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June 7, 2005.

LILA T. GAVIN, Plaintiff,

The opinion of the court was delivered by: JOHN GRADY, Senior District Judge


Plaintiff Lila T. Gavin brings this putative class action against defendants AT&T Corp. ("AT&T") and Georgeson Shareholder Communications Inc. ("Georgeson") alleging fraud in violation of the federal securities laws and New York common law in connection with a post-merger stock exchange program. Before the court are defendants' separately-filed motions for summary judgment. For the reasons set forth below, AT&T's motion is granted, and Georgeson's motion is granted in part and denied in part.


  The following facts are undisputed unless otherwise noted.*fn1 The Mergers and the Stock Exchange Notices

  In 1998, Gavin was a holder of 235 shares of US West Media Group ("US West") common stock. That year, US West split off from US West, Inc. and merged with MediaOne Group, Inc. ("MediaOne"). Gavin's US West shares became exchangable for MediaOne shares on a one-for-one basis. In June 1998, MediaOne sent US West shareholders, including Gavin, a notice requesting that they exchange their US West shares for MediaOne shares. Gavin did not do so.

  Then, in June 2000, MediaOne merged with AT&T. The terms of the merger were set forth in an August 1999 MediaOne Proxy Statement that was mailed to all MediaOne stockholders and those, like Gavin, still holding unexchanged US West shares. (AT&T Ex. A ("Proxy").) The Proxy stated that MediaOne and US West shareholders had the option of exchanging their stock certificates for AT&T shares, cash, or a combination of the two. The Proxy indicated that instructions on how to exchange the shares would be mailed following the merger. There was no mention of a fee in connection with the share exchange.

  On June 15, 2000, the merger then complete, AT&T sent to US West and MediaOne shareholders a notice explaining the share exchange alternatives (stock, cash or both) and an election form. (AT&T Ex. B ("June 15 notice").) The notice requested that shareholders send their election form and stock certificates in an enclosed pre-addressed and insured envelope to AT&T's transfer agent, EquiServe Trust Company ("EquiServe"). The notice "strongly encourage[d shareholders] to return the necessary documents as soon as possible," and provided a toll-free telephone number if shareholders "[had] any additional questions that aren't answered here . . ." (Id.) Like the Proxy, the June 15 notice did not state that shareholders would be charged a fee for exchanging their shares.

  AT&T sent a second, similar notice on August 1, 2000 to shareholders who still held certificates of US West or MediaOne stock. (AT&T Ex. C ("August 1 notice").) The notice contained instructions on how to exchange shares through EquiServe, along with an insured, pre-addressed envelope. The notice stated that "[i]t is important that you return your certificates promptly," and included a toll-free telephone number for "questions about this procedure or anything related to this transaction." (Id.) Again, the notice did not indicate that any fee would be incurred for exchanging the shares. Shareholders who did exchange their shares through EquiServe in response to the June 15 or August 1 notices were in fact not charged any fees. Many MediaOne and US West shareholders, including Gavin, did not respond to either notice, and still held their unexchanged shares. AT&T therefore hired Georgeson to conduct a "post-merger cleanup" ("PMC") which, according to Georgeson's website, is a program intended "to reunite as many as 90% of unexchanged shareholders with their rightful assets, all at no cost to our clients." (Sec. Am. Compl., ¶ 25.) A "Postmerger Cleanup Agreement," entered into between AT&T and Georgeson on December 15, 2000, provided the details of the PMC:
AT&T Corp. ("T") has agreed to retain Georgeson Shareholder Communications Inc. ("GSC") to contact unexchanged shareholders . . . of MediaOne Group, Inc. and US West Media Group and assist them in surrendering their old stock certificates in exchange for the new certificates and any cash due them (the "Program"). It is understood that previous communications have been sent to the last known addresses of the unexchanged accounts but have been unsuccessful in effecting the surrendering of their old stock certificates. Unexchanged shareholders will finance the Program and T will incur no expenses in connection with this project. All costs, including exchange agent and transfer agent fees, will be borne by GSC. The exchanging shareholders will be charged a processing fee by GSC's broker-dealer subsidiary, Georgeson Shareholder Securities Corporation, as mutually agreed upon by T and GSC. No deduction from proceeds shall be made from any exchanging shareholder without an agreement signed by each authorizing said deduction.
* * *
GSC will prepare materials to be sent to the individual shareholders fully explaining the transaction and the amounts to be deducted. T will have final approvals on all industry standard materials to be sent out. Both T and GSC reserve the right to waive processing fees from any shareholder on a case by case basis. During the program, if any shareholder contacts GSC inquiring about how they can contact the transfer agent directly to facilitate their exchange, GSC will direct them to the transfer agent without charge. It is agreed that any shareholders who return their stock directly to T or its transfer agent, even after being contacted by GSC, will be entitled to full exchange value and that GSC will not be entitled to any fee or other costs in connection with that exchange.
* * *
The project will involve three participation periods, with the initial period having a 6-week deadline for acting and then two subsequent periods of similar duration. The initial period will begin on December 15, 2000 and end on January 23, 2001. It is understood that the timing of the subsequent periods will depend upon other T activities and will be scheduled at mutually agreeable dates after the end of the initial period. If mutually agreed, an additional period may be added to the project at the end of the 3rd period. GSC will provide T with [a] status report every week. . . .
(AT&T Ex. D ("the PMC Agreement").)
  On December 15, 2000, Georgeson sent a notice to all MediaOne and US West shareholders who had yet to exchange their shares. The notice sent to US West shareholders, including Gavin, stated as follows:
Dear Stockholder:
Our records show that you still hold shares of US WEST MEDIA GROUP. There is no longer a market for these shares as a result of the 1998 split off from US WEST and exchange into MediaOne Group, Inc. Each share of US WEST Media Group was exchangable into MediaOne on a one-for-one basis. Subsequently, in June 2000, MediaOne merged with AT&T Corp. Following the merger, you are now due 0.95 of a share of AT&T and a cash payment of $36.27 for every US WEST Media Group share you hold, plus all accrued dividends paid on these shares. Based on AT&T's $22 price per share on December 14, 2000, each share of US WEST Media Group would receive merger consideration of approximately $59. Both the number of US West Media Group shares you own and the AT&T shares and cash payment due you is indicated on the attached Claim Card.
We have retained Georgeson Shareholder Communications, Inc. to assist you in claiming your shares and cash. We urge you to claim these shares now. You may choose to have the AT&T shares due you sold on the open market or have them sent to you. To defray the cost of providing you with this service, a processing fee of $7 per AT&T share due you will be deducted from the additional cash payment of $36.27 per US WEST Media Group share you are due, and paid to Georgeson Shareholder Securities Corporation, member of NASD and SIPC. Even if you do not have your US West Media Group certificate(s), you may still participate in this voluntary program.
Please read the enclosed materials carefully. There is no benefit in continuing to hold your old shares. Eventually, if you continue to do nothing, your stock and underlying assets will be turned over to certain state authorities under the abandoned property laws. Georgeson Shareholder Communications Inc. is being permitted to administer this voluntary program through January 23, 2001. If you have questions after reading this material, please call GSC's toll-free number, at 1(888)352-4639 for assistance.
  AT&T Corp. (AT&T Ex. E ("December 15 notice").)*fn2 Gavin tendered her US West stock certificates to Georgeson in January 2001 in exchange for AT&T shares plus cash. In doing so, Gavin incurred a $7 "processing fee" for each AT&T share she received.*fn3

  Shareholder Complaints

  Gavin did not attempt to contact either Georgeson or AT&T to complain about the fee. Other US West shareholders did, however.*fn4 Shareholders who telephoned Georgeson to complain about the $7 fee were told by a Georgeson agent that they would receive a return call from a "qualified representative." The agent would write down the shareholder's contact information, the total "processing fee" the shareholder stood to incur, and a summary of the shareholder's complaint, all on a form titled "PMC Fee Reduction/Discussion Follow-Up." (Gavin Exs. 2,3,6 ("Follow-Up forms").) The complaint summaries, as recorded on the Follow-Up forms, are as follows: S/H would like a qualified rep. to discuss fees w/him.

  Would like to discuss fees.

Is not happy with Fee wants someone to call him considering fee.
S/H would like to discuss proc. fee.
S-H irate about service fee.
Requesting a fee reduction on her media group acct. Concerned about outrageous price. . . .
Shareowner feels that the fees are too high. . . . [W]ould like a call regarding this issue.
Would like to discuss the fee.
[N]ot happy with service fee, wants some[one] to discuss fee.
[C]alled and requested that someone please call her back regarding the fee reduction.
S/H asked what will be the effect on my shares? At this point I provided a breakdown including shares due, amount due (no calculations done) and fee. After mentioning fees, S/H asked if there was a way to avoid this. I told him it would be followed up on by a qualified rep. and in the meantime, the materials would be remailed. Also provided phone # for Media Group (in case no one called him back).
Wants call back to negotiate fee.
[C]alled to ask about service fee . . . he requested to have a cert. rep. call him back to discuss fees.
S/H feels that the fee is ridiculous and is not willing to pay. He would like to discuss fee with a qualified rep.
Wants to negotiate $7 fee. Shareholder wanted someone to call him back to discuss fees.
Wanted reduced fee.
Please have someone get back to her regarding paying the fee; she does want to cooperate but does not feel she should have to pay the fee.
Would like to negotiate the fee.
S/H spoke to broker and felt the fee was ridiculous.
Wants to discuss reducing fees.
Both parents deceased right around time of merger.
[W]as not too happy about the processing fee. She would like someone to call back.
Elderly S/H concerned by fee. Spk to S/H's friend but he said S/H should be able to understand what's going on.
Would like to discuss fees.
Requested conference on processing fees.
(Id.) Some shareholders telephoned Georgeson more than once:
She was supposed to be contacted by the fee reduction people and has not heard from anyone yet!! That was on the 4th!! Said to please leave message if you get recorder!! [Follow-Up form dated 1/10/01]
Called because no one contacted them about fee reductions.
Concerned she hasn't rec'd a call back from svc rep re fee reduction. She called 1/8/01. Said I would fill out a 2nd fee reduction form but to hold on, someone would get back to her. She's worried she'll miss the deadline (1/23/01). Please call. [Follow-Up form dated 1/9/01]
(Id., Exs. 2,3.) The "processing fees" noted on these Follow-Up forms ranged from $21 to $1,540. (Id., Exs. 2,3,6.)*fn5

  Ultimately, the shareholders who called Georgeson to complain obtained mixed results: some paid the entire fee; some paid a reduced fee; and some paid no fee because Georgeson waived it or made a referral to EquiServe.*fn6

  Other shareholders complained directly to AT&T. One sent an undated e-mail to David Dorman, then-president of AT&T, stating the following:
I am a long time holder of ATT&T [sic] stock and also a holder of 100 shares of Media One group. We received a notice from ATT&T about the acquisition of Media One. This in itself was O.K., but upon reading the details I want you to know I became quite upset. I can't believe a responsible person in the ATT&T organization would be willing to make the stock holders of Media [O]ne have to pay a commission of $7.00 per share for each share of ATT&T we are to receive for our Media One. Whoever made such a deal with the Georgeson Shareholder Securities Corp. should be immediately discharged. I have been involved in quite a few stock transaction[s] during the last fifty years and I can never recall a time when we had to pay such an enormous fee for handling a transaction such as this. I have always had respect and admiration for ATT&T but if they are going to continue to make deals like this ATT&T will certainly continue to deteriate [sic]. It is our intention to sell all of [our] ATT&T holdings as well [as] switch companies for our long distance provider.
(AT&T Ex. H.)*fn7 Patrick Anderson, Director of AT&T Shareowner Services, responded on January 12, 2001 with the following e-mail:
Thanks for the message. I'm sorry for the confusion over this voluntary program currently offered by Georgeson for Mediaone [sic] shareholders who have still not exchanged their shares for AT&T shares. In order to reach these people and encourage them to exchange, we allowed Georgeson to develop this voluntary program. So far, approximately 10% of the eligible accounts have elected to exchange their shares through this program. At the end of the program, we expect about 25% of the eligible accounts to participate. Others such as yourself were upset about the voluntary program. Those people have been encouraged to proceed with their exchange directly through the transfer agent at no cost to the shareowner. Please remember that all Mediaone shareowners have already been sent at least two requests asking them to exchange their shares for free through the transfer agent. We only use the voluntary programs because many of our shareowners enjoy paying for the convenience of this service which ends up costing the participants about 12% of their assets when you take into consideration the cash portion of the proceeds. If you wish to proceed with the free exchange of your Mediaone shares, please contact the transfer agent, EquiServe, at 800-348-8288. Thanks for your interest in AT&T.
  Another shareholder e-mailed the following to AT&T on January 14, 2001:
I received a letter in Dec. 2000 from Georgeson Shareholder Com. requesting that I send my 629 shares of US West & Media One . . . to convert them into cash and AT&T shares. I want to convert the shares into ATT stock, however, am incensed that I will be penalized $7.00 per share to make this conversion. I do not believe I should be assessed this fee, since this is the first notification I have received re: stock conversion. Since 1946, I have been an ATT shareholder and loyal through all the changes since de-regulation; however, this may be the last straw. . . .
(AT&T Ex. I.) The e-mail made its way to Mr. Anderson, who forwarded it to another AT&T employee, with the following message:
FYI — Please call . . . and explain the free option through EquiServe for exchanging her Mediaone [sic] shares. Also remind her she should have received two earlier notices about exchanging her shares. Perhaps we should verify her address too. Thanks.
  This next e-mail was sent to AT&T, and Georgeson, on February 23, 2001:
I read the following on Georgeson's web page: "In the ensuing six decades, Georgeson built a leadership position in the proxy solicitation industry by focusing on two core beliefs: 1) we will always be customer driven and our products and services must always add value to the client; and 2) we will always maintain our commitment to the highest ethical standards and the highest standards of business conduct." In my opinion your fees charged for exchanging shares of stock, for example $7 to exchange US West Media Group to ATT plus cash, does not fit the code of ethical standards you express. If a shareholder has 1 to 20 shares, it might be [a] reasonable fee. But for those people who use Georgeson to exchange 200, 300, 400 shares, or maybe many more, the fee is outrageous. The[re] is little more work in exchanging 400 shares than 1 share, but a fee of $2800 for the work done would be extreme. I would hope that you would recognize that and charge according to a sliding fee scale that would be more realistic. I can only hope that there are not too many people that have opted to use your service for larger amounts of shares, under the auspices of major corporations who have hired you.
(AT&T Ex. H.) Mr. Anderson sent the following response on February 26, 2001:
Thanks for your message below. The fee structure established for the unexchanged account program with Georgeson is designed to be simple and easy. Most of the unexchanged accounts have a small total value. Obviously, accounts with large numbers of shares would pay a much higher fee to use the services of Georgeson instead of handling the transaction on their own directly with the transfer agent. AT&T wants to make sure that former Mediaone [sic] and Media Group shareowners receive their entitlement as soon as possible. The Georgeson program material has been mailed to all of the shareowners (approximately 50,000) who for some reason have chosen not to respond to the earlier multiple mailings from our transfer agent, EquiServe, encouraging the exchange of their shares at no cost to the shareowner. Approximately 57% of the unexchanged Mediaone accounts and 39% of the unexchanged Media Group accounts have chosen to participate in the program offered by Georgeson. Georgeson has agreed to negotiate lower rates for shareowners who feel the $7 per share fee is too high but still want to take advantage of Georgeson's assistance in exchanging their shares. Of course, shareowners can always handle the exchange on their own at no cost by contacting the transfer agent, EquiServe, as listed on the original mailings to all Media Group and Mediaone shareowners. If you have already participated in the Georgeson program and would like us to consider lowering the fee, please feel free to contact me to review your situation. Thanks for your interest in AT&T.
(Id.) The evidence is that any shareholder who complained directly to AT&T about the $7 fee was referred to EquiServe.
  AT&T received regular status reports from Georgeson regarding the progress of the PMC, but there is no evidence that it was notified when Georgeson received a complaint about its processing fee. AT&T, on the other hand, appears to have kept Georgeson abreast of any complaints it received. Georgeson was copied on each of above e-mails sent to shareholders by Mr. Anderson. In response to a Georgeson status report (which is not part of the record), Mr. Anderson sent the following in a January 9, 2001 e-mail:
Thanks for the update. I'm glad the program is going well. We have received several (10 or so) complaint letters about the high fees. We are simply advising the complainers that they may still exchange for free through the transfer agent if they wish to do the work themselves. Please insure that if people call to complain to GSC that they are provided with the toll free number at EquiServe so they may handle the work on their own. We do not expect GSC to do the exchange for complainers and waive the fee but that is up to GSC. Many people are not taking into consideration the cash portion and thinking of the $7 fee as a high (35%) portion of the assets instead of the more reasonable 12% of the assets including the cash. . . . We want to make sure GSC makes a reasonable profit on the program while keeping the cost as low as possible. In my opinion, . . . the program could still be profitable to GSC for a smaller per share fee (say $5 instead of $7). At the end of the program, we want to discuss the financial results with you to make sure the program was profitable for GSC while still keeping the fee as low as possible for future programs. . . . [W]e appreciate GSC's willingness to discuss the detailed financial results of the programs so that future programs can be designed to be both profitable and shareowner friendly. This is what makes for a good ongoing relationship between GSC and AT&T. Thanks.
(Id., Ex. F.)

  In the end, of the 113,000 shareholders who received the December 15 notice, roughly 44,000 of them sent in their stock certificates pursuant to the Georgeson program, representing approximately 29% of US West ...

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