Schoenfeld Asset Management LLC v. Cendant Corp.
| Decision Date | 01 January 2001 |
| Docket Number | Civ. No. 98-5384 (WHW).,Civ. No. 98-4734 (WHW). |
| Court | U.S. District Court — District of New Jersey |
| Parties | P. SCHOENFELD ASSET MANAGEMENT LLC, on behalf of itself and all others similarly situated, Plaintiff, v. CENDANT CORP., WALTER A. FORBES, E. KIRK SHELTON, COSMO CORIGLIANO, CHRISTOPHER MC LEOD and ERNST & YOUNG, LLP, Defendants. GEORGE SEMERENKO, on behalf of himself and all others similarly situated, Plaintiff, v. CENDANT CORP., WALTER A. FORBES, E. KIRK SHELTON, COSMO CORIGLIANO, CHRISTOPHER MC LEOD and ERNST & YOUNG, LLP, Defendants. |
Joseph J. DePalma, Allyn Z. Lite, Goldstein Lite & DePalma, LLC, Newark, NJ.
Arthur Abbey, Jill S. Abrams, Nancy Kaboolian, Abbey, Gardy & Squitieri, LLP, New York, NY, Attorneys for plaintiff P. Schoenfeld Asset Management LLC.
Samuel Kadet, Skadden, Arps, Slate, Meagher & Flom LLP, Newark, New Jersey.
Carl Greenberg, Michael M. Rosenbaum, Budd Larner Gross Rosenbaum Greenberg & Sade, Short Hills, New Jersey, Attorneys for defendant Cendant Corp.
Steven S. Radin, Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., Newark, New Jersey.
Dennis J. Block, Cadwalader, Wickersham & Taft, New York, New York.
Greg A. Danilow, Weil, Gotshal & Manges LLP, New York, New York, Attorneys for defendant Walter A. Forbes and Christopher McLeod
Richard Schaeffer, Bruce Handler, New York, New York, Dornbush Mensch Mandelstam & Schaeffer, Attorneys for defendant E. Kirk Shelton.
Donald A. Robinson, Robinson, Lapidus & Livelli, Newark, New Jersey.
Gary P. Naftalis, Alan R. Friedman, Kramer Levin Naftalis & Frankel, New York, New York, Attorneys for defendant Cosmo Corigliano.
Douglas Scott Eakeley, Lowenstein Sandler PC, Roseland, New Jersey.
Dennis P. Orr, Mayer, Brown & Platt, New York, New York.
Michelle Odorizzi, Caryn L. Jacobs, Mayer, Brown & Platt, Chicago, Illinois, Attorneys for defendant Ernst & Young LLP.
All defendants move to dismiss plaintiffs' amended complaints for failure to state a claim upon which relief may be granted and plaintiffs move for leave to amend their complaints if any or all of their claims are dismissed. The complaints charge defendants with violations of sections 10(b), 14(e), and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaints are dismissed because they fail to state a cause of action under the securities laws. Plaintiffs' motion to amend their complaints is denied.
Plaintiffs are arbitrageurs who purchased shares of American Bankers Insurance Group, Inc. ("ABI") stock between January 27, 1998 and October 13, 1998 after an announcement by Cendant that it would purchase ABI.1 Earlier, on December 22, 1997, the American International Group, Inc. ("AIG") and ABI had announced their entry into a merger agreement whereby AIG would acquire 100 % of the outstanding stock of ABI for $47 cash per share. Then, on January 27, 1998, Cendant filed a Schedule 14D-1 with the Securities Exchange Commission ("SEC") which included an offer by Season Acquisition Corp., its wholly owned subsidiary, to purchase ABI for a share price of $58 or approximately $2.7 billion. The "offer to purchase" was also sent to ABI shareholders and included information about Cendant's earnings, revenues, and other financial and operational information. Cendant had engaged in a bidding war with AIG, and AIG had also offered to purchase ABI for $ 58 per share. Finally, on March 23, 1998 Cendant entered into an agreement with ABI to acquire it for $67 per share or approximately $ 3.1 billion (the "ABI Merger Agreement").
Cendant filed amendments to its 14D-1 Schedule with the SEC on March 23, 1998, May 7, 1998, July 2, 1998, July 27, 1998, September 1, 1998, and October 2, 1998. Plaintiffs contend that the financial statements contained in the original and amended 14D-1 Schedules and the offer to purchase were materially false and misleading. Plaintiffs allege that they purchased ABI stock in reliance on this materially false and misleading information contained in Cendant's offer to purchase, its 14D-1 Schedules, and other documents and press releases related to the tender offer. They maintain that Cendant's false and misleading statements caused the artificial inflation of the price of ABI's shares and that the true value of the securities was substantially lower than the prices they paid. They purchased the stock in the belief that they would receive $58 or $67 per share from Cendant.
On April 15, 1998, after Cendant announced that it had discovered potential accounting irregularities and expected to restate its annual and quarterly earnings for 1997 and possibly earlier periods, ABI shares dropped 11 % from $64-7/8 to $57-3/4. Plaintiffs assert that ABI's stock price fell further after the July 14, 1998 announcement by Cendant that the accounting irregularities would have a larger impact on its financial statements than had been previously anticipated. However, the stock price of ABI "was buoyed by Cendant's repeated public commitment to complete the ABI Merger." (Am. Compl. ¶ 60.) On September 29, 1998, Cendant publicly announced that it had lost $217.2 million in 1997 instead of earning $55.5 million as it had reported earlier. The price of ABI's stock dropped to $43 on that day. Two weeks later, on October 13, 1998, Cendant announced that ABI and it had ended their agreement for the acquisition of ABI; ABI's stock price fell to $35-1/2. (Pl.'s Mem. in Supp. of Mot. at 7.)
According to plaintiffs, Cendant reaffirmed its agreement to buy ABI at the $67 share price on April 27, 1998, May 7, 1998, July 27, 1998, August 31, 1998, and October 2, 1998. (Am. Compl. ¶¶ 55, 57, 62, 78, 81.) Cendant ultimately extended the tender offer date to November 2, 1998, but terminated the offer on October 13, 1998. In their complaints and opposition brief to defendants motions, plaintiffs do not allege that they ever tendered any shares of ABI to Cendant. However, at oral argument plaintiffs' counsel represented, without any support, that 28 million shares of ABI were tendered before Cendant's tender offer was withdrawn, but Cendant did not purchase any of the tendered shares.
The ABI Merger Agreement contained several mechanisms for the termination of the merger. The Agreement expressly provided that it could be terminated and the proposed merger abandoned by mutual consent of the Boards of Directors of Cendant and ABI. (Agreement at § 8.1.) Such termination would result in no liability on the part of any party or any of its directors, officers, employees, agents, legal and financial advisors or shareholders. (Id. at § 8.5(a)).
None of plaintiffs' complaints mentions the conditions of the termination of the ABI Merger Agreement. Cendant and ABI entered into a Settlement Agreement, which was filed with the SEC, to effect the termination of the ABI Merger Agreement. Cendant and ABI agreed to release each other, including "their respective affiliates, their respective Representatives and stockholders, and their respective successors and assigns" from any claims related to the proposed acquisition of ABI by Cendant. (Settlement Agreement § 4.) Cendant agreed to pay ABI $400 million cash payment as a break-up fee. (Settlement Agreement § 2.) This break-up fee was announced on October 13, 1998. The Court considers the terms of the Settlement Agreement because that agreement was filed with the SEC as an exhibit to Cendant's quarterly report Form 8-K and Schedule 14D-1 and is a matter of public record.
On October 14, 1998, plaintiffs filed suit in this Court against Cendant and individual defendants. The individual defendants Forbes, McLeod, Shelton, and Corigliano had been officers or directors of Cendant and/or its predecessor, CUC. The additional defendant Ernst & Young LLP ("E&Y") acted as CUC's independent public accountant from 1983 through the formation of Cendant, and afterwards, audited the financial statements of Cendant Membership Services ("CMS"), a wholly owned subsidiary of Cendant, for the year ending December 31, 1997. These financial statements of CMS were consolidated into Cendant's financial statements and included in Cendant's Form 10-K for the 1997 fiscal year, filed with the SEC.2 Plaintiffs' complaints allege violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The class period in the original complaint began March 23, 1998 and ended October 13, 1998. On February 8, 1999, plaintiffs filed an amended complaint which re-set the beginning of the class period to January 27, 1998, added another claim, a violation of section 14(e) of the Williams Act, and another defendant, Ernst & Young, LLP. Plaintiffs claim that all the defendants violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5, that Cendant and the individual defendants also violated § 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(e) (the Williams Act), and that the individual defendants have violated § 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t.
On a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the court is required to accept as true all allegations in the complaint, and all reasonable inferences that can be drawn therefrom, and to view them in the light most favorable to the non-moving party. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir.1994). The question is whether the plaintiff can prove any set of facts consistent with his/her allegations that will entitle him/her to relief, not whether that person will ultimately prevail. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). While a court will accept well-pleaded allegations as true for the purposes of the motion, it will not accept legal or unsupported conclusions, unwarranted inferences, or sweeping legal conclusions cast in...
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