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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE TO/A
TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 26)
TAUBMAN CENTERS, INC.
(Name of Subject Company (Issuer))
SIMON PROPERTY ACQUISITIONS, INC.
SIMON PROPERTY GROUP, INC.
WESTFIELD AMERICA, INC.
(Names of Filing Persons (Offerors))
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
876664103
(CUSIP Number of Class of Securities)
James M. Barkley, Esq. Peter R. Schwartz, Esq.
Simon Property Group, Inc. Westfield America Inc.
National City Center 11601 Wilshire Boulevard
115 West Washington Street 12th Floor
Suite 15 East Los Angeles, CA 90025
Indianapolis, IN 46024 Telephone: (310) 445-2427
Telephone: (317) 636-1600
(Name, Address and Telephone Numbers of Person
Authorized to Receive Notices and Communications on Behalf of Filing Persons)
----------
Copies to:
Steven A. Seidman, Esq. Scott V. Simpson, Esq.
Robert B. Stebbins, Esq. Skadden, Arps, Slate, Meagher & Flom LLP
Willkie Farr & Gallagher One Canada Square
787 Seventh Avenue Canary Wharf
New York, New York 10019 London, E14 5DS, England
Telephone: (212) 728-8000 Telephone: (44) 20 7519 7000
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CALCULATION OF FILING FEE
================================================================================
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
- --------------------------------------------------------------------------------
$1,193,880,540 $238,776.11
================================================================================
* Estimated for purposes of calculating the amount of the filing fee only.
Calculated by multiplying $20.00, the per share tender offer price, by
59,694,027 shares of Common Stock, consisting of (i) 50,908,965
outstanding shares of Common Stock, (ii) 2,270 shares of Common Stock
issuable upon conversion of 31,784,842 outstanding shares of Series B
Non-Participating Convertible Preferred Stock, (iii) 7,202,785 shares of
Common Stock issuable upon conversion of outstanding partnership units of
The Taubman Realty Group, Limited Partnership ("TRG") and (iv) 1,580,007
shares of Common Stock issuable upon conversion of outstanding options
(each of which entitles the holder thereof to purchase one partnership
unit of TRG which, in turn, is convertible into one share of Common
Stock), based on Amendment No. 1 to the Registrant's Preliminary Proxy
Statement on Schedule 14A filed on February 25, 2003, the Registrant's
Schedule 14D-9 filed on December 11, 2002 and the Registrant's Annual
Report on Forms 10-K and 10-K/A for the year ended December 31, 2002.
** The amount of the filing fee calculated in accordance with Regulation
240.0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50th
of one percent of the value of the transaction.
|X| Check the box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $248,745.11 Filing Party: Simon Property Group, Inc.; Simon Property
Form or Registration No.: Schedule TO (File No. 005-42862), Acquisitions, Inc.; Westfield America, Inc.
Amendment No. 1 to the Schedule TO Date Filed: December 5, 2002, December 16, 2002 and
and Amendment No. 5 to the January 15, 2003
Schedule TO
|_| Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
|_| Check the appropriate boxes below to designate any transactions to which
the statement relates.
|X| third-party tender offer subject to Rule 14d-1.
|_| issuer tender offer subject to Rule 13e-4.
|_| going-private transaction subject to Rule 13e-3.
|_| amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment
reporting the results of the tender offer: |_|
================================================================================
SCHEDULE TO
This Amendment No. 26 amends and supplements the Tender Offer Statement on
Schedule TO originally filed with the Securities and Exchange Commission (the
"Commission") on December 5, 2002, as amended and supplemented by Amendment No.
1 thereto filed with the Commission on December 16, 2002, by Amendment No. 2
thereto filed with the Commission on December 27, 2002, by Amendment No. 3
thereto filed with the Commission on December 30, 2002, by Amendment No. 4
thereto filed with the Commission on December 31, 2002, by Amendment No. 5
thereto filed with the Commission on January 15, 2003, by Amendment No. 6
thereto filed with the Commission on January 15, 2003, by Amendment No. 7
thereto filed with the Commission on January 16, 2003, by Amendment No. 8
thereto filed with the Commission on January 22, 2003, by Amendment No. 9
thereto filed with the Commission on January 23, 2003, by Amendment No. 10
thereto filed with the Commission on February 7, 2003, by Amendment No. 11
thereto filed with the Commission on February 11, 2003, by Amendment No. 12
thereto filed with the Commission on February 18, 2003, by Amendment No. 13
thereto filed with the Commission on February 21, 2003, by Amendment No. 14
thereto filed with the Commission on February 21, 2003, by Amendment No. 15
thereto filed with the Commission on February 27, 2003, by Amendment No. 16
thereto filed with the Commission on February 27, 2003, by Amendment No. 17
thereto filed with the Commission on February 28, 2003, by Amendment No. 18
thereto filed with the Commission on March 3, 2003, by Amendment No. 19 thereto
filed with the Commission on March 6, 2003, by Amendment No. 20 thereto filed
with the Commission on March 18, 2003, by Amendment No. 21 thereto filed with
the Commission on March 21, 2003, by Amendment No. 22 thereto filed with the
Commission on March 28, 2003, by Amendment No. 23 thereto filed with the
Commission on March 31, 2003, by Amendment No. 24 thereto filed with the
Commission on April 30, 2003 and by Amendment No. 25 thereto filed with the
Commission on May 2, 2003 (as amended and supplemented, the "Schedule TO")
relating to the offer by Simon Property Acquisitions, Inc., a Delaware
corporation (the "Purchaser") and wholly owned subsidiary of Simon Property
Group, Inc., a Delaware corporation ("SPG Inc."), to purchase all of the
outstanding shares of common stock, par value $.01 per share (the "Shares"), of
Taubman Centers, Inc. (the "Company") at a purchase price of $20.00 per Share,
net to the seller in cash, without interest thereon, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated December 5, 2002
(the "Offer to Purchase"), and the Supplement to the Offer to Purchase, dated
January 15, 2003 (the "Supplement"), and in the related revised Letter of
Transmittal (which, together with any supplements or amendments, collectively
constitute the "Offer"). This Amendment No. 26 to the Schedule TO is being filed
on behalf of the Purchaser, SPG Inc. and Westfield America, Inc. ("WEA").
Capitalized terms used and not defined herein shall have the meanings
assigned to such terms in the Offer to Purchase, the Supplement and the Schedule
TO, as applicable.
The item numbers and responses thereto below are in accordance with the
requirements of Schedule TO.
Item 11. ADDITIONAL INFORMATION.
On May 8, 2003, the United States District Court for the Eastern
District of Michigan (the "Court") issued an Amended Opinion and
Order (the "Amended Opinion and Order"), a copy of which is filed
herewith as Exhibit (a)(5)(VV), enjoining the voting of all of the
shares held or controlled by the Taubman family and its associates
that together purportedly comprised approximately 33.6% of the
Company's voting power until voting rights are conferred on such
shares through a disinterested shareholder vote in compliance with
the Michigan Control Share Act and requiring SPG Inc. to post a $10
million bond pending the outcome of any appeal of the Amended
Opinion and Order. The full text of a press release, dated May 8,
2003, issued by SPG Inc. and WEA in connection with the Amended
Opinion and Order is filed herewith as Exhibit (a)(5)(WW).
Item 12. EXHIBITS.
(a)(5)(VV) Amended Opinion and Order issued on May 8, 2003 by the United States
District Court for the Eastern District of Michigan in the matter of
Simon Property Group, Inc. et al., Plaintiffs, vs. Taubman Centers,
Inc., et al., Defendants, and Lionel Z. Glancy, Plaintiff, vs.
Robert S. Taubman, et al., Defendants.
(a)(5)(WW) Press Release issued by Simon Property Group, Inc. and Westfield
America, Inc., dated May 8, 2003.
SIGNATURE
After due inquiry and to the best of their knowledge and belief, the
undersigned hereby certify as of May 9, 2003 that the information set forth in
this statement is true, complete and correct.
SIMON PROPERTY GROUP, INC.
By: /s/ JAMES M. BARKLEY
------------------------------------
Name: James M. Barkley
Title: Secretary and General Counsel
SIMON PROPERTY ACQUISITIONS, INC.
By: /s/ JAMES M. BARKLEY
------------------------------------
Name: James M. Barkley
Title: Secretary and Treasurer
After due inquiry and to the best of its knowledge and belief, the
undersigned hereby certifies as of May 9, 2003 that the information set forth in
this statement is true, complete and correct.
WESTFIELD AMERICA, INC.
By: /s/ PETER R. SCHWARTZ
-------------------------------
Name: Peter R. Schwartz
Title: Senior Executive Vice President
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(a)(5)(VV) Amended Opinion and Order issued on May 8, 2003 by the United
States District Court for the Eastern District of Michigan in
the matter of Simon Property Group, Inc. et al., Plaintiffs,
vs. Taubman Centers, Inc., et al., Defendants, and Lionel Z.
Glancy, Plaintiff, vs. Robert S. Taubman, et al., Defendants.
(a)(5)(WW) Press Release issued by Simon Property Group, Inc. and
Westfield America, Inc., dated May 8, 2003.
EXHIBIT 99(a)(5)(VV)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SIMON PROPERTY GROUP, INC., ET AL.,
PLAINTIFFS,
HONORABLE: VICTORIA A. ROBERTS
VS. CASE NO. 02-74799
TAUBMAN CENTERS, INC., ET AL.,
DEFENDANTS. FILED
MAY 8-2003
AND CLERK'S OFFICE
U.S. DISTRICT COURT
LIONEL Z. GLANCY, EASTERN MICHIGAN
PLAINTIFF,
VS. CASE NO. 02-75120
ROBERT S. TAUBMAN, ET AL.,
DEFENDANTS.
_______________________________________/
AMENDED OPINION AND ORDER*
* This Amended Opinion and Order supersedes the Opinion and Order filed on May
1, 2003.
I. INTRODUCTION
This matter is before the Court on joint Motions for Preliminary Injunction
by the Plaintiffs in SIMON PROPERTY GROUP, INC., ET AL v TAUBMAN CENTERS, INC.,
ET AL, case no. 02-7499, and LIONEL Z. GLANCY v ROBERT S. TAUBMAN, ET AL, case
no. 02-75120. For the
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reasons set forth below;
1. The Court dismisses the Clancy case without prejudice and dismisses
Smith from the Simon case, both for lack of subject matter jurisdiction;
2. The Simon Plaintiffs' claims which are based on breach of fiduciary duty
in connection with the 1998 restructuring and issuance of the 1998 Series B
stock are dismissed for lack of standing;
3. The Simon Plaintiffs' allegations that Defendants interfered with their
right to vote are individual harms which are not subject to the demand
requirements of F.R.C.P. 23.1;
4. The balance of Simon's claims allege breaches of fiduciary duty of care
and loyalty which are excused from the demand requirements of F.R.C.P. 23.1;
5. The business judgment rule entitles the Taubman Centers, Inc. Board of
Directors to the benefit of the presumption that it acted in good faith and in
accordance with its fiduciary obligations in rejecting the Simon/Westfield offer
in 2003, and the Simon Plaintiffs have failed to rebut the presumption;
6. The Taubman Centers Inc. Board of Directors' action taken on December
20, 2002 to amend the bylaws, which thwarted Simon's attempts to call a special
meeting of shareholders to consider the Excess Share Provision, had no
compelling justification under the rule announced in BLASIUS;
7. The Taubman family formed a group for the purpose of exercising voting
power to block the Simon takeover. Their shares, in combination with the shares
obtained by Defendant Robert Taubman via Voting Agreements, all as announced in
the November 14, 2002, Schedule 13D/A filed with the Securities and Exchange
-2-
Commission, are "control shares" under the Michigan Control Share Acquisitions
Act, MCL 450.1790(2)(b);and
8. The Simon Plaintiffs have satisfied the requirements for injunctive
relief. Defendants are enjoined from:
(A) enforcing the December 20, 2002 Special Meeting Amendment; and
(B) voting the 33.6% controlling block of shares referenced in the
November 14, 2002 Schedule 13D/A that was filed with the Securities
and Exchange Commission. These shares may not be voted unless voting
rights are extended to the shares in accordance with the Michigan
Control Share Acquisitions Act.
Accordingly, the Court GRANTS the Simon Plaintiffs' motion in part and
DENIES it in part; and, the Court DENIES the Glancy motion.
II. BACKGROUND
Plaintiffs Simon Property Group, Inc., Simon Property Acquisitions, Inc.
("Simon") and Randall J. Smith(1) filed their complaint against Taubman Centers,
Inc. (TCI), A. Alfred Taubman, and members of the TCI Board of Directors--Robert
S. Taubman, Lisa A. Payne, Graham T. Allison, Peter Karmanos, Jr., William
Taubman, Allan J. Bloostein, Jerome A. Chazen and S. Parker Gilbert ("the
Board"). Simon and TCI are competitors in the regional shopping center business.
Smith is a TCI shareholder.
Simon sought judicial intervention in its takeover effort after the Board
rejected its unsolicited offer to purchase all of TCI's outstanding common stock
at $18 per share
- ----------
(1) Smith joined later in this action, under F.R.C.P. 20. Smith and Simon
will collectively be referred to as "the SPG Plaintiffs"or "SPG."
-3-
on December 5,2002. Westfield America ("Westfield")(2) joined the Simon offer on
January 15,2003 (the "Simon/Westfield Offer"). Then, the offer was increased to
$20.00 per share. The Plaintiffs contend that more than 85% of TCI's common
shares were tendered into this offer.(3)
Likewise, TCI shareholder Lionel Z, Glancy ("Glancy") seeks relief from
current and former actions by the Board, including its rejection of the
Simon/Westfield offer. Glancy's complaint is on behalf of himself and other TCI
shareholders, as well as derivatively on behalf of TCI. Glancy's complaint does
not name A. Alfred Taubman as a Defendant.
The SPG Plaintiffs and Glancy assert similar claims. In a five-count
complaint, the SPG Plaintiffs allege that: (1) the Taubman family does not have
the right to vote Series B Preferred Stock acquired by the family in 1998 (Count
I)(4); (2) the Taubman family does not have the right to vote shares recently
acquired, their Series B Preferred Stock, or exercise irrevocable proxies to
vote the shares of others, because it gives the Taubmans a controlling share in
TCI without a vote of disinterested shareholders (Count II); (3) the Taubmans
are not entitled to vote the Series B Preferred Stock and the new shares in such
a way that it would foreclose the Simon/Westfield tender offer
- ----------
(2) Westfield is not a party to this action. It is a corporation controlled
by Westfield America Trust, an Australian real estate company.
(3) A tender offer is a device by which one corporation seeks to acquire
control of another by offering to buy a substantial portion of its shares
tendered for sale at a stipulated price. 6A FLETCHER CYCLOPEDIA OF PRIVATE CORP.
SECTION 2841.10.
(4) The Court granted Defendants' Motion to Dismiss this Count, in part, in
its January 22,2003 Order.
-4-
and disenfranchise the public shareholders. Further, they allege that the
Special Meeting Amendment of December 20,2002(5) should be deemed null and void
since its passage was a breach of the Board's fiduciary duty (Count III); and
(4) various other acts and omissions of Defendants constitute breaches of
fiduciary duty (Counts IV and V).
Counts I and II of Glancy's complaint also allege that Series B stock
acquired by the Taubman family does not have voting rights. Counts III through V
allege that Defendants breached their fiduciary duties to the potential class of
plaintiffs in the issuance of Series B stock and in their response to the
Simon/Westfield offer. Count VI is a derivative claim for alleged breaches of
fiduciary duties owed to TCI.
TCI is a publicly traded real estate investment trust ("REIT").(6) TCI
conducts its regional shopping center operations through a limited partnership
known as the Taubman Realty Group Limited Partnership ("TRG"). TCI is its
managing partner.(7) When TCI was taken public in 1992, 99% of it was owned by
public shareholders.
- ----------
(5) The Special Meeting Amendment was a December 20, 2002 amendment to the
TCI bylaws. Instead of 25% of the shareholders being able to call a special
meeting, as early as 10 days after giving notice of the meeting, the amendment
gave the Board the power to call a special meeting, not sooner than 30 days
after the Board determined to set the meeting date.
(6) A REIT is a passive Investment vehicle (like a mutual fund) that
enables large numbers of investors to pool their capital and invest in real
estate projects that might otherwise be unavailable as an investment. See Peter
M. Fass, et al, REAL ESTATE INVESTMENT TRUSTS HANDBOOK, pp 3-4 (2003 ed., West
Group).
(7) Plaintiffs contend that TCI and TRG have always been separate legal
entities. Defendants, however, contend that TCI and TRG comprise a single
enterprise known as an umbrella partnership real estate investment trust
("UPREIT") and that both companies must be evaluated together.
-5-
including the General Motors Pension Trusts ("GM"). GM owned approximately 20%
of the common stock. TRG partnership interests were allocated as "units." The
Taubman family owned 23% of the partnership units, while GM and TCI owned the
remaining units.
A 13-member Partnership Committee ("Committee) governed TRG. The Committee
had authority over TRG affairs. The Taubman family and Taubman family designees
held four seats on the Committee. GM held four seats and TCI held five seats.
TCI was governed by a 10 (later 11) member Board of Directors. Two Board
members were affiliated with GM, four were affiliated with the Taubman family
and the remaining four members were designated as "independent directors."(8)
Because management decisions were made at the TRG partnership level, the TCI
Board's primary function was to issue dividends to shareholders. Decisions of
both the Committee and the Board required a majority vote by disinterested
members.(9)
TCI's Articles of Incorporation, via its "Excess Share Provision," prohibit
anyone from acquiring shares in excess of 8.23% of the value of the outstanding
capital stock of TCI (except certain persons who may own up to 9.9%). The
Articles provide that any transfer of stock that would result in a person owning
shares in violation of the excess share provision is void AB INITIO and the
intended transferee will not acquire any rights in
- ----------
(8) The TCI Articles of Incorporation define an independent director as an
individual who is "neither an officer nor employee of [TCI] or any of its direct
or indirect subsidiaries." Articles, Art. III, Section 2(c)(ii)(h).
(9) Actions by the Board required a majority vote of disinterested
independent directors as well as a majority vote of all disinterested members.
-6-
the shares. Should the Board or anyone desire to forego this limitation on
acquisition, the Board is not at liberty to waive it; rather, the provision can
only be amended or eliminated by a two-thirds vote of TCI's shareholders.
Plaintiffs point out that with the structure of governance in place from
1992 to 1998, the Taubman family was in the minority and could not have blocked
either a proposed sale or an amendment to the Articles. Changes beginning in
1998 are the crux of the dispute before the Court.
In 1998, GM decided to reduce the size of its investment in TCI/TRG. At the
same time, Defendants contend that they were looking to simplify the two-tiered
TCI/TRG governance structure, because there was speculation that the structure
was the reason that the stock price was low. A special planning committee(10)
was formed to draft a restructuring proposal that would make recommendations for
governance strategies.
As part of the restructuring, the Board authorized the issuance of a new
class of stock called the "Series B Preferred Stock ("Series B stock") to
limited partners of TRG. The limited partners each received one share of Series
B stock for each TRG unit held, at $.001 per share. Defendants say that this
stock issuance was designed to reallocate voting rights from the Committee,
which was being eliminated, to TCI.(11) GM's
- ----------
(10) The special planning committee consisted of A. Alfred Taubman, two GM
representatives and two independent directors.
(11) Defendants point out that in issuing the stock the Board was acting
within the express authority provided to it by an amendment to the Articles of
Incorporation in 1996. See Articles, Art. III, Section 1; May 15,1996 Proxy
Statement, pp 18-19. Plaintiffs, however, contend that the amendment does not
insulate the Board from an issuance which violates the law.
-7-
withdrawal had proportionately increased TCI's operating interest to 63% (from
39%) and TRG's minority partners' interest was increased to 37%. Per Defendants,
this increase in TCI's interest would have left TRG's minority partners with no
say over the management of TRG assets. The Series B stock issuance remedied this
inequity according to Defendants, by giving TRG minority partners a shareholder
vote in TCI directly proportional to their ownership interest in TRG's assets,
and by enabling them to vote along with shareholders.(12) Significantly, with
the issuance of the Series B stock, the Taubman family obtained approximately
30% voting power in TCI (at a cost of only $38,400) and a blocking position over
(1) a sale of the company and (2) amendment or elimination of the excess share
provision.
Defendants say they view the stock issuance as having only nominal value
because it was only a reallocation of voting rights. That is why it was only
sold for $.001 per share. Plaintiffs, however, offer the counter opinion of M.
Travis Keath, a chartered financial analyst and certified public accountant.
Keath opines that the transaction "effectively diluted the collective voting
power of [TCI's] common shareholders in matters of corporate governance of their
own company from 100% to well under 2/3rds (approximately 62.8%)." Decl of
Keath, PARA 5(A). Keath also offers a comparison to the amount that was paid for
an issuance of Series A Stock in October 1997: "[TCI] received approximately
$200 million when it issued 8,000,000 shares of Series A Preferred Stock in
October 1997. By contrast, [TCI] received only $38,400 for the
- ----------
(12) Plaintiffs dispute the significance of aligning the voting and
economic interests. They contend that TCI and TRG are separate legal entities
and the Taubman family reaps considerable tax benefits from the separate
structure.
-8-
issuance of 31,399,913 shares of Series B Preferred Stock and the approximately
37.3% voting interest it conveyed in [TCI]." ID at PARA 5 (C). Finally, Keath
states that by exercising their voting power to reject the Simon/Westfield
offer, holders of Series B stock are costing shareholders $264.3 million. ID at
PARA 5(F)(iii).
The Taubman family's motives, objectives and the extent to which they
influenced the ultimate proposal that was adopted, are hotly disputed. For
reasons that will become apparent, however, the nuances of the 1998 Series B
stock issuance are not relevant to the Court's analysis. Rather, the Court will
focus on the alleged improprieties in the Board's handling of the
Simon/Westfield offer.
Plaintiffs question the propriety of the manner in which the Board
responded to the Simon takeover offer. Plaintiffs first take issue with the fact
that Robert Taubman consulted with the FAMILY'S advisors from the 1998
restructuring involving GM - the investment banking firm of Goldman Sachs and
the law firm of Wachtell Lipton - to advise this PUBLIC COMPANY with respect to
the Simon/Westfield offer.(13) Board member and Defendant Bloostein testified,
however, that the independent directors also retained Cyril Moscow of Honigman,
Miller, Schwartz & Cohn as their advisor.
Plaintiffs also point out that after being advised that the Taubman family
had no interest in selling the company and that the family would oppose the
offer, the Board did not discuss whether the offering price was financially
adequate. It merely declared that
- ----------
(13) Robert Taubman claims that the decision to hire Goldman and Wachtell
was decided after consulting with the Board. However, Board member and Defendant
Gilbert testified that when Robert Taubman called to advise him of the offer,
Taubman told him that he had already hired Goldman and Wachtell. Curiously,
Board member Bloostein testified that during the GM negotiations in 1998, he was
not aware that Goldman was advising the Taubman family.
-9-
TCI was not for sale and that further discussions would be unproductive.(14) The
minutes of the October 28, 2002 Board meeting, which was called to discuss the
Simon offer, indicate that only representatives of Goldman and Wachtell
addressed the group regarding the Board's legal rights and obligations and the
relative value of the offer.(15)
The minutes reflect that Adam O. Emmerich of Wachtell said that the offer
represented a "premium to market." OCTOBER 23, 2002 BOARD MEETING MINUTES AT 3.
David Baum of Goldman stated likewise, but further stated that "public markets
often undervalue the true worth of regional malls versus private values." ID.
Michael J. Graziano of Goldman concurred, adding that the offer was above market
and street estimates of net asset value, but "represented a significant discount
to management's estimate of the Company's net asset value." ID at 4.
Following the presentations and discussions, and "upon the advice of
counsel and of Goldman Sachs and after further discussion, the Board unanimously
directed that the Company advise Simon that the Company had no interest in
pursuing discussions of the proposal." ID. Bloostein and Gilbert testified that
in their opinion, the offer was low.
One day following a November 13,2002 press release disclosing the rejection
of
- ----------
(14) Defendants dispute this claim. The SEC Schedule 14D-9 filing signed by
Robert Taubman on December 11,2002 states that the Board met with TCI's
managment, Goldman and legal advisors (presumably Wachtell) on October 28,
2002. Per Robert Taubman, the Board unanimously decided to reject the offer
after reviewing the proposal and receiving advice from Robert Taubman
regarding the family's position.
(15) Although the independent directors' advisor, Moscow, was present at
the meeting, there is no indication that he addressed the group or what opinion,
if any, he offered.
-10-
the Simon offer, Robert Taubman filed a Schedule 13D/A with the Securities and
Exchange Commission (the "SEC") advising that he had entered into Voting
Agreements ("Voting Agreements") with three, unrelated shareholders. The Voting
Agreements granted him the sole and absolute right to vote their shares on any
and all matters coming before the TCI shareholders. With the Voting Agreements,
Robert Taubman asserted to the SEC that he and the Taubman family controlled
33.6% of the vote of the capital stock of TCI, and that the Voting Agreements
had been entered into "for the purposes of preventing an unsolicited takeover of
the company." Thus, it was impossible for anyone to achieve a two-thirds vote to
approve a sale or amend the Articles of Incorporation over the Taubman family's
opposition.
This Court issued an opinion on January 22,2003. The Court held that the
SPG Plaintiffs had adequately alleged that the shares in the Voting Agreements
may be subject to the Michigan Control Share Acquisitions Act, (Chapter 7B of
the Michigan Business Corporation Act, MCL 450.1790, officially known as the
"Stacey, Bennett, and Randall shareholder equity act" MCL 450.1970(1)., ET SEQ,
is commonly referred to as the "Control Share Acquisitions Act," hereinafter the
"Control Share Act"), which would trigger a shareholder vote to confer voting
rights. Less than one week later, Robert Taubman terminated the Voting
Agreements, purportedly to "eliminate the issues Simon has raised based on these
agreements." JANUARY 28, 2003 SEC SCHEDULE 13D/A, ITEM 4.
Simon purchased its first shares (1000) of TCI common stock on November 15,
-11-
2002, and purchased additional shares on November 27,2002.(16) On December 5,
2002, Simon made a formal tender offer for $18 per share and filed this action.
On December 10, 2002, the Board again met with senior management, legal counsel
and Goldman. The Board unanimously resolved to recommend that shareholders
reject the offer. On December 11,2002, the Board filed a Schedule 14D-9 setting
forth thirteen reasons for its recommendation. The Board also amended the TCI
bylaws to "opt out" of the Michigan Control Share Acquisitions Act and to add a
requirement that any shareholder nomination or business proposal be submitted by
a reasonable period before the meeting in question.
On January 15,2003, Simon and Westfield made a cash offer of $20. On
January 20,2003, the Board met again and reviewed the terms of the offer. In an
amended Schedule 14D-9, the Board listed fourteen reasons why it recommended
that shareholders reject the Simon/Westfield offer.
On February 17,2003, Simon/Westfield announced that 84.5% of the common
shares of TCI outstanding stock had been tendered. Simon/Westfield say that this
indicates that TCI's shareholders overwhelmingly favor its offer and want the
Board to remove impediments to its approval. However, Defendants contend that
this only represents 52% of all of the issued and outstanding shares, which is
still short of the 66 and 2/3rd% needed to approve a sale of TCI or amendments
to its Articles. Defendants further contend that the tenders received by
Simon/Westfield are not
- ----------
(16) Simon's total holdings are 11,000 shares. Plaintiff Glancy owns 1,000
shares, which he bought in October 2000, and Plaintiff Smith owns 300 shares,
which he purchased in 1993.
-12-
particularly telling, because 90% of TCI shareholders are institutions, and
institutional shareholders almost always tender their shares whenever an
above-market offer is received.
III. STANDARD OF REVIEW
In the Sixth Circuit, when determining whether to issue a preliminary
injunction, the Court must typically consider four factors:
(1) the likelihood that the party seeking the preliminary injunction will
succeed on the merits of the claim; (2) whether the party seeking the
injunction will suffer irreparable harm without the grant of the
extraordinary relief; (3) the probability that granting the injunction will
cause substantial harm to others; and (4) whether the public interest is
advanced by the issuance of the injunction.
WASHINGTON V. RENO, 35 F.3d 1093,1099 (6th Cir. 1994). The Court is to balance
each factor against the other to arrive at its ultimate determination. LEARY V
DAESCHNER, 228 F.3d 729, 736 (6th Cir. 2000).
IV. ANALYSIS
Defendants challenge both motions on procedural and substantive grounds.
The Court will first address one of the procedural claims, subject matter
jurisdiction, because it is dispositive of other claims and defenses.
I.
Defendants contend that subject matter jurisdiction is lacking for both
complaints due to a lack of diversity and the Smith and Glancy Plaintiffs'
failure to satisfy the amount in controversy requirement. The Court agrees in
part.
Defendants assert that complete diversity does not exist in either the
SIMON or GLANCY case because a Plaintiff in each case is a California citizen:
Randall J. Smith
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and Lionel Z. Glancy, respectively. Their California residencies destroy
diversity, says Defendants, because at least two partners of the TG Partners
Limited Partnership ("TG") are also California residents. Decl of Gerald R.
Poissant, PARA 7.
TG is not a named Defendant in either lawsuit. It does, however, own more
than six million shares (or 21%} of the Series B stock whose voting rights are
challenged here. A. Alfred Taubman is the sole shareholder of the corporation
that is the managing general partner of TG. ID. As such, he is authorized to
take all actions on behalf of TG. ID. Citing CARDEN V ARKOMA ASSOC, 494 U.S. 185
(1990) and HALLERAN V HOFFMAN. 966 F.2d 45,47-48 (1st Cir. 1992), Defendants
contend that TG is a real party in interest whose citizenship must be considered
for purposes of determining jurisdiction, even if it is not a named party.
In response, Plaintiffs rely upon an unpublished 9th Circuit opinion,
FDIC V HYDE PARK APARTMENTS, 81 F.3d 167 (9th Cir. 1996), in which a
partnership sought to intervene on the ground that it was an indispensable
party, to ensure that its interests were adequately protected. The court
denied the partnership motion, holding that the limited partnership was not
an indispensable party because its general partner had been named and his
interest was indistinguishable from that of the partnership. 81 F.3d at 4.
Likewise, Plaintiffs argue that TG is not an indispensable party because A.
Alfred Taubman is the legal and beneficial owner of TG's voting rights and
can adequately protect TG. Plaintiffs assert that TG's and A. Alfred
Taubman's interests are identical.
Plaintiffs also cite PROFESSIONAL HOCKEY CLUB CENTRAL SPORTS CLUB OF THE
ARMY V
-14-
DETROIT RED WINGS, 787 F.Supp. 706, 713-714 (E.D. Mich. 1992), which held that
the absent party's interest in the lawsuit would not be prejudiced if he were
not joined because he and the named defendant had an almost identical interest
in the outcome of the lawsuit.
The Court finds Plaintiffs' arguments and authority unpersuasive.
"[D]istrict courts shall have original jurisdiction of all civil actions where
the matter in controversy exceeds the sum or value of $75,000, exclusive of
interest and costs, and is between ... citizens of different States." 28 U.S.C.
Section 1332(a)(1). "The diversity statute has been interpreted to require
`complete diversity' of citizenship." INTERNATIONAL FLAVORS AND TEXTURES, LLC V
GARDNER, 966 F.Supp. 552, 553 (W.D. Mich. 1997). "[C]omplete diversity requires
that no party share citizenship with any opposing party. SAFECO INS CO OF
AMERICA V CITY OF WHITE HOUSE, Tenn, 36 F.3d 540, 545 (6th Cir. 1994). On its
own motion a court may dismiss a party who destroys diversity if it also finds
that the party is dispensable. Fed. R. Civ. P. 21; AETNA CASUALTY & SURETY CO V
DOW CHEMICAL CO, 44 F.Supp.2d 870, 876 (E.D. Mich. 1999), However, "such
authority should be used sparingly; the court should consider whether the
dismissal of the nondiverse party will prejudice any of the remaining parties to
the litigation." AETNA, 44 F.Supp. 2d at 876.
Limited partnerships are citizens of each state in which its partners are
residents. INTERNATIONAL FLAVORS AND TEXTURES, LLC V. GARDNER, 966 F.Supp, 552,
554 (W.D. Mich. 1997). Where limited partnerships are named parties, the Sixth
Circuit has adopted the position that the residence of limited partners must be
considered for the purpose of
-15-
determining whether there is diversity jurisdiction. See SHR LIMITED PARTNERSHIP
V BRAUN, 888 F.2d 455,459 (6th Cir. 1989). One year later, the United States
Supreme Court adopted the same view in CARDEN V ARKOMA ASSOC, 494 U.S. 185
(1990). However, neither the Sixth Circuit nor the Supreme Court has directly
addressed the issue presently here - whether the Court must consider the
citizenship of a limited partnership that is an unnamed, real party in interest,
even though a diverse general partner has been named in his individual
capacity.(17)
The most analogous scenario upon which several courts have ruled, is where
a general partner only is named on behalf of the partnership, and the question
presented is whether, for diversity purposes, the court is limited to
considering the citizenship of the general partner. Several courts have rejected
this contention in favor of examining the citizenship of all of the general and
limited partners. The split of authority seems to favor this approach.
For example, in HALLERAN V HOFFMAN, 966 F.2d 45,47-48 (1st Cir. 1992), the
court considered the citizenship of the members of a limited partnership, where
only the general partner, in his capacity as such, had been named. In its
analysis the court noted that in some states limited partnerships can sue in
their own name, while in other states such claims must be brought by the general
partners or a class representative. 966 F.2d at 47. The court also noted that
the Eighth and Third Circuits have considered the citizenship of limited
partners even though suit was brought by a general
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(17) Note that this issue only pertains to the SPG complaint, because A.
Alfred Taubman is not a named party in the GLANCY complaint. The analysis of
whether TG's citizenship should be considered in Glancy will depend upon whether
TG is an indispensable party as defined by Fed.R.Civ.P. 19.
-16-
partner only, on behalf of the partnership. ID at 48 (citing STOUFFER CORP V
BRECKENRIDGE, 859 F.2d 75 (8th Cir. 1988); CARLSBERG RESOURCES CORP V CAMBRIA
SAVINGS AND LOAN ASS'N, 554 F.2d 1254 (3rd Cir. 1977)).
Finding that the suit before it was brought for and on behalf of the
unnamed partnership, the court in CARLSBERG held that the citizenship of all
general and limited partners had to be considered in determining whether there
was diversity jurisdiction. ID. The court reasoned that to do otherwise would
allow the question of diversity jurisdiction to turn on various state law rules
regarding the name or names under which a partnership may sue. ID. Consequently,
certain litigants may be afforded superior access to diversity jurisdiction and
"those elsewhere might seek to create diversity jurisdiction simply by not
availing themselves of the right to sue in the partnership name." ID. See also
IN RMP CONSULTING GROUP, INC V DATRONIC RENTAL CORP, 179 F.R.D. 614,620-621
(N.D. Okla. 1998), REV'D IN PART ON OTHER GROUNDS, 189 F.3d 478 (10th Cir.
1999)(citizenship of limited partners considered for unnamed partnership that
was a real party in interest but was not indispensable).
In both STOUFFER AND CARLSBERG, only the general partner had been named on
behalf of the limited partnership. Nevertheless, each court held that the
citizenship of the limited partners had to be considered. The CARLSBERG court
stated:
When the rule of complete diversity is read in conjunction with the
principle that the citizenship of a partnership depends upon that of its
members, it becomes clear that diversity jurisdiction may not obtain here,
unless all of the members of the plaintiff partnership are of distinct
citizenship from all of the defendants. Since such diversity in citizenship
is lacking, the district court property dismissed the complaint for want of
jurisdiction.
-17-
554 F.2d at 1259. See also NEW YORK STATE TEACHERS RETIREMENT SYS V KALKUS, 764
F.2d 1015 (4th Cir. 1985); ELSTON INV, LTD V DAVID ALTMAN LEASING CORP, 731 F.2d
436 (7th Cir. 1984). Although the Sixth Circuit has yet to speak on this issue,
notably, in its analysis in SHR, it considered STOUFFER and CARLSBERG, SUPRA,
and cited their reasoning with favor.
In the SPG case, Defendants' contention that the citizenship of TG's
limited partners should be considered appears to be most consistent with the
rule adopted in many jurisdictions with regard to limited partnerships. It is
also consistent with the principle of complete diversity of citizenship.
Plaintiffs ask this Court to enjoin the Taubman family members from voting their
respective Series B stock. A. Alfred Taubman's shares are held in various forms,
primarily through partnerships that he controls.(18) Therefore, although he is
only named in his individual capacity, any action that A. Alfred Taubman takes
with respect to the Series B stock will actually be on behalf of the various
entities through which the shares are held. In effect, the interest of the TG
partnership, as well as the other partnerships, will be directly affected if
Plaintiffs' request is granted. That being the case, there is no substantive
difference between A. Alfred Taubman's posture in his individual capacity and
the general partners that were named on behalf of the limited partnerships in
HALL, STOUFFER AND CARLSBERG.
Accordingly, the Court finds that the citizenship of the TG limited
partners must
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(18) A. Alfred Taubman's holdings of Series B shares and TRG units are as
follows: TRA Partners (17,699,879); TG (6,327,098), Taubman Realty Ventures
(11,011); Taub-Co Management, Inc (1,975); and A. Alfred Taubman Trust (9,875).
Decl of Gerald R. Poissant, PARA 3.
-18-
be considered. Consequently, diversity was destroyed by the joinder of Randall
J. Smith to the SPG Complaint. Rather than dismiss the entire SPG complaint,
however, the Court will exercise its discretion and dismiss only Smith. Also,
since there is no evidence to the contrary, the Court agrees with Plaintiff that
TG is a dispensable party under Fed.R.Civ.P. 19(a).(19) Accordingly, it need not
be joined; it appears that its interests are identical to those of A. Alfred
Taubman and, therefore, will be adequately represented. PROFESSIONAL HOCKEY CLUB
CENTRAL SPORTS CLUB OF THE ARMY, 787 F.Supp. at 713-714.
A slightly different analysis pertains to the GLANCY case, although the end
result is the same. Unlike the SPG complaint, A. Alfred Taubman is not a named
party in GLANCY. However, in Counts I and II of his complaint, Glancy asks the
Court to declare that the Taubman family's shares of Series B stock do not have
voting rights and to prohibit the family from voting the same.
Despite his absence from the GLANCY lawsuit, it cannot be disputed that A.
Alfred
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(19) Fed.R.Civ.P.19(a) states:
Persons to be Joined if Feasible. A person who is subject to service of process
and whose joinder will not deprive the court of jurisdiction over the subject
matter of the action shall be joined as a party in the action if (1) in the
person's absence complete relief cannot be accorded among those already parties,
or (2) the person claims an interest relating to the subject of the action and
is so situated that the disposition of the action in the person's absence may
(i) as a practical matter impair or impede the person's ability to protect that
interest or (ii) leave any of the persons already parties subject to a
substantial risk of incurring double, multiple, or otherwise inconsistent
obligations by reason of the claimed interest. If the person has not been so
joined, the court shall order that the person be made a party. If the person
should join as a plaintiff but refuses to do so, the person may be made a
defendant, or, in a proper case, an involuntary plaintiff. If the joined party
objects to venue and joinder of that party would render the venue of the action
improper, that party shall be dismissed from the action.
-19-
Taubman has an interest in his ability to vote the Series B stock that he owns
or controls. This fact implicates the joinder provisions of Fed.R.Civ.P. 19,
under which either: 1) A. Alfred Taubman is an indispensable party who should be
joined so that his interests can be adequately protected; or 2) A. Alfred
Taubman is a dispensable party who does not need to be joined because his
interest will be adequately protected since they are identical to his sons,
Robert and William Taubman, who are named defendants and who also own Series B
stock.
Under either scenario, if Glancy's relief is granted, the shares that A.
Alfred Taubman controls through the TG partnership would be affected. Therefore,
the reasoning employed above with regard to SPG would likewise apply. The
citizenship of the TG partnership must be considered for diversity purposes.
Accordingly, Glancy's shared California residency with two TG limited partners
destroys diversity. Since Glancy is the only named Plaintiff and proposed class
representative, his complaint will be dismissed without prejudice.
This ruling renders moot Defendants' second challenge to subject matter
jurisdiction, namely, failure of the Smith and Glancy Plaintiffs to satisfy the
amount in controversy requirement.
II.
The Court will now turn to a second defense asserted by Defendants which
the Court finds to be dispositive of certain claims. Defendants argue that Simon
does not have standing to assert claims of breach of fiduciary duty which are
based upon the 1998 issuance of Series B stock, since Simon did not own TCI
stock at the time of this
-20-
alleged breach of duty. The Court agrees.
A person only has standing to bring a cause of action if he/she has "a
substantial interest and a personal stake in the outcome of the controversy."
ALTMAN V NELSON, 197 Mich. App. 467,475 (1993). Michigan courts have yet to
expressly decide whether a shareholder has standing to bring a claim of breach
of fiduciary duty for acts that occurred prior to the date the shareholder
acquired the stock.(20) However, "in the absence of clear Michigan law, Michigan
courts commonly refer to Delaware law, which is respected and often followed on
corporate matters." IN RE CONSUMERS POWER CO. DERIVATIVE LITIGATION, 132 F.R.D.
455,461 (E.D. Mich. 1990).
A Delaware case factually analogous to this one, OMNICARE, INC. V NCS
HEALTHCARE, INC., 809 A.2d 1163 (Del. Ch. 2002), is instructive. In OMNICARE,
plaintiff sent a letter to defendant NCS proposing that they engage in
negotiations for Omnicare to purchase NCS. NCS, however, entered into a merger
agreement with another corporation and announced it three days later. 809 A.2d
at 1167. On the date of the announcement, Omnicare became a first time
stockholder in NCS, purchasing 1,000 shares of NCS common stock. Omnicare then
filed a lawsuit challenging certain terms of the merger and alleging that the
board had breached its fiduciary duty in approving the merger and refusing to
consider Omnicare's indication of interest. ID. at 1168. One week after filing
its complaint, Omnicare commenced a tender offer for NCS shares. ID. Defendants
filed a motion to dismiss for lack of standing.
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(20) Michigan courts have expressed disfavor for parties who "buy[] a
minority interest in the stock of a private corporation for the sole purpose of
instituting suit to interfere with or to control the internal policy of the
corporation." WAGNER ELECTRIC CORPORATION V HYDRAULIC BRAKE CO, 269 Mich. 560,
566 (1934).
-21-
The court granted defendants' motion, noting that "a breach of fiduciary
duty claim must be based on an actual, existing fiduciary relationship between
the plaintiff and the defendants at the time of the alleged breach." ID at 1169.
The court rejected Omnicare's request that it recognize an exception to this
rule to allow standing on the basis of its status as a competing bidder. ID. The
court stated that it would not "permit an entity that could not sue in its own
right[,] to sue directors for a breach of fiduciary duty owed to others." ID. In
its analysis, the court noted Delaware's longstanding public policy against "the
`evil' of purchasing stock in order to `attack a transaction which occurred
prior to the purchase of the stock.'" ID (quoting ROSENTHAL V BURRY BISCUIT
CORP, 60 A.2d 106,111 (Del. Ch. 1948). The court further stated that "Delaware
courts enforce this policy by denying standing to after-the-fact purchasers and
dismissing their complaints." ID at 1170.
A bidder-shareholder does, however, have standing "to challenge the actions
of [a] target [company's] management exercised in the course of defending
against the offer." TORCHMARK CORP V BIXBY, 708 F.Supp, 1070 (W.D. MO. 1988)
quoting GROUSE-HINDS CO V INTERNORTH, INC, 518 F.Supp. 390,403 (N.D. NY. 1980)).
See also IN RE GAYLORD CONTAINER CORP. SHAREHOLDERS LITIG., 747 A.2d 71 (Del.
Ch. 1999).
In this case, it is undisputed that Simon did not own shares of TCI/TRG in
1998 when the Defendants are alleged to have breached their fiduciary duties in
issuing Series B stock to the Taubman family. Simon only recently purchased its
shares -- in November 2002. Because Michigan courts have expressed disfavor for
parties who attempt to assert legal rights that accrued prior to their interest
in a corporation, and
-22-
Delaware courts expressly preclude such claims, the Court will follow the
holding in OMNICARE.
Simon's arguments in support of standing are unavailing. It asserts
standing by virtue of the Board's alleged continuing breach of fiduciary duty
that amounts to a "continuing wrong." That argument was considered and rejected
by the court in OMNICARE. The plaintiff-bidder in OMNICARE argued that the court
should find that it had standing as a bidder because "the alleged fiduciary
misconduct adversely affect[ed] its chances of succeeding in its takeover bid
and that its interest in obtaining injunctive relief to remedy that alleged
misconduct [was] largely congruent with the interests of the ... stockholders in
receiving a better offer for their shares." 809 A.2d 1163,1169 (Del. 2002). The
OMNICARE court, however, declined to find an exception to Delaware's rule on
this basis. ID.
Simon also cites CRTF CORP V FEDERATED DEPARTMENT STORES, 683 F.Supp. 422,
428 (S.D. NY 1988) in support of its continuing wrong theory. The plaintiff
alleged a continuing wrong with regard to a defensive measure that was taken in
response to the plaintiffs tender offer. 683 F.Supp. at 428. The CRTF court
declined to dismiss plaintiffs claim of breach of fiduciary duty, although the
plaintiff did not own shares at the relevant time. However, the court did not
offer any analysis or cite any authority for its position. The CRTF decision was
also rendered several years before OMNICARE. This Court is not bound by CRTF and
does not regard it as persuasive authority.
Simon's reliance upon EMERSON RADIO CORP V INTERNATIONAL JENSEN INC, 1996
W.L. 483086 (Del. 1996), an unpublished opinion, is also misplaced. Contrary to
-23-
Simon's assertions, the EMERSON court found that it was not necessary to decide
the question of the plaintiff-bidder's standing -- "the Court will proceed on
the assumption but without deciding, that [plaintiff] has standing to assert
its claims." 1996 WL 483086, *14. Moreover, the court specifically noted that
"no Delaware court has recognized the standing of a non-stockholder bidder for
a target company, to assert fiduciary claims against the target company's
directors." ID at 13.
Based on the holding of OMNICARE and the dicta in EMERSON, the Court holds
that Simon has no standing to challenge the 1998 issuance of Series B stock as a
breach of fiduciary duty, inasmuch as it was not a stockholder at the time.(21)
Consequently, it is not necessary for the Court to rule upon Defendants'
assertion that those claims are barred by the statute of limitations.
III.
Defendants next argue that the SPG complaint contains derivative claims
which were not filed in compliance with MCL 450.1492a and 450.1493a.
Shareholders do not have a private right of action for damages for claims
based solely on an injury to the corporation. GAFF V FDIC, 814 F.2d 311, 315
(6th Cir. 1987). "A suit for damages arising from an injury to the corporation
can only be brought by the corporation itself or by a shareholder derivatively
if the corporation fails to act..., since only the corporation has an action for
wrongs committed against it." ID (internal citation omitted). However, "`[w]here
[a] shareholder suffers an injury separate and distinct from that suffered by
other shareholders,' or the corporation as an entity, the
- ----------
(21) Simon asserts other grounds for breach of fiduciary duty which remain
viable.
-24-
shareholder may maintain an individual action in his own right." ID (quoting
TWOHY V FIRST NAT'L BANK, 758 F.2d 1185,1194 (7th Cir 1985)).
A court must look to the "nature of the wrongs alleged in the body of the
complaint" to determine whether an action is a derivative or individual cause
of action. LIPTON V NEWS INTERNATIONAL, 514 A.2d 1075,1079 (Del. 1986). Claims
alleging waste or diminution in the value of corporate stock are generally
recognized as derivative claims. GAFF, 814 F.2d at 315. Claims arising from a
shareholders' contractual right, such as the right to vote or to assert majority
control, are considered to be individual rights. LIPTON, 514 A.2d at 1078. A
shareholder may proceed on an action for an individual harm even if the
corporation is also injured from the same wrong. ID at 1079. Derivative claims
may only be brought by shareholders who meet certain criteria:
(a) The shareholder was a shareholder of the corporation at the time of the
act or omission complained of or became a shareholder through transfer by
operation of law from one who was a shareholder at that time.
(b) The shareholder fairly and adequately represents the interests of the
corporation in enforcing the right of the corporation.
(c) The shareholder continues to be a shareholder until the time of
judgment, unless the failure to continue to be a shareholder is the result
of corporate action in which the former shareholder did not acquiesce and
the derivative proceeding was commenced prior to the termination of the
former shareholder's status as a shareholder.
MCL 450.1492a. Additionally, before filing a derivative action, a written demand
must have been served upon the corporation, 90 days prior to filing, demanding
that action be taken. MCL 450.1493a(a). A filing may be made before the
expiration of the 90 day period if the shareholder receives notice that his/her
demand has been rejected or if the
25
corporation would suffer irreparable injury if forced to wait for the period to
expire. MCL 450.1493a(b).
The demand requirement is also found in Fed.R.Civ.P. 23.1, In accordance
with that rule, a complaint must "allege with particularity the efforts, if any,
made by the plaintiff to obtain the action the plaintiff desires from the
directors or comparable authority... and the reasons for the plaintiffs failure
to obtain the action or for not making the effort." ID. In limited circumstances
the demand requirement can be excused as being futile. There is disagreement
within this circuit as to what must be alleged.
In HALL v ALIBER, 614 F.Supp. 473,477 (E.D. Mich. 1986), the court held
that federal common law applies to determine whether the demand requirement has
been satisfied. The court then opined that the federal common law was the same
as Michigan law, but because no Michigan law had been passed, Michigan would
apply Delaware law. ID. Therefore, the court applied the holding in ARONSON V
LEWIS, 473 A.2d 805 (Del. 1984), OVERRULED ON OTHER GROUNDS, BREHM V EISNER, 746
A.2d 244 (Del. Supr. 2000), which requires a plaintiff to allege a PRIMA FACIE
case of either breach of duty of loyalty (i.e., self dealing) or breach of duty
of care (i.e., neglect or grossly negligent decision making) in order for the
demand requirement to be excused.
Applying this standard, the court rejected plaintiff's claims that he need
not make a demand since most of the board members were named defendants and the
challenged actions were taken or approved by board members. 614 F.Supp. at 479.
Plaintiff also argued that a demand was futile because the directors had a
personal
-26-
interest in the matter and were also wrongdoers. The court acknowledged that
such a claim, if properly pled, would state a claim for breach of loyalty. ID.
However, the court found that plaintiff had not pled sufficient facts to support
such a claim. Specifically, the plaintiff had not pled that any director had a
pecuniary interest in the transaction or stood to profit economically, that
negotiations were not conducted at arms-length; or, that the outside directors
were controlled by management or otherwise acted in bad faith. ID.
Similarly, The court held that plaintiff's claim of breach of fiduciary
duty, if it had been pled with particularity, would excuse a demand. ID.
However, the court found that plaintiffs claims were not sufficient. Plaintiff
alleged that the board breached its fiduciary duties when it authorized the sale
of 950,000 shares of stock for a below-market price to a group that consisted of
the chairman of the board, the president of the corporation (who was also a
director) and the senior vice president. ID at 474, 479. Plaintiff listed
several factors that it alleged the board failed to consider before authorizing
the transaction. ID at 480. Despite this, the court found that the claim was
lacking because plaintiff failed to allege any facts in support of his claim
that the board did not consider the factors or that it failed to seek or follow
the advice of its financial advisor or counsel. ID. Therefore, the court held
that the lack of demand was not excused.
In MATTER OF CONSUMERS POWER CO DERIVATIVE LITIGATION, 111 F.R.D. 419 (E.D.
Mich. 1986), the court rejected the HALL holding. It disagreed that Delaware law
should apply. The court stated that the stricter standard applied by federal
courts, which only
-27-
allows an excuse for a well pled claim of breach of the duty of loyalty, is more
consistent with the purpose and history of Fed.R.Civ.P. 23.1. 111 F.R.D. at 424.
In its analysis, the court stated that claims that directors simply
acquiesced in misconduct, were not duly diligent, issued misleading proxy
statements and/or acted negligently, did not excuse demand. ID at 426-427. The
court also found that an allegation that a demand would have been futile because
of the chairman of the board's "long standing domination" of the board, was not
adequately supported by well pled facts and, therefore, did not excuse demand.
ID at 427. Finally, a claim that directors and officers were wrongfully paid
bonuses did state a claim of breach of loyalty. ID. However, the court held that
in order to excuse demand, the plaintiffs had to claim that the breach was by a
majority of the board. ID.
Since HALL and CONSUMERS POWERS were decided, one Michigan case has
considered a claim that a demand was not property made. In CAMPAU V MCMATH, 185
Mich. App. 724,729 (1990), the court held that the plaintiffs were excused from
making a futile demand where it was alleged that the board issued stock to
themselves for the sole purpose of obtaining control of the corporation. The
court, however, did not engage in any analysis on this point. Because this
allegation of self-dealing would qualify as a claim of breach of loyalty, it is
still not clear whether Michigan courts would be inclined to agree with HALL or
CONSUMERS POWERS.
Simon's complaint contains both derivative and individual claims. In Counts
II and III, Simon specifically alleges that its right to vote has been impeded
by the acts and/or omissions of the Board. Specifically, in Count II, Plaintiff
alleges that the
-28-
recently aggregated shares do not have voting power because the issuance was not
submitted to the shareholders for a vote, contrary to the Michigan Control Share
Act. In Count III, Simon alleges that the Special Meeting Amendment of December
20,2002 was enacted to impede shareholders' right to vote or assert control to
remove impediments to the tender offer. Counts IV and V, however, primarily
allege breaches of the duty of care by the Board and A. Alfred Taubman in their
alleged failure to give due consideration to the pending offer.
Where a complaint contains both derivative and individual claims, the
plaintiff should be permitted to proceed on the individual claims even if notice
was not property given or excused under Fed.R.Civ.P. 23.1. LIPTON, 514 A.2d at
1080. The derivative claims, however, may be dismissed. ID.
In this case, whether or not Simon's complaint states derivative claims
depends upon whether the Court elects to follow HALL or CONSUMERS POWER. Under a
HALL analysis, it appears that SPG alleges an interference with shareholders'
right to vote, a breach of the duty of care or breach of loyalty - any of which
would be considered individual claims that are not subject to the requirements
of Fed.R.Civ.P. 23.1. Under CONSUMERS POWER, those claims that only amount to a
breach of duty of care would not be excused from the demand requirement and,
therefore, would have to be dismissed.
Although both courts offer sound reasoning for their rulings, this Court
will follow HALL because it is based upon Delaware case law, which is accepted
in Michigan as being authoritative in the absence of clear Michigan law. IN RE
CONSUMERS POWER, 132 F.R.D, at 461. Therefore, the Court finds that: 1) the
allegations that Defendants have
-29-
interfered with Plaintiffs right to vote state individual harms which are not
subject to the demand requirements of Fed.R.Civ.P. 23.1; and, 2) the balance of
Plaintiffs claims allege breaches of the duties of care and loyalty which are
also excused from the demand requirements.
IV.
The Court will now consider whether Simon's remaining claims of breach of
fiduciary duty and violation of the Michigan Control Share Acquisitions Act
satisfy the criteria for the issuance of a preliminary injunction.
A. LIKELIHOOD OF SUCCESS
I. BREACH OF FIDUCIARY DUTY
Simon claims that Defendants breached their fiduciary duties by rejecting
the Simon/Westfield tender offer and by taking certain actions in response to
the offer. Depending on the allegation, there are three levels of judicial
review for claims alleging breaches of duty by the directors of a corporation:
the business judgment rule; the UNOCAL(22) standard of enhanced judicial
scrutiny; or, the entire fairness analysis. UNITRIN, INC V AMERICAN GENERAL
CORP, 651 A.2d 1361 (Del. 1995). Only the business judgment rule and the UNOCAL
standard are relevant to this Court's analysis.(23)
The business judgment rule is a rebuttable presumption that "in making a
business decision the directors of a corporation acted on an informed basis, in
good
- ----------
(22) UNOCAL CORP. V MESA PETROLEUM CO, 493 A.2d 946 (Del. 1985),
(23) The entire fairness standard applies only when a board fails to meet
its burden under UNOCAL and/or the presumption under the business judgment rule
is rebutted. UNITRIN, INC. V AMERICAN GENERAL CORP., 651 A.2d 1361,1377 (Del.
1995).
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faith and in the honest belief that the action taken was in the best interests
of the company." UNOCAL CORP V MESA PETROLEUM CO, 493 A.2d 946, 954 (Del.
1985)(quoting POGOSTIN V RICE, 480 A.2d 619 (Del. 1984)). The burden is on the
party challenging a board action to establish facts rebutting the presumption.
UNITRIN, 651 A.2d at 1373. If the presumption is not rebutted, "a court will not
substitute its judgment for that of the board if the [board's] decision can be
'attributed to any rational business purpose.'" UNOCAL, 493 A.2d at 954. The
plaintiff has the initial burden of proving that the act complained of cannot be
attributed to any rational business purpose and the ultimate burden of
persuasion. UNITRIN, 651 A. 2d at 1374.
This rule "has traditionally operated to shield directors from personal
liability arising out of completed actions involving operational issues." ID.
However, uninformed or unadvised decisions by a board are considered inherently
unreasonable and, therefore, not protected by the business judgment rule. NCR
CORP V AMERICAN TELEPHONE AND TELEGRAPH CO, 761 F.Supp. 475,491 (S.D. OH.
1991).
The UNOCAL standard of enhanced judicial scrutiny is applied when the
conduct being scrutinized is a defensive measure taken by a corporation in
response to a perceived threat. UNITRIN, 651 A.2d at 1372, n. 9. This standard,
when applicable, must be satisfied before the board can claim the protection of
the business judgment rule. In instances where a board takes action that
excludes or limits a valid stockholder vote, for instance, because of the
possibility that the board is acting in furtherance of its own interests rather
than those of the corporation or the stockholders, the board must meet a
two-part burden:
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First, a REASONABLENESS test, which is satisfied by a demonstration that
the board of directors had reasonable grounds for believing that a danger
to corporate policy and effectiveness existed, and
Second, a PROPORTIONALITY test, which is satisfied by a demonstration that
the board of directors' defensive response was reasonable in relation to
the threat posed.
Id at 1373.
A finding of reasonableness first requires that the nature of the threat be
clearly identified. ID at 1384. Three categories of threats have been
identified:
(i) OPPORTUNITY LOSS... [where] a hostile offer might deprive target
shareholders of the opportunity to select a superior alternative offered by
target management [or, we would add, offered by another bidder]; (ii)
STRUCTURAL COERCION, ... the risk that disparate treatment of non-tendering
shareholders might distort shareholders' tender decisions; and (iii)
SUBSTANTIVE COERCION, ... the risk that shareholders will mistakenly accept
an underpriced offer because they disbelieve management's representations
of intrinsic value.
Id. Also, the "Inadequate value" of an all cash for all shares offer is a
"legally cognizable threat.'"(1) ID (quoting PARAMOUNT COMMUNICATIONS, INC V
TIME, INC, 571 A.2d 1140,1153 (Del. 1990).
With regard to proportionality, a board of directors is at liberty to
oppose a third party's unsolicited acquisition offer or proposal but does not
have "unbridled discretion to defeat any perceived threat by any Draconian means
available." UNOCAL, 493 A.2d at 955; UNITRIN, 651 A.2d at 1383. "[D]efensive
measures which are either preclusive or coercive are ... draconian." UNITRIN,
651 A.2d at 1377. However,
a court applying enhanced judicial scrutiny should be deciding whether the
directors made a reasonable decision, not a perfect decision. If a board
selected one of several reasonable alternatives, a court should not second
guess that choice even though it might have decided otherwise or subsequent
events may have cast doubt on the
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board's determination. Thus, courts will not substitute their business
judgment for that of the directors, but will determine if the directors'
decision was, on balance, within a range of reasonableness.
Id at 1385-1386 (citations omitted). If defensive measures are not preclusive or
coercive, the focus of the court's inquiry should be whether the act falls
within the range of reasonableness. ID at 1387. If it does fall within that
range, the business judgment rule applies. In order to defeat a motion for
preliminary injunction, a board must prove that its actions stand up under both
prongs of UNOCAL and that the business judgment rule applies. ID at 1375.
Defensive actions taken by a board that are designed primarily to interfere
with stockholder voting power are also not protected by the business judgment
rule, even if the actions are taken in good faith. BLASIUS INDUSTRIES, INC V
ATLAS Corp, 564 A.2d 651, 660-661 (Del. 1988). Rather, the board must
demonstrate a compelling justification for its action. ID at 663. Delaware
courts have expressly held that an issuance of stock for the purpose of enabling
a particular person or group to maintain or obtain voting control from
shareholders is improper. CONDEC CORP V LUNKENHEIMER CO, 230 A.2d 769,775 (Del.
1967).
In Counts IV and V, Simon contends that the Taubman family and the Board's
rejection of the Simon/Westfield offer and the Special Meeting Amendment of
December 20,2002 constitute breaches of fiduciary duty not protected by the
business judgment rule. The Court agrees in part.
The Court finds that the Board's simple act of rejecting the
Simon/Westfield offer is not a defensive measure and, therefore, the business
judgment rule applies. The
-33-
Court further finds that Plaintiffs have failed to rebut the presumption that
the Board's rejection of the offer was attributable to a rational business
purpose.
A board has the discretion to oppose unsolicited acquisition offers.
UNOCAL, 493 A.2d at 955. In two Schedule 14D-9s, the TCI Board articulated
numerous reasons why the Simon/Westfield offer was inadequate. The reasons were
not limited to the price. The offered reasons appear to be rationally related to
a legitimate business purpose. The Board presented unrefuted evidence that it
consulted with advisors and legal counsel; and, contrary to Simon's assertions,
there is no persuasive evidence that the Goldman and Wachtell advisors counseled
the Board in a biased fashion or that their advice was clearly unreasonable or
slanted simply to favor the Taubmans. For these reasons, further review of the
Board's decision to reject the Simon/Westfield offer under a heightened
standard is not warranted.
Simon's second basis for a claim of breach of fiduciary duty, however, is
subject to heightened scrutiny, since it appears to be a defensive measure. It
is alleged that on December 20, 2002, four days after Simon announced its
intention to call a special meeting, the Board announced that it had passed an
amendment to the Special Meeting Provision of the bylaws ("Special Meeting
Amendment") or ("Amendment"). Under the Amendment, shareholders holding 25% of
the voting shares could no longer call a special meeting. Instead, only the
Board could call such a meeting, at the request of shareholders holding at least
25% of voting shares. The Amendment provides that within ten days of receiving
notice from the shareholders, the Board is to fix a date for the special
meeting, not sooner than 30 days, or later than 90 days, after the date the
Board takes action to set the special meeting date. Prior to this
-34-
Amendment, the bylaws permitted holders of 25% of the voting shares to
unilaterally call a special meeting on a date of their choosing between 10 and
60 days after providing notice, Simon says it attempted to call a meeting (the
"Excess Share Provision Special Meeting") on December 16, 2002, to allow TCI
shareholders to vote on a proposed amendment to TCI's charter so that the
purchase of shares by Simon in connection with the tender offer would not
trigger the Excess Share Provision.
The Special Meeting Amendment effectively makes it more difficult for
shareholders to call a special meeting, which, in turn, makes it more difficult
for shareholders to vote on the Simon/Westfield offer, and to remove impediments
to it, such as the Excess Share Provision.
In light of: (1) the timing of this Amendment, (2) the Taubman family and
Board's vocal opposition to the tender offer, and (3) the absence of any other
explanation for Defendants' actions, the Court concludes that sufficient facts
support a finding that Defendants acted for the primary purpose of making it
more difficult for shareholders to exercise their voting rights.
When a defensive measure is found to have the primary purpose of
interfering with or impeding the effectiveness of a shareholder vote, the
heightened scrutiny of both BLASIUS and UNOCAL applies. Under such scrutiny, the
burden is on the board to first demonstrate that there is a compelling
justification for its actions. MM COMPANIES V LIQUID AUDIO, INC, 813 A.2d
1118,1131 (Del. 2003). Thereafter, the court may consider whether the acts are
reasonable and proportional. ID at 1132.
Here, Defendants have not offered a compelling justification or, in fact,
any
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justification for its actions. Therefore, the Board's action does not withstand
scrutiny under BLASIUS. Consequently, the Court, need not reach a UNOCAL
analysis. The Court is satisfied that Simon has demonstrated a likelihood of
success on its claim that the Board breached its fiduciary duty in approving the
December 20, 2002 Special Meeting Amendment to the TCI bylaws.
II. CONTROL SHARE ACT
This Court has already held that the issuance of Series B stock to the
Taubman family in 1998 was not a "control share acquisition" within the meaning
of the Control Share Act. Accordingly, that claim of Simon's was dismissed by
Order dated January 22, 2003.
Additionally, however, Simon contends that in connection with events
described in TCI's Schedule 13D/A dated November 14,2002 and filed with the SEC,
the Taubman family members who hold Series B stock formed a "group" with respect
to the voting of their Series B stock and the new shares acquired by virtue of
Voting Agreements entered into with Robert Taubman. Simon contends that this
gave the "group" a collective 33.6% of the voting power in TCI and it
constituted a "control share acquisition" pursuant to MCL 450.1790(2). Simon
says that since disinterested shareholders did not confer voting rights with
respect to the voting power to be exercised by the group, as required by the
Control Share Act, Defendants should be enjoined from voting their Series B
stock and the new shares acquired through the Voting Agreements.
In response, Defendants make two arguments. They contend that the Voting
-36-
Agreements have been terminated, making Simon's argument moot with respect to
them. They also assert that the Taubman family already owned their 30% shares
before any Voting Agreements were entered into and the Control Share Act only
strips voting rights from shares subsequently ACQUIRED which, when added to the
group's shares, trigger one of the threshold levels set forth in MCL
450.1790(2). Their argument is that the Taubman family's agreement to vote their
already owned shares in such a way as to block the Simon offer could never be
considered a "control share acquisition" in violation of the Control Share Act.
The Court disagrees.
There is no question that the Taubman family aligned itself with other
shareholders in a plan to pool their respective shares in a group vote against
the Simon/Westfield offer. Robert Taubman's own statements in the Schedule 13D/A
filing of November 14, 2002 is the proverbial smoking gun. In a section entitled
"Purpose of the Transaction," the Schedule 13D/A states:
Certain of the Reporting Persons have executed the Voting Agreements
described in Item 5, granting the sole and absolute right to vote
their shares on any and all matters that come before the shareholders
of the Company to Robert S. Taubman .... Robert S. Taubman together
with the Taubman Family controls 33.6% of the vote of the capital
stock of the Company.... The Reporting Persons have entered into the
Voting Agreements for the purposes of preventing an unsolicited
takeover of the Company.
Schedule 13D/A, Item 4.
The following is taken directly from the November 14,2002 Schedule 13D/A,
Item 5:
Pursuant to the Voting Agreements, Robert S. Taubman has the sole and
absolute right to vote 885,584 shares of Common Stock and 1,555,178
shares of Series B Preferred
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Stock. The Taubman Family (as defined above) holds, 500,437 shares of
Common Stock, 25,228,882 shares of Series B Preferred Stock and
25,228,882 Units of Taubman Realty Group Limited Partnership
("Units"). Each member of the Taubman Family disclaims beneficial
ownership of any shares of Common Stock, Series B Preferred Stock and
Units held by any other member of the Taubman Family. When combined
with the Shares subject to the Voting Agreements, the Taubman Family
and Robert S. Taubman have the right to vote 26,784,060 shares of
Series B Preferred Stock and 1,386,021 shares of Common Stock
representing 33.6% of the outstanding voting stock of the Company,
which as of November 11,2002 consisted of 52,183,395 shares of Common
Stock and 31,767,066 shares of Series B Preferred Stock.
Three Voting Agreements were entered into. The shares subject to the Voting
Agreements, when combined with Robert Taubman's shares and the other Taubman
family shares, represent 33.6% of the outstanding voting stock of TCI. When
Robert Taubman got the Voting Agreements, he personally went from approximately
2%, ownership of common shares to 5% (See TRANSCRIPT OF HEARING ON MOTION FOR
PRELIMINARY INJUNCTION, 3/21/03, P.93).
There is no question that Robert Taubman personally got the "power to
direct the exercise of voting power" with respect to those shares subject to the
Voting Agreements. However, this, alone is not sufficient to trigger the Control
Share Act. The issue presented in this classic battle for corporate control is
whether the Control Share Act is triggered in the absence of a stock purchase
but in the presence of an agreement or understanding to exercise voting power
within one of the ranges of voting power enumerated in the statute.
The Control Share Act has been defined as an anti-takeover statute which
"regulates the accumulation of significant voting power in Michigan corporations
by
-38-
acquirers." ATLANTIS GROUP, INC V ALIZAC PARTNERS, 1991 U.S. Dist Lexis 12106
at*10 (W.D. Mich. Aug 27, 1991). Shares acquired by an individual or group that
results in voting power that falls within any one of three ranges are called
"control shares":
(2) As used in this chapter, "control shares" means shares that...
would have voting power with respect to shares of an issuing public
corporation that, when added to all other shares of the issuing public
corporation owned by a person or in respect to which that person may
exercise or direct the exercise of voting power, would entitle that
person, immediately after acquisition of the shares, directly or
indirectly, alone or as part of a group, to exercise or direct the
exercise of the voting power of the issuing public corporation in the
election of directors within any of the following ranges of voting
power:
(a) 1/5 or more but less than 1/3 of all voting power.
(b) 1/3 or more but less than a majority of all voting power.
(c) A majority of all voting power.
SMCL 450.1790(2). Such transactions are called "control share acquisitions,"
which means one of two things--either the "acquisition, directly or indirectly,
by any person of ownership of... issued and outstanding control shares...."
or "... the power to direct the exercise of voting power with respect to,
issued and outstanding control shares." MCL 450.1791(1).
Once a control share acquisition has occurred, a person or group is not
entitled to vote "control shares" unless subsequently empowered to do so by
resolution approved by shareholders, in accordance with MCL 450.1794 and MCL
450.1798.
Contrary to Defendants' assertions, the Michigan Control Share Act speaks
not only in terms of the acquisition of ownership of shares, but also of the
power to direct the exercise of voting power with respect to shares. While the
term "acquisition" is not specifically defined in the statute, by the terms of
the statute, it means not only an
-39-
outright purchase (or possession) of stock, but also the control of stock voting
power. Cf., GAF CORPORATION V MILSTEIN, 453 F.2d 709 (2d Cir 1971), cert. den.
406 US 910 (1972). In GAF, the court considered whether a cause of action had
been stated against four stockholders (all family members) who allegedly agreed
to hold their preferred shares for the purpose of acquiring control of the
corporation, and whether they constituted a "group" required to make certain SEC
filings.
Under the broad definition of "acquisition" adopted by the GAF court, it
concluded that plaintiff had stated a cause of action against the Milstein
family. "If the allegations in the complaint are true, then the group, which
must be treated as an entity separate and distinct from its members, could have
gained `beneficial control' of the voting rights of the preferred stock only
after its formation...." ID. AT 715-716.
There is ample evidence that the Taubman family opposed the Simon takeover,
was quite public in its opposition, and blunt in its statements that it intended
to block the attempted takeover. The family formed a group and stated its
intentions to combine its holdings with the shares obtained through the Voting
Agreements, amassing the ability to block the Simon takeover. The Court makes
this finding despite the family's disclaimer of "beneficial ownership" with
respect to shares owned by other members of the Taubman family. See Schedule
13D/A, November 14, 2002, Items 4 and 5.
The Control Share Act does not expressly define "group." However, Michigan
courts have relied upon the Official Comments to Indiana's analogous statutes
for guidance in interpreting the Control Share Act. See ATLANTIS GROUP, INC V
ALIZAC PARTNERS, No. 1:90-CV-937,1991 US Dist Lexis 12106 at *19 (WD Mich Aug
27,1991);
-40-
HEENAN V PAGE, No. 90-020150-CZ, unpub. slip op at 9 (Wayne County Circuit Sept
6, 1991); ATLANTIS GROUP, INC V ALIZAC PARTNERS, No, 1:90-CV-937, unpub. slip
op. at 10 n.6 (WD Mich Dec 5,1991). The Control Share Act was modeled after the
Indiana statute and adopts that language virtually in its entirety. The Official
Comments to Indiana's statute regarding the definition of "control share
acquisition" state:
As noted in the Official Comment to IC 23-1-42-1, the key is not
simply whether a single person acquires actual record ownership of a
sufficient percentage of shares with voting power in the election of
directors:
Any transaction or series of transactions under which a person,
or a group of persons acting together, acquires the substantive
practical ability to vote or direct the exercise of votingpower
within the ranges specified in [Ind Code Section]23-1-42-1 --
directly or indirectly, individually or collectively -- will
constitute a "control share acquisition" under the Chapter,
whatever the form of the transactions or the formal ownership
of the shares.
Ind Code Section 23-1-42-2, Official Comments.
Likewise, the Comments regarding the definition of "control shares" state
that:
[T]he legal form of the acquisition, or whether the acquisition is
made by one person or by two or more persons acting cooperatively or
in concert, will not affect application of the Chapter.
Ind Code Section 23-1-42-1, Official Comments. The Comments further state that
such an approach is similar to that adopted in Section 13(d) of the Securities
and Exchange Act (SEA), 15 USC Section 78 ET SEQ. ID; SEE ALSO ATLANTIS, 1991 US
Dist Lexis 12106 at *19 (relying upon Indiana Official Comments to Section
23-1-42-1 to determine existence of group).
Under Section 13(d), "a court evaluating an allegation of the existence of
a group must `determine whether there is sufficient direct or circumstantial
evidence to support
-41-
the inference of a formal or informal understanding between [the defendants]'
for the purpose of acquiring, holding, or disposing of securities." HALLWOOD
REALTY PARTNERS V GOTHAM PARTNERS, LP, 286 F3d 613, 617 (2002), QUOTING WELLMAN
V DICKINSON, 682 F.2d 355, 363 (2d Cir 1982); See ALSO MORALES V QUINTEL
ENTERTAINMENT, INC, 249 F3d 115,124 (2nd Cir 2001).
One indicator of the existence of a group is "representations and
insinuations to third parties by members of the group that its members together
'control' a block of shares, even though those shares are on the record of the
company as owned by individual group members." BREAUD V AMATO, 657 So2d
1337,1343 (1995). Another indicator is "action taken by the group to affect the
corporate direction of the company." ID at 1344.
Applying the law to the facts presented here, the Court finds that Simon
has adequately demonstrated a likelihood of success on its claim that Defendants
violated the Control Share Act. The Court concludes that (1) for purposes of the
Michigan Control Share Act, "acquisition" includes the substantive practical
ability to vote or to direct the exercise of voting power within the ranges
specified in MCL 450.1790(2); (2) a group that forms for this purpose is a
"person" within the meaning of the Control Share Act; (3) no actual purchase of
shares is necessary to trigger the Control Share Act when a group forms for the
purpose of directing the exercise of voting power; (4) the Taubman family formed
a group for the purpose of obtaining the practical ability to direct 33.6% of
the voting power of TCI, and stated as much in its November 14,2002
Schedule13D/A filing with the SEC; (5) the group formed by the Taubman family is
an
-42-
entity separate and distinct from its individual members; and (6) this Taubman
group acquired "control shares" after its formation, empowering the group to
direct the exercise of 33.6% of the voting power with respect to issued and
outstanding shares. This is within the range set forth in MCL 450.1790(2)(b).
Undoubtedly regretful of his candor when the implications became apparent,
Mr. Taubman dissolved the Voting Agreements after this Court's January 22,2003
Order, in which the Court found that the agreements were circumstantial evidence
that the aggregation of shares was a control share acquisition. Mr. Taubman then
declared that he and the parties no longer had any specific agreement to vote
their shares in a particular way.
The timing of Mr. Taubman's reversal of the Voting Agreements and the fact
that he and his family remain steadfast in their opposition to the
Simon/Westfield offer call into question the credibility of his assertions. As
Plaintiffs contend, Mr. Taubman cannot "unring the bell." The Indiana Official
Comments make it clear that the fact that the shares are individually held and
there is no longer a formal agreement does not matter where there is evidence of
an intent by the parties to act in a cooperative manner. Ind Code Sections
23-1-42-2; 23-1-42-1.
What then, is the remedy? In Indiana, if a group is formed or a plan
uncovered to act cooperatively or in concert, "all acquisitions made pursuant to
the plan will be deemed part of the same 'control share acquisition'" Ind Code
Section 23-1-42-2. The Court finds wisdom in this approach. Accordingly, none of
the 33.6% outlined by the Defendants in their November 14, 2002 Schedule D/A can
be voted, unless voting rights are extended to the shares in accordance with the
Control Share Act, MCL
-43-
450.1794 and MCL 450.1798.
B. BALANCE OF HARMS AND PUBLIC INTEREST
The Court finds that the balance of harms leans heavily in Simon's favor,
in its capacity as both a shareholder and a tender offeror, and the public
interest is served in assuring that corporate democracy is respected. Applying
the heightened standard of review, it is clear that a shareholder's right to
vote his/her shares is to be vigorously protected absent a compelling
justification for impeding or otherwise frustrating that right. See BLASIUS,
SUPRA. It, follows, therefore, that the harm that would be caused by allowing
Defendants to continue to act in a manner that interferes with or impedes a
shareholder's right to meaningfully exercise his/her right to vote far outweighs
the harm that the Taubman family would suffer if it is precluded from
circumventing the Michigan Control Share Act. The Taubman family will simply be
required to do that which it is required under the Michigan Control Share Act to
do anyway-appeal to a majority of disinterested shareholders to confer voting
rights on those shares that were aggregated for the purpose of preventing an
unsolicited takeover of TCI, as announced in the Schedule 13D/A filed on
November 14,2002.
The Court is also persuaded that Simon will suffer irreparable harm if it
is precluded from making a meaningful tender offer to TCI stockholders due to
the Taubman family's wrongful exercise of its collective voting rights to block
shareholders from considering the offer. See AMALGAMATED SUGAR CO, LLC. V NL
INDUSTRIES, INC., 644 F. Supp. 1229, 1239 (SD NY 1986) (preliminary injunction
granted to enjoin board from enforcing voting rights plan that effectively
precluded tender offeror from
-44-
presenting its offer to shareholders). The loss of the opportunity to effect a
takeover of a major corporation has been recognized as significant harm where
such contests for control are frustrated by wrongful attempts to interfere with
a tender offer. See San FRANCISCO REAL ESTATE INVESTORS V REAL ESTATE INVESTMENT
TRUST OF AMERICA, 701 F.2d 1000,1003 (1st Cir. 1983)(Held that lower court erred
in finding that tender offeror would not be irreparably harmed absent injunction
to enjoin bylaw that was enacted for the purpose of precluding offer.).
V.
A. SECURITY BOND
Under F.R.C.P. 65(c) a Court may require that a successful movant for a
preliminary injunction post a security bond in an amount adequate to protect the
opposing party from damages incurred in the event it is later decided that the
injunction was wrongfully entered:
No restraining order or preliminary injunction shall issue except upon the
giving of security by the applicant, in such sum as the court deems proper,
for the payment of such costs and damages as may be incurred or suffered by
any party who is found to have been wrongfully enjoined or restrained.
F.R.C.P. 65(c). Although the express language of the Rule suggests that bond is
mandatory, the Sixth Circuit has interpreted it to allow a court to exercise its
discretion not to impose bond at all. USACO COAL CO V CARBOMIN ENERGY, INC., 689
F.2d 94,100 (6th Cir. 1982).
The parties, in supplemental filings, have briefed this issue and offer
significantly different suggestions as to the appropriate amount of a bond.
Simon cites numerous
-45-
cases involving corporate takeover issues where relatively nominal bonds have
been posted.(24) Nevertheless, Simon states that it does not object to a bond up
to $10 million dollars. Defendants list potential long and short term damages
that they may incur as a result of the injunction, including the possibility
that Simon with be successful in its takeover bid. Defendants estimate that
potential losses could total hundreds of millions of dollars and request that
the Court set a bond of $1 billion dollars.
The Court finds that it would be difficult to estimate, with certainty, the
value of Defendants' possible damages. Many of the factors that would affect
potential damages, including whether shareholders will accept Simon's tender
offer, are uncertain and susceptible to market fluctuations. If shareholders
agree to allow the Taubman family to vote as a block or the Simon/Westfield
offer is otherwise unsuccessful, Defendants potential damages would presumably
be significantly less than represented. The amount of damages that Defendants
could incur is largely
- ----------
(24) Simon cites the following federal cases: CHICAGO STADIUM CORP. V
SCALLEN, 530 F.2d 204,208 (8th Cir. 1976)($100,000 bond required for injunction
enjoining issuance and right to vote certain voting stock); AMI METNALL, LP, V
J.C. NICHOLS CO., 891 F. Supp. 1352,1361 (W.D. Mo. 1995)($50,000 bond required
for injunction to enjoin enforcement of amended bylaw); CHAMPION PARTS
REBUILDERS, INC. V CORMIER Corp.,661 F. Supp. 825,854 (N.D. III. 1987)($25,000
bond set where defendants enjoined from voting shares acquired by group in
violation of Section 13(d)); BATUS V MCKAY, 684 F. Supp, 637, 641(D. Nev. 1988)
($15,000 bond set where tender offeror was challenging anti-takeover statute);
PARAGAS, INC. V EMPIRE GAS CORP., 423 F. Supp, 199, 244-45 (D. Md. 1976), AFF'D,
546 F.2d 25 (4th Cir 1976)($1 million dollar bond set where injunction granted
to target company to enjoin tender offer alleged to be illegal in many
respects). Simon also cites two Delaware state cases in which substantial bonds
were required: TATE & LYLE PLC V STALEY CONTINENTAL, INC., 1988 WL 46064 (Del.
Ch. 1988)(unpub. op.)($65 million dollar bond set where Injunction granted to
tender offeror to enjoin funding of a trust that would directly benefit certain
directors if there was a change of control); GIMBEL V SIGNAL COS., 316 A.2d
599, 618 (Del. Ch. 1974), AFF'D, 316 A.2d 619 (Del. Supr. 1974)($25 million
dollar bond set in derivative action by shareholders to enjoin corporation from
selling ail outstanding capital stock).
-46-
speculative at this point.
Having considered the evidence presented by Simon regarding the amounts of
bonds that have been set in cases involving various types of corporate control
issues, and there being no definitive method of estimating damages with
certainty, the Court will set the bond at $10 million dollars as offered by
Simon. The Court is satisfied that this amount is sufficient to protect
Defendants' interests.
B. STAY PENDING APPEAL
In its supplemental filing, Defendants request that the Court enter a stay
in lieu of bond, pursuant to F.R.C.P. 62(c), in anticipation of their expedited
appeal to the Sixth Circuit. The Court finds that Defendants' request is
premature and not appropriate for consideration until Defendants file a proper
motion and the matter is more fully briefed. Therefore, the Court denies
Defendants' request that it enter a stay in lieu of bond.
V. CONCLUSION
"A preliminary injunction is an extraordinary measure that has been
characterized as 'one of the most drastic tools in the arsenal of judicial
remedies.'" Bonnell V LORENZO, 241 F.3d 800, 808 (6th Cir. 2001), CERT DEN, 534
U.S. 951 (2001) (quoting HANSON TRUST PLC V. ML SCM ACQUISITION INC., 781 F.2d
264, 273 (2d Cir. 1986)). It is a remedy best used sparingly, particularly where
a court is being asked to intervene in a takeover dispute, which would typically
and preferably be decided by market forces. HANSON TRUST PLC, HSCM, 781 F.2d at
273; JEWEL COMPANIES, INC. V. PAY LESS DRUG STORES NORTHWEST, INC., 510 F.Supp,
1006,1010 (N.D. Cal. 1981) ("In tender offer cases, there is a strong public
policy in favor of preserving shareholders'
-47-
freedom to choose between selling stock at a tender offer price and retaining
their securities."); JOHN LABATT LIMITED V ONEX CORP, LBT, 890 F. Supp. 235, 244
(S.D. NY. 1995) target corporation's request to enjoin legal tender offer
denied). It is, therefore, only after careful and thoughtful deliberation of the
merits and relevant authority that this Court finds that an extraordinary remedy
is warranted. Accordingly,
The Court GRANTS IN PART and DENIES IN PART the Simon Plaintiffs-motion;
DISMISSES Randall J. Smith as a party Plaintiff; DENIES Plaintiff Glancy's
motion and DISMISSES his complaint without prejudice. Further, until further
Order of the Court:
IT IS HEREBY ORDERED that Defendants are enjoined from enforcing the
December 20,2002 Special Meeting Amendment to the TCI bylaws and must, instead,
honor the provision in place immediately prior to the Amendment;
IT IS FURTHER ORDERED that none of the 33.6% outlined by the Defendants in
their November 14,2002 Schedule D/A can be voted, unless voting rights are
extended to the shares in accordance with the Control Share Act, MCL 450.1794
and MCL 450,1798. More specifically, when combined with the shares subject to
the Voting Agreements, the Taubman family and Robert S. Taubman have the right
to vote 26,784,060 shares of Series B Preferred Stock and 1,386,021 shares of
Common Stock representing 33.6% of the outstanding voting stock of TCI which, as
of November 11,2002, consisted of 52,183,395 shares of Common Stock and
31,767,066 shares of Series B Preferred Stock. These are the shares that may not
be voted without disinterested shareholder approval in accordance with the
Control Share Act.; and
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IT IS FURTHER ORDERED that Simon is to post a bond in the amount of $10
million dollars.
IT IS SO ORDERED.
/s/ Victoria A. Roberts
---------------------------------
Victoria A. Roberts
United States District Judge
Dated: MAY 08 2003
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Exhibit 99(a)(5)(WW)
[SIMON PROPERTY GROUP LOGO] [WESTFIELD LOGO]
SIMON CONTACT: WESTFIELD CONTACT:
Shelly Doran George Sard/Paul Caminiti/Hugh Burns Katy Dickey
Simon Property Group, Inc. Citigate Sard Verbinnen Westfield America
317/685-7330 212/687-8080 310/445-2407
SIMON PROPERTY GROUP AND WESTFIELD AMERICA ANNOUNCE THAT MICHIGAN
FEDERAL COURT HAS ENJOINED TAUBMAN FAMILY AND FRIENDS FROM
VOTING THEIR 33.6% CONTROLLING BLOCK OF SHARES.
NEW YORK, MAY 8, 2003 - Simon Property Group, Inc. (NYSE: SPG) and
Westfield America, Inc., the U.S. subsidiary of Westfield America Trust (ASX:
WFA) today announced that the United States District Court for the Eastern
District of Michigan has confirmed its ruling of May 1, 2003 that the Taubman
family and friends may not vote their 33.6% controlling block of shares in
Taubman Centers, Inc. (NYSE: TCO) unless a majority of disinterested
shareholders approve voting rights for those shares. The Court held that the
formation of a group in November 2002 by the Taubman family and friends to vote
the 33.6% controlling block of shares was a "control share acquisition" and,
therefore, none of the shares comprising the 33.6% block, INCLUDING THE SERIES B
PREFERRED STOCK HELD BY THE TAUBMAN FAMILY, can be voted unless and until voting
rights for those shares have been approved by TCO's shareholders. The Court
rejected the Taubmans' claim that the injunction applies only to 3% of the
Company's voting power.
The Court also held that the TCO board breached its fiduciary duties by
recently enacting a bylaw amendment which makes it more difficult for
shareholders to call a special meeting to remove impediments to the
SPG/Westfield offer. The Court, however, did not reach the merits of plaintiffs'
claims for breach of fiduciary duty concerning the 1998 issuance of Series B
Preferred Stock to the Taubman family, and dismissed those claims on procedural
grounds.
SPG and Westfield were appalled at the press release issued by TCO
characterizing the Court's ruling on the Control Share Act as "outlandish." The
disrespect the Taubmans have shown to their shareholders since last October has
now extended to the federal judiciary.
David Simon, CEO of SPG, and Peter Lowy, CEO of Westfield, issued the
following joint statement: "We are very pleased that the Court has confirmed
that the Taubman family and friends may not vote their 33.6% controlling block
of shares unless TCO's public shareholders approve voting rights for those
shares. We remain committed to give TCO's shareholders the opportunity to accept
our $20 per share all cash offer and today's Court decision is a significant
step in that direction."
* * *
The $20.00 per share all-cash offer for TCO shares will expire on
midnight, New York City time, on May 30, 2003, unless further extended. The
complete terms and conditions of the offer are set forth in the Offer to
Purchase, as amended, and the related Letter of Transmittal, copies of which are
on file with the SEC and available by contacting the information agent,
MacKenzie Partners, Inc. at (800) 322-2885. Merrill Lynch & Co. is acting as
financial advisor to SPG and Westfield America, Inc. and is the Dealer Manager
for the Offer. Willkie Farr & Gallagher is acting as legal advisor to SPG and
Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to Westfield
America, Inc. Simpson Thacher & Bartlett is acting as legal advisor to Merrill
Lynch & Co.
ABOUT SIMON PROPERTY GROUP
Headquartered in Indianapolis, Indiana, Simon Property Group, Inc. is a real
estate investment trust engaged in the ownership and management of
income-producing properties, primarily regional malls and community shopping
centers. Through its subsidiary partnerships, it currently owns or has an
interest in 241 properties containing an aggregate of 183 million square feet of
gross leasable area in 36 states, as well as nine assets in Europe and Canada
and ownership interests in other real estate assets. Additional Simon Property
Group, Inc. information is available at
http://about.simon.com/corpinfo/index.html.
ABOUT WESTFIELD AMERICA, INC.
Westfield America, Inc. is the United States subsidiary of Westfield America
Trust (ASX: WFA), the second-largest property trust listed on the Australian
Stock Exchange. WFA owns a majority interest in the Westfield America portfolio
of 63 centers, branded as Westfield Shoppingtowns. Westfield Shoppingtowns are
home to more than 8,400 specialty stores and encompass 64 million square feet in
the states of California, Colorado, Connecticut, Florida, Illinois, Indiana,
Maryland, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio and
Washington.
# # #
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IMPORTANT INFORMATION
This news release is for informational purposes only and is not an offer to buy
or the solicitation of an offer to sell any TCO shares, and is not a
solicitation of a proxy. Simon Property Group, Inc. and Simon Property
Acquisitions, Inc., a wholly owned subsidiary of Simon Property Group, Inc.
filed a tender offer statement on Schedule TO with the Securities and Exchange
Commission on December 5, 2002 (as amended), with respect to the offer to
purchase all outstanding shares of TCO common stock. Investors and security
holders are urged to read this tender offer statement as amended because it
contains important information. Investors and security holders may obtain a free
copy of the tender offer statement and other documents filed by SPG and
Westfield America, Inc. with the Commission at the Commission's web site at
http://www.sec.gov. The tender offer statement and any related materials may
also be obtained for free by directing such requests to MacKenzie Partners, Inc.
at (800) 322-2885.
SPG and Westfield America, Inc. and certain other persons may be deemed
participants in the solicitation of proxies from the shareholders of TCO in
connection with TCO's 2003 Annual Meeting of Shareholders. Information
concerning such participants is available in the tender offer statement and
other documents filed by SPG and Westfield with the Commission as described
above, and further information will be available in SPG/Westfield's Preliminary
Proxy Statement and Definitive Proxy Statement to be filed with the Commission
in connection with the solicitation of proxies in due course.
Shareholders of TCO are advised to read SPG/Westfield's Definitive Proxy
Statement in connection with SPG/Westfield's solicitation of proxies from TCO
shareholders when it becomes available, because it will contain important
information. Shareholders of TCO and other interested parties may obtain, free
of charge, copies of the Preliminary Proxy Statement and the Definitive Proxy
Statement (when available), and any other documents filed by SPG/Westfield with
the Commission in connection with the proxy solicitation at the Commission's
website as described above. The Preliminary Proxy Statement and the Definitive
Proxy Statement (when available) and these other documents may also be obtained
free of charge by contacting MacKenzie Partners, Inc., the firm assisting
SPG/Westfield in the solicitation of proxies, toll-free at the number listed
above.
FORWARD-LOOKING STATEMENTS
This release contains some forward-looking statements as defined by the federal
securities laws which are based on our current expectations and assumptions,
which are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those anticipated, projected or implied. We
undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise.
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