Charal Inv. Co., Inc. v. Rockefeller
| Decision Date | 12 March 2001 |
| Docket Number | No. Civ. A. 96-543(RRM).,Civ. A. 96-543(RRM). |
| Citation | 131 F.Supp.2d 593 |
| Parties | CHARAL INVESTMENT COMPANY, INC., and C.W. Sommer & Co., on behalf of themselves and all others similarly situated, Plaintiffs, v. David ROCKEFELLER; Peter D. Linneman; Richard M. Scarlata; Goldman Sachs Mortgage Co.; Whitehall Street Real Estate Limited Partnership V; WH Advisors, L.P.; WH Advisors, Inc. V; Goldman Sachs Group Inc.; Goldman Sachs & Co.; and Daniel M. Neidich, Defendants. |
| Court | U.S. District Court — District of Delaware |
Pamela S. Tikellis, James C. Strum, Chimicles & Tikellis LLP, Wilmington, DE, Michael D. Donovan, David A. Searles, Ann Miller, Donovan Miller, LLP, Philadelphia, PA, James R Malone Jr., Chimicles & Tikellis, Haverford, PA, for Plaintiffs.
Robert K. Payson, Arthur Dent, Potter Anderson & Corroon LLP, Wilmington, DE, for defendants Peter D. Linneman, Richard M. Scarlata, Goldman Sachs Mortgage Co., Whitehall Street Real Estate Limited Partnership V, WH Advisors, Inc. V, WH Advisors, L.P., Goldman Sachs Group, Inc., Goldman Sachs & Co., and Daniel M. Neidich.
Max Gitter, Cleary Gottlieb Steen & Hamilton, New York City, Richard A. Rosen, Robert N. Kravitz, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for defendants Goldman Sachs Mortgage Co., Whitehall Street Real Estate Limited Partnership V, WH Advisors, Inc. V, WH Advisors, L.P., Goldman Sachs Group, Inc., Goldman Sachs & Co., and Daniel M. Neidich.
Richard D. Allen, Morris, Nichols, Arsht & Tunnell, Wilmington, DE, Russell E. Brooks, Milbank, Tweed, Hadley & McCoy, New York City, for defendant David Rockefeller.
This is a securities case. Plaintiffs owned shares of stock in a real estate investment trust called Rockefeller Center Properties, Inc. ("RCPI") between February 8, 1996 and July 10, 1996 and purport to represent all others who owned shares of RCPI during the same time period. RCPI held mortgages on Rockefeller Center property through 1996, at which time the property was transferred to RCPI. In July, 1996, a group of investors (the "Investor Group") acquired RCPI through a cash-out merger with RCPI Merger, Inc., a corporation created by the Investor Group.
Defendants include the following former officers and directors of RCPI. David Rockefeller is a former officer and director of RCPI and was a member of the Investor Group. Peter D. Linneman is a former director of RCPI and a consultant to Goldman Sachs & Co. Richard M. Scarlata is a former President and CEO of RCPI. Daniel M. Neidich is a former director of RCPI.
Defendants also include the following corporations and partnerships that were members of the Investor Group. Whitehall Street Real Estate Limited Partnership V is a limited partnership organized under the laws of the State of Delaware that engages in the business of investing in debt and equity interests in real estate assets and businesses. WH Advisors, L.P. is a limited partnership organized under the laws of the State of Delaware and sole general partner of Whitehall. WH Advisors, Inc. V is a corporation organized under the laws of the State of Delaware and the sole general partner of WH Advisors, L.P. Goldman Sachs Group, Inc. is a corporation organized under the laws of the State of Delaware that engages both directly and through subsidiaries in the business of buying and selling securities and making investments. Goldman Sachs & Co. is a limited partnership organized under the laws of the State of New York that engages in investment banking. Finally, defendant Goldman Sachs Mortgage Co. is a limited partnership organized under the laws of the State of New York engaging in commercial lending and was an indirect investor in the Investor Group.
Plaintiffs allege in their Second Consolidated Amended Class Action Complaint that defendants violated Sections 14(a), 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n, 78j, 78t (the "Exchange Act"), when, prior to the March 25, 1996 shareholder vote approving the merger of RCPI and RCPI Merger, Inc., they failed to disclose the Investor Group's intent to sell certain RCPI real estate to GE/NBC. This is the second time the court has analyzed claims based on these facts.
Plaintiffs first brought claims based on defendants' alleged failure to disclose the Investor Group's intentions before the court in their initial consolidated complaint filed on March 3, 1997. Defendants moved to dismiss the complaint. On December 10, 1997, the court converted defendants' motion to dismiss to one for summary judgment and granted judgment in favor of defendants as to claims relating to defendants' failure to disclose the Investor Group's sale intentions. On appeal, the Court of Appeals for the Third Circuit determined that this court had improperly converted the motion to dismiss and remanded the claims so that the parties could frame their arguments in light of recent Third Circuit authority. See In re: Rockefeller Center Properties, Inc. Securities Litigation, 184 F.3d 280, 289 (3d Cir. 1999).
Upon the parties' return to this court, plaintiffs moved for leave to amend their complaint. On July 8, 2000, the court granted plaintiffs' motion. In amending their complaint, plaintiffs added a third statutory ground for liability and supplemented their statement of facts in an effort to demonstrate that prior to the shareholder vote, defendants failed to disclose the Investor Group's intent to sell the RCPI real estate to GE/NBC after approval of the merger. On July 24, 2000, defendants moved to dismiss the complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure and 15 U.S.C. § 78u-4(b) of the Private Securities Litigation Reform Act (the "PSLRA"). On July 27, 2000, plaintiffs moved to strike defendants' motion to dismiss. This is the court's decision on the motions.
The court draws the following facts from plaintiffs' Second Consolidated Amended Complaint and documents referenced therein.
Rockefeller Center is a large office, retail and entertainment complex located in midtown Manhattan. Prior to the spring of 1996, Rockefeller Group, Inc. owned Rockefeller Center through two partnerships, Rockefeller Center Properties and RCP Associates. In 1985, RCPI was created to loan cash to the partnerships. RCPI used $750 million from an initial public offering of 37.5 million shares of stock and $215 million from a sale of discounted debentures to loan $1.3 billion to the partnerships. To secure the loan, RCPI received two mortgages on the Rockefeller Center property. The mortgages were set to mature on December 31, 2007.
In the fall of 1994, RCPI realized that it would be unable to honor upcoming debenture payments without raising additional cash. In December, 1994, RCPI entered into financing agreements with defendants Whitehall and Goldman Sachs Mortgage Company. Whitehall provided a $150 million loan to RCPI. In return, RCPI gave Whitehall an assignment of part of the Rockefeller Center mortgage, warrants for RCPI stock and a pledge to pay over to Whitehall certain defined "excess" cash. Goldman Sachs agreed to buy $75 million in debentures from RCPI. As part of the transaction, RCPI agreed to Goldman Sachs appointing one member of RCPI's board of directors. Goldman Sachs subsequently designated defendant Daniel M. Neidich to serve on the board. Neidich served as a director until his resignation in August, 1995.
The partnerships that owned the Rockefeller Center property were also experiencing financial difficulties. On May 11, 1995, they filed voluntary petitions for relief pursuant to chapter 11 of the Bankruptcy Code and ceased payments to RCPI. Four months later, on September 12, 1995, the partnerships filed a proposed chapter 11 plan of reorganization, in which they agreed to transfer full ownership of the Rockefeller Center property to RCPI.
Realizing that RCPI would receive no further payments on the mortgage, the RCPI board of directors met to assess their position and consider alternative financing options to alleviate the loss of income. The board concluded that a large payment due to Goldman Sachs on September 1, 1995 would exhaust the RCPI cash reserves and that any new financing would have to be in place by mid-August.
The board entertained various proposals ranging from refinancing plans from RCPI's lenders to acquisition plans from outside entities. The board appointed a committee to assess its options. On August 7, 1995, in a meeting to consider some of the proposals that had been made to RCPI, the committee also considered filing for protection under chapter 11 of the Bankruptcy Code. The committee instead decided to pursue the recapitalization and acquisition proposals.
Three groups of investors expressed significant interest in acquiring RCPI. The first was the Investor Group, which consisted of Whitehall, David Rockefeller, Goldman Sachs & Co., and Daniel M. Neidich. The second was the Zell Group, led by Samuel Zell, a Chicago real estate investor, and included GE. The third was the Gotham Group, led by Gotham Partners, L.P., an investment firm that owned 5.6% of RCPI's shares. The three groups engaged in a bidding contest to buy RCPI.
On August 16, 1995, RCPI entered into an agreement and plan of combination with the Zell Group, in which the Zell Group pledged $250 million in cash and $700 million in new financing. As part of the agreement, the Zell Group loaned RCPI $10 million to cover payments due to lenders on September 1, 1995. The agreement also allowed RCPI to continue to consider other offers and to pursue any offers it considered financially superior. On September 12, 1995, the Investor Group proposed to buyout RCPI for an aggregate price of $100 million. The RCPI board rejected the offer concluding that it was not financially superior to the Zell Group's proposal.
The three groups of investors...
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