Lane v. Page

• Decision Date: 17 July 2009
• Docket Number: No. CIV 06-1071 JB/ACT.,CIV 06-1071 JB/ACT.
• Citation: 649 F.Supp.2d 1256
• Parties: Lawrence LANE, On Behalf of Himself, and All Others Similarly Situated, Plaintiff, v. Barbara PAGE, Sosimo Padilla, Joe Chavez, Josie Castillo, Charles Pena, Georgia Baca, Troy Benavidez, Ray Mares, Jr., Randolph Sanchez, Westland Development Co., Inc., SunCal Companies Group, the D.E. Shaw Group, D.E. Shaw & Co. L.P., D.E. Shaw Real Estate Portfolios 1, L.L.C., D.E. Shaw & Co., Inc., D.E. Shaw Investment Group, LLC, D.E. Shaw & Co. II, Inc., George Rizk and Anne Dinning, Defendants.
• Court: U.S. District Court — District of New Mexico

649 F.Supp.2d 1256

Lawrence LANE, On Behalf of Himself, and All Others Similarly Situated, Plaintiff, v. Barbara PAGE, Sosimo Padilla, Joe Chavez, Josie Castillo, Charles Pena, Georgia Baca, Troy Benavidez, Ray Mares, Jr., Randolph Sanchez, Westland Development Co., Inc., SunCal Companies Group, the D.E. Shaw Group, D.E. Shaw & Co. L.P., D.E. Shaw Real Estate Portfolios 1, L.L.C., D.E. Shaw & Co., Inc., D.E. Shaw Investment Group, LLC, D.E. Shaw & Co. II, Inc., George Rizk and Anne Dinning, Defendants.

No. CIV 06-1071 JB/ACT.

United States District Court, D. New Mexico.

July 17, 2009.

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Nicholas Koluncich, III, Law Offices of Nicholas Koluncich, Albuquerque, NM, Joe Kendall, Provost Umphrey Law Firm, LLP, Dallas, TX, Darren J. Robbins, Brian O. O'Mara, G. Paul Howe, Randall J. Baron, David W. Mitchell, Danielle S. Myers, Coughlin Stoia Geller Rudman & Robbins, LLP, San Diego, CA, for the Plaintiffs.

Douglas G. Schneebeck, Brian K. Nichols, Modrall Sperling Roehl Harris & Sisk P.A., Albuquerque, NM, for Defendants Westland Development Company, Inc. and SunCal Companies Group.

Greg L. Weselka, Evan P. Singer, Jones Day, Dallas, TX, for Defendant SunCal Companies Group.

Juan L. Flores, Sheehan Sheehan & Stelzner, Albuquerque, NM, Paul Bessette, Jesse Z. Weiss, Kimberly G. Davis, Christopher W. Ahart, Yusuf A. Bajwa, Greenberg Traurig, LLP, Austin, TX, for Defendants Barbara Page, Sosimo Padilla, Joe Chavez, Josie Castillo, Charles Pena, Georgia Baca, Troy Benavidez, Ray Mares, Jr., and Randolph Sanchez.

Trent A. Howell, Jacqueline E. Davis, Holland & Hart, LLP, Santa Fe, NM, John D. Lovi, Lara E. Romansic, Michelle M. Oliver, Steptoe & Johnson LLP, New York, NY, John T. Neumann, Steptoe & Johnson, LLP, Phoenix, AZ, for Defendants D.E. Shaw Group, D.E. Shaw & Co. L.P., D.E. Shaw Real Estate Portfolios 1, L.L. C., D.E. Shaw & Co. LLC, D.E. Shaw & Co., Inc., D.E. Shaw Investment Group, LLC, D.E. Shaw & Co. II, Inc., George Rizk, and Anne Dinning.

MEMORANDUM OPINION AND ORDER

(Public Version)¹

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on: (i) the Director Defendants' Motion to Dismiss Second Amended Complaint, filed February 5, 2009 (Doc. 142)("Directors' Motion"); (ii) Defendants Westland's and SunCal's Motion to Dismiss and Joinder in the Director Defendants' Motion to Dismiss, filed February 5, 2009 (Doc. 143) ("Westland and SunCal Motion"); and (iii) The D.E. Shaw Defendants' Motion to Dismiss Plaintiff's Second Amended Complaint, file February 26, 2009 (Doc. 152) ("D.E. Shaw's Motion"). The Court held a hearing on April 3, 2009. In an earlier opinion, the Court dismissed a number of allegations in this case, some with leave to amend and some without, and upheld the sufficiency of the remaining allegations. See Lane v. Page, 581 F.Supp.2d 1094, 1132 (D.N.M.2008). Since then, Lead Plaintiff Lawrence Lane has amended his Complaint to add new allegations and has also added new Defendants to this action. The primary issues here are: (i) whether the Court should allow the new allegations which the Court has not given leave to amend; (ii) whether Lane has sufficiently pled the alleged damages of former shareholders; (iii) whether various allegations in the latest Complaint are material or otherwise actionable under § 14(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78n(a) ("§ 14(a)"); whether the statute of limitations bars the claims against the D.E. Shaw Defendants² ; and (v) whether the claim against the D.E. Shaw Defendants under § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a) ("§ 20(a)"), is adequately pled. The Court concludes that Lane's new allegations on topics which the Court dismissed without express leave to amend are properly before the Court. Because a plaintiff must adequately plead economic loss, however, and because Lane's allegations in this respect are conclusory, the Court will dismiss the Complaint. This deficiency, however, may be relatively technical, so the Court will give Lane ten days to seek leave to amend. While the Court does not prejudge whether such amendment will be allowed, because there appears to be a likelihood that amendment would be proper and because the various other issues have already been briefed and argued, the Court will also address the remaining issues, and these rulings will apply if the Court allows Lane to amend his Complaint and revive his action. Most of Lane's amendments are insufficient to cure the deficiencies the Court has previously identified, but two sets of allegations have been sufficiently supplemented to support a claim: (i) the allegations regarding proxy solicitors; and (ii) the allegations regarding the fairness statement. Additionally, the Court will not reverse its holding on those allegations that the Defendants again challenge, but which the Court has already found sufficient. The Court also finds that the allegations about D.E. Shaw's role in the merger not being disclosed can support a claim. Finally, with respect to the § 20(a) claim against the D.E. Shaw Defendants, the Court cannot, at this time, rule as a matter of law that the statute of limitations has run on the claim, and the Court finds that Lane's allegations will support a claim for controlperson liability.

FACTUAL BACKGROUND

This case concerns a dispute over the merger of Defendant Westland Development Co., Inc. and Defendant SunCal Companies Group. Much of the background of this case and of the claims that Lane is bringing are laid out in detail in the Court's earlier opinion. See Lane v. Page, 581 F.Supp.2d at 1099-1104. The Court will not reiterate the history of the merger. Many new allegations have been included in the latest Complaint, however, and the Court will describe those new allegations and their relationship to the earlier allegations. Because this is a motion to dismiss, Lane's allegations are assumed to be true, and the Court will therefore describe the facts as if the allegations were true.

1. Conflicts of Interest.

Lane alleges that the proxy statement circulated as part of the vote on the merger with SunCal ("Proxy") failed to adequately disclose conflicts of interests for various Westland directors. These allegations fall into two categories. First, Lane alleges that the Proxy does not disclose that Defendants Barbara Page, Westland's president, chief executive officer, and chief financial officer and Sosimo Padilla, Westland's chairman and executive vice president, had employment agreements that were sweetened to gain their support for the merger. Second, Lane alleges that the Proxy did not properly disclose that several directors were promised lifelong trusteeships in the Atrisco Heritage Foundation or directorships in Atrisco Oil & Gas LLC ("Atrisco LLC").

a. Employment Agreements.

According to the Proxy, Page was "employed as Westland's president and chief executive officer under a renewable six year employment agreement" that also provided for seven times her annual salary as a severance payment for involuntary termination. Exhibit A to Second Amended Complaint, SEC Schedule 14A Definitive Proxy for Westland Development Co Inc. at 30 (issued September 20, 2006)(Doc. 145-2)("Proxy"). The Proxy also stated that Padilla, Westland's chairman and executive vice president, had a consulting agreement with similar severance terms. See id. In his earlier Complaint, Lane alleged that the Proxy misrepresented or omitted information regarding these agreements, which Lane contends had "been secretly modified to secure [Page's and Padilla's] support for the merger." Lane v. Page, 581 F.Supp.2d at 1102 (citing Amended Complaint for Violation of §§ 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEG Rule 14a-9 ¶¶ 39-40, at 15, filed September 17, 2007 (Doc. 50) ("FAC")).

Lane has made new allegations in support of his contention that the Proxy inadequately disclosed Page's and Padilla's possible conflicts of interest. First, Securities and Exchange Commission ("SEC") rules require accurate disclosure of Page's and Padilla's interests. See Second Amended Complaint for Violation of § § 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9, ¶ 40, at 20, filed February 9, 2009 (Doc. 145) ("SAC") (citing 17 C.F.R. § 240.14a-101, Item 5(a)(1)). Second, during a May 2006 meeting, Westland's board "discussed additional items they needed to be included in SunCal's offer in order for it to be considered superior, which specifically included defendants Page and Padilla's employment agreements." SAC ¶ 40(a), at 20. Third, Page's and Padilla's contracts did not originally contain the terms disclosed in the Proxy. Rather, the agreements "were modified to provide additional terms after Page voted against" the Sun-Cal merger and after Padilla expressed concerns to the board about "numerous problems" with the SunCal merger. Id. ¶ 40(b), at 20 (emphasis in original, internal quotation marks omitted). These new terms were added to Page's and Padilla's agreements "as an inducement to obtain their endorsement" of the merger. Id.

b. Trusteeships and Directorships.

The Proxy reveals that Westland directors could receive positions in either the Atrisco Heritage Foundation or Atrisco LLC. Westland's existing board was given the power to appoint trustees to the Atrisco Heritage Foundation, and the Proxy opined that it was likely that "one or more" Westland directors would become a trustee. Proxy at 31. Additionally, Atrisco LLC's directors were to be drawn from Westland's directors, although the Proxy said that particular directors have not yet been chosen. See id. The First Amended Complaint asserted "that the Proxy failed to disclose that `at least four Westland directors were promised lifelong trusteeships' at the Foundation or on the board of Atrisco LLC, and that instead of receiving ...