Wisconsin Real Estate Inv. Trust v. Weinstein

• Decision Date: 20 March 1981
• Docket Number: Civ. A. No. 80-C-410.
• Citation: 509 F. Supp. 1289
• Parties: WISCONSIN REAL ESTATE INVESTMENT TRUST, Plaintiff, v. George WEINSTEIN, Robert C. Pittelkow, August J. Richter, Joseph A. Deglman, Robert G. Stenger, Harold V. Schoenecker, Clarence Wallner, Thomas W. Korb, Jane Carity, Reit Property Managers, Ltd., Stanley H. Weinstein, Weinstein Associates, and Peregrine, Marcuvitz, Cameron & Peltin, S.C., Defendants, and Telvest, Inc., Harold Sampson, Clyde William Engle, and Charles F. DiGiovanna, Counterclaim Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

509 F. Supp. 1289

WISCONSIN REAL ESTATE INVESTMENT TRUST, Plaintiff, v. George WEINSTEIN, Robert C. Pittelkow, August J. Richter, Joseph A. Deglman, Robert G. Stenger, Harold V. Schoenecker, Clarence Wallner, Thomas W. Korb, Jane Carity, Reit Property Managers, Ltd., Stanley H. Weinstein, Weinstein Associates, and Peregrine, Marcuvitz, Cameron & Peltin, S.C., Defendants and Telvest, Inc., Harold Sampson, Clyde William Engle, and Charles F. DiGiovanna, Counterclaim Defendants.

Civ. A. No. 80-C-410.

United States District Court, E. D. Wisconsin.

March 20, 1981.

Richard C. Ninneman, Richard K. Sell and Michael T. Hart, Milwaukee, Wis., for plaintiff and counterclaim defendants, Whyte & Hirschboeck S.C., Milwaukee, Wis., and Nathan Dardick, Dardick & Jadwin, Chicago, Ill., of counsel.

Irvin B. Charne, Howard A. Pollack and James H. Hall, Jr., Milwaukee, Wis., for defendants George Weinstein, Reit Property Managers, Ltd., Stanley H. Weinstein, and Weinstein Associates.

Clay R. Williams and Gregory G. Wille, Milwaukee, Wis., for defendants Robert C. Pittelkow, August J. Richter, Joseph A. Deglman, Robert G. Stenger, Harold V. Schoenecker, Clarence Wallner, Thomas W. Korb, and Jane Carity; Gibbs, Roper, Loots & Williams, Milwaukee, Wis., of counsel.

William H. Alverson, Godfrey & Kahn, Milwaukee, Wis., for defendant Peregrine, Marcuvitz, Cameron & Peltin, S.C.

DECISION AND ORDER

REYNOLDS, Chief Judge.

This action arises out of the successful takeover of the Wisconsin Real Estate Investment Trust ("WREIT" or "the Trust") in the spring of 1980 by a group of shareholders which denominated itself the WREIT Shareholders Protection Committee ("WSPC"). The WSPC was dominated by Telvest, Inc., then the largest single shareholder of the Trust. The other members of the WSPC were Harold Sampson and Charles F. DiGiovanna. The WSPC commenced a proxy fight in April 1980 seeking shareholder endorsement for the June 10, 1980, election of its own slate of directors. This action was commenced pursuant to § 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), to enjoin WREIT from voting the proxies which it had solicited on the ground that its solicitation materials had contained false and misleading material information. WREIT counterclaimed to enjoin the WSPC from voting proxies which it had solicited on the same ground. The original complaint of Telvest, Inc., also contained allegations against the members of the WREIT board of trustees and its manager for breach of fiduciary duties and sought to void the issuance to the manager in February 1980 of 27,000 shares of WREIT stock.

In an order issued on May 23, 1980, the Court found that WREIT's proxy solicitation materials had contained false and misleading material information. A preliminary injunction was issued prohibiting the board of trustees from voting the proxies at the June 1980 election. The Court also enjoined the WSPC from voting its proxies, and it ordered that a copy of the decision be mailed to shareholders of the Trust. None of the parties to the action sought a delay in the election and both sides then sent out additional proxy solicitation materials.

The takeover attempt was successful and the WSPC's slate of trustees was elected. Thereafter WREIT, under the control of the new management, moved to realign the parties and for an order allowing it to file a second amended complaint. That motion was granted.

The second amended complaint, now by the new management, is brought against three grouped sets of defendants who were affiliated with or a part of the old management:

(1) the "former trustees" (excluding George Weinstein), who were Robert C. Pittelkow, August J. Richter, Joseph A. Deglman, Robert G. Stenger, Harold V. Schoenecker, Clarence Wallner, Thomas W. Korb, and Jane Carity;

(2) WREIT's former counsel Peregrine, Marcuvitz, Cameron & Peltin, S.C. ("Peregrine"); and

(3) the "Weinstein defendants," including George Weinstein, a former trustee and former president of WREIT; Reit Property Manager, Ltd. ("RPM"), a corporation hired by the former trustees to provide management services to WREIT, of which George Weinstein was the president and his son Stanley was the sole shareholder; Stanley Weinstein; and Weinstein Associates, a partnership between George Weinstein and Stanley Weinstein to which RPM turned over its fees received from WREIT.

The second amended complaint contains two counts. The first is a claim brought under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 alleging a reckless and intentional failure to disclose material information to shareholders in connection with the issuance to RPM in February 1980 of 27,000 shares of Trust stock as compensation for services rendered. The nondisclosure was allegedly part and parcel of a conspiracy by the defendants "to entrench themselves as management of the Trust for the purpose of continuing a course of self-dealing, waste and mismanagement." (Second amended complaint ¶ 24.) The second claim is for breach of fiduciary duties by all of the defendants in connection with actions taken by them in regard to the management of the affairs of WREIT and, in particular, in regard to the fees paid to RPM as compensation for its services as general manager and property manager for WREIT, such breach constituting, according to the plaintiffs' allegations, "willful misfeasance, bad faith, gross negligence or reckless disregard of their duties" to WREIT. (Second amended complaint ¶ 30.) Plaintiff seeks cancellation of the 27,000 shares issued to RPM and an accounting for all losses and damage sustained by WREIT as a result of the defendants' actions.

All of the defendants have raised various affirmative defenses and have counterclaimed for indemnification under the Declaration of Trust. In addition, the former trustees have filed a "counterclaim" against the so-called "counterclaim defendants" Telvest, Inc., Harold Sampson, Clyde William Engle, Charles F. DiGiovanna, and Nathan E. Dardick for violation of § 14(a) of the Securities Exchange Act, 15 U.S.C. § 78n(a), in connection with their solicitation of proxies in the spring of 1980. The former trustees seek declaratory relief that the proxy solicitations were violative of that same statute and an order setting aside the results of the June 1980 election. The Weinstein defendants have brought a similar "counterclaim" against the same persons as the former trustees have filed against, and in addition against Richard Y. Fisher, Richard C. Jones, Gerald A. Kien, John P. Miller, Joel Scheckerman, Everett A. Sisson, Robert R. Starnes, and Robert H. Weitzman who are members of the current board of trustees. The Weinstein defendants have also raised a 15 U.S.C. § 78n(a) (false proxy solicitation) claim and an indemnification claim. In addition, they seek to, but have not filed a motion to, enjoin WREIT from continuing to use RPM's name and to collect dividends allegedly owing on the 27,000 shares of stock issued to RPM in February 1980 and commissions on various sales and purchases of property arranged for WREIT by RPM during its tenure as manager of WREIT.

Presently pending before the court are WREIT's motion for partial summary judgment on Count II of the second amended complaint against the Weinstein defendants,¹ seeking a rescission of the 27,000 shares of stock issued to RPM and an accounting for profits made by the Weinstein defendants under RPM's management agreements with WREIT; Peregrine's motion for summary judgment of dismissal against it of the second amended complaint and for summary judgment on its counterclaim for indemnification for attorneys' fees and costs; and the former trustees' motion for dismissal of the second amended complaint against them, and for summary judgment on their first counterclaim which is for indemnification. All of the motions will be denied.

WREIT's Motion for Partial Summary Judgment Against the Weinstein Defendants

RPM was first retained by WREIT in July 1975 as a property manager under the Declaration of Trust. In 1977, it was also retained as a general trust manager. Prior to 1975, the Weinstein defendants had no connection with the Trust. In 1977 the trustees voted to expand the size of the board from eight to nine trustees and invited George Weinstein to become a trustee and president of WREIT, which he did. Count II of the plaintiff's second amended complaint alleges in part that all of the defendants breached their fiduciary duties to WREIT by allowing RPM, and through it all of the Weinstein defendants, excess compensation by means of commissions approved on sales and purchases by RPM of property for WREIT.

Article I of WREIT's Declaration of Trust is the definitional section and provides in part as follows in § 1.4:

"(a) Administrative Expenses. `Administrative Expenses' of the Trust shall mean all expenses paid or incurred by the Trust, excluding (i) interest, (ii) taxes, (iii) all expenses of operation and maintenance of properties of the Trust, which are deemed to include, among other things, depreciation and Property Management Fees, * * *. Without limiting the generality of the foregoing, `Administrative Expenses' shall include any fees paid to the Manager in such capacity, * *.

* * * * *

"(j) Manager. `Manager' shall mean the Person employed by the Trustees under the provision of the first paragraph of Section 4.1.

* * * * *

"(o) Property Management Fees. `Property Management Fees' shall mean the compensation payable by the Trust to any Person as compensation for services as Property Manager.

"(p) Property Manager. `Property Manager' shall mean any person employed under the provisions of the second paragraph of Section 4.1."

Article IV, dealing with the manager and property manager and with the limitation on administrative expenses, provides in part:

"4.1 Employment of Manager and Property Manager. The Trustees are responsible for the general policies

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