Fisher v. Kanas

• Court: U.S. District Court — Eastern District of New York
• Writing for the Court: Spatt
• Citation: Fisher v. Kanas, 467 F.Supp.2d 275 (E.D. N.Y. 2006)
• Decision Date: 07 December 2006
• Docket Number: No. 06-CV-1187 (ADS)(ETB).,06-CV-1187 (ADS)(ETB).
• Parties: Carol FISHER, Plaintiff, v. John A. KANAS, John Bohlsen, Daniel T. Healy, and North Fork Bankcorporation, Inc., Defendants.

467 F.Supp.2d 275

Carol FISHER, Plaintiff, v. John A. KANAS, John Bohlsen, Daniel T. Healy, and North Fork Bankcorporation, Inc., Defendants.

No. 06-CV-1187 (ADS)(ETB).

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

December 7, 2006.

COPYRIGHT MATERIAL OMITTED

Wechsler Harwood LLP by Joel C. Feffer, Daniella Quitt, of Counsel, New York, NY, for Plaintiff.

Wachtell, Lipton, Rosen & Katz by William Savitt, Adam Gogolak, of Counsel, New York, NY, for the Defendants.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge.

On March 16, 2006, Carol Fisher (the "Plaintiff" or "Fisher") commenced the present action against John A. Kanas ("Kanas"), John Bohlsen ("Bohlsen"), Daniel T. Healy ("Healy") and North Fork Bancorporation, Inc. ("North Fork") (collectively the "Defendants"). In her April 2006, amended complaint, the Plaintiff alleges that the Defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act ("Exchange Act") and breached their fiduciary duties.

Presently before the Court is the Defendants' motion to dismiss the amended complaint, pursuant to Federal Rules of Civil Procedure ("Fed. R. Civ.P") 12(b)(1) and 12(b)(6). Also pending before the Court is the Plaintiffs objections to United States Magistrate Judge E. Thomas Boyle's Memorandum Opinion and Order denying the Plaintiffs' motion for a partial lifting of the automatic discovery stay mandated by the Private Securities Litigation Reform Act of 1995 ("PSLRA").

I. BACKGROUND

A. FACTUAL BACKGROUND

On April 21, 2006, the Plaintiff, a stockholder of North Fork, filed an amended complaint against North Fork, as well as the following North Fork executives: (1) Kanas, North Fork's President, Chief Executive Officer and Chairman of the Board of Directors; (2) Bohlsen, North Fork's Vice Chairman of the Board of Directors; and (3) Healy, North Fork's, Executive Vice President and Chief Financial Officer. The Plaintiff alleges that the Defendants purposely misrepresented executive compensation policies to stockholders in violation of Section 14(a) of the Exchange Act.

According to the Plaintiff, in March 2006, North Fork announced that Capital One would acquire North Fork. Stockholders discovered that upon the acquisition, various change-in-control agreements between North Fork and its executives would result in a payment of $288 million to executives, including a "tax gross-up," whereby North Fork would pay the individual Defendants' personal income taxes. In addition, under the merger agreement between North Fork and Capital One, North Fork shareholders would receive cash and Capital One stock valued at $31.18 per North Fork share.

The Plaintiff claims that prior to the acquisition announcement, stockholders were not aware of the executive compensation arrangements. In particular, the Plaintiff claims that from 2003 through 2005, when North Fork's stockholders elected the Board of Directors, executive compensation was misrepresented by the Defendants. Prior to each year's election, the stockholders received proxy statements containing information regarding executive compensation. However, the proxies did not solicit shareholder votes regarding executive compensation. The proxies solely concerned the election of Directors,

The Plaintiff contends that the proxy statements contained "materially false and misleading" statements "because defendants omitted to disclose accurately the potential magnitude of the payments under the change-in-control agreements with its executive officers." The Plaintiff alleges that "North Fork's proxy statements painted a picture of a company with reasonable executive compensation standards."

In this regard, the Plaintiff takes issue with the following assertions contained in the proxy statements: (1) North Fork's "long-time adherence to good governance principles in dealing with executive compensation"; (2) "the types of compensation we pay to our executives have always remained within the traditional categories"; (3) the change-in-control "agreements are fairly standard in form and substance"; (4) North Fork "places senior management in the same position with respect to their stock awards that long-term stockholders occupy with respect to their investment"; and (5) North Fork "never made available or permitted the types of non-standard benefits or arrangements that . . . are so obscure as to escape investors' notice."

The Plaintiff claims that the $288 million payment which includes the payment of the individual Defendants' income taxes, is unusual and overly generous. The Plaintiff claims that the five specific assertions set forth in the proxy statements were misleading to stockholders. The Plaintiff seeks to enjoin the payment of the executive compensation.

B. PROCEDURAL HISTORY

In June 2006, the Defendants moved to dismiss the complaint. The Defendants contend that the Plaintiff failed to allege any link between the proxy statements and the challenged executive compensation agreements. The Defendants further claim that the Plaintiff did not suffer an injury and failed to allege any material misrepresentations made by the Defendants. The Defendants note that the proxies informed stockholders that income taxes payable by executives as a result of vesting of shares of stock would be paid by North Fork. The Defendants further claim that North Fork publicly filed a Form 10-K which discussed payment of executive income taxes.

In opposition to the Defendants' motion, the Plaintiff argues that the proxy statements were materially misleading and that she was injured because the proxy statements prevented her from casting a fully informed vote during elections. The Plaintiff further claims that the issues raised by the Defendants are not appropriate for resolution on a motion to dismiss.

In June 2006, the Plaintiff moved to partially lift the discovery stay mandated by the Private Securities Reform Act triggered by the filing of the Defendants' motion to dismiss. The Defendants opposed the motion, and on August 4, 2006, Magistrate Judge Boyle denied the Plaintiffs motion. On August 9, 2006, the Plaintiff filed objections to Magistrate Judge Boyle's Order.

The Defendants' motion to dismiss and the Plaintiffs objections to Magistrate Judge Boyle's Order are now pending before this Court.

II. DISCUSSION

A. The Motion to Dismiss

1. The Standard of Review

a. Rule 12(b)(6)

In a Rule 12(b)(6) motion to dismiss for failure to state a claim, the court may only dismiss the complaint if it appears beyond doubt that the, plaintiffs can prove no set of facts in support of her complaint which would entitle her to relief, See King v. Simpson, 189 F.3d 284, 286 (2d Cir.1999); Bernheim, v. Litt, 79 F.3d 318, 321 (2d Cir.1996); I. Meyer Pincus & Assocs. v. Oppenheimer & Co., 936 F.2d 759, 762 (2d Cir.1991) (holding that dismissal is inappropriate unless "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations"). The issue to consider is not whether the plaintiffs will ultimately prevail, but whether she is entitled to offer evidence to support her claims. See Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.1995).

Indeed, it is not the court's, function to weigh the evidence that might be presented at trial, rather the court must merely determine whether the complaint itself is legally sufficient. See Villager Pond, 56 F.3d at 378. The Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. See Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 165 (2d Cir.2005); DeMuria v. Hawkes, 328 F.3d 704, 706 (2d Cir.2003); Koppel v. 4987 Corp., 167 F.3d 125, 127 (2d Cir.1999); Thomas v. City of New York, 143 F.3d 31, 36 (2d Cir.1998)

In making this decision, the court must confine its consideration "to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken." Leonard F. v. Israel Discount Bank of N.Y., 199 F.3d 99, 107 (2d Cir.1999); see Rothman v. Gregor, 220 F.3d 81, 89 (2d Cir.2000) (holding that for the purpose of deciding a motion to dismiss, the complaint includes "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference"); Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir.1999). The court also may consider documents that the plaintiff either possessed or knew about and upon which she relied in bringing the suit. Rothman, 220 F.3d at 97; Cortec Industries, Inc. v. Sum Holding, L.P., 949 F.2d 42, 47-48 (2d Cir.1991).

Further, in securities fraud actions, the court may consider documents that are required to be filed, and actually have been filed with the SEC. Rothman, 220 F.3d at 89; San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Companies, Inc., 75 F.3d 801, 808-09 (2d Cir.1996); Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir.1991) (Court may rely on proxy statement in considering a motion to dismiss). However, "[i]t must also be clear that there exist no material disputed issues of fact regarding the relevance of the document." Faulkner v. Beer, 463 F.3d 130, 134-35 (2d Cir.2006).

Rule 9(b) of the Federal Rules of Civil Procedure sets forth additional pleading requirements with respect to the allegations of fraud. In particular, Rule 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b). In securities fraud actions, the requirements of Rule 9(b) are applied "assiduously." Lentell v. Merrill Lynch & Co., 396 F.3d 161, 168 (2d Cir.2005); see Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1127 (2d Cir. 1994). In addition, the Private Securities Litigation Reform Act of 1995 (the "PSLRA") heightened Rule 9(b)'s requirement for pleading...