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Beck v. Dobrowski

November 14, 2007

PHILIP BECK, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED AND DERIVATIVELY ON BEHALF OF EQUITY OFFICE PROPERTIES TRUST, PLAINTIFF,
v.
THOMAS E. DOBROWSKI, SAMUEL ZELL, WILLIAM M. GOODYEAR, JAMES D. HARPER, JR., SHELI Z. ROZENBERG, JAN H.W.R. VAN DER HON. HARRY D. LEINENWEBER VLIST, RICHARD D. KINCAID, MARILYN A. ALEXANDER, STEPHEN I. SADOVE AND SALLY SUSMAN, DEFENDANTS, -AND- EQUITY OFFICE PROPERTIES TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST, NOMINAL DEFENDANT.



The opinion of the court was delivered by: Harry D. Leinenweber, Judge United States District Court

MEMORANDUM OPINION AND ORDER

Plaintiff Philip Beck (hereinafter, the "Plaintiff") brings this shareholder action against nominal defendant Equity Office Properties Trust ("EOPT") and its board of directors, Defendants Thomas Dobrowski, Samuel Zell, William M. Goodyear, James D. Harper, Jr., Sheli Z. Rozenberg, Jan H.W.R. Van Der Vlist, Richard D. Kincaid, Marilyn A. Alexander, Stephen I. Sadove, and Sally Susman (hereinafter, "the Board") under Sections 14(a) and 20(a) of the Securities Exchange Act, 15 U.S.C. §§ 78n(a) and 78t(a) (the "SEA"), and related common law causes of action. Defendants have moved to dismiss Plaintiff's Second Amended Complaint ("the Complaint") pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, Defendants' Motion is granted.

I. BACKGROUND

The Court derives the following factual and procedural summary from the pleadings, resolving all reasonable inferences and factual conflicts in Plaintiff's favor.

This case arises from the February 7, 2007, sale of EOPT, formerly the largest publicly held office building owner and manager in the United States. The Blackstone Group ("Blackstone") acquired EOPT for $39 billion cash, or $55.50 per share, following a vote of EOPT shareholders approving the transaction.

The sale marked Blackstone's victory in a bidding war for EOPT between Blackstone and Vornado Realty Trust ("Vornado"). Although at least two other companies had previously expressed interest in acquiring EOPT, EOPT only began meaningful consideration of a sale in July 2006 when Vornado approached EOPT, and the companies entered into a standstill agreement to engage in high-level discussions. Ultimately, on October 25, 2006, Vornado met with Defendant Zell regarding a deal, but discussions apparently broke down, and Vornado and EOPT had no further direct contact following this meeting.

Approximately one month after Vornado and EOPT began discussions, Blackstone approached EOPT regarding its own interest in purchasing EOPT for between $40 and $42 per share. Eventually, on November 2, 2006, Blackstone increased this figure to $47.50 per share. After another two weeks, on November 19, EOPT and Blackstone signed a merger agreement at $48.50 per share, for a total of $36 billion, in cash with an early February closing date.

The November 19 agreement did not, however, end the sale process. On January 17, 2007, Vornado made an unsolicited proposal to buy EOPT at $52 per share, payable 60% in cash and 40% in Vornado stock, subject to approval by Vornado shareholders. In response, on January 24, Blackstone proposed to increase the consideration for the November 19 agreement to $54 per share, contingent upon an increase in that agreement's termination fee from $200 million to $500 million. Then, on February 1, Vornado revised its proposal to $56 per share, payable $31 per share in cash and the rest in Vornado stock. On February 4, Vornado further modified its proposal to involve a tender offer for up to 55% of EOPT's shares at $56 with the rest to be acquired through a swap for Vornado shares. On February 5, EOPT sought and received from Blackstone two increases in the consideration for an all-cash Blackstone-EOPT agreement, first to $55.25 per share, then to $55.50 per share, contingent upon a further increase of the termination fee, this time to $720 million. On February 7, Vornado withdrew its proposal, and EOPT shareholders voted to approve the EOPT-Blackstone merger agreement at $55.50.

During the bidding war, the EOPT Board filed with the SEC and disseminated to shareholders four proxy solicitations. The first was on December 29, 2006 ("the Initial Proxy"), and related to the initial November 19, 2006, merger agreement with Blackstone. It described the history of other companies' interest in acquiring EOPT and the Board's and EOPT management's discussions with such companies. It stated the initial terms of the proposed Blackstone merger, as well as the Board's recommendation that the shareholders vote to approve the merger. Additionally, it disclosed the ownership by three of the ten EOPT Board members of certain classes of stock granting those members the option of converting their shares into an ownership interest in the surviving partnership. The Initial Proxy also disclosed the fact that eight shareholder suits (including this one) had been filed against the company and the Board, alleging breaches of fiduciary duties, failure to maximize shareholder value, and improper self-dealing by the Board. The Initial Proxy provided for a vote date of February 5, 2007.

Following the Initial Proxy, the Board filed and disseminated three supplemental proxies: the "First Supplemental Proxy" on January 29 in connection with Blackstone's January 24 increase in its offered consideration; the "Second Supplemental Proxy" on February 2 in connection with Vornado's February 1 revised offer; and the "Third Supplemental Proxy" on February 6 in connection with Blackstone's ultimate increase in its offered consideration to $55.50. Each supplemental proxy reported EOPT's most recent discussions with Vornado and Blackstone, described the proposed terms of Vornado's expressions of interest, stated the terms of the amendments to the Blackstone agreement, indicated the Board's and management's concerns about the structure of the proposed Vornado deal and the likelihood of it closing, and recommended that shareholders vote in favor of the amended Blackstone merger agreement. The Second Supplemental Proxy also informed the shareholders that the vote date would be delayed until February 7, 2007.

The instant suit is one of three currently pending shareholder actions arising from EOPT's sale. The other two suits are in the Maryland and Illinois state courts. The Maryland action names EOPT and the members of EOPT's Board as defendants and advances claims related to breach-of-fiduciary-duty, negligent misrepresentation, and fraud. That suit initially unsuccessfully sought to enjoin the Blackstone merger. Subsequently, the Maryland court dismissed most of that complaint's claims with leave to replead only certain allegations, which the Maryland plaintiffs did. The Maryland court eventually dismissed the amended complaint in its entirety, and the Maryland plaintiffs have appealed.

This case and the Illinois state case have lagged behind the Maryland action. Plaintiff here originally filed his complaint shortly after the November 19, 2006, merger agreement was announced but then filed the Second Amended Complaint (the subject of this motion) following the Maryland court's initial dismissal of the Maryland action with partial leave to replead. As for the Illinois action, the Illinois court has stayed that case pending the resolution of the Maryland case.

II. DISCUSSION

The Complaint comprises six counts. Counts I and II allege individual and derivative claims under Sections 14(a) and 20(a) of the Securities Exchange Act, respectively. Counts III through V allege various individual and derivative claims under Maryland state law. Count VI alleges a class claim of breach of fiduciary duty under Maryland state law. Plaintiff's claims attack the sufficiency and truthfulness of Defendants' proxy disclosures, the adequacy of the sale price, and the general process by which Defendants sold EOPT.

Defendants move to dismiss all counts in their entirety. Plaintiff does not oppose dismissal of all derivative claims and of Counts III through V in their entirety. Consequently, only ...


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