High View Fund, L.P. v. Hall
| Decision Date | 16 September 1998 |
| Docket Number | No. 98 Civ. 1390(SAS).,No. 98 Civ. 2277(SAS).,98 Civ. 1390(SAS).,98 Civ. 2277(SAS). |
| Citation | 27 F.Supp.2d 420 |
| Parties | THE HIGH VIEW FUND, L.P. and the High View Fund, Plaintiffs, v. E. William HALL and Karen W. Hall, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Daniel Robbins, Brock Silverstein McAuliffe, LLC, New York City, for Plaintiffs.
Curt D. Marshall, Beatie and Osborn, New York City, for Defendants.
On May 29, 1998, plaintiffs The High View Fund, L.P. and The High View Fund (collectively, "High View") filed an Amended Complaint in this consolidated action, asserting claims for (1) violations of the Federal securities laws, (2) fraudulent inducement, (3) violations of the Delaware Blue Sky laws, (4) breach of fiduciary duty, (5) unjust enrichment, (6) conversion, and (7) breach of contract. This Court has subject matter jurisdiction over the Federal securities law claims pursuant to Section 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78aa, and 28 U.S.C. § 1331. Jurisdiction over the state law claims is premised on the Court's supplemental jurisdiction, 28 U.S.C. § 1367(a), and diversity jurisdiction, 28 U.S.C. § 1332(a). Defendants E. William Hall and Karen W. Hall now move to dismiss the Amended Complaint pursuant to Fed. R.Civ.P. 8(a), 9(b), and 12(b)(6).
This action arises out of plaintiffs' $1 million investment in United Golf Properties, Inc. ("United Golf") and defendants' alleged misuse of United Golf's assets. For purposes of this Opinion, the following facts, drawn from the Amended Complaint, are assumed to be true.
Plaintiff The High View Fund, L.P. is a limited partnership formed under the laws of Delaware, with its principal place of business in New York, New York. Amended Complaint at ¶ 9. Plaintiff The High View Fund is a limited liability company, organized under the laws of the Bahamas, with is principal place of business in the Bahamas. Id. Both The High View Fund, L.P. and The High View Fund are investment partnerships. Id. United Golf is a corporation organized under the laws of Delaware, with its principal place of business in Timonium, Maryland. Id. at ¶ 12. United Golf was purportedly in the business of seeking out and acquiring golf properties. Id. William Hall was the President of United Golf and the Chairman of its Board of Directors until March 2, 1998, and Karen Hall was a director of United Golf until February 20, 1998. Id. at ¶¶ 10-11, 33, 37. The Halls are both citizens of Maryland. Id. at ¶¶ 10-11.
On January 14, 1997, High View and United Golf entered into a registration rights agreement and subscription agreement (the "Purchase Agreements"). Id. at ¶ 13. Pursuant to the terms of those agreements, High View purchased two 10% Subordinated Notes (the "Notes") and 511,770 shares of United Golf common stock (the "Stock") for a total price of $1 million. Id. The United Golf Notes and Stock are securities regulated by the Securities Act of 1933 and the Securities Exchange Act of 1934. Id. at ¶ 14.
Prior to plaintiffs' investment in United Golf, defendants provided plaintiffs with an Offering Memorandum dated December 11, 1996 (the "Offering Memorandum"). Id. at ¶ 15. This document stated, in part, that
[t]he Principal business strategy of the Company is to acquire high quality golf courses and to lease the golf courses to the Seller or their affiliate or other qualified operator. The Company believes that a multiple independent lessee structure, together with substantial industry knowledge, experience and relationships within the golf community of management of the Company and the initial lessees, will permit United Golf to effectively target and acquire high quality golf courses, including those which might not otherwise be available for sale.... To finance the acquisition and ownership of golf properties, the Company contemplates engaging in an IPO of shares of Common Stock of the Company and using proceeds therefrom to support the Company's acquisition of golf properties.
The document further provided that
[t]he Company has identified an original group of management companies with whom it intends to negotiate for the purchase of golf courses they manage .... Concurrent with the preparations for the IPO and developing the aforementioned acquisition base, current management plans to identify and recruit experienced and skilled individuals from the golf and REIT industries to become part of the senior management group for the Company.
On January 13, 1998, nearly one year after plaintiffs entered into the Purchase Agreements, High View presented William Hall with a written offer to assist United Golf in raising an additional $8.5 million of capital, in exchange for additional equity in the company. Amended Complaint at ¶ 27. This offer was contingent upon High View controlling the management of United Golf and plaintiffs' participation in negotiations with underwriters for an IPO. Id. William Hall assured plaintiffs that he would take their offer to the Board of Directors and take the appropriate steps toward concluding an agreement with High View. Id. Hall, however, did not inform the Board of Directors of plaintiffs' January 13, 1998 offer. Id. at ¶ 28.
Two weeks later, on January 28, 1998, several of plaintiffs' officers met with William Hall and entered into an understanding concerning the terms of an upcoming United Golf offering of securities and for High View's further funding of United Golf's operations. Id. at ¶ 29. At the same meeting, plaintiffs informed William Hall that United Golf was in default on interest payments due under the Notes previously issued to High View. Id. By this time, United Golf was "on the brink of insolvency and financial collapse." Id. at ¶ 30.
Once again, William Hall assured plaintiffs' officers that he would take steps to have United Golf consummate a transaction with High View. Id. Nevertheless, when he returned to United Golf's Maryland headquarters, Hall did not advise the Board of Directors, nor anybody else at the company, of the understanding he had reached with plaintiffs. Id. On February 11, 1998, William Hall met for a third time with plaintiffs' officers in New York to discuss a proposed securities offering and additional High View financing. Following the meeting, Hall again failed to report his discussions with High View to United Golf's Board of Directors. Id. at ¶¶ 31-32.
On February 20, 1998, Karen Hall resigned from United Golf's Board of Directors. Id. at ¶ 34. Following his wife's resignation, William Hall contacted Peter Powers, the chairman of the High View Capital Corp and general partner of The High View Fund, L.P., to arrange a meeting for February 21, 1998 to revise United Golf's agreement with plaintiffs. Id. at ¶ 35. However, on February 21, 1998, Hall telephoned those in attendance at the meeting and informed them that, on the advice of his attorney, he would not appear. Id. at ¶ 36.
On March 2, 1998, United Golf's shareholders voted to remove William Hall as Chief Executive Officer and director. Id. at ¶ 37. Since that date, United Golf has continued to exist as a corporation without operations and has not engaged in any business activities. Id. United Golf has never executed an IPO and an IPO is not planned; nor has the company acquired any golf courses. Id. at ¶ 38.
In late December 1997 and early January 1998, the Halls traveled to London at United Golf's expense. Id. at ¶ 24. William Hall told plaintiffs' officers that the purpose of his trip to London was to meet with potential investors. Id. However, he met with only one individual who did not have any serious intentions of investing in United Golf. Id. The Halls instead used the trip for personal business and recreation. Id.
Additionally, on ten occasions between December 24, 1997 and February 26, 1998, the Halls used checks drawn on United Golf's checking account to pay their personal credit card balance. Id. at ¶ 40. Then, on February 26, 1998, defendants used United Golf's checking account to make a $1,024.51 payment on their personal automobile and to make a $50,000 payment to William Hall for his personal use. Id. Two more checks were drawn on the United Golf checking account on March 2, 1998 — a $5,000 payment to the Halls' personal attorney, and an $8,000 payment to William Hall's secretary in excess of her usual payroll. Id. These payments were made above and beyond William Hall's board-authorized salary. Id.
By mid-March 1998, plaintiffs entered into a series of agreements with United Golf and its officers and other investors whereby (1) plaintiffs acquired United Golf's contractual rights in three prospective golf properties; (2) plaintiffs waived United Golf's defaults under the Notes and reduced the principal amount due under the Notes; (3) plaintiffs released the Company's newly-elected chairman and president and its outside director from certain liabilities; and (4) plaintiffs agreed, at the insistence of United Golf, to purchase United Golf securities from others who had invested in the company. Id. at ¶ 48. Between March 11, 1998 and May 27, 1998, plaintiffs spent $774,934 buying securities from other investors in United Golf. Id. at ¶ 49.
Plaintiffs seek to recover the $1 million that they paid for the Notes and common stock in January 1997, the $774,934 that they paid between March and May 1998 to repurchase United Golf securities from other investors, as well as costs, attorney's fees, and unspecified incidental damages.
In considering a Rule 12(b)(6) motion to dismiss, a district court must limit itself to "facts stated in the complaint or in documents attached to the complaint as exhibits or incorporated in the...
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