FMC Corp. v. Boesky
| Citation | 727 F. Supp. 1182 |
| Decision Date | 07 November 1989 |
| Docket Number | No. 86 C 9879.,86 C 9879. |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | FMC CORPORATION, Plaintiff, v. Ivan F. BOESKY, Boesky & Kinder Partners, L.P.; Ivan F. Boesky & Company, L.P.; IFB Managing Partnership, L.P.; Cambrian & General Securities, P.L.C.; Beverly Hills Hotel Corporation; Farnsworth and Hastings Limited; Northview Corporation; Seemala Partners, L.P.; Seemala Corporation; Ivan F. Boesky Corporation; Goldman, Sachs & Co.; David S. Brown; Shearson Lehman Brothers Inc.; Ira B. Sokolow; Drexel Lambert Inc.; and Dennis B. Levine, Defendants. |
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Thomas P. Sullivan, Richard T. Franch, Barbara S. Steiner and Kaarina Salovaara, Jenner & Block, Chicago, Ill., for plaintiff.
Anthony F. Phillips, Jeanne M. Luboja, Jonathan P. Wolfert, Ziporah J. Szydlo, Jonathan D. Bassett and Terri Jeligman, Willkie Farr & Gallagher, New York City, for Shearson Lehman Bros. Inc.
Howard D. Lieberman, H. Nicholas Berberian, Thomas M. Knepper, Peter B. Newton, Neal, Gerber & Eisenberg, Glen H. Kanwit, David B. Goroff, Hopkins & Sutter, R.L. Mitchell, P.V. Baugher, Adams, Fox, Adelstein & Rosen, Warren J. Marwedel, Keck, Mahin & Cate, Chicago, Ill., Eliot Lauer, Peter Fleming, Jr., Bernard V. Preziosik, Jr., Curtis, Mallett, Prevost, Colt & Mosle, New York City, Mitchell H. Kaplan, Joshua T. Buchman, Choate, Hall & Stewart, Boston, Mass., Steven L. Bashwiner, Mary Ellen Hennessy, Katten, Muchin, Zavis, Peal, Greenberger & Galler, Roger Pascal, Allan Horwich, Kevin D. Evans, Schiff, Hardin & Waite, James A. Klenk, Don H. Reuben, Margaret S. Determan, James K. Meguerian, Isham, Lincoln & Beale, Clarence J. Fleming, Thomas C. Elliott, Jr., McDougall, Hersh & Scott, Chicago, Ill., Robert B. McCaw, Wilmer, Cutler & Pickering, Washington, D.C., Richard T. Sharp, Harry Frischer, Sidney H. Stein, Eric Schmidt, Stein, Zauderer, Ellenhorn, Frischer & Sharp, New York City, Derek W. Hunt, Troy, Casden & Gould, Los Angeles, Cal., Joel A. Haber, Floyd Babbitt, Fagel, Haber & Maragos, Jonathan G. Bunge, David E. Schaper, Monica L. Thompson, Keck, Mahin & Cate, Scott R. Lassar, Chicago, Ill., William E. Willis, Robert J. Katz, Robert J. Lack, Pressly M. Millen, Sullivan & Cromwell, New York City, pro hac vice, and Robert A. Langendorf, Chicago, Ill., for defendants.
This case is once more before the court for a ruling on the defendants' motion to dismiss the plaintiff FMC Corporation's first amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). In its sixteen count complaint, FMC alleges that some or all of the defendants violated various provisions of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a-78kk, one provision of the Securities Act of 1933, 15 U.S.C. §§ 77a-77bbbb, all four provisions of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1962(a)-1962(d), and various provisions of state common law. The parties' struggle in this case has many of the attributes of a title fight between heavyweight boxers. The marquee lists several well-known participants including the plaintiff FMC, a large corporation whose total revenues exceeded $3.16 billion in 1987, as well as the infamous Ivan F. Boesky, and co-defendant investment banking firms Goldman, Sachs & Co., Shearson Lehman Brothers, Inc., and Drexel Burnham Lambert, Inc., among others. Moreover, the stakes are high as FMC claims in excess of $235 million in damages.
In the first round, this court granted the defendants' motion to dismiss FMC's Complaint. See FMC Corp. v. Boesky, 673 F.Supp. 242 (N.D.Ill.1987) (Wiliams, J.) ("FMC I"). The court reviewed the allegations of FMC's complaint and concluded that FMC lacked standing to pursue its claims because it did not suffer an injury. Id. at 251. In round two, a Seventh Circuit panel reversed this court's judgment by a two to one vote. See FMC Corp. v. Boesky, 852 F.2d 981 (7th Cir.1988) ("FMC II"). In this third round, the defendants attack FMC's amended complaint with a flurry of contentions. Some of these arguments are Tyson-like blows which purportedly "knock out" all or at least large segments of FMC's federal claims. Other arguments are directed towards eliminating individual counts. Finally, the defendants "jab" at some counts by attacking the specificity of FMC's pleadings. Interestingly, the defendants direct most of their efforts toward obtaining the dismissal of FMC's securities law claims. They make some attempts to undermine the RICO claims and allow the common law claims to stand virtually unchallenged. After a review of the parties' arguments and the pertinent authority, the court concludes that this third round will end in a split decision: FMC's securities law claims have been "knocked out" but its RICO and common law claims remain largely intact.
As the court has previously noted, this case was one of the first private civil actions filed in the wake of the Securities and Exchange Commission's well-publicized charges that Boesky had been the recipient of wrongfully leaked insider information. The SEC charged that Boesky used the leaked corporate information to make millions of dollars while trading in the stock of at least seven corporations. FMC is one of these seven corporations. FMC alleges that Boesky's illegal trading in its stock caused it to suffer in excess of $235 million dollars of damages in connection with its May, 1986 recapitalization. The pertinent factual allegations of the amended complaint are as follows.1
FMC is a Delaware corporation with its principal place of business in Chicago. It produces machinery and chemicals for industry, government, and agriculture. Prior to its May, 1986 recapitalization 80 percent of FMC's twenty-two million common shares were publicly owned. FMC's common stock is traded on the New York Stock Exchange. In addition to Boesky, Goldman, Shearson, and Drexel, the rest of the defendants are as follows: David Brown, an officer of the defendant investment banking firm Goldman, Ira Sokolow, an officer of Shearson, Dennis Levine, an officer of Drexel, and the Boesky affiliated entities,2 the various entities through which Boesky conducted his activities.
Sometime before early 1985, Boesky, Levine, Sokolow, and Brown agreed to share confidential business information about impending corporate transactions for their individual and collective financial benefit. As high-ranking officers of influential Wall Street investment banking firms, each had access to such confidential business information. As a securities arbitrager, Boesky had the ability to turn that information into profits.
In early 1985, after Boesky and his associates had made their arrangement, FMC's management embarked on a plan to "restructure" the corporation. To this end, it hired Goldman as financial advisor. At first management considered a leveraged buy-out, but later rejected that course in favor of a plan of recapitalization. By this plan, FMC sought to decrease the proportionate equity interest of public shareholders and increase the equity held by management.3 Between December 1985 and May 1986 FMC and Goldman worked out the terms of the deal. In doing so, Goldman analyzed FMC's corporate structure, its long-term prospects in light of anticipated general economic and business conditions, and the growth nature of FMC's principal businesses. Goldman also had to evaluate the recapitalization plan and offer an opinion about its fairness to public shareholders.
On February 21, 1986, in a letter to FMC's board, Goldman outlined the terms of the proposed recapitalization. The proposal called for an exchange of old FMC shares for newly issued stock ("new FMC stock"). The public shareholders would receive one share of new FMC stock plus $70 in cash in exchange for each share of old FMC stock. Management would receive 5.667 shares of new FMC stock in exchange for each share of old FMC stock. FMC's Thrift Plan, a type of employee profit sharing plan, would receive $25 in cash plus four shares of new FMC stock for each share of old FMC stock. At the time Goldman announced the plan, it also issued its fairness opinion, stating that the terms were fair to public shareholders.
In reaching its fairness opinion, Goldman estimated that each share of old FMC stock held by the public shareholders and management had a value of $85. This estimate was consistent with the price at which the stock was trading. On February 21, 1986, the day Goldman issued its fairness opinion, FMC stock closed at $85 per share on the New York Stock Exchange ("NYSE"). Goldman also expected that each share of new FMC stock would have a market value of $15 after the recapitalization.
In the meantime, unknown to FMC (or its board), confidential information relating to FMC's potential recapitalization was leaked to outsiders. Brown, a Goldman vice-president, disclosed the information to defendant Ira Sokolow, a Lehman vice-president. Sokolow then passed the information on to defendant Dennis Levine. Levine in turn disclosed the information to defendant Ivan Boesky. Armed with the inside tips about the recapitalization, Boesky purchased approximately 95,300 shares of FMC common stock. On the day Boesky began his trading, February 18, 1986, FMC stock opened on the NYSE at $71.25 per share. On February 20, 1986, the day before Boesky's purchases ceased, the stock closed at $80.25 per share. During these three days, approximately 707,000 shares of FMC stock traded on the NYSE. Boesky's purchases accounted for about 13% of the total volume traded.
On the morning of February 21, 1986, the price of FMC's stock continued to rise. By mid-morning the stock climbed to $83.00 per share. At this point, FMC requested that trading in its stock be temporarily suspended; it then made public the possibility that the corporation would be recapitalized. After this announcement,...
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