2007 that valued Plaintiffs' stock at a mere $3.51 per share. Plaintiffs seek over $ 80 million in damages under the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., and the Connecticut Uniform Securities Act, Conn. Gen.Stat. §§ 36b-4 and 36b-29. Plaintiffs also assert common law claims of breach of fiduciary duty, fraud, conspiracy to defraud, and unjust enrichment.

After Plaintiffs filed an amended complaint, Defendants moved to dismiss it, raising a number of statute of limitations defenses and challenging Plaintiffs' ability to state a prima facie case for each of their various claims. During an on-the-record telephone conference with the parties on January 23, 2008, the Court suggested that Plaintiffs take one last chance to amend their complaint to address the claimed defects pointed out in Defendants' original motion to dismiss. The Court made clear during the telephonic conference that Plaintiffs had to utilize this option to respond as fully as they could to Defendants' motion, alleging as many facts as possible consistent with Rule 11 of the Federal Rules of Civil Procedure. To that end, Plaintiffs filed a Second Amended Complaint in lieu of a brief in opposition to Defendants' original motion to dismiss. Defendants then moved to dismiss the Second Amended Complaint, incorporating the brief from their previous motion and focusing their renewed motion on the changes in the complaint. For the reasons that follow, the Court GRANTS Defendants' Motion to Dismiss the Second Amended Complaint [doc.# 46].

I. Introduction

As this Court has stated before, "in summarizing the facts, the Court `accept[s] as true all factual statements alleged in the complaint and draw[s] all reasonable inferences in favor of' [Plaintiffs]." OBG Technical Servs., Inc. v. Northrop Grumman Space & Mission Sys. Corp., 503 F.Supp.2d 490, 497 (D.Conn.2007) (quoting McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.2007)). Although the Court construes the factual allegations in the light most favorable to Plaintiffs, the Court is not required to accept the legal conclusions asserted in Plaintiffs' Second Amended Complaint. See S.E.C. v. Simpson Capital Mgmt., Inc., 586 F.Supp.2d 196, 199 (S.D.N.Y.2008) (citing Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117, 121 (2d Cir. 2007)).

Furthermore, on a motion under Rule 12(b) of the Federal Rules of Civil Procedure, "[a] complaint is deemed to include any written instrument attached to it as an exhibit, materials incorporated in it by reference, and documents that, although not incorporated by reference, are integral to the complaint." Sira v. Morton, 380 F.3d 57, 67 (2d Cir.2004) (citations and quotation marks omitted); see also ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 93 (2d Cir.2007). A document is integral to the complaint "where the complaint relies heavily upon its terms and effect." Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir.2006). As the Second Circuit has explained, "a plaintiff's reliance on the terms and effect of a document in drafting the complaint is a necessary prerequisite to the court's consideration of the document on a dismissal motion; mere notice or possession is not enough." Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002); see also Patane v. Clark, 508 F.3d 106, 112 (2d Cir.2007).

Therefore, in its description of the facts and assessment of Plaintiffs' complaint, the Court relies not only on Plaintiffs' Second Amended Complaint [doc. # 42], but also on the "Supplemental Information Statement for Annual Meeting of Stockholders to Be Held December 18, 2002" issued by TruePosition's Board of Directors to all of its stockholders, see Decl. of Richard Harper [doc. # 48] Ex. 1A (the "2002 Information Statement"), and "Re: Minority Shareholder Representative Comments for Annual Meeting of Stockholders of TruePosition to Be Held December 18, 2002," see id. Ex. 3 (the "Minority Shareholder Comments"), both of which Plaintiffs refer to in their Second Amended Complaint. See, e.g., Second Am. Compl. [doc. # 42] ¶¶ 24-27. Although Plaintiffs did not attach the Information Statement and Minority Shareholder Comments to their Second Amended Complaint, the Court finds that it may consider these documents because: (1) they are "integral" to the complaint; (2) "no dispute exists regarding the authenticity or accuracy" of the documents; and (3) "no material disputed issues of fact [exist] regarding the relevance" of the documents. Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir.2006); OBG Technical Servs., Inc., 503 F.Supp.2d at 498.

As noted previously, this case involves a series of transactions involving Plaintiffs and Defendants that began in 2000 and ultimately ended in a short-form merger in 2007 of TruePosition and Liberty TP Acquisition, Inc., a subsidiary of Liberty Media, with TruePosition as the surviving corporation. In mid-2000, TruePosition acquired KSI in a stock deal under which KSI's owners received ten percent (10%) of the outstanding common stock of TruePosition, which was estimated at a value of $ 40 million, or approximately $ 19 per share. According to Plaintiffs, the acquisition of KSI would enable TruePosition to "bring[] together two land based location technologies" and realize the "tremendous benefit of combining the two patents which gave TruePosition an effective monopoly on the means for terrestrial based wireless location." See Second Am. Compl. [doc. # 42] ¶ 21.

During the negotiations leading to the acquisition of KSI, TruePosition disclosed that an unsecured inter-company indebtedness of $ 60 million existed between TruePosition (as borrower) and Liberty Media (as lender). In late 2002, approximately two years after TruePosition's acquisition of KSI, TruePosition disclosed its intent to convert this unsecured debt into a secured, senior position, convertible indebtedness to Liberty Media with an eleven percent (11%) per year quarterly compounded interest rate through the issuance of Series A preferred stock (the "2002 Interested Transaction"). However, before undertaking that transaction, Defendants held a TruePosition shareholder meeting in late 2002. In connection with that meeting, TruePosition's Board of Directors issued the 2002 Information Statement. According to Plaintiffs, the 2002 Information Statement misrepresented that the purpose of the 2002 Interested Transaction was to secure funding for TruePosition's continued operations as a result of its "purported inability to obtain third party financing on commercially reasonable terms, if at all." Id. ¶ 24. However, as Plaintiffs concede, Defendants acknowledged to Plaintiffs at the time that Defendants had made "absolutely no effort to seek out any independent or alternative financing" before recommending the 2002 Interested Transaction. Id.

Plaintiffs further claim that Defendants failed to obtain a fairness opinion for the 2002 Interested Transaction because of the interested nature of the transaction, which gave a "substantial benefit to Liberty Media for no consideration, was self serving, and was approved by a board comprised of Liberty Media insiders." Id. Plaintiffs allege that TruePosition failed to seek out a fairness opinion because "[it] knew that the Interested Transaction could not withstand scrutiny and because it knew that its proffered reason for the Interested Transaction (that it could not obtain third party financing on commercially reasonable terms, if at all) could not be justified, and its fraudulent scheme would be exposed and thus thwarted." Id. However, as Plaintiffs' Minority Shareholder Comments and Second Amended Complaint make clear, Plaintiffs were well aware in December 2002 that Defendants had not sought any independent, alternative financing and that Defendants had not obtained a fairness opinion. Plaintiffs knew all of this at the time as a result of a their direct inquiry of Defendants prior to the shareholder meeting in 2002. See id. ¶¶ 24-25; Harper Decl. [doc. # 48] Ex. 3 ("Minority Shareholder Comments").

According to Plaintiffs, Defendants also obtained a defective valuation in furtherance of their alleged scheme. However, Plaintiffs challenged the valuation in the Minority Shareholder Comments submitted to Defendants prior to approval of the 2002 Interested Transaction. See Harper Decl. [doc. #...