Exhibit (a)(5)(MMM)
03-1610
--------------------------------------------------------------------------------
IN THE
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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SIMON PROPERTY GROUP, INC., and
SIMON PROPERTY ACQUISITIONS, INC.,
PLAINTIFFS-APPELLEES,
▇.
▇▇▇▇▇▇▇ CENTERS, INC., ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇.,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
AND ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
DEFENDANTS-APPELLANTS.
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ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN, SOUTHERN DIVISION
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FINAL BRIEF OF SPG APPELLEES
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▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
& ▇▇▇▇▇, P.L.C.
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▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-4415
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
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Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
COUNSEL FOR SPG APPELLEES
DISCLOSURE OF CORPORATE AFFILIATIONS
AND FINANCIAL INTEREST
Pursuant to 6th Cir. R. 26.1, SIMON PROPERTY GROUP, INC.
makes the following disclosure:
1. Is said party a subsidiary or affiliate of a publicly owned corporation?
NO.
If the answer is YES, list below the identity of the parent corporation or
affiliate and the relationship between it and the named party:
2. Is there a publicly owned corporation, not a party to the appeal that has a
financial interest in the outcome? NO (SUBJECT TO THE QUALIFICATION BELOW)
If the answer is YES, list the identity of such corporation and the nature
of the financial interest:
WESTFIELD AMERICA TRUST, A PUBLICLY TRADED UNIT TRUST WHICH IS LISTED ON
THE AUSTRALIAN STOCK EXCHANGE IS THE PARENT OF WESTFIELD AMERICA, INC.
WESTFIELD AMERICA, INC. IS A JOINT OFFEROR IN THE TENDER OFFER AT ISSUE IN
THIS LITIGATION. THUS, WESTFIELD AMERICA TRUST AND WESTFIELD AMERICA, INC.
HAVE A FINANCIAL INTEREST THE UNDERLYING TENDER OFFER.
/s/ ▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇
------------------------- ---------------------
▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇ July 21, 2003
DISCLOSURE OF CORPORATE AFFILIATIONS
AND FINANCIAL INTEREST
Pursuant to 6th Cir. R. 26.1, SIMON PROPERTY ACQUISITIONS, INC.
makes the following disclosure:
1. Is said party a subsidiary or affiliate of a publicly owned corporation?
YES.
If the answer is YES, list below the identity of the parent corporation or
affiliate and the relationship between it and the named party:
SIMON PROPERTY GROUP, INC.
SIMON PROPERTY GROUP, INC., IS THE PARENT CORPORATION OF SIMON PROPERTY
ACQUISITIONS, INC., AND OWNS 100% OF THE STOCK OF SIMON PROPERTY
ACQUISITIONS, INC.
2. Is there a publicly owned corporation, not a party to the appeal that has a
financial interest in the outcome? NO (SUBJECT TO THE QUALIFICATION BELOW)
If the answer is YES, list the identity of such corporation and the nature
of the financial interest:
WESTFIELD AMERICA TRUST, A PUBLICLY TRADED UNIT TRUST WHICH IS LISTED ON
THE AUSTRALIAN STOCK EXCHANGE IS THE PARENT OF WESTFIELD AMERICA, INC.
WESTFIELD AMERICA, INC. IS A JOINT OFFEROR IN THE TENDER OFFER AT ISSUE IN
THIS LITIGATION. THUS, WESTFIELD AMERICA TRUST AND WESTFIELD AMERICA, INC.
HAVE A FINANCIAL INTEREST THE UNDERLYING TENDER OFFER.
/s/ ▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇ July 21, 2003
ii
TABLE OF CONTENTS
DISCLOSURE OF CORPORATE AFFILIATIONS..............................................................................i
TABLE OF AUTHORITIES.............................................................................................vi
STATEMENT IN SUPPORT OF ORAL ARGUMENT.............................................................................x
STATEMENT OF ISSUES PRESENTED FOR REVIEW..........................................................................1
STATEMENT OF THE CASE.............................................................................................2
STATEMENT OF FACTS...............................................................................................10
A. Background............................................................................................10
B. The 1998 Restructuring................................................................................11
C. The SPG Offer And Taubman's Flat Rejection Of It......................................................14
D. The Schedule 13D......................................................................................14
E. The SPG Tender Offer..................................................................................16
F. The Special Meeting By-Law Amendment..................................................................17
G. The Revised $20 Tender Offer..........................................................................18
H. The District Court's January 22 Ruling................................................................19
I. The "Termination" Of The Voting Agreements............................................................20
J. The 85% Tender........................................................................................20
K. The Preliminary Injunction Decision...................................................................21
SUMMARY OF ARGUMENT..............................................................................................22
ARGUMENT.........................................................................................................25
I. The Standard Of Review................................................................................25
iii
II. The District Court Correctly Found That The Taubman Family
And Its Allies Formed A Group And Made A Control Share
Acquisition Under The Michigan Control Share Act......................................................26
A. The Background And Purpose Of The Control Share Act...............................................26
1. Consistent With The Federal ▇▇▇▇▇▇▇▇ Act And
United States Constitution, The Act Does Not
Discriminate Between Outside Bidders And
Insider Management............................................................................26
2. The Control Share Act Is To Be Interpreted Based
On The Analogous Indiana Act And Official Comments............................................30
B. The District Court Correctly Found That A Group Was
Formed With Respect To 33.6% Of The Voting Power
Of The Company....................................................................................31
C. The District Court Correctly Held That Formation Of
The Taubman Group Constituted A Control Share
Acquisition Of 33.6% Of The Voting Power Of TCI...................................................38
1. No Additional Purchase Of Shares Was Necessary................................................38
2. A Group Acquisition May Apply To Previously-Owned Shares......................................45
3. The Informal Nature Of A Group Agreement Does Not
Preclude A Finding Of A Control Share Acquisition.............................................49
4. The District Court's Decision Does Not
"Undermine Corporate Democracy" But Instead Promotes It.......................................51
D. SPG Has Standing To Assert Its Control Share Act Claim............................................54
iv
E. The District Court Properly Held That The 2.9% Shares
Cannot Be Voted...................................................................................56
III. The District Court's Finding That The Special Meeting
Amendment Had No "Compelling Justification" And Was
Designed To Interfere With Shareholder Voting Rights Was Not
Clearly Erroneous.....................................................................................57
IV. The Balance Of ▇▇▇▇▇ Weighs In Favor Of SPG...........................................................61
CONCLUSION.......................................................................................................63
CERTIFICATE PURSUANT TO FEDERAL RULE OF APPELLATE PROCEDURE 32(a)
CERTIFICATE OF SERVICE
ADDENDUM TO PROOF BRIEF OF SPG APPELLEES
ATLANTIS GROUP INC. ▇. ▇▇▇▇▇▇ PARTNERS, No. 1:90-CV-937, 1991 U.S. Dist.
LEXIS 12106 (W.D. Mich. Aug. 27, 1991).....................................................................A-1
▇▇▇▇▇▇ V. PAGE, No. 90-020150-CZ, slip op. (Mich. Cir. Ct. ▇▇▇▇▇
County Sept. 6, 1991)......................................................................................A-7
▇▇▇▇▇▇▇▇ V. CC INV., LDC, No. 99 Civ. 2821, 2002 WL 31869391 (S.D.N.Y.
Dec. 20, 2002)............................................................................................A-23
SPG APPELLEES' CROSS-DESIGNATION OF APPENDIX CONTENTS
v
TABLE OF AUTHORITIES
CASES PAGE(S)
AHI ▇▇▇▇▇▇▇, L.P. V. J.C. ▇▇▇▇▇▇▇ CO., 891 ▇. ▇▇▇▇. 1352
(W.D. Mo. 1995).............................................................................................61
▇▇▇▇▇▇▇▇ V. INTER-CITY PRODUCTS CORP. (USA), 152 F.3d 544 (6th Cir. 1998)........................................50
ASARCO INC. V. COURT, 611 ▇. ▇▇▇▇. 468 (D.N.J. 1985).............................................................61
ATLANTIS GROUP, INC. ▇. ▇▇▇▇▇▇ PARTNERS, No. 1:90-CV-937,
1991 U.S. Dist. LEXIS 12106 (W.D. Mich.
Aug. 27, 1991)..................................................................................30, 32, 48, 55
ATLANTIS GROUP, INC. ▇. ▇▇▇▇▇▇ PARTNERS, No. 1:90-CV-937,
slip op. (W.D. Mich. Dec. 5, 1991)..................................................................48, 49, 52
▇▇▇▇▇▇▇▇ V. MEMPHIS AREA MED. CTR. FOR WOMEN, 262 F.3d 568
(6th Cir. 2001).............................................................................................56
▇▇▇▇▇▇▇ INDUS. V. ATLAS CORP., 564 A.2d 651 (Del. Ch. 1988)..................................................58, 59
BLUE CROSS & BLUE SHIELD MUT. OF OHIO V. BLUE CROSS & BLUE SHIELD ASS'N,
110 F.3d 318 (6th Cir. 1997)...........................................................................25, 26
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, 657 So. 2d 1337 (La. Ct. App. 1995).....................................................32, 33, 55
BUCKHORN, INC. V. ROPAK CORP., 656 F. Supp. 209
(S.D. Ohio 1987)............................................................................................61
CTS CORP. V. DYNAMICS CORP. OF AMERICA, 481 U.S. 69
(1987).......................................................................................8, 26, 27, 29, 54
CAMBRIDGE PLATING CO., INC. V. NAPCO, INC., 85 F.3d 752
(1st Cir. 1996).............................................................................................58
CITIZENS FIRST BANCORP, INC. ▇. ▇▇▇▇▇▇▇, 559 ▇. ▇▇▇▇. 867
(W.D. Ky. 1982).............................................................................................38
▇▇▇▇▇ ▇. MITE CORP., 457 U.S. 624 (1982).....................................................................28, 60
vi
CASES PAGE(S)
▇▇▇▇▇▇▇ V. INTERNATIONAL PIZZA SUPPLY CORP., ▇▇▇ ▇.▇.▇▇ 1051
(Ind. 1997).................................................................................................30
GAF CORP. ▇. ▇▇▇▇▇▇▇▇, 453 F.2d 709 (2d Cir. 1971)...............................................41, 42, 46, 47, 48
HALLWOOD REALTY PARTNERS, L.P. V. GOTHAM PARTNERS, L.P.,
286 F.3d 613 (2d Cir. 2002).................................................................................33
▇▇▇▇▇▇ V. PAGE, No. 90-020150-CZ, slip op. (Mich. Cir. Ct. ▇▇▇▇▇
County Sept. 6, 1991)...............................................................................30, 54, 55
▇▇▇▇▇▇ MOTOR CAR CO. ▇. ▇▇▇▇▇, 121 F.2d 326 (6th Cir. 1941)......................................................44
JEWELCOR INC. ▇. ▇▇▇▇▇▇▇▇, 397 ▇. ▇▇▇▇. 221 (S.D.N.Y. 1975)......................................................53
L.P. ACQUISITION CO. ▇. ▇▇▇▇▇, 772 F.2d 201 (6th Cir. 1985)..............................................28, 29, 61
▇▇▇▇▇▇ V. DIAGNOSTIC DATA, INC., 421 A.2d 906 (Del. Ch. 1980)....................................................60
MM COMPANIES V. LIQUID AUDIO, INC., 813 A.2d 1118 (Del. 2003)....................................................58
▇▇▇▇▇▇-▇▇▇▇▇▇▇▇ CORP. ▇. ▇▇▇▇▇▇ CORP., 690 F.2d 558 (6th Cir. 1982)..........................................28, 62
▇▇▇▇▇▇-▇▇▇▇▇▇▇ ▇. ▇▇▇▇, 986 F.2d 1384 (11th Cir. 1993)...........................................................56
▇▇▇▇▇▇ ▇. PUBLIC EMPLOYEE RET. HEALTH SYS. OF OHIO,
160 F.3d 310 (6th Cir. 1998)............................................................................25, 26
MENTOR GRAPHICS CORP. V. QUICKTURN DESIGN SYSTEMS, INC.,
728 A.2d 25 (Del. Ch. 1998).................................................................................60
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ENTM'T, INC., 249 F.3d 115
(2d Cir. 2001)..................................................................................32, 33, 41, 49
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, 941 ▇. ▇▇▇▇. 1497 (▇.▇. Mich. 1996)............................................................44
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, 772 F.2d 244 (6th Cir. 1985)....................................................................29
▇▇▇▇▇▇▇▇ V. CC INV., LDC, 2002 WL 31869391
(S.D.N.Y. Dec. 20, 2002)............................................................................32, 33, 42
vii
CASES PAGE(S)
SEC ▇. ▇▇▇▇▇ INDUSTRIES, INC., 587 F.2d 1149 (D.C. Cir. 1977)....................................................33
SEILON, INC. ▇. ▇▇▇▇, No. C 83-314, 1983 WL 1354
(N.D. Ohio July 27, 1983)...................................................................................34
▇▇▇▇▇▇▇ V. AMERICAN HOLDINGS, INC., 902 F. Supp. 475
(S.D.N.Y. 1995).............................................................................................34
TEXASGULF, INC. V. CANADA DEV. CORP., 366 F. Supp. 374
(S.D. Tex. 1973)........................................................................................41, 52
WARNER COMMUNICATIONS, INC. ▇. ▇▇▇▇▇▇▇, 581 ▇. ▇▇▇▇. 1482
(D. Del. 1984)..........................................................................................52, 53
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, 682 F.2d 355 (2d Cir. 1982)................................................................41
YOUNG V. GENERAL ACCEPTANCE CORP., 770 N.E.2d 298 (Ind. 2002)................................................51, 55
STATUTES AND REGULATIONS
15 U.S.C. Section 78m (d)(1)......................................................................................3
17 C.F.R. Section 240.13d-101.....................................................................................3
17 C.F.R. Section 240.13d-5......................................................................................41
Fed. R. Civ. P. 65...............................................................................................56
Ind. Code Section 23-1-17-5......................................................................................30
Ind. Code Section 23-1-42-1..........................................................................32, 39, 43, 50
Ind. Code Section 23-1-42-2......................................................................................43
Mich. Comp. Laws Section 450.1790............................................................................27, 45
Mich. Comp. Laws Section 450.1791....................................................................39, 45, 47, 50
Mich. Comp. Laws Section 450.1792............................................................................44, 47
Mich. Comp. Laws Section 450.1794...............................................................................57
viii
OTHER AUTHORITIES PAGE(S)
AMENDMENTS TO BENEFICIAL OWNERSHIP REQUIREMENTS, Exchange Act Release
No. 39,538 [1998 Transfer Binder], Fed. Sec. L. Rep. (CCH) PARA 86,002 .
(Jan. 12, 1998).............................................................................................53
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ET AL., ▇▇▇▇ M&A TRANSACTIONS -- PECULIARITIES AND
COMPLICATIONS, 55 Bus. Law. (Feb. 20, 2000).................................................................11
TENDER OFFERS, Exchange Act Release No. 34-16384 [1979-1980
Transfer Binder], Fed. Sec. L. Rep. (CCH) PARA 82,373 (Nov. 29, 1979).......................................20
ix
STATEMENT IN SUPPORT OF ORAL ARGUMENT
This case involves an effort by insiders of Taubman Centers, Inc., a
Michigan corporation, to prevent the public shareholders of the company from
considering an all-cash tender offer that would allow shareholders to obtain a
nearly 50% premium for their shares. Holders of approximately 85% of the common
shares have expressed their desire to accept the offer. But the insiders (the
Taubman family and its friends and allies) have pooled their collective voting
power to defeat any shareholder proposals that would allow the offer to be
freely considered by the common shareholders. Under the Michigan Control Share
Acquisitions Act, the "group" shares pooled together by the Taubman family and
its friends and allies may not be voted unless and until the company's
disinterested shareholders pass a resolution approving voting rights for those
shares. The district court correctly so held, based on a straightforward
application of longstanding and directly applicable statutory and case law.
Appellants, however, seek to avoid submitting the matter to a disinterested
shareholder vote.
The outcome of this appeal will significantly affect the rights of the
parties, as well as the shareholders of other Michigan corporations. Appellees
respectfully submit that oral argument will greatly assist the Court in its
review of the facts in the record and the issues on appeal.
x
STATEMENT OF ISSUES PRESENTED FOR REVIEW
1. Was the district court's finding that the Taubman family and its
allies formed a "group" under the Michigan Control Share Act for the purpose of
blocking the all-cash premium SPG/Westfield tender offer clearly erroneous?
2. Did the district court correctly conclude that the formation of a
"group" by the Taubman family and its allies to block the tender offer
constituted a "control share acquisition" under the Michigan Control Share Act?
3. Did the district court correctly conclude, in light of the
timing of a special by-law amendment eliminating the Company's shareholders'
right to set the date of a special meeting, that defendants acted for the
primary purpose of making it more difficult for shareholders to exercise their
voting rights?
4. Did the district court correctly find that the harm that would be
caused by allowing defendants to impede a shareholder's right to meaningfully
exercise his or her right to vote, the harm from loss of the opportunity to
effect a transaction supported by 85% of the shareholders, and the public
interest in ensuring that corporate democracy is respected, far
outweighed the harm that the Taubman family would suffer if it is precluded from
circumventing the Michigan Control Share Act?
STATEMENT OF THE CASE
This appeal is from a preliminary injunction sought by
plaintiffs-appellees ("SPG") and granted by the district court to remove the
impediments raised by defendants-appellants ("Taubman") to block an all-cash,
$20 per share premium offer to all the public shareholders of Taubman Centers,
Inc. ("TCI" or the "Company"). Holders of more than 85% of the Company's common
shares have expressed their desire to accept the offer made by SPG and Westfield
America, Inc. ("Westfield"). Yet the shareholders' wishes are being completely
thwarted by the Taubman family, which owns only a 1% economic interest in the
Company in comparison to the public shareholders who own the remaining 99%.
Despite its negligible economic interest in the public company, the
Taubman family claims an approximate 30% voting power by virtue of a special
series of preferred stock (the "Series B Preferred Stock") issued in 1998 for
the nominal consideration of $38,000. This 30% special voting power, together
with another 3% held by certain friends and associates of the Taubman family,
would be sufficient to block the SPG/Westfield tender offer. That is because the
Company's Articles of Incorporation currently
2
prevent anyone from acquiring more than 8.23% of the Company's voting power, and
it takes a two-thirds shareholder vote to amend those Articles. Thus, the
Taubman family and its allies can defeat the tender offer by banding together to
oppose it.
That is exactly what they have done. Barely an hour after SPG publicly
announced its offer in November 2002, the Company issued a press release stating
that the Taubman family, with voting control of more than 30% of TCI, was
"categorically opposed" to the sale of the Company. (R. 57, Ex. 46 (Schedule
14D-9) at 13, ▇.▇. 1211.) The following day, the family announced that it had
taken further specific steps, directly in reaction to the SPG offer, to make the
Company takeover proof. These steps were described in a Schedule 13D dated
November 14, 2002 and filed jointly by the family and certain friends and
associates with the Securities and Exchange Commission ("SEC"), pursuant to
Section 13(d) of the Securities Exchange Act of 1934 (the "1934 Act").(1)
The Schedule 13D announced that the Taubman family and its friends
collectively controlled 33.6% of the voting power of the Company which they had
agreed to vote "for the purposes of preventing an unsolicited
----------
(1) SEE 15 U.S.C. Section 78m (d)(1); 17 C.F.R. Section 240.13d-101 (Schedule
13D).
3
takeover of the Company." (R. 57, Ex. 41 (Schedule 13D/A), at Item 4, ▇.▇.
1093.) This agreement has repeatedly been confirmed in several public statements
and SEC filings.
It is this agreement that is at the heart of the dispute on this
appeal. While the Taubmans contend that they have done nothing more than
"publicly announce" their "collective opposition" to the SPG/Westfield offer, in
fact they have done more: as the district court found, they have agreed among
themselves and with others specifically to vote their collective shares against
any shareholder proposal to facilitate the offer, including an amendment of the
Company's Articles.
The Taubman family has denied that any such agreement exists, pointing
to the family's Schedule 13D "disclaimer" of beneficial ownership with respect
to shares owned by other members of the family. ▇▇▇▇▇▇▇ also argues that
although the family's friends and allies' 3% voting interests were added to the
group via written "Voting Agreements" in November 2002, those voting agreements
were subsequently "terminated," thereby purportedly eliminating any inference
that the group still exists.
The district court properly rejected these contentions, finding that
"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
4
the SPG/Westfield offer." (R. 89 (Opinion) at 37, ▇.▇. 197.) The district court
found that the Taubmans' attempts to un-align themselves by dissolving the
written Voting Agreements were unavailing; the fact that the Taubmans remained
"steadfast in their opposition" to the SPG/Westfield offer "call[ed] into
question the credibility" of the assertion by defendant ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the
Company's Chairman and CEO, that he and the other parties "no longer had any
specific agreement to vote their shares in a particular way." (ID. at 43, ▇.▇.
203.) As the district court stated, ▇▇. ▇▇▇▇▇▇▇ was "undoubtedly regretful of
his candor when the implications became apparent" after the district court, in
ruling earlier on defendants' motion to dismiss, found the Schedule 13D
statements and Voting Agreements to be "circumstantial evidence that the
aggregation of shares was a control share acquisition" within the meaning of the
Michigan Control Share Acquisitions Act, codified in Mich. Comp. Laws ("MCL")
Sections 450.1791 ET SEQ. (the "Control Share Act," the "Michigan Act" or the
"Act"). (ID. at 43, ▇.▇. 203.)
The district court correctly concluded that formation of this group
constituted a "control share acquisition" under the Act. The Act provides that
persons or groups who acquire ownership or the power to direct the exercise of
5
voting power of Michigan companies in excess of certain "control" thresholds
(one of which is 33 1/3%) can vote their "control shares" only if empowered to
do so by a resolution approved by a majority of disinterested shareholders of
the company. It is undisputed that no such shareholder approval has ever been
sought or obtained by the Taubmans.
The district court also correctly concluded that the Act may be
triggered by an agreement or understanding to exercise voting power within one
of the ranges enumerated in the Act. The same "group" approach is followed under
section 13(d), and under the Indiana control share statute on which the Michigan
Act was specifically modeled. Indeed, as Taubman itself acknowledges, the
Indiana control share statute and its Official Comments provide authoritative
guidance for interpretation of the Michigan Act. The Indiana statute, like
section 13(d), may be triggered by the formation of a group even absent
additional stock purchases by members of the group. Thus, contrary to ▇▇▇▇▇▇▇'▇
assertions, the district court's interpretation of the Act was neither
"unfounded" nor "unprecedented," but rather, a straightforward application of
the group concept embodied in section 13(d) and the substantial case law
surrounding it, as well as the approach adopted by the Indiana statute that
serves as Michigan's guide.
6
▇▇▇▇▇▇▇'▇ interpretation of the Michigan Act would enable individuals
to circumvent the Act by combining their voting power with others, through
express or tacit agreement, so long as each individual keeps his or her separate
ownership of shares below the statutory thresholds. Thus, for example, three
shareholders each owning 17% of a Michigan corporation's stock (which is below
the first 20% threshold under the Act) could combine their voting power to
achieve majority control of a target company without purchasing a single
additional share and without obtaining shareholder approval. ▇▇▇▇▇▇▇'▇
interpretation would read the "group" concept out of the Act entirely and create
a huge loophole for outside bidders, or management insiders, to take over a
company without triggering the Act.
▇▇▇▇▇▇▇'▇ assertion that the Act applies ONLY to so-called "hostile
raiders," and not management insiders (Appellants' Brief ("Taubman Br.") at 22),
is unsupported by the text of the statute, which makes no distinction between
outsiders and insiders. The Act applies equally to persons or groups whose
voting power crosses the statutory control thresholds, whether they be existing
shareholders, incumbent management or outside parties.
7
The purpose of the Control Share Act -- officially entitled the
"Stacey, ▇▇▇▇▇▇▇, and ▇▇▇▇▇▇ SHAREHOLDER EQUITY ACT" -- is to empower a
company's disinterested public shareholders whether to allow another shareholder
or group which has amassed a substantial block of votes to use that power to
assert control over the corporation and influence its direction and policy. The
Act provides no "leg up" for management insiders, nor could it,
constitutionally, consistent with CTS CORP. V. DYNAMICS CORP. OF AMERICA, 481
U.S. 69 (1987). There, the Supreme Court upheld the constitutionality of the
Indiana Control Share Acquisitions Statute, Ind. Code Section 23-1-42-1 ET SEQ.
(the "Indiana Act"), on the basis that it did not upset the balance of power
between management and bidders in conflict with the "level playing field"
mandated by the federal ▇▇▇▇▇▇▇▇ Act. Thus, the Michigan Act, like the Indiana
Act on which it is based, and like section 13(d), itself a product of the
▇▇▇▇▇▇▇▇ Act, applies not just to bidder "groups" but equally to insider
"groups," such as the one formed here by the Taubman family and its allies.
▇▇▇▇▇▇▇'▇ constant refrain that the district court opinion
"disenfranchises" the Taubmans and "strips" them of their voting rights is
inflammatory and inaccurate. The Taubman family still has its special Series B
Preferred Stock and can vote those shares so long as it obtains
8
approval from the Company's disinterested public shareholders. If the
SPG/Westfield offer is as "inadequate" as ▇▇▇▇▇▇▇ claims, and if TCI's
shareholders are satisfied with the Taubmans' management, then ▇▇▇▇▇▇▇ should
have every confidence that a free and fair vote of the disinterested
shareholders would restore the group's voting rights.
The irony, however, is that ▇▇▇▇▇▇▇ has done everything in its power
to ensure that no shareholder vote of the sort is held, including passing a
by-law amendment to make it more difficult to convene a special shareholder
meeting to facilitate the tender offer. Indeed, by its continuing efforts to
prevent the public shareholders of TCI from considering the tender offer on its
merits, ▇▇▇▇▇▇▇ exposes the hollowness of its claim to be a champion of
"shareholder democracy." The precise opposite is true: ▇▇▇▇▇▇▇ stands for the
proposition that entrenched management should be able to insulate itself against
the wishes of the overwhelming majority of a company's common shareholders.(2)
The district court's decision is correct and should be affirmed.
----------
(2) ▇▇▇▇▇▇▇ has even tried, unsuccessfully to date, to get the Michigan
legislature to reverse the district court's decision and moot this appeal.
SEE ▇. ▇▇▇▇▇▇▇▇, TAUBMANS TAKE LAW INTO THEIR OWN HANDS, Wall Street
Journal, June 17, 2003, at C1 ("The law went against the Taubmans. So, the
Taubmans are aiming to change the law.").
9
STATEMENT OF FACTS
A. BACKGROUND
TCI was taken public by the Taubman family in 1992. (SEE R. 55, Ex. 2
(TCI Prospectus), ▇.▇. 615.) The new publicly-traded ▇▇▇▇ was owned
approximately 99% by public shareholders. (ID. at 7, ▇.▇. 631.) TCI, in turn,
conducts its regional shopping center operations through a limited partnership
known as the Taubman Realty Group Limited Partnership ("TRG"), of which TCI is
the managing general partner. (ID. at 1, 8, ▇.▇. 625, 632.)
TCI's Articles make it impossible for anyone to acquire more than
8.23% (or in certain cases 9.9%) of the Company's voting power by automatically
eliminating any economic or voting rights that would otherwise attach to the
acquired shares (the "Excess Share Provision"). (R. 55, Ex. 3 (TCI Articles), at
1, 13, 15, ▇.▇. 808, 820, 822.) Unlike the typical REIT excess share provision,
the TCI Excess Share Provision is not waivable by the board but can be amended
only by a two-thirds vote of the Company's shareholders. (ID. at 11-18, ▇.▇.
818-25.)(3)
----------
(3) While REITS commonly utilize excess share provisions to preserve their tax
status, the SPG/Westfield offer poses no threat to TCI's status as a REIT.
That is because an acquisition of a REIT by another REIT or corporation (as
opposed to acquisition by an individual) does
10
B. THE 1998 RESTRUCTURING
▇▇▇▇▇▇▇'▇ conduct leading up to and during this lawsuit is a
continuation of its longstanding efforts to prevent TCI's disinterested public
shareholders from voting on matters fundamentally affecting control of the
Company.
Prior to 1998, TCI's public shareholders, who held 99% of the voting
power in the REIT, could have amended the Articles to remove the Excess Share
Provision in order to facilitate an advantageous third party offer. This changed
in 1998 when the Taubman family elected to "take advantage" of a corporate
restructuring, known as the "GM Exchange," in order "to implement [a] governance
package more favorable to [the] Family" that diminished the common shareholders'
relative voting power. (R. 35 (Goldman Memorandum, A606), ▇.▇. 476.)(4) In
connection with the 1998 restructuring, TCI issued a new series of preferred
stock, the Series B Preferred Stock, to the Taubman family and other unitholders
of TRG for a
----------
not threaten the target REIT's tax status. (SEE R. 35 (▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ET
AL., ▇▇▇▇ M&A TRANSACTIONS -- PECULIARITIES AND COMPLICATIONS, 55 Bus. Law.
(Feb. 20, 2000), A1172, A1176), ▇.▇. 511, 515.)
(4) The cited memorandum was authored by an investment banker with the firm of
▇▇▇▇▇▇▇ ▇▇▇▇▇. (SEE R. 35 (Goldman Memorandum, A600), ▇.▇. 470); (SEE R. 35
(▇▇▇▇▇▇▇▇▇ Dep., A1087, 1113-15), ▇.▇. 502, 505-07.)
11
total consideration of $38,400. (R. 35 (▇▇▇▇▇▇▇ ▇▇▇., A984, A1010),
▇.▇. 487, 488.) The family obtained approximately 30% of the Company's total
voting power by virtue of the fact that each share of Series B Preferred Stock
is entitled to one vote per share on all matters submitted to the Company's
common shareholders. (SEE R. 53 (▇▇▇▇▇▇▇▇ Decl.) PARA 3, ▇.▇. 602); (SEE ALSO
Taubman Br. at 15 n.3).
The GM Exchange was deliberately structured to avoid giving the public
shareholders a chance to vote on it or the issuance of the Series B Preferred
Stock. As ▇▇▇▇▇▇▇ ▇▇▇▇▇, the family's advisors in the restructuring, wrote at
the time, a "shareholder vote must be avoided at all costs." (R. 35 (Goldman
Memorandum, A602, 607), ▇.▇. 472, 477); (SEE ALSO R. 35 (Goldman Memorandum,
A603), ▇.▇. 473) ("▇▇▇▇▇ [▇▇▇▇▇▇▇] should remain firm that Family will
vigorously oppose any proposal which includes a shareholder vote"); (R. 35
(Goldman Notes, A617), ▇.▇. 478) ("▇▇▇▇▇ [▇▇▇▇▇▇▇] told ▇▇▇▇: Need certainty --
NO VOTE") (emphasis in original); (R. 35 (▇▇▇▇▇▇▇▇▇ Dep., A1105-06), ▇.▇.
503-04).
Because of its detrimental impact on the public shareholders, the
issuance of the Series B Preferred Stock had to be accomplished without
shareholder scrutiny. In the end, a "public shareholder vote [was] avoided." (R.
35 (Goldman Memorandum, A602), ▇.▇. 472.) The press release
12
announcing the GM Exchange did not even mention the Series B Preferred Stock.
(R. 35 (Form 8-K, A448-52), ▇.▇. 446-50); (SEE ALSO R. 35 (Goldman Notes, A739),
▇.▇. 479) (▇▇▇▇▇▇▇ ▇▇▇▇▇ banker advice on press release: "Don't mention
governance -- can of worms"); (R. 35 (▇▇▇▇▇▇▇▇▇ Dep., A1117-18), ▇.▇. 509-510).
Taubman misleadingly asserts that the Series B Preferred Stock was
necessary to ensure that the Taubman family "would continue to have a voice" in
control and governance "proportionate to their ownership interests in TRG." (SEE
Taubman Br. at 14.) In fact, even WITHOUT the Series B shares, the family
preserved more than a substantial "voice" in corporate governance: the family
retained (indeed increased) its percentage ownership of TRG; it obtained a veto
over any sale of either TRG or TCI (neither of which it had before the
restructuring); and it increased its proportional representation on the TCI
board from 4 of 11 members to 4 of 9. (R. 35 (Goldman Memorandum, A606-07), ▇.▇.
476-77.) After the transaction there were "significantly better governance
rights for [the] Family than previously existed," giving the Taubmans "greater
relative ownership and control." (ID. at A606, ▇.▇. 476); (R. 35 (Goldman
Memorandum, A600), ▇.▇. 470). The fact remains that by virtue of the Series B
Preferred Stock,
13
the Taubmans have a vastly disproportionate 30% voting interest in a company
owned 99% by non-Taubman public shareholders.
C. THE SPG OFFER AND TAUBMAN'S FLAT REJECTION OF IT
SPG's initial cash offer to TCI was made in a letter dated October 22,
2002. (R. 57, Ex. 46 (Schedule 14D-9) at 9-11, ▇.▇. 1207-09.) At an October 28,
2002 board of directors meeting, based on ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ advice that the
Taubman family had "no interest in pursuing a sale of the Company and intended
to use its significant stake in the Company to oppose the proposed transaction
if it were put to a vote," the TCI board determined that the Company was "not
for sale." (ID. at 11, ▇.▇. 1209.)
On November 13, 2002, little more than an hour after SPG made its
proposal public, the Company announced that the board had rejected the proposal
and that, in light of the family's position that it was "categorically opposed
to the sale of the Company," any efforts to purchase TCI would be
"unproductive." (ID. at 13, ▇.▇. 1211.)
D. THE SCHEDULE 13D
On November 14, 2002, pursuant to a Joint Filing Agreement, various
Reporting Persons, including the Taubman family and certain friends and
associates, filed a Schedule 13D with the SEC announcing that the Taubman family
now controlled over one-third of the Company's
14
outstanding voting stock. On November 14, 2002, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ two sons --
▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ -- exercised a total of 300,000 options to purchase common
stock; ▇▇▇▇▇▇ ▇▇▇▇▇▇, former vice chairman of TCI's board, purchased 266,366
common shares in the open market; and The ▇▇▇ ▇. ▇▇▇▇▇▇ Revocable Trust
purchased 150,000 common shares in the open market. The Schedule 13D also
disclosed that pursuant to Voting Agreements entered into that day, ▇▇. ▇▇▇▇▇▇,
▇▇▇ ▇. ▇▇▇▇▇▇, and ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ (and entities they control), had
transferred voting power over an aggregate of 2,440,762 shares to ▇▇▇▇▇▇
▇▇▇▇▇▇▇. As the 13D stated:
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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ . . . . ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 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.
(R. 57, Ex. 41 (Schedule 13D/A), ▇.▇. 1092-93) (emphasis added). The Voting
Agreements were entered into "for good and valuable consideration," including
promises of indemnification and rights of first refusal to purchase shares. (SEE
R. 35 (Voting Agreements, A928-34), ▇.▇. 480-86.)
15
E. THE SPG TENDER OFFER
On December 5, 2002, SPG made a formal all-cash tender offer at $18
per share, conditioned on the inapplicability of the Excess Share Provision to
the shares to be acquired. (R. 57, Ex. 43 (SPG Offer), Cover Page, 9-10, ▇.▇.
1141, 1152-53.) SPG made clear that the Taubman family could either retain its
limited partnership units and economic interest in TRG or, at its election,
receive the offer price or an equivalent value by exchanging its limited
partnership interests for SPG limited partnership interests. (ID. at 7-8, 27-28,
▇.▇. 1150-51, 1170-71.)
In its offer, SPG also indicated its intention to demand, pursuant to
the Control Share Act, that the Company call a special meeting at which
shareholders would be asked to approve voting rights for all shares to be
acquired by SPG that would constitute "control shares." (ID. at 11, ▇.▇. 1154.)
Five days later, on December 10, 2002, ▇▇▇'s board of directors
rejected the offer, citing among other reasons "the fact that the Taubman family
and other shareholders, with combined voting power of over a third of the total
voting power of the Company's capital stock have indicated they do not intend to
tender their Common Shares and have taken the firm
16
position that they are not interested in pursuing a sale transaction." (R. 57,
Ex. 46 (Schedule 14D-9) at 15, ▇.▇. 1213.)
At the same time, TCI announced that it had amended its by-laws to
"opt out" of the Control Share Act because it did "not need the protection" of
the Act and it wanted to "avoid the cost and distracting nature of a special
meeting" at which the Company's shareholders would, in effect, be asked to vote
on the merits of the SPG offer. (ID. at 18-19, ▇.▇. 1216-17.)
F. THE SPECIAL MEETING BY-LAW AMENDMENT
On December 16, 2002, SPG announced that it had filed a preliminary
proxy statement with the SEC to enable SPG to solicit proxies to call a special
meeting of the Company's shareholders. (R. 35 (Schedule 14D-9/A, A96), ▇.▇.
384.) SPG proposed to allow the Company's shareholders to vote on whether to
amend the Articles so that consummation of SPG's tender offer would not trigger
the Excess Share Provision. Under the Company's then existing by-laws, holders
of 25% of the Company's outstanding voting shares were entitled to call a
special meeting "at any time and for any purpose" upon notice given at least 10
and not more than 60 days prior to the meeting. (R. 114 (TCI Restated By-Laws
Section 1.03), ▇.▇. 1332.)
17
Four days later, TCI again amended its by-laws purportedly "to specify
in more detail the timing and procedures that would apply to a special meeting
requested by the shareholders." (R. 35 (Schedule 14D-9/A, A96), ▇.▇. 384.) The
Special Meeting Amendment eliminated the right of shareholders unilaterally to
call a special meeting on a date of their choosing. It provided, instead, that
upon shareholder request, it is the COMPANY that calls the meeting and selects
the date. The amendment provided that upon receipt of a request from 25% of the
shareholders, the board must "verify" the validity of the request, and then has
10 days to fix a record date and set a meeting date not sooner than 30 days nor
later than 90 days afterward. (R. 114 (TCI Restated By-Laws Section 1.03), ▇.▇.
1332.)
Invoking its right to amend its complaint once as a matter of course
under Fed. R. Civ. P. 15(a), SPG amended its original complaint on December 26,
2002 to add allegations challenging the Special Meeting Amendment and further
allegations concerning the Control Share Act claim. (R. 19 (First Am. Cplt.)
PARA PARA 55-56, 67, 84, 86, 93, ▇.▇. 38, 40, 44, 45.)
G. THE REVISED $20 TENDER OFFER
On January 15, 2003, SPG announced that ▇▇▇▇▇▇▇▇▇ had joined in the
offer and that the offer price had been increased to $20 per share in cash for
all outstanding common shares, representing approximately a 50%
18
premium to the trading price of TCI before SPG's initial offer. (R. 35
(SPG/Westfield Supplemental Offer, A56, A66), ▇.▇ 344, 354.) TCI rejected this
offer on January 21, 2003, reiterating that "the owners of over one-third of the
outstanding Taubman Centers voting shares continue in their opposition to a
sale." (R. 35 (Press Release, A513), ▇.▇. 467.)
H. THE DISTRICT COURT'S JANUARY 22 RULING
On January 22, 2003, the district court issued an order ("Jan. 22
Order") granting, in part, ▇▇▇▇▇▇▇'▇ motion to dismiss Count One of SPG's
complaint insofar as it alleged that the 1998 issuance of the Series B Preferred
Stock was a "control share acquisition" under the Act. (R. 33 (Jan. 22 Order),
▇.▇. 319.) The district court's conclusion that the Act applies only to
previously "issued and outstanding" shares was based largely on the Official
Comments to the analogous Indiana Act, which ▇▇▇▇▇▇▇ had urged the court to
follow. (ID. at 12, ▇.▇. 330); (SEE ALSO R. 100 (Prelim. Inj. Tr.) at 95, ▇.▇.
1442).
At the same time, the district court denied the motion to dismiss
SPG's claim that in November 2002 "▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the ▇▇▇▇▇▇▇ Family and those
persons who entered into Voting Agreements with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ constituted a
group and that their aggregation of shares was a `control share acquisition.'"
(R. 33 (Jan. 22 Order) at 16, ▇.▇. 334.)
19
I. THE "TERMINATION" OF THE VOTING AGREEMENTS
On January 28, 2003, less than a week after the district court held
that SPG's "group" claim stated a cause of action, the parties to the Voting
Agreements filed an "amended" Schedule 13D, claiming that "there are no longer
any agreements, arrangements or understandings" between them. (R. 57, Ex. 42
(Schedule 13D/A) at 1, 20-21, ▇.▇. 1115, 1134-35.)
J. THE 85% TENDER
As of February 14, 2003, approximately 85% of the then outstanding
common shares of TCI, or some 44 million out of 52 million common shares, were
tendered in response to the $20 per share offer. (SEE R. 74 (SPG Press Release,
A1273), ▇.▇. 1233); (R. 74 (Computer Share Report, A1275), ▇.▇. 1235). This
"unprecedented" response (SEE R. 74 (REIT Wrap, A1277-78), ▇.▇. 1237-38)
demonstrates TCI's shareholders' overwhelming desire to accept the SPG/Westfield
offer. (SEE ALSO R. 74 (▇▇▇▇▇▇ ▇▇▇., A1546), ▇.▇. 1247); (R. 74 (Steers Aff.,
A1548), ▇.▇. 1249).(5)
----------
(5) Shareholders prefer not to keep their capital at risk. Therefore, "most
shares are tendered on the last day of the tender offer," see Tender
Offers, Exchange Act Release No. 34-16384 [1979-1980 Transfer Binder], Fed.
Sec. L. Rep. (CCH) PARA 82,373 (Nov. 29, 1979), when shareholders
understand they may not have another chance to tender if the offer is not
extended. The only such instance to date when TCI's shareholders may have
anticipated the offer would not be extended was on February 14, 2003, as
SPG and ▇▇▇▇▇▇▇▇▇ stated in advance that they would withdraw their offer
unless at least two-thirds of the
20
K. THE PRELIMINARY INJUNCTION DECISION
Following a period of discovery and a hearing held on March 21, 2003,
the district court issued its ruling below on May 1, 2003, as amended in an
Amended Opinion and Order ("Opinion") dated May 8, 2003. (R. 87 (Order), ▇.▇.
119); (R. 89 (Opinion), ▇.▇. 161). The district court did not reach the merits
of SPG's claim that the issuance of the Series B Preferred Stock constituted a
breach of defendants' fiduciary duties, finding that SPG lacked standing to
assert this claim because it had not been a TCI shareholder in 1998. (R. 89
(Opinion) at 24, ▇.▇. 184.) The district court concluded, however, that the
Taubman family formed a group in November 2002 for the purpose of exercising
voting power to block the SPG tender offer: "Their shares, in combination with
the shares obtained by Defendant ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ via Voting Agreements, all as
announced in the November 14, 2002, Schedule 13D/A filed with the Securities and
Exchange Commission, are `control shares' under the Michigan Control Share
Acquisitions Act, MCL 450.1790(2)(b)." (ID. at 2-3, ▇.▇. 162-63.)
----------
common shares were tendered by then. (See R. 74 (Schedule 14D-9A, A1292),
▇.▇. 1246.) Since that mandate was received, SPG/Westfield repeatedly have
extended their offer before each expiration date to give TCI's shareholders
the chance for the conditions to the offer (principally, the invalidation
of the Excess Share Provision through a shareholder vote) to be met.
21
The district court also found that defendants had "not offered a
compelling justification or, in fact, any justification" for the Special Meeting
Amendment, and that, as a "defensive measure" having the "primary purpose of
interfering with or impeding the effectiveness of a shareholder vote," its
adoption likely constituted a breach of fiduciary duty by the TCI board. (ID. at
35-36, ▇.▇. 195-96.) Accordingly, the district court enjoined defendants from
enforcing the Special Meeting Amendment and instead required them to honor the
by-laws as they existed prior to the amendment. (ID. at 48, ▇.▇. 208.)
SUMMARY OF ARGUMENT
ISSUE 1
The district court's finding that the Taubman family and its allies
formed a "group" for the specific purpose of blocking the SPG/Westfield offer
was not clearly erroneous. The Michigan Act was modeled upon, and is interpreted
in accordance with, the Indiana Act and its Official Comments. Both the Indiana
Comments and the courts look to the standards established under section 13(d) of
the 1934 Act to determine whether a "group" has been formed. Here, the evidence
overwhelmingly established that in November 2002 the Taubman family, together
with its allies, formed a "group" for the express purpose of voting their
collective
22
33.6% of the Company's voting power against an amendment to the Company's
Articles that would facilitate the tender offer.
ISSUE 2
The district court correctly concluded that formation of the Taubman
group was a "control share acquisition" under the Act. The pooling of voting
power for a common purpose, with or without an acquisition of additional shares
by any group member, is an "acquisition" of voting power by the entire group for
purposes of the Act. The very essence of the "group" concept is the pooling of
voting power, which does not require the acquisition of the actual legal power
to vote another's shares. The identical approach is followed under section 13(d)
and the Indiana Comments. Any other construction would render the Michigan Act
ineffective, since it would allow individuals to circumvent the Act by acting
collectively to accomplish what none of them could accomplish individually.
▇▇▇▇▇▇▇'▇ argument that "informal" voting agreements or understandings fall
outside the Act also would read the "group" concept out of the statute and must
be rejected.
The district court's decision does not prevent shareholders from
communicating on matters of common interest. It also does not permanently
"disenfranchise" the Taubmans but requires them to comply with the statute
23
by seeking approval from the Company's disinterested shareholders for voting
rights for the group's shares. The decision therefore promotes, rather than
undermines, corporate democracy.
As a TCI shareholder, SPG has standing to assert a claim under the
Act. Courts interpreting the Act and similar state control share statutes
routinely permit shareholders to assert claims, on the merits, under such
statutes. If a corporation's shareholders could not assert claims under the
Michigan Act, there would be no effective means of enforcing the Act,
particularly where, as here, the claims are asserted against persons in control
of the corporation.
Finally, because the district court correctly found that the Taubman
family's friends and allies were acting in concert with the family to form a
group, and because the Michigan Act itself defines all of the affected shares as
"control shares," the district court properly exercised jurisdiction to prevent
the voting of those shares pending a vote of the Company's disinterested
shareholders.
ISSUE 3
The district court correctly enjoined enforcement of a by-law
amendment adopted just four days after SPG's announced intention to call a
special meeting. The amendment was a "defensive measure" that had no
24
"compelling justification." ▇▇▇▇▇▇▇ had adequate notice that SPG was seeking to
enjoin the enforcement of this by-law amendment as a breach of the directors'
fiduciary duties.
ISSUE 4
The district court correctly found that the balance of ▇▇▇▇▇ weighed
in favor of a preliminary injunction. SPG's loss of an opportunity to complete a
tender offer, and shareholders' loss of ability to accept that tender offer,
constitute irreparable harm. Similarly, shareholders suffer irreparable harm
when their voting rights are impeded or frustrated. By contrast, the Taubman
family will not suffer harm because it can vote the shares as long as it
receives the requisite shareholder approval to do so under the Control Share
Act.
ARGUMENT
I. THE STANDARD OF REVIEW
This Court reviews the district court's granting of the preliminary
injunction under an "abuse of discretion standard." ▇▇▇▇▇▇ ▇. PUBLIC EMPLOYEE
RET. HEALTH SYS. OF OHIO, 160 F.3d 310, 312 (6th Cir. 1998). Such injunctions
"will seldom be disturbed unless the district court relied upon clearly
erroneous findings of fact, improperly applied the governing law, or used an
erroneous legal standard. ID. (citing BLUE CROSS &
25
BLUE SHIELD MUT. OF OHIO V. BLUE CROSS & BLUE SHIELD ASS'N, 110 F.3d 318, 322
(6th Cir. 1997)). Appellate courts afford district courts' decisions to grant
preliminary injunctions "great deference," BLUE CROSS & BLUE SHIELD MUT. OF
OHIO, 110 F.3d at 322, and "will reverse a district court's balancing of the
equities only in the rarest of circumstances." ▇▇▇▇▇▇, 160 F.3d at 313. As shown
below, the district court properly granted SPG's motion for a preliminary
injunction.
II. THE DISTRICT COURT CORRECTLY FOUND THAT THE TAUBMAN FAMILY AND ITS ALLIES
FORMED A GROUP AND MADE A CONTROL SHARE ACQUISITION UNDER THE MICHIGAN
CONTROL SHARE ACT.
A. THE BACKGROUND AND PURPOSE OF THE CONTROL SHARE ACT
1. CONSISTENT WITH THE FEDERAL ▇▇▇▇▇▇▇▇ ACT AND UNITED STATES
CONSTITUTION, THE ACT DOES NOT DISCRIMINATE BETWEEN OUTSIDE
BIDDERS AND INSIDER MANAGEMENT.
The Control Share Act was added to the Michigan Business Corporation
Act in 1988, and was based on the Indiana Act whose constitutionality was upheld
in CTS V. DYNAMICS CORP. OF AMERICA, 481 U.S. 69 (1987). The Michigan Act denies
voting rights to "control shares" of an issuing Michigan public corporation
acquired in a "control share acquisition" unless a majority of the corporation's
disinterested shareholders approve a resolution granting such rights. The Act
applies to the acquisition
26
of the shares, "directly or indirectly, alone OR AS PART OF A GROUP." MCL
Section 450.1790(2) (emphasis added).
The statute is careful, as is the Indiana Act, not to discriminate
between tender offerors and incumbent management. Thus, a control share
acquisition by ANY person or group falls within the ambit of the statute,
whether the acquirer is an outsider who previously owned no shares, an existing
minority shareholder or indeed even a controlling insider shareholder.
This neutrality stems from concerns that an avowedly "pro-management,
anti-bidder" statute would be unconstitutional as a violation of the Commerce
Clause and/or the Supremacy Clause insofar as it would conflict with, and be
pre-empted by, the federal ▇▇▇▇▇▇▇▇ Act, 15 U.S.C. Sections 78m(d)-(e) and
78n(d)-(f), which was enacted in 1968 as part of a comprehensive amendment to
the 1934 Act to address issues arising in the takeover context. SEE CTS, 481
U.S. at 79. In 1982, the Supreme Court struck down, as violative of the Commerce
Clause and the Supremacy Clause, a so-called "first generation" anti-takeover
statute of Illinois, which required tender offerors to provide pre-commencement
notice of their offer, prohibited bidders (but not management) from
communicating with shareholders during the notice period, and allowed the
secretary of state to
27
hold a hearing on the "fairness" of the offer before it could proceed. ▇▇▇▇▇ ▇.
▇▇▇▇ CORP., 457 U.S. 624 (1982). A plurality of the Court found the statute
pre-empted by the ▇▇▇▇▇▇▇▇ Act, which was designed to protect investors while
"avoid[ing] favoring either management or the takeover bidder." ID. at 633. As
the plurality noted, Congress in passing the ▇▇▇▇▇▇▇▇ Act "became convinced
`that takeover bids should not be discouraged because they serve a useful
purpose in providing a check on entrenched but inefficient management.'" ID.
(citations omitted). Accordingly, Congress "disclaimed any `intention to provide
a weapon for management to discourage takeover bids'" and instead "embraced a
policy of neutrality" and "evenhandedness." ID. (citations omitted). SEE ALSO
ID. ("`We have taken extreme care to avoid tipping the scales either in favor of
management or in favor of the person making the takeover bid.'") (quoting
sponsoring Senator ▇▇▇▇▇▇▇▇).
Shortly after ▇▇▇▇ was decided, this Court in ▇▇▇▇▇▇-▇▇▇▇▇▇▇▇ CORP. ▇.
▇▇▇▇▇▇ CORP., 690 F.2d 558 (6th Cir. 1982), held that the anti-fraud and
enforcement provisions of the Michigan Take-Over Offers Act, an earlier state
takeover statute that contained an exception for issuer tender offers, posed an
impermissible burden on interstate commerce. Three years later, in L.P.
ACQUISITION CO. ▇. ▇▇▇▇▇, 772 F.2d 201 (6th Cir. 1985), this
28
Court directed entry of a preliminary injunction against enforcement of the same
Michigan anti-takeover statute. The Court found the statute violated the
Supremacy Clause, because it "frustrate[d] the congressional purpose of
maintaining a balance between the target company and the offeror." ID. at 209.
In 1987, in CTS, the Supreme Court upheld the constitutionality of the
Indiana Act, which conditions voting rights of shares acquired in a control
share acquisition at or above any of three thresholds (20%, 33 1/3% or 50%) on
approval by a majority of the disinterested shareholders. The Court found that
the statute "protects the INDEPENDENT shareholder AGAINST THE CONTENDING
PARTIES" and "does not alter the balance between management and offeror in any
significant way." 481 U.S. at 82 (emphasis added).(6)
----------
(6) The CTS Court expressed concerns about "the coercive effects of some tender
offers," such as those in which non-tendering shares may feel compelled to
tender for fear that they will be forced to sell their shares at a
depressed price if the offer is successful. 481 U.S. at 83; SEE ALSO RADOL
▇. ▇▇▇▇▇▇, 772 F.2d 244, 252, 255 (6th Cir. 1985) (noting coercive aspects
of "two-tier, front-end loaded" tender offers by which shareholders who do
not tender may receive lower price for their shares in second-stage
merger). The SPG/Westfield offer, however, poses none of these threats: it
is an all-cash offer for all outstanding common shares containing a
commitment to convert any shares not purchased in the offer "into the right
to receive an amount
29
2. THE CONTROL SHARE ACT IS TO BE INTERPRETED BASED ON THE ANALOGOUS
INDIANA ACT AND OFFICIAL COMMENTS.
As the district court found, the Michigan Act "was modeled after the
Indiana statute and adopts that language virtually in its entirety." (R. 89
(Opinion) at 41, ▇.▇. 201); SEE ALSO ▇▇▇▇▇▇ V. PAGE, No. 90-020150-CZ, slip op.
at 7 (Mich. Cir. Ct. ▇▇▇▇▇ County Sept. 6, 1991) ("it is not seriously disputed
by Defendants that the Michigan Control Share Acquisitions Act is patterned
after the [Indiana Act]") (Addendum at A-7, A-15). Courts interpreting the
Michigan Act have therefore looked to the Indiana Act and its Comments for
guidance. (R. 89 (Opinion) at 40-41, ▇.▇. 200-01); SEE ALSO ATLANTIS GROUP, INC.
▇. ▇▇▇▇▇▇ PARTNERS, No. 1:90-CV-937, 1991 U.S. Dist. LEXIS 12106, at *19 (W.D.
Mich. Aug. 27, 1991) (Addendum at A-1, A-5); ▇▇▇▇▇▇ V. PAGE, slip op. at 9
(Addendum at A-17). Under the Indiana Act, the Comments have "Official" status
and "may be consulted by the courts to determine the underlying reasons,
purposes, and policies of the article and may be used as a guide in its
construction and application." Ind. Code Section 23-1-17-5; SEE ▇▇▇▇▇▇▇ V.
INTERNATIONAL PIZZA SUPPLY CORP., 676 N.E.2d 1051, 1054 n.5 (Ind. 1997) (Indiana
Supreme Court "recognize[s] these comments as authoritative."). Therefore, as
the
----------
in cash per share equal to the highest price per share paid" in the offer.
(R. 57, Ex. 43 (SPG Offer) at 3, ▇.▇. 1146.)
30
district court held, "it is appropriate for this Court to infer that it was the
Michigan Legislature's intent to adopt the language of the analogous control
share statutes AND the stated underlying purpose and intent of the Indiana
legislature." (R. 33 (Jan. 22 Order) at 11 (citing PEOPLE ▇. ▇▇▇▇▇▇▇▇▇▇, 429
Mich. 262, 271-72 (1987)), ▇.▇. 329.)
B. THE DISTRICT COURT CORRECTLY FOUND THAT A GROUP WAS FORMED WITH
RESPECT TO 33.6% OF THE VOTING POWER OF THE COMPANY.
The district court correctly found that the Taubman family, acting in
concert with the parties to the Voting Agreements, formed a group within the
meaning of the Michigan Act for the purpose of exercising voting power to block
the SPG offer. (R. 89 (Opinion) at 2, 42, ▇.▇. 162, 202.)
While the term "group" in the Act is not defined, both the Indiana
Comments and courts look to section 13(d) of the 1934 Act and the Rules under it
to determine the existence of a group under state control share acts. As stated
in the Indiana Comments:
[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. THIS IS
SIMILAR TO THE "GROUP" APPROACH ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE REG. 13d-5,
17 C.[F.]R. Section 240.13d-5.
31
Ind. Code Section 23-1-42-1, Official Comments (emphasis added). The district
court embraced this approach, noting that a control share acquisition occurs
when in "any transaction or series of transactions . . . A GROUP OF PERSONS
ACTING TOGETHER, ACQUIRES THE SUBSTANTIVE PRACTICAL ABILITY TO VOTE" more than
20%, 33-1/3% or a majority of the voting shares. (R. 33 (Jan. 22 Order) at 13,
▇.▇. 331) (citing Indiana Comments) (emphasis added).
Courts construing the Michigan Act and analogous control share
statutes have likewise followed the Indiana Comments and section 13(d) to
determine the existence of a group. SEE, E.G., ATLANTIS GROUP, INC., 1991 U.S.
Dist. LEXIS 12106, at *19 (relying upon Indiana Comments to determine existence
of group under Michigan Act) (Addendum at A-5); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, 657 So. 2d
1337, 1343 (La. Ct. App. 1995) (consulting section 13(d) "to assist the Court in
determining whether the ▇▇▇▇▇ Group acted as a `group' for purposes of the
[Louisiana Control Share Acquisition] Act" and concluding that the statute had
been triggered by a "group" of shareholders).
Under section 13(d), the threshold issue is whether defendants "agreed
to act together for the purpose of acquiring, holding, VOTING or disposing of" a
company's shares. ▇▇▇▇▇▇▇▇ V. CC INV., LDC, No. 99 Civ. 2821 (VM), 2002 WL
31869391, at *4 (S.D.N.Y. Dec. 20, 2002) (emphasis
32
added) (Addendum at A-23, A-26). Whether the requisite agreement exists is a
question of fact. SEE HALLWOOD REALTY PARTNERS, L.P. V. GOTHAM PARTNERS, L.P.,
286 F.3d 613, 617 (2d Cir. 2002); ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ENTM'T, INC., 249 F.3d 115,
124 (2d Cir. 2001). The agreement may be formal or informal and may be proved by
direct or circumstantial evidence. ID.; SEE ▇▇▇▇▇▇, 657 So. 2d at 1343 (citing
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, 682 F.2d 355, 363 (2d Cir. 1982)); SEC ▇. ▇▇▇▇▇
INDUSTRIES, INC., 587 F.2d 1149, 1163 (D.C. Cir. 1977).
Among the indicia of the existence of a group are "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." ▇▇▇▇▇▇, 657 So. 2d at 1343.
Another indicator is "action taken by the group to affect the corporate
direction of the company." ID. at 1344.
Here, the direct and circumstantial evidence overwhelmingly support
the district court's finding of a "group" whose purpose was admitted by the
group itself: to vote as a block to preclude the SPG tender offer. The Schedule
13D not only "insinuates" but proclaims that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and the family have
formed a blocking position against the tender offer. Various other public
statements and SEC filings evidence the formation of this
33
group. (SEE, E.G., R. 35 (Schedule 14D-9/A, A120), ▇.▇. 408) ("holders of more
than a third of the voting power HAVE ALREADY EXPRESSED THEIR AGREEMENT with the
board's position that Taubman Centers is not for sale, AND WILL VOTE AGAINST the
▇▇▇▇▇ proposal if the meeting is held.") (emphasis added); (R. 57, Ex. 46
(Schedule 14D-9/A) at 15, ▇.▇. 1213) ("the Taubman family and other
shareholders, with combined voting power of over a third of the total voting
power of the Company's capital stock, have indicated that they do not intend to
tender their Common Shares and have taken the firm position that they are not
interested in pursuing a sale transaction.").
▇▇▇▇▇▇▇'▇ attempts to deny the formation of this group are unavailing.
First, ▇▇▇▇▇▇▇ points to the Schedule 13D "disclaimer" by the family of
beneficial ownership with respect to shares owned by other members of the
family. Given the other evidence in the record, the district court correctly
rejected this "disclaimer" as meaningless boilerplate. (R. 89 (Opinion) at 40,
▇.▇. 200); SEE ALSO SEILON INC. ▇. ▇▇▇▇, No. C 83-314, 1983 WL 1354, at *14
(N.D. Ohio July 27, 1983) (members of group had duty to file 13(d) "despite
their disclaimers that no group had been formed"); ▇▇▇▇▇▇▇ V. AMERICAN HOLDINGS,
INC., 902 F. Supp. 475, 479 n.2 (S.D.N.Y. 1995) (sustaining allegation of group
formation despite fact that Schedule 13D "disclaimed any intention of acting in
a group").
34
▇▇▇▇▇▇▇ also argues that no "group" was formed among the Taubman
family in 2002 because the family "as a group" acquired its Series B Preferred
Stock in 1998 in a transaction exempt from the Control Share Act. (Taubman Br.
at 48-49.) This argument misses the point. Whether the Taubman family, or any of
its members, formed a group in connection with the 1998 transaction, or at some
other point, with some other persons, for some other purpose or purposes, prior
to November 2002, is not at issue here. A "group" comes into being as a result
of, and is defined by, the specific common objective for which it was formed,
such as achieving or preventing a particular corporate action. The only group
the district court found to have triggered the Control Share Act -- the one
formed to vote against the SPG offer -- could not have existed prior to November
2002. In short, the 1998 stock issuance did not, and could not have, permanently
insulated the Taubman family or any of its members from the statutory
consequences of forming new groups, for new purposes, at later dates.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ own testimony confirms that in November 2002 he was
acting pursuant to an agreement not only with the parties to the Voting
Agreements, but in concert with the family itself. He testified that he spoke to
his father and brother before entering into the Voting Agreements and they all
agreed that "WE were going to ask for them." (R. 35 (R.
35
Taubman Dep., A1124, 1161-62), ▇.▇. 494, 500-01); (SEE ALSO ID. at A1128-30,
▇.▇. 495-97) ("WE had conferred with our family. I had spoken to my father,
spoken to my brother, spoken to my sister, and WE HAD COME TO THAT CONCLUSION
[to vote against the transaction]") (emphasis added).
The assertion that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ was acting "alone" in connection
with the Voting Agreements (Taubman Br. at 21) is further belied by the
following testimony he gave concerning contacting another person about entering
into a voting agreement:
Q: And did ▇▇. ▇▇▇▇ agree to enter into a voting agreement with you?
A: If, if WE decided that WE wanted to, he was prepared to do so.
Q: But you didn't.
A: WE decided not to.
Q: WHEN YOU SAY "WE" YOU'RE REFERRING TO YOUR FAMILY?
A: YES.
(R. 35 (Taubman Dep., A1160), ▇.▇. 499) (emphasis added).
Further corroborative evidence that the family itself formed a new
group in November 2002 is that this was the FIRST TIME the family's 30% holdings
were ever included in a Schedule 13D filing. Indeed, when ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ filed a
Schedule 13D in January 2000 (solely as a result of the vesting of certain
options), the family's 30% block of Series B Preferred
36
Stock was NOT included in the filing. (R. 16, Ex. L (TCI Schedule 13D) at 3,
▇.▇. 314.) Yet the family's entire voting block WAS included in the November
2002 Schedule 13D, because something had changed: the family had formed a group
with its friends and allies to block any vote in favor of the SPG offer.7
"Undoubtedly regretful," as the district court put it, of the "candor"
of the 13D filing, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ tried to un-do the group by terminating the
Voting Agreements right after the district court's January 22 Order. (R. 89
(Opinion) at 43, ▇.▇. 203.) But this move was too little, too late. Far from
disproving the existence of a group, the parties' "termination agreement," a
tactical litigation maneuver, confirmed that the family friends continued to act
at the instruction of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and his family. No one can seriously
believe that their agreement to vote against the SPG offer has changed in the
slightest. "It would require a degree of naivete" to believe that the admitted
group activities "were not the product of an
----------
(7) ▇▇▇▇▇▇▇ argued below that the Series B Preferred Stock was not included in
any prior Schedule 13D because the Series B shares are not "registered
securities" and the rules only require filing with respect to registered
securities. But that remained true in November 2002 as well -- yet the
Series B shares were included in the new 13D filing.
37
agreement" that exists to this day. SEE CITIZENS FIRST BANCORP, INC. ▇. ▇▇▇▇▇▇▇,
559 ▇. ▇▇▇▇. 867, 872 (W.D. Ky. 1982).(8)
In sum, the district court correctly found that "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
Schedule 13D/A filing with the SEC." (R. 89 (Opinion) at 42, ▇.▇. 202.) This
factual finding, based on the totality of the direct and circumstantial evidence
and the reasonable inferences to be drawn therefrom, was not clearly erroneous.
C. THE DISTRICT COURT CORRECTLY HELD THAT FORMATION OF THE TAUBMAN GROUP
CONSTITUTED A CONTROL SHARE ACQUISITION OF 33.6% OF THE VOTING POWER
OF TCI.
1. NO ADDITIONAL PURCHASE OF SHARES WAS NECESSARY.
The district court's conclusion that the formation of the group
evidenced in the Schedule 13D was a control share acquisition was correct. The
district court properly held that "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" within one of the statutory ranges. (R. 89
(Opinion) at 42, ▇.▇. 202.) While Taubman attacks
----------
(8) Even less credible is ▇▇▇▇▇▇▇'▇ suggestion that Mr. ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ father, "could change his mind at any time and vote in
favor of the SPG offer." (Taubman Br. at 34.)
38
this conclusion as "unfounded" and "unprecedented," it is neither. The
conclusion follows from the language, purpose and operation of the Michigan Act
and is entirely consistent with the Indiana Comments and settled principles
under section 13(d) and interpretative case law.
Turning first to the statutory language, Taubman is wrong in
contending that only a purchase of "new shares" can constitute a control share
acquisition. (Taubman Br. at 28.) The acquisition of voting power, or the power
to direct the exercise of voting power, is an "acquisition" under the Act just
as much as an acquisition of shares. MCL Section 450.1791(1). As the district
court stated:
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 outright purchase (or possession) of stock, but also the control of
stock voting power.
(R. 89 (Opinion) at 39-40, ▇.▇. 199-200.) Furthermore, as the Indiana Comments
make clear, an "acquisition" of control shares "MAY BE . . . AS PART OF A
GROUP," I.E., by "two or more persons acting cooperatively or in concert." Ind.
Code Section 23-1-42-1, Official Comments (emphasis added). For the statute to
afford any meaningful protection, it is necessarily the case that
39
"group" acquisition of voting power arises upon the formation of the group. Any
other construction would render the statute ineffective, since it would allow
individuals, acting in concert with one another, to accomplish indirectly and
collectively what none of them could accomplish individually.
For example, under the Taubman interpretation, three shareholders each
owning 17% of a company's outstanding voting shares, or five shareholders each
owning 11%, could form a "group" and pool their voting power so as to control
more than 50% of the voting stock without triggering the statute. The same would
be true at the lower statutory thresholds -- I.E., three shareholders each
owning 7% could cross the 20% line, or each owning 12% could control more than
33 1/3% of the voting power, by entering into an agreement without acquiring a
single additional share. The permutations are endless; the point remains the
same: persons (including existing shareholders) cannot be allowed to evade the
statute by entering into group agreements. And under an evenhanded application
of the statute, which is constitutionally required, this "no evasion" principle
must apply to groups of incumbent insiders as well as outside bidders.
In fact, the very purpose of the group concept under section 13(d) is
"to prevent evasion" of the statute and to cover "not only the isolated
shareholder who accumulates shares of a corporation's common
40
stock, but also a group of shareholders who undertake the same activity as part
of a collective effort." ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ENTM'T, INC., 249 F.3d 115, 123 (2d
Cir. 2001). SEE ALSO ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, 682 F.2d at 366 ("This [group]
provision would prevent a group of persons who seek to pool their voting or
other interests . . . from evading the provisions of the statute because no one
individual owns more than . . . [5] percent of a class of securities at the time
they agreed to act in concert . . .") (quoting ▇▇▇▇▇▇▇▇ Act legislative
history).
For this reason, section 13(d) and the rules thereunder provide that
the pooling of voting power by a group above the statutory threshold triggers
the statute:
When two or more persons agree to act together for the
purpose of acquiring, holding, voting or disposing of equity
securities of an issuer, the group formed thereby shall be
deemed to have acquired beneficial ownership . . . as of the
date of such agreement, of all equity securities of that
issuer beneficially owned by any such persons.
17 C.F.R. Section 240.13d-5(b)(1). In other words, each member of a group is
deemed to have acquired the voting power held by the other members upon the
formation of the group "even without additional purchases of stock by any of its
members." TEXASGULF, INC. V. CANADA DEV. CORP., 366 F. Supp. 374, 403 (S.D. Tex.
1973); SEE GAF CORP. ▇. ▇▇▇▇▇▇▇▇, 453 F.2d 709, 718
41
(2d Cir. 1971) ("It hardly can be questioned that a group holding sufficient
shares can effect a takeover without purchasing a single additional share of
stock."). And because the group "must be treated as an entity separate and
distinct from its members," it acquires its shares, for the first time, "only
after its formation." ▇▇▇▇▇▇▇▇, 453 F.2d at 715-16.
▇▇▇▇▇▇▇ attempts to denigrate this "deemed acquisition" concept as
some sort of peculiarity of section 13(d), but it is absolutely essential if the
Act is to have any teeth. 9 If formation of a group were not treated as an
acquisition by each group member, then the statute could be completely evaded by
persons acting in concert. Thus, the district court correctly held that "the
group formed by the Taubman family is an entity separate and distinct from its
individual members," and that upon its formation it acquired a 33.6% voting
block. (R. 89 (Opinion) at 42-43, ▇.▇. 202-03.)
It is simply irrelevant that, as ▇▇▇▇▇▇▇ claims, no member of the
Taubman family ever acquired "actual power" to direct the vote of any
----------
(9) The section 13(d) definition of deemed beneficial ownership is not limited
to that statute, but also applies in other contexts such as the "short
swing profits" rule of section 16(b) of the 1934 Act, which includes among
its remedies disgorgement of trading profits. SEE ▇▇▇▇▇▇▇▇ V. CC INV., LDC,
No. 99 Civ. 2821 (VM), 2002 WL 31869391, at *3 (S.D.N.Y. Dec. 20, 2002)
(Addendum at A-23, A-25).
42
other member. The essence of a "group" is not the actual power to vote the
shares of one another, but the pooling of voting power to achieve a common
objective. As explained in the Indiana Comments:
[T]he 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 voting power within the ranges specified in 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 (emphasis added).
▇▇▇▇▇▇▇ further argues that the Michigan Act does not explicitly
incorporate the so-called "▇▇▇▇▇▇" provision of Rule 13d-5 or the section 13(d)
definition of a "group" as a "person." (Taubman Br. at 39-40 & n.10.) Of course,
▇▇▇▇▇▇▇ does not hesitate to cite other rules promulgated under section 13(d),
such as Rules 13d-3 and 13d-4, when they allegedly provide analogous support for
▇▇▇▇▇▇▇'▇ position. (SEE Taubman Br. at 32 nn. 7-8.) ▇▇▇▇▇▇▇ also disregards the
Indiana Comments, which EXPLICITLY cite Rule 13d-5. SEE Ind. Code Section
23-1-42-1, Official Comments. And ▇▇▇▇▇▇▇ ignores the well-settled principle
that a statute "should
43
receive such construction as will effectuate rather than defeat [its] purpose."
▇▇▇▇▇▇ MOTOR CAR CO. ▇. ▇▇▇▇▇, 121 F.2d 326, 330 (6th Cir. 1941); SEE NIECE ▇.
▇▇▇▇▇▇▇, 941 ▇. ▇▇▇▇. 1497, 1505 (E.D. Mich. 1996) ("In determining the meaning
of [a] statute, we look not only to the particular statutory language, but to
the design of the statute as a whole and to its object and policy.").
Far from rendering any part of the Control Share Act "nugatory," as
Taubman claims (Taubman Br. at 40), the district court's determination that a
group is a distinct "person" under the Michigan Act, and acquires the voting
power of its members upon its formation, is necessary to prevent wholesale
evisceration of the statute through concerted action.(10) That is why section
13(d) deems a group to be a separate person, and it only makes sense to
interpret the Act in the same manner.(11)
----------
(10) ▇▇▇▇▇▇▇ further overlooks Section 450.1792 of the Michigan Act, which
defines the "persons" who may exercise or direct voting power of a
corporation as "[a]n acquiring person OR MEMBER OF A GROUP WITH RESPECT TO
A CONTROL SHARE ACQUISITION." MCL Section 450.1792(a) (emphasis added).
This definition plainly reflects a statutory intention to include "groups"
among the "persons" who can engage in control share acquisitions.
(11) In any event, there WAS a control share acquisition of 33.6% of the voting
power by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, unquestionably a "person" within the meaning of
the Act. When the Taubman family pooled its voting power to oppose the SPG
offer, a "group" was formed covering 30%
44
2. A GROUP ACQUISITION MAY APPLY TO PREVIOUSLY-OWNED SHARES.
None of ▇▇▇▇▇▇▇'▇ arguments as to why "previously-owned" shares cannot
be "control shares" under the Michigan Act has any merit.
Taubman purports to find support for its argument based on the
Michigan Act's definition of control shares as those which "when added to all
other shares . . . 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 as part of a group," to
exercise voting power within one of the statutory ranges. MCL Section 450.1790
(2) (emphasis added). Thus, ▇▇▇▇▇▇▇ contends, "the shares previously-owned by
the members of the group are counted as base level shares," and only
newly-acquired shares that bring the group within one of the statutory ranges
can be "control shares." (Taubman Br. at 27-28.)
----------
of the voting shares, by which ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (who previously owned only
about 1% of the voting power) acquired indirectly the right to vote those
shares. The family then deputized ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ to assemble another 3% of
the voting power via the Voting Agreements, which he did "within a 90-day
period . . . or pursuant to a plan to make a control share acquisition,"
such that he acquired "in the same transaction" 33.6% of the voting power
of the Company. SEE MCL Section 450.1791(2). This acquisition was a
"control share acquisition" and all of the shares so acquired -- 33.6% --
are "control shares."
45
But this argument ignores the group concept. Shares previously owned
by members of a newly-formed "group" cannot fix the "base level" for calculating
the number of shares acquired by the group in the control share acquisition,
because, by definition, the group did not exist, as a "person" or otherwise,
until the group was formed. Thus, the shares acquired by the group cannot have
been pre-existing shares owned by "THAT PERSON."(12)
Tellingly, in asserting that the "base level" of shares owned by a
"person" includes shares previously held "by a group" (Taubman Br. at 26),
▇▇▇▇▇▇▇ has tacitly conceded the very point -- which it strenuously disputes
elsewhere -- that a "person" under the Act includes a "group." That concession
is correct. But in making that concession, ▇▇▇▇▇▇▇ overlooks the critical
distinction between the acquisition of new shares by a pre-existing group, and
the formation of a new group with a specific common objective, as happened here.
----------
(12) SEE ALSO ▇▇▇▇▇▇▇▇, 453 F.2d at 718 ("But, the ▇▇▇▇▇▇▇▇ group is not a
`person' who held its stock before the effective date of the ▇▇▇▇▇▇▇▇ Act
. . . the crucial event under section 13(d) was the formation of the group,
which allegedly occurred after the effective date and the purpose of which
was to seize control of GAF.").
46
When a pre-existing group (or other person), acquires additional
shares within one of the statutory ranges, only the new shares may constitute
"control shares" (unless the shares were all acquired within a 90-day period, or
pursuant to a plan to make a control share acquisition, in which case the entire
acquisition is treated as one. SEE MCL Section 450.1791(2)). This makes sense,
since the acquisition of new shares by a person or pre-existing group generally
changes voting power in the corporation only incrementally. But by its nature,
when an entirely new group is formed with a common objective, it is accretive in
terms of voting power. Thus, when a new group is formed, ALL of the shares
thereby acquired are "control shares."(13)
▇▇▇▇▇▇▇'▇ "base level" argument is inconsistent with Rule 13d-5, which
was specifically endorsed by the Indiana Comments, and with ▇▇▇▇▇▇▇▇, the
forerunner of Rule 13d-5, which held that section 13(d) "was
----------
(13) Contrary to what ▇▇▇▇▇▇▇ claims, this conclusion does not make redundant
the Act's definition of "interested shares," I.E., those which are not
permitted to vote on the resolution to approve the control share
acquisition. SEE MCL Section 450.1792. As stated in the Indiana Comments,
an acquiring person's "interested shares" include "both any control shares
acquired in the `control share acquisition' and any shares it owned prior
to the acquisition." (Taubman Br. at 41.) But a new group owns no
pre-existing shares; its only "interested shares" are those it acquires in
the control share acquisition upon the group's formation.
47
not intended to be restricted to only individual stockholders who made future
purchases." 453 F.2d at 718. The district court expressly, and correctly, cited
▇▇▇▇▇▇▇▇ as a basis for its holding on this point. (R. 89 (Opinion) at 40, ▇.▇.
200.)
▇▇▇▇▇▇▇'▇ reliance on ATLANTIS GROUP, INC. ▇. ▇▇▇▇▇▇ PARTNERS, No.
1:90-CV-937, slip op. (W.D. Mich. Dec. 5, 1991) (Taubman Addendum at A-35) for
the proposition that previously-owned shares are always excluded from a "group"
control share acquisition (Taubman Br. at 28) is also misplaced. The holdings by
the district court in that case are entirely consistent with the decisions of
Judge ▇▇▇▇▇▇▇ below. As did Judge ▇▇▇▇▇▇▇, the district court in ALIZAC first
held, on a motion to dismiss, that the complaint sufficiently alleged the
existence of a group, and that formation of the group could constitute a control
share acquisition under the Michigan Act based on the "group" approach under
section 13(d) and the Indiana Act. ATLANTIS GROUP, INC. ▇. ▇▇▇▇▇▇ PARTNERS, 1991
U.S. Dist. LEXIS 12106, at *18-21 (W. D. Mich. Aug. 27, 1991) (Addendum at A-5
to A-6); (SEE R. 33 (Jan. 22 Order) at 16, ▇.▇. 334.) After further factual
development, the district court in ALIZAC then found, on a motion for
preliminary injunction, that the plaintiff failed to "identify any direct
evidence of an agreement among these shareholders to act in concert," and that
the circumstantial
48
evidence "does not rise to the level needed to show formation of a group under
Section 13(d)." ▇▇▇▇▇▇, slip op. at 8 (Taubman Addendum at A-42). It therefore
followed that "[w]ithout a finding of group control, the defendants do not fall
under the terms of the [Michigan Control Share] Act." ID. at 10 (A-44).
Examining different facts, Judge ▇▇▇▇▇▇▇ below concluded that the Taubman family
and its allies did form a group and that their actions in doing so constituted a
control share acquisition under the Michigan Act, an issue the court in ALIZAC
did not need to address.(14)
3. THE INFORMAL NATURE OF A GROUP AGREEMENT DOES NOT PRECLUDE A
FINDING OF A CONTROL SHARE ACQUISITION.
▇▇▇▇▇▇▇'▇ argument that "non-binding" or "informal" agreements or
understandings cannot constitute a control share acquisition (Taubman Br. at 35)
is likewise incorrect. Under section 13(d), an agreement to form a group may be
informal and need not be in writing. ▇▇▇▇▇▇▇, 249 F.3d at 124; SEE ▇▇▇▇▇▇, 657
So. 2d at 1343 (interpreting Louisiana Control Share Act). The Indiana Comments
further make clear that a control share acquisition may be found when a group
acquires, directly
----------
(14) Given the ALIZAC court's finding that no group existed, its subsequent
statement that because the shareholders' "alignment, if one exists, was not
based on an acquisition of control shares, the statute PROBABLY does not
apply to them," was plainly DICTA. (Taubman Addendum at A-44) (emphasis
added).
49
or indirectly, "sufficient practical ability in fact" to vote or direct the
exercise of voting power within the ranges specified. Ind. Code Section
23-1-42-1, Official Comments. No formal written agreement is required.
▇▇▇▇▇▇▇ claims that the agreement must nonetheless be an "enforceable
obligation" by virtue of "consideration," citing the exception in the Michigan
Act for acquisitions "by gift, testamentary disposition, marital settlement,
descent and distribution, or otherwise without consideration." SEE MCL Section
450.1791(4)(c). This exception is plainly directed at transactions accomplished
without any intention to achieve increased voting power within the ranges
covered by the statute. The exception cannot be read to apply to deliberate
agreements among shareholders -- whether formal or informal -- to pool their
voting power in order to defeat a specific corporate transaction. The "otherwise
without consideration" language is a catch-all meant to cover transactions of a
similar nature not specifically enumerated in what precedes the phrase.(15)
----------
(15) "According to the rule of EJUSDEM GENERIS, when general words follow the
enumeration of specific words in a statute, courts are to construe the
general words in a manner that limits them to the same class of things
enumerated by the preceding specific words." ▇▇▇▇▇▇▇▇ V. INTER-CITY
PRODUCTS CORP. (USA), 152 F.3d 544, 549 (6th Cir. 1998).
50
If "informal, non-binding" agreements were exempted from the statute
on the grounds that they are "without consideration," then the group concept
would be read out of the Act entirely. ▇▇▇▇▇▇▇'▇ effort to eviscerate the Act in
this manner should be rejected.(16)
4. THE DISTRICT COURT'S DECISION DOES NOT "UNDERMINE CORPORATE
DEMOCRACY" BUT INSTEAD PROMOTES IT.
Much of ▇▇▇▇▇▇▇'▇ brief is devoted to parading a list of alleged
"severe consequences for corporate democracy" that it claims will result if the
district court's decision is not reversed. According to ▇▇▇▇▇▇▇, shareholders
will be rendered "powerless to collectively defend themselves" against hostile
takeovers, and board members will be "precluded from responding to any proposed
takeover" if they own collectively more than 20% of the company's voting shares.
(Taubman Br. at 41-43.)
None of this is true. Nothing in the decision below, nor anything in
section 13(d), prevents shareholders from meeting and discussing any matter;
announcing their positions for or against any matter, including a proposed
takeover; voting their shares for or against any matter;
----------
(16) Contrary to what ▇▇▇▇▇▇▇ claims, YOUNG V. GENERAL ACCEPTANCE CORP., 770
N.E.2d 298 (Ind. 2002) did not hold that formation of a group can never be
a control share acquisition. The court stated that a "revocable proxy of
the kind typically solicited for shareholder meetings of public companies"
is not a control share acquisition, ID. at 302, a proposition with which
▇▇▇ agrees.
51
or soliciting revocable proxies from other shareholders in connection with
shareholder meetings. Furthermore, nothing in the district court's decision or
analogous precedent prevents directors, acting in their capacity as fiduciaries
for all of a company's shareholders, from taking a position for or against a
proposed takeover and communicating that position to the shareholders and the
world at large, regardless of the number of shares the directors collectively
own.
Under section 13(d), meetings and discussions among shareholders,
without more, will not lead to a conclusion that a group has been formed. SEE
TEXASGULF, INC. V. CANADA DEV. CORP., 366 F. Supp. 374 (S.D. Tex. 1973).
Similarly, as the ALIZAC case relied on by ▇▇▇▇▇▇▇ demonstrates, actions taken
by directors in managing and operating a corporation -- including responding to
takeover attempts -- will not lead to the conclusion that they have formed a
group under the Michigan Act. ALIZAC PARTNERS, slip op. at 8 (Taubman Addendum
at A-42). It is only when, as here, management personnel go beyond management
activities and either acquire shares or pool their collective shares for a
specific purpose that the issue of a group formation arises. SEE WARNER
COMMUNICATIONS, INC.
52
▇. ▇▇▇▇▇▇▇, 581 ▇. ▇▇▇▇. 1482, 1499-1500 (D. Del. 1984); JEWELCOR, INC. ▇.
▇▇▇▇▇▇▇▇, 397 ▇. ▇▇▇▇. 221, 243-44 (S.D.N.Y. 1975).(17)
Understandably, ▇▇▇▇▇▇▇ prefers to divert this Court's attention from
the facts of THIS case, where the evidence of a group is virtually indisputable,
to other situations where the proof of concerted action is less clear and often
falls short. But such cases can, and should, be determined on their facts as
they arise. That is what the district court did here.
▇▇▇▇▇▇▇'▇ further argument that the district court's decision
"disenfranchises" the Taubman family and unfairly "strips" them of their voting
rights is easily refuted. The control shares they hold are not irrevocably
divested of voting rights; the "practical effect" of the statute, as
----------
(17) In fact, federal law concerning "groups" specifically permits the kinds of
normal shareholder activities that ▇▇▇▇▇▇▇ claims would be at risk under
the district court's ruling. The SEC has specifically stated that
shareholders who receive solicitations, or who grant revocable proxies, do
not, without more, form a "group" under Section 13(d). AMENDMENTS TO
BENEFICIAL OWNERSHIP REQUIREMENTS, Exchange Act Release No. 39,538 [1998
Transfer Binder], Fed. Sec. L. Rep. (CCH) PARA 86,002, at 80,113 (Jan. 12,
1998). Especially in light of proxy rule exemptions that were adopted in
1992 to "facilitate communications among shareholders," the SEC has stated
that it "does not believe that the current beneficial ownership and group
concepts unduly interfere with the type of shareholder communications
contemplated by the proxy rule exemptions." ID.
53
described by the Supreme Court, is simply to condition their voting rights "on
approval of a majority of the pre-existing DISINTERESTED shareholders." CTS, 481
U.S. at 74 (emphasis added). Far from "undermining" corporate democracy, the
district court's decision, consistent with section 13(d) and the ▇▇▇▇▇▇▇▇ Act,
"protects the independent shareholder AGAINST THE CONTENDING PARTIES." ID. at 82
(emphasis added). ▇▇▇▇▇▇▇'▇ steadfast refusal to heed the wishes of the public
shareholders of TCI validates the wisdom of that approach.
D. SPG HAS STANDING TO ASSERT ITS CONTROL SHARE ACT CLAIM.
▇▇▇▇▇▇▇'▇ argument that SPG lacks "standing" to assert a claim under
the Control Share Act is without merit. As a CURRENT shareholder of the Company,
SPG has standing under the Act to challenge the FUTURE voting of control shares
by the Taubmans.
In cases involving claims by shareholders for violations of state
control share acquisition statutes, courts routinely entertain those claims on
the merits without questioning the shareholder-plaintiffs' "standing." Thus, in
▇▇▇▇▇▇ V. PAGE, No. 90-020150-CZ, slip op. (Mich. Cir. Ct. ▇▇▇▇▇ County Sept. 6,
1991) (Addendum at A-7), involving an early construction of the Michigan Act,
the court denied a motion to dismiss a claim brought by one shareholder faction
against a competing family faction. The court's
54
assumption that the shareholder-plaintiffs had standing to bring the claim is
supported by its conclusion that "the purpose of the Michigan Act is to allow
SHAREHOLDERS of an issuing public corporation to vote on the extent of voting
rights to be accorded to control shares acquired in a control share
acquisition." Slip op. at 12 (Addendum at A-20) (emphasis added); SEE ALSO
ATLANTIS GROUP, INC. ▇. ▇▇▇▇▇▇ PARTNERS, 1991 U.S. Dist. LEXIS 12106, at *19
(Addendum at A-5) (plaintiffs' standing for Control Share Act claim assumed
without discussion); ▇▇▇▇▇▇, 657 So. 2d at 1339 (affirming preliminary
injunction granted to shareholders of corporation alleging violation of
Louisiana control share statute); YOUNG V. GENERAL ACCEPTANCE CORP., 770 N.E.2d
298 (Ind. 2002) (implicitly recognizing standing of minority shareholders to
allege violation of Indiana Act based on a voting agreement among controlling
shareholders).
▇▇▇▇▇▇▇'▇ argument that SPG lacks standing is also premised on the
flawed notion that the Act applies only to "hostile bidders," rather than
evenhandedly. And if a corporation's shareholders are not permitted to bring
claims under the Act, then there will be no means of enforcing it, particularly
where, as here, the corporation is controlled by the defendants on the claim. In
sum, there is no textual, policy, or constitutional basis for ▇▇▇▇▇▇▇'▇ "no
standing" argument.
55
E. THE DISTRICT COURT PROPERLY HELD THAT THE 2.9% SHARES CANNOT BE
VOTED.
▇▇▇▇▇▇▇ wrongly asserts that the district court "improperly enjoined"
the parties to the Voting Agreements holding approximately 3% of TCI's voting
power (the "2.9% Shares") because the court "had not gained personal
jurisdiction over them." (Taubman Br. at 50.) The district court found that the
family allies who entered the Voting Agreements were part of the group of
concerted actors, and that "termination" of the Voting Agreements did not affect
this conclusion. (R. 89 (Opinion) at 43, ▇.▇. 203.)
A preliminary injunction is binding not only upon the parties to the
action but their "officers, agents, servants, employees, and attorneys, AND UPON
THOSE PERSONS IN ACTIVE CONCERT WITH THEM who receive notice of the injunction
by service "or otherwise." Fed. R. Civ. P. 65(d) (emphasis added). The
application of the injunction to the family allies (who are not claimed to lack
notice of the injunction) is therefore perfectly proper. SEE ALSO ▇▇▇▇▇▇▇▇ V.
MEMPHIS AREA MED. CTR. FOR WOMEN, 262 F.3d 568, 574 (6th Cir. 2001) (an
"injunction not only binds the parties defendant but also those . . . in
`privity' with them . . . or subject to their control.") (quotation omitted);
▇▇▇▇▇▇-▇▇▇▇▇▇▇ ▇. ▇▇▇▇, 986 F.2d 1384 (11th Cir. 1993) (injunction against
family member extended to non-party acting in concert).
56
Furthermore, under the Michigan Act, the 2.9% Shares are "control
shares" which, by statute, have only such voting rights as may be conferred by a
vote of the disinterested shareholders. MCL Section 450.1794. To enforce this
statutory mandate, it is sufficient that the district court had before it the
parties with the authority and responsibility for conducting shareholder votes,
I.E., the Company and its directors. Those parties being subject to the court's
jurisdiction, there is no impediment to enjoining them from recognizing the
validity of any votes cast by the parties to the Voting Agreements.
III. THE DISTRICT COURT'S FINDING THAT THE SPECIAL MEETING AMENDMENT HAD NO
"COMPELLING JUSTIFICATION" AND WAS DESIGNED TO INTERFERE WITH SHAREHOLDER
VOTING RIGHTS WAS NOT CLEARLY ERRONEOUS.
The district court correctly enjoined the Special Meeting Amendment,
specifically finding that:
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.
(R. 89 (Opinion) at 35, ▇.▇. 195) (emphasis added). ▇▇▇▇▇▇▇ does not dispute
that conduct that interferes with shareholder voting rights is not protected by
the "business judgment" rule. Rather, such conduct can only be
57
upheld if it has a "compelling justification." ▇▇▇▇▇▇▇ INDUS. V. ATLAS CORP.,
564 A.2d 651, 660-661 (Del. Ch. 1988); MM COMPANIES V. LIQUID AUDIO, INC., 813
A.2d 1118 (Del. 2003); (R. 89 (Opinion) at 33, ▇.▇. 193).
▇▇▇▇▇▇▇ challenges the district court's findings as (a) procedurally
improper, assertedly because SPG's preliminary injunction motion did not
specifically mention the Special Meeting Amendment; and (b) because the district
court allegedly failed to "respect[] the business judgment of the Board."
(Taubman Br. at 54-57.)
Taubman's technical challenge, based upon Local District Court Rule
7.1(c)(2) and Fed. R. Civ. P. 7, is without merit. Such rules are designed to
ensure that the court and parties have notice of the grounds for relief.
CAMBRIDGE PLATING CO. V. NAPCO, INC., 85 F.3d 752, 760 (1st Cir. 1996). ▇▇▇▇▇▇▇
cannot seriously contend that it did not have "notice" that SPG sought to have
the Special Meeting Amendment enjoined, particularly because SPG AMENDED ITS
COMPLAINT specifically to add the Special Meeting Amendment claim and a request
for an injunction on that claim. (R. 19 (First Am. Cplt.) PARA PARA 55-56; 84,
86, 93, ▇.▇. 38, 44, 45.)(18)
----------
(18) SPG's January 31, 2003 motion for preliminary injunction sought all relief
"the Court deems fair and equitable." (R. 35 (Mem. of Law In Support) at
25, ▇.▇. 343.) Furthermore, the brief filed by SPG challenged the Special
Meeting Amendment as being part of
58
The district court's factual finding that the Special Meeting
Amendment was a defensive measure whose primary purpose was to make it "more
difficult for shareholders to exercise their voting rights" (R. 89 (Opinion) at
35, ▇.▇. 195) is not clearly erroneous. ▇▇▇▇▇▇▇ did not offer any justification,
much less a "compelling justification" for the Special Meeting Amendment.
▇▇▇▇▇▇▇, 564 A.2d at 661.
▇▇▇▇▇▇▇'▇ arguments in support of the Special Meeting Amendment are
baseless. There was no need for any "orderly process" to call and schedule
special meetings (Taubman Br. at 57) because the preexisting by-laws already
contained an orderly and workable process. (It is no coincidence that ▇▇▇▇▇▇▇'▇
need to have an "orderly process" for special meetings was never an issue until
SPG appeared on the scene.) And ▇▇▇▇▇▇▇'▇ suggestion that the Special Meeting
Amendment was required so that "the shareholder body will have adequate time to
disseminate and consider information and proxy material in advance of a special
meeting" (ID.) is purely an afterthought. Neither the self-serving "advice of
counsel" memorandum purporting to set forth the reasons for the amendment, nor
the minutes of the board meeting at which the amendment was adopted, even
----------
Taubman's scheme of continuous wrongs directed at SPG and TCI's
shareholders. (R. 70 (Reply Mem.) at 10, ▇.▇. 1231.)
59
mentions as a reason the need to give shareholders "adequate time" to consider
meeting proposals. (SEE R. 90 (Defs.' Motion to Suspend Inj. Pending Appeal, Ex.
A (counsel memorandum) and B (Board Minutes)), ▇.▇. 1258 and 1262.)
The only purpose of the Special Meeting Amendment was to arrogate to
the TCI board the power to select the meeting date, and delay a shareholder
meeting so that it could be held months in the future. (R. 114 (Restated By-Law
Section 1.03), ▇.▇. 1332.) The Supreme Court has held that delay is the "most
potent weapon" against a tender offer. ▇▇▇▇▇ ▇. ▇▇▇▇ CORP., 457 U.S. 624, 638
n.12 (1981). Thus, the district court had a sufficient basis for its finding.
SEE ALSO ▇▇▇▇▇▇ V. DIAGNOSTIC DATA, INC., 421 A.2d 906, 914 (Del. Ch. 1980)
(setting aside by-law amendment that was "both inequitable (in the sense of
being unnecessary under the circumstances) and had the accompanying dual effect
of thwarting shareholder opposition and perpetuating management in
office.").(19)
----------
(19) ▇▇▇▇▇▇▇'▇ heavy reliance on MENTOR GRAPHICS CORP. V. QUICKTURN DESIGN
SYSTEMS, INC., 728 A.2d 25 (Del. Ch. 1998) (Taubman Br. at 55) is
misplaced. The by-law amendment in that case was justified on the grounds
that it was necessary to allow the target board "sufficient time to
adequately inform itself about [the target company], its business, and its
true value," and "to allow stockholders sufficient time to consider
alternatives, BEFORE THE BOARD DECIDED TO SELL THE COMPANY to any
acquiror." 728 A.2d at 36 (emphasis added). No such
60
IV. THE BALANCE OF ▇▇▇▇▇ WEIGHS IN FAVOR OF SPG.
As the district court determined, SPG and the public stockholders will
suffer irreparable injury absent the preliminary injunction. (R. 89 (Opinion) at
44-45), ▇.▇. 204-05.) Loss of the opportunity to make a tender offer, and the
loss, on the part of the shareholders, to participate in that tender offer
constitute irreparable harm. SEE L.P. ACQUISITION CO. ▇. ▇▇▇▇▇, 772 F.2d 201,
209 (6th Cir. 1985) ("Appellants [tender offerors] may suffer irreparable harm
because they `are in danger of losing the opportunity, which the evenhanded
operation of the ▇▇▇▇▇▇▇▇ Act guarantees them, to attempt to acquire [the target
company's] stock. Such loss could not be compensated by money damages.'")
(quoting ▇▇▇▇▇▇-▇▇▇▇▇▇▇▇, 690 F.2d at 568); BUCKHORN, INC. V. ROPAK CORP., 656
F. Supp. 209, 236 (S.D. Ohio 1987) (irreparable harm to offeror and target's
shareholders where target's conduct "would effectively kill the tender offer").
Furthermore, shareholders suffer irreparable harm where their right to vote is
frustrated or denied. SEE AHI ▇▇▇▇▇▇▇, L.P. V. J.C. ▇▇▇▇▇▇▇ CO., 891 ▇. ▇▇▇▇.
1352, 1359 (W.D. Mo. 1995); ASARCO INC. V. COURT, 611 ▇. ▇▇▇▇. 468, 480 (D.N.J.
1985).
----------
justification has been offered by ▇▇▇▇▇▇▇, nor could it have been: the TCI
board had already decided, prior to adoption of the Special Meeting
Amendment, that the Company was not for sale.
61
The preliminary injunction will not cause substantial harm to the
Taubman family. The family will still have its Series B Preferred Stock and, if
it wishes, may retain its partnership units and economic and voting interests in
TRG. Furthermore, the Taubmans cannot claim harm if they are merely prevented
from voting shares they do not have the right to vote under the Control Share
Act. The group can still vote those shares if it obtains shareholder approval to
do so.
The public interest will also be served because thousands of
shareholders, including pension funds that hold shares in trust for thousands of
employees, will receive the right to tender their shares in return for cash at a
substantial premium. SEE ▇▇▇▇▇▇-▇▇▇▇▇▇▇▇, 690 F.2d at 568-69. Furthermore, the
injunction serves the public interest by preventing the Taubman family from
reaping the benefits of the violation of Michigan law.
62
CONCLUSION
The decision of the district court should be affirmed.
Respectfully submitted,
By: /s/ ▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇
------------------------------
▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇ (P21867)
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (P57699)
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
& STONE, P.L.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
COUNSEL FOR SPG APPELLEES
63
CERTIFICATE PURSUANT TO FEDERAL RULE
OF APPELLATE PROCEDURE 32(a)
On this 11th day of August, 2003, I, ▇▇▇▇▇ ▇▇▇▇▇▇▇, an attorney
admitted to this Court, hereby certify that this brief complies with the
type-volume limitations of Fed. R. App. P. 32(a)(7)(B) because the brief
contains 13,901 words, as counted by the word count feature of Microsoft Word
2000 used to prepare the brief, excluding the parts of the brief exempted by
Fed. R. App. P. 32(a)(7)(B)(iii). I further certify that this brief complies
with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style
requirements of Fed. R. App. P. 32(a)(6) because it has been prepared in a
proportionally spaced typeface in 14 point font size and Times New Roman type
style.
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇
(One of the Attorneys for
SPG Appellees)
