Kirwin v. Price Communications Corp.

• Decision Date: 23 July 2003
• Docket Number: No. CIV.A. CV 01-F-1201S.,CIV.A. CV 01-F-1201S.
• Citation: 274 F.Supp.2d 1242
• Parties: Paul M. KIRWIN, et al. Plaintiffs, v. PRICE COMMUNICATIONS CORP., et al. Defendants.
• Court: U.S. District Court — Middle District of Alabama

274 F.Supp.2d 1242

Paul M. KIRWIN, et al. Plaintiffs, v. PRICE COMMUNICATIONS CORP., et al. Defendants.

No. CIV.A. CV 01-F-1201S.

United States District Court, M.D. Alabama, Southern Division.

July 23, 2003.

COPYRIGHT MATERIAL OMITTED

G. Griffin Sikes, Jr., Montgomery, AL, John J. Oitzinger, Helena, MT, for Paul M. Kirwin, Cell-Cal T9, Joseph W. Carcione, Richard Erickson, George R. Gordon, M. Steven Grewal, Linda M. Hoff Partnership, Steven C. Meyer, Rajive Oberoi, Jonathan Stewart, Kenneth L. Ramsey, Harold W. Swart, plaintiffs.

Peter S. Fruin, Catherine Wolter Main, Maynard, Cooper & Gale, P.C., Montgomery, AL, G. Calvin Hayes, William F. Hamilton, Holland & Knight LLP, Tampa, FL, Richard L. Brusca, Skadden Arps Slate Meagher & Flom, LLP, Washington, DC, for Price Communications Corporation, Price Communications Cellular, Inc., Price Communications Cellular Holdings, Inc., Price Communications Wireless, Inc., Palmer Wireless Holdings, Inc., Cellular

Systems of Southeast Alabama, Inc., Robert Price, defendants.

MEMORANDUM OPINION AND ORDER

FULLER, District Judge.

This case is before this court on the defendants' motion to dismiss plaintiffs' first amended complaint (doc. # 35, filed July 12, 2002). The defendants have filed a brief in support of this motion (doc. # 36, filed July 12, 2002), and the plaintiffs have filed a memorandum in opposition (doc. # 39, filed August 2, 2002), incorporating by reference large sections of their prior memorandum of law in opposition to defendants' motion to dismiss (doc. # 17, filed February 15, 2002), to which the defendants have responded (doc. # 40, filed August 12, 2002). Oral argument was held before Magistrate Judge Boyd on October 15, 2002. Because the case was reassigned afterwards, the court afforded the parties opportunity for further oral argument. At the request of the parties, the court instead permitted submission of supplemental authority (doe. # 51, entered June 19, 2003), which the court has now received and reviewed. After careful consideration of the arguments of counsel, the relevant law, and the record as a whole, the court concludes that the defendants' motion is due to be GRANTED.

I. PROCEDURAL HISTORY

The plaintiffs, twelve former minority shareholders¹ of Cellular Systems of Southeast Alabama, Inc. ("the Company"), bring this action against: (i) the Company; (ii) Palmer Wireless Holdings, Inc. ("Palmer Wireless"), the former majority shareholder of the Company; (iii) Price Communications Wireless, Inc. ("Price Wireless"); (iv) Price Communications Cellular Holdings, Inc. ("Price Holdings"); (v) Price Communications Cellular, Inc. ("Price Cellular"); (vi) Price Communications Corporation ("PCC"); and (vii) Robert Price ("Price"). The plaintiffs allege violations of the federal securities laws, RICO, and several state law causes of action. Two related fraudulent schemes were alleged: (i) that the defendants misappropriated Company assets and engaged in a pattern of self-dealing transactions while in control of the Company without telling the plaintiffs that they were doing so, and (ii) a separate fraud in connection with a shortform merger that eliminated the plaintiffs' minority interest in the Company.

The first round of this litigation began when the plaintiffs filed their complaint on October 11, 2001 (doc. # 1). The defendants filed a motion to dismiss and a brief in support of the motion on January 8, 2002. (does. # 8 and # 9). The defendants argued that the federal causes of action should be dismissed under Fed.R.Civ.P. 12(b)(6) (failure to a state a claim) and under Fed.R.Civ.P. 9(b) (requiring heightened specificity for allegations of fraud). Moreover, the defendants argued that absent a viable federal cause of action, the court lacked supplemental jurisdiction to hear the state law claims. The plaintiffs filed a brief in opposition on February 15, 2002 (doe. # 17), to which the defendants responded on March 1, 2002 (doc. # 19). On March 6, 2002, this court ordered the plaintiffs to file an amended complaint by March 15, 2002 (doc. # 20, filed March 6, 2002). An amended complaint was deemed necessary to comply with the heightened pleading standards required for allegations of fraud. See Fed.R.Civ.P. 9(b). On March 15, 2002, the plaintiffs filed a Motion for Reconsideration and/or Clarification of the Court's Order of March 6, 2002. (doc. # 21). On May 30, 2002, the court ordered the plaintiffs to file an amended complaint "on or before June 14, 2002, or risk dismissal of the Complaint" (doc. # 23, filed May 30, 2002), granting the plaintiffs' motion for clarification by elucidating what was defective in the original complaint. The chief defect was that:

the court is unable to relate Plaintiffs' allegations of fraud to particular transactions. Some of the transactions obviously relate to the leveraged buyout, and some of the allegations obviously relate to the freeze-out merger, but Plaintiffs fail to delineate which allegations pertain to which transactions. If any of the alleged fraudulent acts of Defendants were not made during one of the transactions, then Plaintiffs need to specify how such fraud affected the transactions or otherwise violates federal law.... The Complaint needs to be specific as to what representations or omissions in that claim form the basis of Plaintiffs' federal securities fraud claims, and Plaintiffs need to explicitly delineate the precise representations or omissions in that claim, without incorporation by reference.

(doc. # 23). The plaintiffs subsequently made a motion to extend the deadline from June 14 to June 19, 2002, which the court granted. (docs.# 25, 28) This concluded the first round of litigation.

The second round of litigation began with the plaintiffs' submission of their first amended complaint on June 19, 2002 (doc. # 29). The defendants filed a motion to dismiss the first amended complaint, supported by a brief (does. # 35-36, filed July 12, 2002) As in the first round of litigation, the defendants argued that the federal causes of action should be dismissed under Fed.R.Civ.P. 12(b)(6) (failure to a state a claim) and under Fed.R.Civ.P. 9(b) (requiring heightened specificity for allegations of fraud). Again, the defendants argued that absent a viable federal cause of action, the court lacked supplemental jurisdiction to hear the state law claims. The plaintiffs responded with a brief (doc. # 39, filed August 2, 2002), incorporating by reference large sections of their prior brief in opposition to the defendants' motion to dismiss (doc. # 17, filed February 15, 2002). The defendants responded on August 12, 2002 (doc. # 40). Oral argument was held before Magistrate Judge Boyd on October 15, 2002 (doc. # 42). The case was reassigned to the undersigned judge on December 5, 2002 (doc. # 43).

As stated above, the plaintiffs have alleged that the defendants have engaged in fraud in connection with a short-form merger eliminating the plaintiffs' minority interest in the Company. With respect to this charge, the plaintiffs have brought claims under the sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78j(b), 78t(a)) and SEC Rule 10b-5 (17 C.F.R. § 240.10b-5) (counts 1 & 2), as well as a claim under common law fraud (count 5). The plaintiffs have also alleged that the defendants fraudulently concealed the fact that they were misappropriating Company assets and engaging in a pattern of self-dealing transactions while in control of the Company. These events occurred prior to the elimination of the plaintiffs' minority interest in the Company. Accordingly, the plaintiffs have brought claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1964 (count 3), common law conversion (count 4), breach of fiduciary duty (count 6), and waste and mismanagement (count 7).

The remedies sought by the plaintiffs include rescission of the merger (count 8); imposition of a constructive trust to prevent unjust enrichment (count 9); punitive damages for fraud (count 10); and reimbursement for reasonable attorneys fees and other costs including experts' fees (count 11), as well as an accounting of all benefits derived from misappropriation, damages, treble damages, and any further relief the court may deem appropriate.

II. JURISDICTION

This court has federal question jurisdiction over alleged violations of the federal securities laws and regulations as well as RICO pursuant to 28 U.S.C. § 1331 (federal question jurisdiction). Under 28 U.S.C. § 1367(a) the court may retain supplemental jurisdiction over related state law claims.

Plaintiff George R. Gordon is a resident of New York, and defendant Price Communications Corporation is a New York corporation (Am.Compl. ¶¶ 27, 36). In these circumstances, diversity jurisdiction is not possible. Moreover, the plaintiffs do not allege the existence of diversity jurisdiction. Thus, the court lacks original jurisdiction over the state law claims.

III. FACTUAL BACKGROUND

According to the amended complaint, Palmer Wireless, a Delaware corporation, acquired a majority interest in the Company, also a Delaware corporation, by transfer from a parent company in 1995 (Am. Compl. ¶ 46). In 1997, PCC and Price (who was CEO and treasurer of PCC) decided to acquire Palmer Wireless, which already owned 92.3% of the Company's shares (Am.Compl. ¶ 47). To do this, PCC formed Price Cellular, Price Holdings, and Price Wireless, all Delaware corporations with Price as chief executive officer (CEO). Price Wireless was a wholly-owned subsidiary of Price Holdings, which was a whollyowned subsidiary of Price Cellular, which was a wholly-owned subsidiary of PCC (Am.Compl.¶¶ 37-41).

Price Wireless acquired Palmer Wireless in a leveraged buy-out (LBO). To finance the acquisition, PCC sold approximately $191 million in assets and borrowed approximately $857 million (Am. Compl.¶ 69), securing the debt with the target company's...