Hallwood Realty Partners v. Gotham Partners

• Decision Date: 11 April 2002
• Docket Number: Docket No. 01-7246.
• Citation: 286 F.3d 613
• Parties: HALLWOOD REALTY PARTNERS, L.P., Plaintiff-Appellant, v. GOTHAM PARTNERS, L.P.; Gotham Partners III, L.P.; Gotham Holdings II, L.L.C.; Private Management Group, Inc.; Interstate Properties; Steven Roth; Hallwood Investors, L.P.; Liberty Realty Partners, L.P. and EFO/Liberty, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

286 F.3d 613

HALLWOOD REALTY PARTNERS, L.P., Plaintiff-Appellant, v. GOTHAM PARTNERS, L.P.; Gotham Partners III, L.P.; Gotham Holdings II, L.L.C.; Private Management Group, Inc.; Interstate Properties;

Steven Roth; Hallwood Investors, L.P.; Liberty Realty Partners, L.P. and EFO/Liberty, Inc., Defendants-Appellees.

Docket No. 01-7246.

United States Court of Appeals, Second Circuit.

Argued March 4, 2002.

Decided April 11, 2002.

Thomas J. McCormack; (Robert A. Schwinger, Beth D. Diamond, Gregory J. Kerr, Thomas Freedman, on the brief), Chadbourne & Parke, L.L.P., New York, NY; (Vivian Shevitz, South Salem, N.Y., on the brief), for Plaintiff-Appellant.

Robert J. Giuffra, Jr.; (David M.J. Rein, on the brief), Sullivan & Cromwell, New York, NY, for Defendants-Appellees Interstate Properties and Steven Roth.

Philip H. Schaeffer; (Karen M. Asner, K. Allison White, on the brief), White & Case, L.L.P., New York, NY, for Defendants-Appellees Gotham Partners, L.P.; Gotham Partners III, L.P.; and Gotham Holdings II, L.L.C.

Joseph C. Owens, Lewis, D'Amato, Brisbois & Bisgaard, L.L.P., Los Angeles, CA, for Defendant-Appellee, Private Management Group, Inc.

Douglas H. Flaum; (Albert Shemmy Mishaan, on the brief), Fried, Frank, Harris, Shriver & Jacobson, New York, NY, for Defendants Appellees Hallwood Investors, L.P.; Liberty Realty Partners, L.P.; and EFO/Liberty, Inc.

Before CALABRESI and CABRANES, Circuit Judges, and PRESKA,^* District Judge.

CALABRESI, Circuit Judge.

Appellant Hallwood Realty Partners, L.P. ("Hallwood") brought this action asserting a violation of § 13(d) of the Securities and Exchange Act, 15 U.S.C. § 78m(d). Specifically, Hallwood alleged that the defendants formed a group to purchase and amass Hallwood units for the purpose of effecting a take-over of Hallwood and substantially altering its business and operations, without disclosing their group, its activities, or its intentions in public filings, as required under § 13(d). Hallwood sought (i) various forms of injunctive relief; (ii) a declaratory judgment that the defendants, by forming a § 13(d) group, had become an "Acquiring Person" under the terms of Hallwood's "poison pill";¹ and (iii) an award of monetary damages. Hallwood also requested a jury trial.

The district court struck Hallwood's demand for a jury trial after holding that § 13(d) provides no cause of action for money damages and that Hallwood was not entitled to a jury trial on its injunctive and declaratory claims. Following a bench trial, the district court dismissed these equitable claims because it concluded that Hallwood had not proved the existence of a group of investors under § 13(d).

Hallwood appeals both decisions, arguing (1) that the district court improperly rejected circumstantial evidence in determining whether a § 13(d) group existed, and (2) that the court erred in denying Hallwood's jury demand. We affirm the judgment and order of the district court.

BACKGROUND

Hallwood is a limited partnership that acquires, owns, and operates commercial real estate. Hallwood units are traded on the American Stock Exchange. The various defendants in this case² were purchasers of Hallwood units.

The defendants began acquiring Hallwood units in the early to mid 1990s. Each individual defendant claims to have made an independent decision to purchase units, based on due diligence and a common understanding among knowledgeable investors that Hallwood units were undervalued.

Defendants Gotham Partners, L.P., Gotham Partners III, L.P., and Gotham Holdings II, L.L.C. (collectively, "Gotham") started buying Hallwood units in 1994. In December 1995, Gotham filed a Schedule 13D³ with the Securities and Exchange Commission (the "SEC") in which it stated that it had acquired 5.05% of the outstanding Hallwood units "for investment purposes." It continued purchasing units (and updating its Schedule 13D) over the following ten months, amassing 14.82% of the units by October 1996. In June 1997, Gotham amended its filing to say that it was seeking to remove Hallwood's general partner. Soon after, Gotham sued Hallwood and certain of its affiliates, officers, and directors in the Delaware Chancery Court, alleging, inter alia, breaches of fiduciary duty and of Hallwood's partnership agreement.

Defendant Interstate began buying Hallwood units in mid 1995. In November 1998, Interstate filed a Schedule 13D disclosing that it had acquired 5.7% of the outstanding Hallwood units. Interstate filed amendments to its Schedule 13D on March 25, 1999 (7.0%), August 30, 1999 (8.0%), and July 28, 2000 (9.0%). At no time did it disclose any plan to act in concert with other unitholders to change or influence the control of Hallwood.

Defendant PMG started acquiring Hallwood units in 1992. By January 2000, PMG had amended its Schedule 13G⁴ to disclose an aggregate holding of 6.5%. PMG consistently reported that it acquired these units "in the ordinary course of business and ... not ... for the purpose of... changing or influencing the control of the issuer ... and ... not ... in connection with or as a participant in any transaction having such purpose or effect." Defendant EFO allegedly bought at least 2% of Hallwood's units. EFO filed no 13D or 13G schedules.

At trial, Hallwood put forward direct and circumstantial evidence supporting its allegations. It provided evidence of meetings and other communications among the defendants beginning in 1994-95 and continuing through 2000, as well as evidence that Hallwood was discussed in these communications. It demonstrated that the defendants each had purchased Hallwood units during the relevant period, and it emphasized in particular a "burst of purchases" by Gotham and Interstate starting in the same week. Hallwood submitted a magazine article that described similar tactics used by Gotham to take over another company.

Hallwood also had hired a private investigator who, disguised as a potential investor, had met with certain defendants and was allegedly told by them of a coordinated plan to gain control of Hallwood. Specifically, the investigator testified that Dennis Reiland, a representative of PMG, conveyed to him the existence of a Gotham-led group designed to take over Hallwood. The investigator submitted an audiotape of a conversation he had with Christopher Mahowald, a representative of EFO, and a copy of EFO'S "Investment Recommendation" with respect to Hallwood, which Mahowald had given him. The "Investment Recommendation," Hallwood argued, could be read to imply that EFO was part of a Gotham-led attempt (involving the Delaware litigation mentioned above), to take over Hallwood and to "realize value" (i.e., to liquidate, sell, or recapitalize the company). According to Hallwood, the recommendation could also be taken to indicate the involvement of both Interstate and Roth in the plan.

These allegations were contested at trial by the defendants. On February 23, 2001, the district court rendered an oral decision, concluding that Hallwood had failed to prove that a group, as contemplated by § 13(d), existed, and entering judgment, dismissing the plaintiff's claims.

DISCUSSION

I.

Hallwood first argues that the district court refused to credit circumstantial evidence in its determination that Hallwood had not proved the existence of a group for purposes of § 13(d). Hallwood contends that this was a legal error subject to de novo review.

In response to hostile corporate take-overs in the 1960s, Congress, in 1968, passed the Williams Act, of which § 13(d) is a part. See Act of July 29, 1968, Pub.L. No. 90-439, § 2, 82 Stat. 454, 454. Among other things, § 13(d) requires a group that has acquired, directly or indirectly, beneficial ownership of more than five percent of a class of registered equity securities, to file a 13D Schedule with the issuer, with the exchanges on which the security is traded, and with the SEC, disclosing, among other things, the identity of its members and the purpose of its acquisition. Section 13(d) applies to a group of persons or entities who "act.... for the purpose of acquiring, holding or disposing of securities...." 15 U.S.C. § 78m(d)(3). The agreement among these entities may be formal or informal, and need not be expressed in writing. Morales v. Quintel Entm't, Inc., 249 F.3d 115, 124 (2d Cir.2001); Wellman v. Dickinson, 682 F.2d 355, 363 (2d Cir.1982) ("Wellman II"). Under § 13(d), a court evaluating an allegation of the existence of a group must "determine whether there is sufficient direct or circumstantial evidence to support the inference of a formal or informal understanding between [the defendants]" for the purpose of acquiring, holding, or disposing of securities. Wellman II, 682 F.2d at 363. Whether the requisite agreement exists is a question of fact. Morales, 249 F.3d at 124.

Hallwood claims that the district court's decision that there was insufficient evidence to establish the existence of a § 13(d) group was faulty because of the court's "rejection of using circumstantial evidence to show a § 13(d) group and its insistence on having direct `smoking gun' evidence that plainly is not required by law." Hallwood cites cases in which this court has held that the existence of a group may be proved through direct or circumstantial evidence, id.; Wellman II, 682 F.2d at 363, as well as cases establishing the variety of circumstantial indicia that support an inference of group activity for purposes of § 13(d). See, e.g., Wellman II, 682 F.2d at 363-64 (listing as significant the presence of a common plan or goal, the solicitation of others to join the group, and the existence of communications between and among group members). Hallwood asserts that the court below refused to credit such circumstantial "factors," and that we therefore should vacate its decision and remand for new proceedings.

This claim is meritless. Nothing in the district court's oral ruling suggests that it failed to consider...