Kramer v. Time Warner Inc., No. 1198

CourtU.S. Court of Appeals — Second Circuit
Writing for the CourtBefore KEARSE, WINTER and WALKER; WINTER
Parties, 21 Fed.R.Serv.3d 869, 33 Fed. R. Evid. Serv. 558 Laurence KRAMER, Plaintiff-Appellant, v. TIME WARNER INC., Warner Communications Inc., Steven J. Ross, Martin D. Payson, Deane F. Johnson, Bert W. Wasserman, and Merv Adelson, Defendants-Appellees. ocket 90-9014.
Docket NumberNo. 1198,D
Decision Date27 June 1991

Page 767

937 F.2d 767
60 USLW 2071, 21 Fed.R.Serv.3d 869,
33 Fed. R. Evid. Serv. 558
Laurence KRAMER, Plaintiff-Appellant,
v.
TIME WARNER INC., Warner Communications Inc., Steven J.
Ross, Martin D. Payson, Deane F. Johnson, Bert W.
Wasserman, and Merv Adelson, Defendants-Appellees.
No. 1198, Docket 90-9014.
United States Court of Appeals,
Second Circuit.
Argued April 1, 1991.
Final Submission April 26, 1991.
Decided June 27, 1991.

Page 769

Sidney B. Silverman, New York City (Joan T. Harnes, Harold B. Obstfeld, Silverman, Harnes & Obstfeld, of counsel), for plaintiff-appellant.

Max Gitter, New York City (J. Jay Lobell, Paul, Weiss, Rifkind, Wharton & Garrison, Robert D. Joffe, Cravath, Swaine & Moore, of counsel), for defendants-appellees.

Before KEARSE, WINTER and WALKER, Circuit Judges.

WINTER, Circuit Judge:

This securities action arises from the merger of Time Incorporated ("Time") and Warner Communications, Inc. ("Warner"). Judge Sand dismissed the complaint under Fed.R.Civ.P. 12(b)(6) and 9(b). We affirm. We hold that a district court may consider relevant documents required by the securities laws to be filed with the Securities and Exchange Commission ("SEC") in determining a motion to dismiss a complaint

Page 770

alleging material misrepresentations and omissions in such documents. We also hold that the complaint's allegations of fraud are legally insufficient, as are the allegations concerning a violation of the Williams Act.
BACKGROUND

On March 3, 1989, after extended negotiations, Time and Warner entered into a merger agreement ("Original Merger Agreement") calling for Time to exchange .465 of a share of its common stock for each outstanding share of Warner common stock. 1 The combined entity was to be known as Time Warner Inc. ("Time Warner"). Pursuant to this agreement, on May 24, 1989, the companies together issued a proxy statement and prospectus ("Joint Proxy Statement"), filed with the SEC, describing the proposed merger to their shareholders in anticipation of shareholders' meetings to be held on June 23, 1989. Included in the Joint Proxy Statement was detailed information concerning an arrangement that, in connection with the merger, would allow Warner's top management to resell Warner shares to Warner at a price that far exceeded the price at which they were purchased. These arrangements are described in more detail, infra.

Before the shareholder meetings, however, on June 7, 1989, Paramount Communications, Inc. ("Paramount") made an all-cash, all-shares tender offer for Time. In response to the Paramount bid, Time and Warner amended their merger agreement ("Amended Merger Agreement") to provide for a two-step acquisition of Warner by Time. In the first step, Time would make a cash tender offer for approximately 51 percent of Warner's outstanding common stock, at a price of $70.00 per share. Once that offer was successful, Time would in the second step effectuate a merger whereby holders of the remaining outstanding shares of Warner common stock would receive consideration ("Merger Consideration") defined by the Amended Merger Agreement as

cash or debt or equity securities of Time ... having a value ... equal, as nearly as practicable, in the opinion of two investment banking firms of national reputation ... to [$70 per share].

On June 19, Time announced the new tender offer and mailed to Warner shareholders a formal offer to purchase contained in a Schedule 14D-1 (collectively "Offer to Purchase") filed with the SEC. Simultaneously, Warner sent its shareholders a letter recommending acceptance of the Time offer accompanied by a Schedule 14D-9 recommendation statement that was filed with the SEC. When the tender offer closed on July 24, 1989, it was oversubscribed, and Time accepted on a pro rata basis 100 million shares of Warner common stock at $70 per share.

On August 23, 1989, Time and Warner agreed that the Merger Consideration would consist of a package of three securities. Each outstanding share of Warner common stock would be converted into a right to one share of 8.75 percent Convertible Exchangeable Preferred Stock in Time Warner, one share of 11 percent Convertible Exchangeable Preferred Stock in Time Warner, and .13827 of a share of Class A Common Stock in BHC Communications, Inc., a corporation in which Warner held a 42.5 percent interest ("Securities Package"). Three investment banks rendered opinions that the Securities Package, if issued and outstanding on August 23, 1989, would have an aggregate value (on a fully distributed basis) equal, as nearly as practicable, to $70.00. However, when the Securities Package actually began trading on December 12, 1989, its market price was approximately $61.75.

Plaintiff-appellant Laurence Kramer, a former shareholder of Warner, commenced this action in the Southern District on December 13, 1989. He sought to represent a class of former Warner shareholders who had tendered their shares pursuant to

Page 771

Time's June 19, 1989 tender offer. Named as defendants were Time Warner, Warner, and five former directors and senior executive officers of Warner--Steven J. Ross, Chairman and Chief Executive Officer, Merv Adelson, Vice-Chairman, Martin D. Payson, Office of the President and General Counsel, Deane F. Johnson, Office of the President, and Bert W. Wasserman, Office of the President and Chief Financial Officer. The complaint alleged federal claims of fraudulent nondisclosure in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), as amended, 15 U.S.C. Sec. 78j(b) (1988), and SEC Rule 10b-5, 17 C.F.R. Sec. 240.10b-5 (1990), and Section 14(e) of the Williams Act, as amended, 15 U.S.C. Sec. 78n(e) (1988). It also alleged tender offer violations under Section 14(d)(7) of the Williams Act, as amended, 15 U.S.C. Sec. 78n(d)(7) (1988) and SEC Rules 14d-10 and 10b-13, 17 C.F.R. Secs. 240.14d-10 and 240.10b-13 (1990).

Most of Kramer's claims concerned compensation arrangements by which Warner's top management, including the individual defendants, received substantial financial benefits just prior to the formal consummation of the second-step merger. In 1982, Warner's shareholders approved an Equity Unit Purchase Plan ("Equity Plan") under which high-level Warner executives could purchase blocks of equity interest in the company, each block consisting of seventy-five shares of Warner common stock ("Equity Unit"). Payment for Equity Units could be made by cash or promissory note. Under the Equity Plan, purchasers were obligated eventually to resell their Equity Units to Warner at a resale price roughly equal to the aggregate book value of the common stock contained in the Units. The Equity Plan gave the Executive Compensation Committee of Warner's board of directors the discretion to modify the resale price under certain circumstances. In addition to purchases under the Equity Plan, Warner's top managers also were issued, at various times, options to purchase shares of Warner common stock at various specified prices.

The complaint alleged that, as of March 31, 1989, Ross, Payson, Johnson, and Wasserman collectively held Equity Units representing nearly 700,000 shares of Warner common stock, purchased at an average price of about $10.00 per share, and that the resale price as of that date was $5.19 per share. The complaint also alleged that Adelson, Johnson, Payson, and Wasserman collectively held options to purchase over 800,000 shares of Warner common stock.

The Amended Merger Agreement contemplated substantial changes in the Equity Plan and stock option program. It provided that, just prior to the second-step merger, Warner's Executive Compensation Committee would adjust the resale price of the Equity Units to $70.00 per share, thus matching the anticipated value of the Merger Consideration, although management's resale of shares was for all cash. It also provided that upon consummation of the merger, outstanding Warner stock options would be cancelled in exchange for an amount of cash equal to $70.00 per share, less the exercise price of the option. Warner's top executives thus received $70.00 in cash for each of the Warner shares represented by their Equity Units and stock options, whereas Kramer and other shareholders received securities trading at $61.75 for their shares.

On March 2, 1990, defendants moved to dismiss the complaint pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6). In support of their motion, defendants submitted an affidavit that included the following exhibits: the Original Merger Agreement, as annexed to Warner's Form 8-K Current Report filed with the SEC; the Joint Proxy Statement, as filed by Warner with the SEC; the Amended Merger Agreement and the Offer to Purchase as annexed to Time's Schedule 14D-1 dated June 16, 1989 and filed with the SEC; Warner's Schedule 14D-9 dated June 16, 1989 and filed with the SEC; and the Equity Plan, as annexed to the 1982 Warner Proxy Statement and filed with the SEC. Defendants also submitted copies of the complaints against them in two related state cases, and included a transcript of proceedings in one of those cases. The district court heard argument on the motion to dismiss on July 26, 1990 and issued

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a written opinion and order granting the motion on October 24, 1990.

With regard to Time's June 19, 1989 Offer to Purchase, Kramer's complaint alleged three fraudulent misrepresentations or omissions in violation of Section 14(e) of the Williams Act, Section 10(b) of the Exchange Act, and SEC Rule 10b-5. First, Kramer alleged that the Offer to Purchase suggested to Warner shareholders that the Merger Consideration would be at least partly in cash and would be worth $70.00 per share even though defendants knew at the time that no cash would be offered and that the value of the Securities Packages would be less than $70.00. As to the content of the Merger Consideration, the district court found that no valid claim for...

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  • ABECASSIS v. WYATT, CIVIL ACTION NO. H-09-3884
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • March 31, 2011
    ...272 F.3d 356, 360-61 (6th Cir. 2001); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1275-78 (11th Cir. 1999); Kramer v. Time Warner, Inc., 937 F.2d 767, 773-74 (2d Cir. 1991). In the Fifth Circuit, their use is strictly limited. "Such documents should be considered only for the purpose of de......
  • Black Radio Network, Inc. v. Nynex Corp., No. 96 CIV. 4138(DC).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • April 14, 1999
    ...alleged in the complaint or in documents attached to the complaint as exhibits or incorporated by reference. Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir.1991). The court may also, however, "consider matters of which judicial notice may be taken under Fed.R.Evid. 201." Id.; see als......
  • Marcus v. AT & T CORP., No. 95 Civ. 9765 (MBM)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • August 21, 1996
    ...result may consider them on a Rule 12(b)(6) motion even though not included in, or attached to the complaint. Kramer v. Time Warner, Inc., 937 F.2d 767, 773-74 (2d Cir.1991) (permitting court to rely on public documents filed with the II. Removal is appropriate only when a complaint filed i......
  • Ong v. Chipotle Mexican Grill, Inc., 16 Civ. 141 (KPF)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • March 22, 2018
    ...‘not to prove the truth of their contents. ’ " Roth v. Jennings , 489 F.3d 499, 509 (2d Cir. 2007) (quoting Kramer v. Time Warner Inc. , 937 F.2d 767, 774 (2d Cir. 1991) ) (emphases in Roth ). By asking the Court to consider the Donnelly Declaration 294 F.Supp.3d 224as part and parcel of th......
  • Request a trial to view additional results
1592 cases
  • ABECASSIS v. WYATT, CIVIL ACTION NO. H-09-3884
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • March 31, 2011
    ...272 F.3d 356, 360-61 (6th Cir. 2001); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1275-78 (11th Cir. 1999); Kramer v. Time Warner, Inc., 937 F.2d 767, 773-74 (2d Cir. 1991). In the Fifth Circuit, their use is strictly limited. "Such documents should be considered only for the purpose of de......
  • Black Radio Network, Inc. v. Nynex Corp., No. 96 CIV. 4138(DC).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • April 14, 1999
    ...alleged in the complaint or in documents attached to the complaint as exhibits or incorporated by reference. Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir.1991). The court may also, however, "consider matters of which judicial notice may be taken under Fed.R.Evid. 201." Id.; see als......
  • Marcus v. AT & T CORP., No. 95 Civ. 9765 (MBM)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • August 21, 1996
    ...result may consider them on a Rule 12(b)(6) motion even though not included in, or attached to the complaint. Kramer v. Time Warner, Inc., 937 F.2d 767, 773-74 (2d Cir.1991) (permitting court to rely on public documents filed with the II. Removal is appropriate only when a complaint filed i......
  • Ong v. Chipotle Mexican Grill, Inc., 16 Civ. 141 (KPF)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • March 22, 2018
    ...‘not to prove the truth of their contents. ’ " Roth v. Jennings , 489 F.3d 499, 509 (2d Cir. 2007) (quoting Kramer v. Time Warner Inc. , 937 F.2d 767, 774 (2d Cir. 1991) ) (emphases in Roth ). By asking the Court to consider the Donnelly Declaration 294 F.Supp.3d 224as part and parcel of th......
  • Request a trial to view additional results

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